EXHIBIT 2.1
SHARE EXCHANGE AGREEMENT
SHARE EXCHANGE AGREEMENT (this "Agreement"), by and among HYDROGEL DESIGN
SYSTEMS, INC., a Delaware corporation ("HDS") having an address at ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, NESCO INDUSTRIES, INC., a Nevada
corporation ("Nesco") having an address at ▇▇-▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇, certain stockholders of HDS signatory hereto (the "HDS Signatory
Stockholders"), and certain stockholders of Nesco signatory hereto (the "Nesco
Signatory Stockholders"), effective as of the date on which HDS Signatory
Stockholders holding the minimum number of shares of HDS securities, as set
forth herein, and the other parties shall have executed and delivered this
Agreement.
WHEREAS, HDS, Nesco, the HDS Signatory Stockholders and the Nesco Signatory
Stockholders wish to enter into an agreement for, inter alia, the exchange of
outstanding securities of HDS for securities of Nesco in a transaction intended
to be a tax-free exchange pursuant to Sections 351 and 368 of the Internal
Revenue Code of 1986, subject to the terms and conditions set forth in this
Agreement (the "Exchange");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto, intending to be legally
bound, do hereby agree as follows:
1. INCORPORATION OF RECITALS; CERTAIN DEFINITIONS; CONSTRUCTION.
1.1 Recitals. The recitals set forth above are incorporated unto this
Agreement as if they were set forth in full in the body of this Agreement.
1.2 Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings::
"Accredited Investor" has the meaning given to such term in Rule 501
of Regulation D.
"Additional Capitalization Amendment" has the meaning set forth in
Section 4.1.
"Adviser"means Ariel Holdings, LLC, a limited liability company.
"Adviser Shares"has the meaning set forth in Section 6.3.
"Affiliate" means (i) a Person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under
common control with the Person specified; or (ii) any relative or spouse of
such Person, or any relation of such spouse, who has the same home as such
Person. As used in this definition, the term "control" (including the terms
"controlling," "controlled by" and "under common control") means the
possession, direct or indirect, of the power, whether exercised or not, to
direct or cause the acquisition and/or disposition by such Person of
securities of the other Person, whether through the ownership of voting
securities or otherwise.
"Applicable Trading Price" means the lesser of (i) the average closing
bid price per share of Nesco Common for the thirty (30) consecutive Trading
Days prior to the Closing Date, as adjusted to reflect the Reverse Split by
multiplying such price by the number of shares of Nesco Common that became
one share thereof in the Reverse Split, and (ii) the average closing bid
price per share of Nesco Common for the thirty (30) consecutive Trading
Days commencing on the 31st day following the effective date of the Reverse
Split (the "Post-Split Period"); provided, however, whenever this Agreement
provides for application of the Applicable Trading Price at any time prior
to commencement of the Post-Split Period, the Applicable Trading Price
shall be the price determined under clause (i) of this paragraph.
"Blue Sky Law" means the securities laws and regulations of the
various states of the United States, Puerto Rico and the District of
Columbia.
"Certificate of Designation" has the meaning set forth in Section 4.8
"Closing" means the closing of the Exchange.
"Closing Date" means the date of the Closing as set forth in Section
7.2.
"Closing Transactions" has the meaning set forth in Section 7.2.
"Code" means the United States Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder, and any
successor law, rules and regulations.
"DGCL" means the Delaware General Corporation Law.
"Employment Agreement" means the employment agreement to be entered
into by Nesco and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ pursuant to Section 8.1.
"Encumbrance" means any mortgage, charge, claim, community property
interest, lien, option, pledge, security interest, pre-emptive right, right
of first refusal or restriction, including restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of
ownership, or any other adverse claim of any kind.
"Environmental Laws" means any federal, state, local or foreign law
(including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit or
governmental restriction or requirement or any agreement with any
governmental authority or other third party, relating to human health and
safety or the environment and arising from the use, presence, disposal,
discharge or release of pollutants, contaminants, wastes or chemicals or
any toxic, radioactive, ignitable, corrosive, reactive or otherwise
hazardous substances, wastes or materials.
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"Environmental Permits" mean, with respect to any person, all permits,
licenses, franchises, certificates, approvals and other similar
authorization of governmental authorities relating in any way to, the
business of such person as currently conducted.
"ERISA" means the United States Employee Retirement Income Security
Act of 1974.
"Exchange" means the exchange of Nesco securities for HDS securities
on the Closing Date pursuant to the terms of this Agreement.
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
"GAAP" means generally accepted U.S. accounting principles
consistently applied.
"Governmental Authority" means any court, tribunal, authority, agency,
commission, bureau, department, arbitrator or official or other
instrumentality of the United States or any other country or any
provincial, state, local, county, city or other political subdivision.
"Governmental Permit" means any license, franchise, permit or other
authorization, consent or approval of any Governmental Authority.
"Harriton Option" has the meaning set forth in Section 8.2.
"HDS" means Hydrogel Design Systems, Inc., a Delaware corporation.
"HDS Balance Sheet" has the meaning set forth in Section 10.9
"HDS Balance Sheet Date" has the meaning set forth in Section 10.9
"HDS Board" means the Board of Directors of HDS.
"HDS Common" means common stock of HDS, par value $0.0001 per share.
"HDS Common Stockholders" means the current holders of HDS Common.
"HDS Common Warrants" has the meaning set forth in Section 3.3.2.
"HDS Disclosure Schedule" means the disclosure schedule of HDS
attached as Exhibit B to this Agreement.
"HDS Officer Debt" has the meaning set forth in Section 6.2.
"HDS Options" means options outstanding on the date hereof to purchase
shares of HDS Common.
"HDS Preferred Warrants" has the meaning set forth in Section 3.3.2.
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"HDS Preferred Stockholders" means the current holders of HDS Series B
Preferred.
"HDS Preferred Warrantholders" means the current holders of HDS
Preferred Warrants.
"HDS Securities" means the HDS Common, the HDS Preferred, the HDS
Options, the HDS Warrants and the HDS Term Debt.
"HDS Series B Preferred" means the Series B Convertible Preferred
Stock of HDS, par value $0.0001 per share.
"HDS Signatory Stockholders" means the current holders of HDS Common
who are identified as signatories to this Agreement in their capacity as
such holders.
"HDS Stockholders" means the HDS Signatory Stockholders and all other
holders of HDS Common and/or HDS Series B Preferred immediately prior to
the Closing.
"HDS Term Debt" has the meaning set forth in Section 6.2.
"HDS Warrants" means the HDS Common Warrants and the HDS Preferred
Warrants.
"Intellectual Property Right" means any right to use, whether through
ownership, licensing or otherwise, or any title to, any patents,
trademarks, service marks, trade names, copyrights, trade secrets and other
proprietary rights and processes.
"Investor Statement" has the meaning set forth in Section 6.1.3.
"Letter of Intent" means that certain letter of intent, dated as of
December 2003, by and among HDS and Nesco with respect to the Exchange.
"Lien" means any lien, pledge, hypothecation, levy, mortgage, deed of
trust, security interest, claim, lease, charge, option, right of first
refusal, easement, or other real estate declaration, covenant, condition,
restriction or servitude, transfer restriction under any Stockholder or
similar agreement, encumbrance, other adverse claim of any kind or any
other restriction or limitation whatsoever.
"Lock-Up" has the meaning set forth in Section 13.10.
"Material Adverse Effect" means any change, effect, event, occurrence
or state of facts that has had, or would reasonably be expected to have, a
material adverse effect on the business, financial condition or results of
operations of the entity in question and its subsidiaries, if any, taken as
a whole.
"NAC Entities" means, collectively, Nesco's subsidiaries, National
Abatement Corporation, a Delaware corporation, NAC/Indoor Air
Professionals, Inc., a New York corporation, and NAC Environmental
Services, Inc., a Delaware corporation.
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"NAC Shares" has the meaning set forth in Section 4.5.
"Nesco" means NESCO Industries, Inc., a Nevada corporation.
"Nesco Balance Sheet" has the meaning set forth in Section 9.1.
"Nesco Balance Sheet Date" has the meaning set forth in Section 9.1.
"Nesco Board" means the Board of Directors of Nesco.
"Nesco Common" means common stock of Nesco, par value $0.001 per
share.
"Nesco Conversion Shares" has the meaning set forth in Section 4.2.
"Nesco Debentures" means convertible debentures of Nesco to be issued
pursuant to Sections 4.5 and 6.2.
"Nesco Debenture Shares" means shares of Nesco Common to be issued
upon conversion of the Nesco Debentures.
"Nesco Disclosure Schedule" means the disclosure schedule of Nesco
attached as Exhibit A to this Agreement.
"Nesco Exchange Options" has the meaning set forth in Section 6.1.4.
"Nesco Exchange Securities" means Nesco Exchange Shares, Nesco
Exchange Options and Nesco Exchange Warrants.
"Nesco Exchange Shares" means the shares of Nesco Common (including
Nesco Debenture Shares) and/or Nesco Series B Preferred to be issued by
Nesco in exchange for HDS Securities at the Closing or any Subsequent
Closing(s) and the shares of Nesco Common to be issued to the holders of
Nesco Series B Preferred following the filing of the Additional
Capitalization Amendment, all pursuant to the terms of this Agreement.
Whenever this Agreement provides for conversion or exchange of securities
or debt for Nesco Common, at the option of the company, at any time prior
to the filing of the Additional Capitalization Amendment, Nesco Series B
Preferred representing such number of shares of Nesco Common may be issued
in lieu of the Nesco Common.
"Nesco Exchange Warrants" has the meaning set forth in Section 6.1.4.
"Nesco Information Statement" has the meaning set forth in Section
4.10.
"Nesco Name Change" has the meaning set forth in Section 4.7.
"Nesco Series A Preferred" means the 10% Series A Convertible
Preferred Stock, par value $0.001 per share, of Nesco.
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"Nesco Preferred Conversion" means the conversion of outstanding and
issuable shares of Nesco Series A Preferred into Nesco Common as described
in Section 4.2.
"Nesco Preliminary Information Statement" has the meaning set forth in
Section 4.9.
"Nesco SEC Filings" has the meaning set forth in Section 9.9.1.
"Nesco Series B Preferred" means the convertible Series B Preferred
Stock of Nesco, par value $0.001 per share, to be issued by Nesco in
connection with the Exchange on the terms and conditions set forth in
Section 4.8.
"Nesco Special Warrants" has the meaning set forth in Section 3.1.4.
"Nesco Stockholder Debt" has the meaning set forth in Section 4.4.
"Nesco's 2003 Annual Report" means the annual report of Nesco on Form
10-KSB for the year ended April 30, 2004.
"Nesco Warrant Conversion" has the meaning set forth in Section 4.3.
"Nesco Warrant Shares" means the shares of Nesco Common to be issued
upon the Nesco Warrant Conversion as provided in Section 4.3.
"Nesco Warrants" has the meaning set forth in Section 3.1.4.
"NRS" means the Nevada Revised Statutes as currently in effect or
hereafter amended, and any successor statute(s).
"OTCBB" means the Over-the-Counter Bulletin Board.
"Person" means any individual, group, corporation, company,
partnership, limited liability company or partnership, association, trust
or other entity or organization, including any government or political
subdivision or any agency or instrumentality of either.
"Regulation D" means Regulation D promulgated under the Securities
Act.
"Regulation FD" means Regulation FD promulgated under the Exchange
Act.
"Reverse Split" has the meaning set forth in Section 4.6.
"Reverse Split Amendment" means a certificate of amendment to the
certificate of Incorporation of Nesco to be filed by Nesco following the
Closing to change Nesco's name and effectuate the Reverse Split and any
other changes to Nesco's articles of incorporation required to consummate
the Exchange and any other transactions contemplated hereby or by the Nesco
Information Statement.
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"Rule 144" means Rule 144 promulgated under the Securities Act as
currently in effect or hereafter amended and any successor rule.
"SEC" means the United States Securities and Exchange Commission, or
any successor body.
"Securities Act" means the United States Securities Act of 1933, as
amended, or any successor statute.
"Seller" means each HDS Signatory Stockholder and each other Person
who participates in the Exchange, complies with the requirements for
participation set forth in this Agreement and is the beneficial owner of
(i) any outstanding voting securities of HDS or (ii) any other security or
securities of HDS, including the HDS Term Debt, which may be exchanged for
any security of Nesco pursuant to the terms of this Agreement.
"Standstill Agreement" means the covenants, representations and
warranties of the parties contained in Section 13.4.
"Subsequent Closing Date" has the meaning set forth in Section 6.1.5.
"Taxes" means any and all federal, state, local, foreign or other
taxes of any kind (together with any and all interest, penalties, additions
to tax and additional amounts imposed with respect thereto) imposed by any
taxing authority including, without limitation, taxes or other charges on
or with respect to income, franchises, windfall or other profits, gross
receipts, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation or net worth, and taxes or
other charges in the nature of excise, withholding, ad valorem or value
added.
"Termination Date" means the date of termination of this Agreement as
set forth in Section 16.2.
"Trading Day" means a day on which trades may be effected in the Pink
Sheets or any system of automated dissemination of quotations of securities
prices, including the OTCBB.
"Transaction Documents" means this Agreement (including all exhibits
hereto), the Additional Capitalization Amendment, the Reverse Split
Amendment, the Harriton Option, the Employment Agreement, the Nesco
Information Statement and all other documents and instruments delivered by
HDS or Nesco pursuant to this Agreement.
1.3 Gender; Number; Certain Definitions, References. The headings of
Sections in this Agreement are provided for convenience only and shall not
affect its construction or interpretation. In this Agreement (i) words denoting
the singular include the plural and vice versa, (ii) "it" or "its" or words
denoting any gender include all genders, (iii) the word "including" shall mean
"including, without limitation," whether or not expressed, (iv) any reference to
a statute shall mean the statute and any regulations thereunder in force as of
the date of this Agreement or the Closing, as applicable, unless otherwise
expressly provided, (v) any reference herein to a Section, Schedule or Exhibit
refers to a Section of or a Schedule or Exhibit to this Agreement, unless
otherwise stated, and (vi) when calculating the period of time within or
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following which any act is to be done or steps taken, the date which is the
reference day in calculating such period shall be excluded and if the last day
of such period is not a Business Day, then the period shall end on the next day
following that is a Business Day. Each party acknowledges that such party has
been advised and represented by counsel in the negotiation, execution and
delivery of this Agreement and accordingly agrees that if an ambiguity exists
with respect to any provision of this Agreement, such provision shall not be
construed against any party because such party or its representatives drafted
such provision.
1.4 Beneficial Ownership. Except as otherwise expressly provided herein,
all references in this Agreement to beneficial ownership of any securities shall
mean beneficial ownership thereof calculated in accordance with Section 13-d of
the Exchange Act and the rules promulgated thereunder.
2. PLAN OF REORGANIZATION. The transactions contemplated by this Agreement are
intended to be a reorganization under both Sections 351 and 368(a)(1)(B) of the
Code. Upon the terms and subject to the conditions contained in this Agreement
and on the basis of the representations, warranties and covenants contained
herein: (a) at the Closing, (i) the HDS Signatory Stockholders shall exchange
and (ii) any other Seller electing to participate in the Exchange who complies
with the requirements for participation set forth in Section 6 on or prior to
the Closing Date may exchange, all of their outstanding HDS Securities for Nesco
Exchange Securities pursuant to the terms of Section 6.1; and (b) at each
closing on a Subsequent Closing Date, each additional Seller that elects to
participate in the Exchange and complies with such requirements for
participation following the Closing Date may exchange all of their outstanding
HDS Securities for Nesco Exchange Securities pursuant to the terms of Section
6.1 (the "Exchange").
3. CAPITALIZATION.
3.1 Capitalization of Nesco. Nesco covenants, represents and warrants
that:
3.1.1 On the date hereof, Nesco's authorized capital stock consists
of: 25,000,000 shares of Nesco Common and 1,000,000 shares of Nesco Series
A Preferred.
3.1.2 On the date hereof, Nesco has 6,769,963 shares of Nesco Common
issued and outstanding. On the date hereof, Nesco has 512,500 shares of
Nesco Series A Preferred issued and outstanding, and another 270,651 shares
of Nesco Series A Preferred are issuable as stock dividends in kind to the
current holders of outstanding Nesco Series A Preferred or otherwise. Each
share of Nesco Series A Preferred issued and outstanding or issuable is
convertible, on the date hereof, at the option of the holder into the
number of shares of Nesco Common set forth on Section 3.1.2 of the Nesco
Disclosure Schedule.
3.1.3 On the date hereof, there are no unexpired options to purchase
shares of Nesco Common or any other security of Nesco that are currently
outstanding, whether under Nesco's 1998 Incentive Stock Option Plan or
Nesco's 2001 Stock Option Plan or otherwise, and Nesco has no other stock
option plans.
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3.1.4 On the date hereof, there are outstanding warrants to purchase
an aggregate of 602,500 shares of Nesco Common at $0.05 per share, all of
which expire on dates through March 2007 and none of which has been
exercised ("Nesco Special Warrants"), and outstanding warrants to purchase
4,500,000 shares of Nesco Common ("Nesco Warrants"). The Nesco Special
Warrants shall be cancelled prior to the Closing Date.
3.1.5 Nesco has no securities outstanding or any obligation to issue
any securities other than as set forth in this Section 3.1.5 or those
securities which Nesco is required to issue pursuant to the terms of this
Agreement.
3.2 Nesco Security Ownership. On the date hereof, the Nesco Signatory
Stockholders hold not less than 50.1 % of the shares of Nesco Common, on a
fully-diluted and as converted basis, or any higher percentage (on the same
basis) required by the NRS, or the articles of incorporation or by-laws of Nesco
that is required to bind Nesco to its obligations hereunder and to authorize and
effectuate the Exchange and the other transactions required by the terms of this
Agreement to be effected by Nesco on or before the Closing Date.
3.3 HDS Capitalization. HDS covenants, represents and warrants that:
3.3.1 On the date hereof, the authorized capital stock of HDS consists
of 20,000,000 shares of HDS Common, 15,000,000 shares of Series A Preferred
Stock, par value $0.0001 per share, and 5,000,000 shares of blank check
preferred stock, par value $0.0001 per share ("HDS Preferred"), of which
2,000,000 shares have been designated as HDS Series B Preferred.
3.3.2 On the date hereof, there are issued and outstanding: (i)
4,702,806 shares of HDS Common; (ii) 522,487 shares of HDS Series B
Preferred; (iii) warrants to purchase the number of shares of HDS Series B
Preferred set forth in Section 3.3.2 of the HDS Disclosure Schedule ("HDS
Preferred Warrants"); (iv) debentures convertible into the number of shares
of HDS Series B Preferred set forth in Section 3.3.2 of the HDS Disclosure
Schedule; (v) warrants to purchase the number of shares of HDS Common set
forth on Section 3.3.2 of the HDS Disclosure Schedule (collectively, "HDS
Common Warrants"); and (vi) options to purchase the number of shares of HDS
Common set forth on Section 3.3.2 of the HDS Disclosure Schedule
(collectively, "HDS Options").
3.3.3 Outstanding shares of HDS Series B Preferred accrue dividends of
7% per annum payable solely in HDS Common upon conversion of such shares of
HDS Series B Preferred into HDS Common. The outstanding shares of HDS
Series B Preferred and accrued dividends thereof are convertible, on the
date hereof, into the number of shares of HDS Common set forth on Section
3.3.3 of the HDS Disclosure Schedule.
3.4 HDS Beneficial Ownership. On the date hereof, the HDS Signatory
Stockholders hold not less than fifty and one-tenths percent (50.1%) of the HDS
Common issued and outstanding and fifty and one-tenths percent (50.1%) of the
HDS Series B Preferred issued and outstanding, in each case on a fully diluted
basis.
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4. CERTAIN NESCO COVENANTS.
4.1 Additional Capitalization. As soon as practicable following the Closing
Date, Nesco shall increase the number of shares of Nesco Common which it is
authorized to issue to 400,000,000 shares, by obtaining all required security
holder approvals therefor and filing an amendment to its certificate of
incorporation to such effect as provided in the NRS substantially in the form of
Exhibit 4.1 (the "Additional Capitalization Amendment"), which Amendment shall
also provide for the Nesco Name Change as required by this Agreement. By
executing this Agreement, each Nesco Signatory Stockholder acknowledges that
such Stockholder has agreed to give its written consent to (a) the increase in
the number of shares of authorized Nesco Common provided for in this Section 4.1
and (b) the filing of the Additional Capitalization Amendment, in each case, on
the terms and conditions set forth in this Agreement.
4.2 Nesco Preferred Conversion. By executing this Agreement, the Nesco
Signatory Stockholders who are beneficial owners of Nesco Series A Preferred (a)
agree to exchange, on or prior to the Closing Date, all shares of Nesco Series A
Preferred held by them or issuable to them at any time from the date through the
Closing Date as dividends payable or otherwise, for shares of Nesco Common (or,
at the option of Nesco, shares of Series B Preferred representing the number of
shares of Nesco Common) in the ratio set forth in Section 4.2 of the Nesco
Disclosure Schedule (such shares of Nesco Common and/or Nesco Preferred, "Nesco
Conversion Shares"), (b) consent to the exchange of all other shares of Nesco
Series A Preferred for shares of Nesco Conversion Shares on the same terms,
respectively (the exchange pursuant to clauses (a) and (b) together, the "Nesco
Preferred Conversion"), (c) consent to the filing, execution and delivery by
Nesco of any and all documents and instruments, including, any amendment to the
terms of Nesco's certificate of incorporation (including the Certificate of
Voting Powers, Designations, Preferences, Limitations, Restrictions and Relative
Rights of the Nesco Series A Preferred) that may be necessary to give effect to
such consent; and (d) understand and agree that upon the exchange of any shares
of Nesco Series A Preferred as provided in this Section, Nesco shall have no
further obligation in respect of such shares of Nesco Series A Preferred, and no
Person who exchanges such Person's shares of Nesco Series A Preferred shall have
any further right to require Nesco to issue any other securities in respect
thereof. Nesco agrees that, prior to the Closing Date, it shall do all things
necessary or proper to effect the Nesco Preferred Conversion by as many holders
thereof as possible and to carry out the intent of this Section. All Nesco
Signatory Stockholders who are beneficial owners of any shares of Nesco Series A
Preferred hereby agree that, immediately following the exchange by them of their
shares of Nesco Series A Preferred and their receipt of Nesco Conversion Shares
as provided in this Section, such Stockholders shall have all of the obligations
in respect of their Nesco Conversion Shares as the other Nesco Signatory
Stockholders that are holders of shares of Nesco Common on the date hereof.
4.3 Nesco Warrant Conversion. The Nesco Signatory Stockholders include the
beneficial owners of fifty and one-tenths percent (50.1%) of the Nesco Warrants
(or such higher percentage thereof as may be required by the terms of any of the
Nesco Warrants) (the "Nesco Signatory Warrantholders"). By executing this
Agreement, the Nesco Signatory Warrantholders hereby (a) give their written
consent to the exchange or exercise of all Nesco Warrants for 4,500,000 shares
of Nesco Common or, at the option of Nesco, shares of Nesco Series B Preferred
representing such shares of Nesco Common (the "Nesco Warrant Shares") on a pro
rata basis prior to the Closing Date (the "Nesco Warrant Conversion"), (b) agree
to exercise their Nesco Warrants pursuant to the Nesco Warrant Conversion on the
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terms of this Section 4.3, and (c) agree, that (i) upon their exercise or
exchange of Nesco Warrants pursuant to the Nesco Warrant Conversion and their
receipt of Nesco Warrant Shares, except as otherwise expressly provided in this
Agreement, such Warrantholders shall have all of the obligations in respect of
such Nesco Warrant Shares as the Nesco Signatory Stockholders have in respect of
their shares of Nesco Common on the date hereof. Nesco agrees to effectuate the
Nesco Warrant Conversion prior to the Closing Date, and upon exercise or
exchange of each Nesco Warrant pursuant to the Nesco Warrant Conversion, such
Warrants to purchase Nesco Common shall be cancelled and the holder(s) thereof
shall have no further rights to require Nesco to issue Nesco Warrant Shares or
any other securities in respect of any Nesco Warrants.
4.4 Conversion of Nesco Stockholder Debt. Prior to the Closing Date, Nesco
shall have exchanged the indebtedness of Nesco in the principal amount of
approximately $1,033,000 to the stockholders of Nesco identified on Section 4.4
of the Nesco Disclosure Schedule (the "Nesco Stockholder Debt"), at the election
of such stockholders, for either (i)15,000,000 shares of Nesco Common or (ii)
7,500,000 shares of Nesco Common and $500,000 in principal amount of Nesco
Debentures; such Debentures to be convertible into the number of shares of Nesco
Common determined by dividing the principal amount thereof by the Applicable
Trading Price. Upon such exchange, the Nesco Stockholder Debt shall be fully
paid and satisfied. Each holder of Nesco Stockholder Debt who executes this
Agreement hereby agrees (a) to the terms of this Section 4.4 and to convert its
portion of the Nesco Stockholder Debt prior to the Closing pursuant to the terms
of this Section 4.4, and (b) that such holder shall have all of the obligations
under this Agreement in respect of the shares of Nesco Common received upon such
exchange as the Nesco Signatory Stockholders who are beneficial owners of Nesco
Common on the date hereof.
4.5 Disposition of NAC Entities.
4.5.1 Prior to the Closing Date, Nesco shall have transferred or
otherwise disposed of all of its right, title and interest in and to all of
the capital stock in, all indebtedness owed to it by, each NAC Entity in
such manner that each of the parties to whom any such capital stock and
indebtedness (collectively, "NAC Interests") are transferred ("NAC
Transferees") shall assume, in one or more written agreements
(collectively, the "NAC Acquisition Agreement"), all liabilities and
obligations of Nesco with respect to the NAC Entities or the NAC Interests
for and in consideration of a maximum of 3,000,000 shares of Nesco Common,
in the aggregate (the "NAC Shares"). The NAC Shares shall include all
shares of Nesco Common issued by Nesco to any creditors of any NAC Entity
between the date hereof and the Closing Date as consideration for the
discharge, or in payment of, any obligations of any of the NAC Entities.
The NAC Acquisition Agreement shall provide that the NAC Shares shall be
deliverable to the Transferees not later than the date of effectiveness of
the Additional Capitalization Amendment. The NAC Acquisition Agreement
shall further provide Nesco with all such assurances as Nesco or its
independent certified public accountants may require, whether in the form
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of an indemnity secured by liquid assets, bonds or otherwise, (i) to enable
such accountants to exclude from pro forma, combined and audited financial
statements of Nesco as of a date on or after the Closing Date all
obligations and liabilities whatsoever of any NAC Entity or of Nesco in
respect of any NAC Entity, including, without limitation, all references to
any contingent or potential liabilities arising out of or related to any
pending legal or administrative proceedings involving or any going concern
issues with respect to, any NAC Entity, other than the obligation of Nesco
to repurchase the NAC Shares pursuant to Section 4.5.3 of this Agreement
and (ii) to enable Nesco to obtain an opinion of counsel satisfactory to
HDS to the effect that Nesco has no further liability, contingent or
otherwise, arising out of or relating to any pending legal or
administrative proceedings involving or going concern issues with respect
to any NAC Entity and that the transfer or disposition by Nesco of any and
all of the NAC Interests for the NAC Shares is legally binding on the
parties and complies with all applicable laws and regulations.
4.5.2 In the event that Nesco shall not have disposed of the NAC
Interests prior to the Closing Date as provided in Section 4.5.1, HDS may
terminate this Agreement.
4.5.3 The NAC Acquisition Agreement shall provide that if the NAC
Transferees cannot in good faith resell all of the NAC Shares (in
compliance with the Securities Act and applicable Blue Sky Laws) in an
arms-length transaction during the twelve (12) months immediately following
the Closing Date for the lesser of (i) all liabilities of NAC resulting
directly from the agreement between NAC and ▇▇▇▇▇ Tenders Union plus legal
fees due to the firm of ▇▇▇▇▇▇ et al. or (ii) $330,000, then Nesco, upon
written demand of the NAC Transferees establishing the facts required by
this Section 4.5.3, shall repurchase 2,400,000 NAC Shares for such amount
or a portion of such NAC Shares for a pro rata portion of such amount.
4.6 Reverse Split. Prior to the Closing Date, Nesco shall have obtained all
necessary authorization from its Board of Directors and security holders to
effect a 1:20 split of its issued and outstanding common stock as soon as
practicable following the Closing Date (the "Reverse Split"), including, without
limitation, authorization to file the Reverse Split Amendment. By executing this
Agreement, each of the Nesco Signatory Stockholders and the HDS Signatory
Stockholders acknowledges that such Stockholder has agreed to give its written
consent to the Reverse Split and the execution, delivery and filing of the
Reverse Split Amendment, in each case, on the terms and conditions set forth in
this Agreement and agrees to do all things necessary, proper or advisable,
including the execution and delivery of any and all further consents or other
documents and instruments, to effectuate the Reverse Split pursuant to the terms
of this Agreement.
4.7 Change of Name. As soon as practicable following the Closing Date,
Nesco shall effect the Nesco Name Change, by obtaining all required security
holder approvals therefor and executing, delivering and filing the Additional
Capitalization Amendment. By executing this Agreement, each Nesco Signatory
Stockholder acknowledges that such Stockholder has agreed to give its written
consent to the Nesco Name Change and to the filing of the Additional
Capitalization Amendment, in each case, on the terms and conditions set forth in
this Agreement. Prior to the Closing Date, Nesco shall have obtained all
necessary authorization of the Nesco Board to the Nesco Name Change and the
filing of the Additional Capitalization Amendment.
4.8 Certificate of Designation. As soon as practicable following the date
hereof but in no event later than the Closing Date, Nesco shall file a
certificate of voting powers, designations, preferences, limitations,
restrictions and relative rights of the Nesco Series B Preferred Stock providing
for designation thereof with the following terms, and such other terms as are
set forth in Section 4.8 of the Nesco Disclosure Schedule or otherwise required
to give effect to the Exchange pursuant to the terms of this Agreement (the
"Certificate of Designation"): Each share of Nesco Series B Preferred shall
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automatically convert into the number of shares of Nesco Common set forth in
said Section of the Nesco Disclosure Schedule (the "Conversion Share Number")
upon the filing of the Additional Capitalization Amendment; and, except as
otherwise required by the NRS, each share of Nesco Series B Preferred shall have
the right to vote with the Nesco Common, on any and all issues as to which
holders of Nesco Common have the right to vote, provided that each share of
Nesco Series B Preferred shall have the right to cast the number of votes equal
to the Conversion Share Number; holders of shares of Nesco Series B Preferred
shall have the right vote, and vote as a class, to the extent provided in
applicable provisions of the NRS; and no amendment or modification may be made
to the foregoing provisions of the Certificate of Designation other than as
provided in Section 4.8 of the Nesco Disclosure Schedule, without the consent of
HDS and the holders of two-thirds of the shares of the Nesco Series B Preferred
then outstanding.
4.9 Nesco Preliminary Information Statement. As soon as practicable after
the Closing Date, Nesco shall prepare and file a preliminary information
statement with SEC pursuant to Regulation 14C of the Exchange Act containing the
information necessary to effectuate (i) the Additional Capitalization Amendment
and conversion of shares of Nesco Series B Preferred to be issued pursuant to
this Agreement into Nesco Common pursuant to the Exchange and the terms of this
Agreement, (ii) the Reverse Split and the Reverse Split Amendment, (iii) the
Nesco Name Change, and (iv) any and all other transactions contemplated hereby
and by the other Transaction Documents (the "Information Statement
Transactions") requiring the filing of an information statement pursuant to
Regulation 14C under the Exchange Act (the "Nesco Preliminary Information
Statement"), and such amendments thereto as the SEC may require or Nesco or HDS
may deem necessary or proper.
4.10 Nesco Information Statement. As soon as practicable after the Closing
Date, Nesco shall prepare and file a definitive information statement pursuant
to Regulation 14C of the Exchange Act containing the information necessary to
effectuate the Information Statement Transactions.
4.11 Due Diligence. From the date hereof until the Closing Date, Nesco
shall give HDS, its counsel, financial advisers, auditors and other authorized
representatives (collectively, "HDS Representatives") (a) full access to the
offices, properties, books and records of Nesco and its subsidiaries, (b) such
financial and operating data and other information relating to Nesco and its
subsidiaries as such Persons may reasonably request, and (c) instruct the
employees of Nesco and its subsidiaries and Nesco's counsel, financial advisers,
auditors and other authorized representatives (collectively, the "Nesco
Representatives") to cooperate with HDS and the HDS Representatives in their due
diligence investigation of Nesco and its subsidiaries, their business, assets,
financial condition and other matters. No investigation by HDS or any of its
representatives shall operate as a waiver or otherwise affect any
representation, warranty or agreement given or made by Nesco or any Nesco
Signatory Stockholder hereunder.
5. CERTAIN HDS COVENANTS.
5.1 Cooperation. Subject to compliance by the parties with the provisions
of Section 13.3, HDS and the HDS Signatory Stockholders shall cooperate with
Nesco in the preparation of the Nesco Preliminary Information Statement and the
Nesco Definitive Information Statement by providing Nesco with all information
13
regarding the business and financial condition of HDS any subsidiaries, their
management and security ownership as may be required to be included in such
Information Statements.
5.2 Due Diligence. Subject to compliance by the parties with the provisions
of Section 13.3, from the date hereof until the Closing Date, HDS shall give the
Nesco Representatives (a) full access to the offices, properties, books and
records of HDS and any subsidiaries, (b) such financial and operating data and
other information relating to HDS and its subsidiaries as such Persons may
reasonably request, and (c) instruct the employees of HDS and the HDS
Representatives to cooperate with Nesco and the Nesco Representatives in their
due diligence investigation of HDS and any subsidiaries, their business, assets,
financial condition and other matters. No investigation by Nesco or any of the
Nesco Representatives shall operate as a waiver or otherwise affect any
representation, warranty or agreement given or made by HDS or any HDS Signatory
Stockholder hereunder.
6. THE EXCHANGE. All references in this Agreement to numbers of shares of Nesco
Common issued and outstanding, to be issued, or issuable refer to such numbers
prior to the Reverse Split, unless otherwise expressly provided.
6.1 Exchange of Securities. Upon the terms and subject to the conditions
contained in this Agreement:
6.1.1 At the Closing, each HDS Signatory Stockholder, and each other
HDS Stockholder who elects, prior to the Closing Date, to participate in
the Exchange and complies with the requirements therefor set forth in this
Section 6, shall exchange, transfer and assign all of such Person's right,
title and interest in and to its shares of HDS Common and HDS Preferred for
shares of Nesco Series B Preferred Stock by delivering to Nesco share
certificates for all such shares of HDS Common and or HDS Series B
Preferred, duly endorsed in blank, with all necessary stock transfer stamps
affixed, and Nesco shall issue shares of Nesco Series B Preferred Stock in
exchange for shares of HDS Common and HDS Series B Preferred so tendered by
in the applicable ratio provided in Section 6.1.6. by delivering to each
such Stockholder one or more certificates evidencing the shares of Nesco
Series B Preferred issuable to such Stockholder.
6.1.2 Each HDS Common Stockholder and each HDS Preferred Stockholder
who is not an HDS Signatory Stockholder and who elects, following the
Closing Date, to participate in the Exchange by giving written notice of
its intent to participate in the Exchange to HDS or Nesco (an "Exchange
Notice"), and complies with the other requirements for such participation
set forth in this Section 6.1, shall transfer and assign all of such
Person's right, title and interest in and to its shares of HDS Common
and/or HDS Series B Preferred for Nesco Series B Preferred by delivering,
on a date following the Closing Date selected for such purpose by Nesco,
but in no event more than five (5) business days following the giving of
the Exchange Notice (each such date, a "Subsequent Closing Date") (i) share
certificates for all such shares of HDS Common and/or HDS Series B
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Preferred, duly endorsed in blank, with all necessary stock transfer stamps
affixed, and (ii) an executed and completed Investor Statement; and on such
Subsequent Closing Date, Nesco shall issue shares of Nesco Series B
Preferred Stock in exchange for shares of HDS Common and/or HDS Series B
Preferred so tendered in the applicable ratio pursuant to Section 6.1.6 by
delivering one or more certificates evidencing the shares of Nesco Series B
Preferred issuable to such Stockholder.
6.1.3 Each HDS Signatory Stockholder that is the holder of HDS Common
Warrants and/or HDS Options outstanding on the date hereof hereby agrees
that all such Warrants and Options, shall, upon Closing, constitute
warrants and options, respectively, to purchase the number of shares of
Nesco Series B Preferred that such Stockholder would be entitled to receive
pursuant to such Warrants and Options, respectively, had they been
exercised (to the extent the exercise rights thereunder shall not have
expired) immediately prior to the Closing Date for shares of HDS Common.
6.1.4 Each holder of HDS Options and/or HDS Common Warrants
outstanding on the date hereof who is not an HDS Signatory Stockholder may
elect to participate in the Exchange by delivering to HDS or Nesco an
Exchange Notice and a completed Investor Statement: (i) prior to the
Closing Date, in which event, on the Closing Date, all such HDS Options and
HDS Warrants shall thereupon constitute options and warrants, respectively,
to purchase the number of shares of Nesco Series B Preferred ("Nesco
Exchange Options" and "Nesco Exchange Warrants," respectively) that such
holder would be entitled to receive had such holder exercised such HDS
Options and HDS Warrants, respectively, for shares of HDS Common
immediately prior to the Closing Date; or (ii) after the Closing Date, in
which event, on the Subsequent Closing Date selected by Nesco pursuant to
the terms of Section 6.1.2, all such HDS Options and HDS Warrants shall
thereupon constitute, respectively, Nesco Exchange Options and Nesco
Exchange Warrants to purchase the number of shares of Nesco Series B
Preferred that such holder would be entitled to receive had such holder
exercised such HDS Options and HDS Warrants for shares of HDS Common
immediately prior to such Subsequent Closing Date.
6.1.5 Each HDS Stockholder and each holder of any HDS Options or HDS
Warrants that wishes to participate in the Exchange but is not an HDS
Signatory Stockholder shall execute and deliver to Nesco on or prior to the
Closing Date or the applicable Subsequent Closing Date, as the case may be,
a written statement, in the form prepared by HDS prior to the Closing Date
and approved by Nesco (which approval shall not be unreasonably withheld),
providing that the signatory represents, warrants and agrees that such
signatory (i) is an Accredited Investor, (ii) makes the representations and
warranties contained in Sections 10.22.1, 10.22.2 and 10.22.4, and (iii)
consents to, and agrees to be bound by, the provisions of this Agreement
applicable to holders of HDS Common, HDS Preferred, Nesco Exchange Warrants
or Nesco Exchange Options, as the case may be, to be performed from and
after the Closing Date (or any Subsequent Closing Date on which any such
signatory participates in the Exchange), in respect of the Nesco Exchange
Shares to be received by such holder or issuable upon exercise of such
Nesco Exchange Warrants or Nesco Exchange Options, and (iv) gives its
written consent (or agrees to give such consent in respect of any Nesco
Exchange Shares it may receive upon exercise of any Nesco Exchange Options
or Nesco Exchange Warrants) to the matters which HDS Signatory Stockholders
are hereby deemed to consent to, including (A) an increase in the number of
15
shares of Nesco Common which Nesco is authorized to issue pursuant to the
Additional Capitalization Amendment and the execution, delivery and filing
of such Amendment, (B) the Nesco Name Change, and (C) implementation of the
Reverse Split and the filing, execution and delivery of the Reverse Split
Amendment (an "Investor Statement").
6.1.6 Section 6.1.6 of the HDS Disclosure Schedule sets forth the
number of shares of Nesco Series B Preferred which each HDS Stockholder
shall be entitled to receive for (i) each share of HDS Common and (ii) each
share of HDS Series B Preferred tendered by each HDS Stockholder in the
Exchange. Section 4.8 of the HDS Disclosure Schedule sets forth the number
of shares of Nesco Common into which each share of Nesco Series B Preferred
shall be convertible.
6.1.7 Anything contained herein to the contrary notwithstanding, any
Person who, is, on the date hereof or subsequently becomes (not in
contravention of the terms of this Agreement), the holder of HDS Common,
HDS Preferred, any HDS Option or HDS Warrant or any other security of HDS
and is not an Accredited Investor, may not participate in the Exchange on
or prior to the Closing Date, but may participate in the Exchange
thereafter on a date selected by Nesco, but not more than five (5) business
days following the last to occur of the filing by Nesco of the Nesco
Information Statement with the SEC and the Additional Capitalization
Amendment with the Secretary or Department of State of Nevada (a
"Subsequent Closing Date") and the giving by such Person of an Exchange
Notice, and on the other terms and conditions set forth in this Agreement,
provided, however, that such Person's Investor Statement need not represent
that such Person is an Accredited Investor.
6.1.8 As a result of the Exchange, on the Closing Date HDS shall be a
majority- owned subsidiary of Nesco.
6.2 HDS Debt. Simultaneously with the Closing:
6.2.1 The outstanding convertible debentures of HDS in the principal amount
of approximately $2,092,000 (the "HDS Term Debt") shall be exchanged for and
converted into (i) debentures of Nesco in the same principal amount having a
maturity date of December 31, 2005 (the "Maturity Date") and bearing interest at
the rate of eight percent (8%) per annum due and payable in cash at the Maturity
Date, which debentures ("Nesco Debentures"), shall be convertible into the
number shares of Nesco Common, or at the election of Company, Nesco Series B
Preferred convertible in that number of shares of Nesco Common, ("Debenture
Shares") which the holders of the HDS Term Debt would be entitled to receive in
the Exchange if they had exercised their conversion rights on the principal
amount of the HDS Term Debt immediately prior to the Closing, and (ii) a warrant
to purchase one (1) share of Nesco Common for each $1.00 in amount of HDS Term
Debt so exchanged (the "Debtholder Warrants"). The interest due on the HDS Term
Debt shall remain due and payable on the Maturity Date notwithstanding the
conversion . The Debtholder Warrants shall have an exercise price equal to the
Applicable Trading Price.;
6.2.2 the outstanding indebtedness of HDS to certain of its officers in the
aggregate principal amount of approximately $800,000 on the date hereof ("HDS
Officer Debt") shall be exchanged for and converted into (i) debentures of Nesco
in the same principal amount having a maturity date of December 31, 2005 (the
"Maturity Date") and bearing interest at the rate of eight percent (8%) per
16
annum due and payable in cash at the Maturity Date, which debentures ("Nesco
Debentures") may be exchanged for the number of shares of Nesco Common, or at
the election of Company, Nesco Series B Preferred convertible in that number of
shares of Nesco Common, determined by dividing the HDS Officer Debt by the
Applicable Trading Price, and (ii) for each $1.00 in principal amount of the HDS
Officer Debt, a Debtholder Warrant to purchase one (1) share of Nesco Common.
6.3 Adviser Shares. Immediately following the Closing, Nesco shall issue to
the Adviser shares of Nesco Series B Preferred convertible into 6,500,000 shares
of Nesco Common or, at the option of Nesco, the same number of shares of Nesco
Common or any combination of Nesco Series B Preferred and Nesco Common on such
basis, as and for the fee due for providing advisory services to HDS (such
shares of Nesco Series B Preferred as convertible into such shares of Nesco
Common, the "Adviser Shares"). The Adviser is a Nesco Signatory Stockholder.
6.4 Harriton Stock Option. Immediately following the Closing, Nesco shall
issue the Harriton Option to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ pursuant to Section 8.2.
6.5 Reverse Split; Information Statement. As promptly as practicable
following the Closing, the effectiveness of the Additional Capitalization
Amendment and the filing with the SEC of the Information Statement, Nesco shall
consummate the Reverse Split by filing the Reverse Split Amendment in compliance
with the applicable provisions of the NRS, and upon such filing, provide
certified copies of such Amendment to HDS and its counsel.
6.6 No Liens or Encumbrances. Except as otherwise expressly provided
herein, the HDS Exchange Shares, the HDS Preferred Exchange Shares, the Nesco
Exchange Shares, the Nesco Debentures, the Nesco Debenture Shares delivered at
the Closing on the Closing Date or on any Subsequent Closing Date, the Adviser
Shares, and the HDS Warrants and HDS Options to be converted into warrants and
options, respectively, to purchase securities of Nesco in the Exchange pursuant
to this Section 6.6, shall be free and clear of all Liens and Encumbrances other
than those created by the terms of this Agreement.
6.7 Change of Name. Immediately upon consummation of the Exchange, Nesco
shall effect the Nesco Name Change, unless the NRS requires approval thereof by
Nesco Stockholders, in which event, Nesco shall effect the Nesco Name Change
immediately upon the last to occur of filing of the Nesco Information Statement
with the SEC and the filing of the Additional Capitalization Amendment with the
Secretary or Department of State of Nevada.
6.8 Restrictions on Transfer. The parties acknowledge and agree that as of
the Closing Date:
6.8.1 None of the Nesco Exchange Shares, the Adviser Shares, the NAC
Shares, the Nesco Debentures, the Nesco Debenture Shares, or the Nesco
Series B Preferred Shares to be issued upon the Nesco Preferred Conversion
or conversion of the Nesco Stockholder Debt (or the shares of Nesco Common
into which shares of Nesco Series B Preferred shall be automatically
converted as provided herein) shall be registered under U.S. Federal or
Blue Sky Laws and are intended to be issued pursuant to an exemption
therefrom under Rule 506 of Regulation D, Section 4(2) of the Act or other
applicable exemption, shall be "restricted securities" within the meaning
of Rule 144 promulgated under the Securities Act, and may not be resold,
offered for resale, transferred, pledged, distributed or otherwise
17
hypothecated unless registered under the Securities Act and applicable Blue
Sky Laws or exempt from such registration under the terms of Rule 144 or
otherwise, and Nesco receives an opinion of counsel satisfactory to Nesco
in its reasonable discretion to the effect that such registration is not
required. Each certificate representing any Nesco Exchange Shares, shares
Adviser Shares, NAC Shares, shares of Nesco Series B Preferred issued upon
the Nesco Preferred Conversion and conversion of the Nesco Stockholder
Debt, shares of Nesco Common issued upon automatic conversion of the Nesco
Series B Preferred, and the Nesco Debenture Shares and the Nesco Debentures
shall bear a legend substantially in the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE SECURITIES
LAWS AND ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144
UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
PLEDGED, ASSIGNED, HYPOTHECATED OR OTHER- WISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION FROM
SUCH REGISTRATION, PROVIDED THAT THE ISSUER OF THESE SECURITIES SHALL
HAVE FIRST RECEIVED AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
ISSUER TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
6.8.2 The shares of HDS Common Stock and HDS Series B Preferred to be
tendered to Nesco in the Exchange or the HDS Warrants and HDS Options to be
exchanged for Nesco Exchange Warrants and Nesco Exchange Options,
respectively, have not been registered under the Securities Act or
applicable Blue Sky Laws and will be offered for exchange pursuant to this
Agreement in compliance with an exemption from such registration under Rule
506 of Regulation D, or Section 4(2) of the Act and may not be offered,
resold, pledged, hypothecated or otherwise transferred unless registered
under the Securities Act and applicable Blue Sky Laws, or exempt from such
registration, provided that Nesco receives an opinion of counsel
satisfactory to Nesco in its reasonable discretion to the effect that such
registration is not required.
6.8.3 (i) Nesco shall instruct its transfer agent to annotate the
applicable records to reflect the restrictions on transfer contained in
this Agreement (A) on the Closing Date with respect to the Nesco Exchange
Shares, the Adviser Shares, the Nesco Debentures, the Nesco Debenture
Shares, the Nesco Exchange Options and the Nesco Exchange Warrants issuable
upon exchange of the HDS Term Debt; and (B) on the respective dates of
conversion or issuance prior to the Closing with respect to the NAC Shares
and the shares of Nesco Common issuable upon the Nesco Preferred
Conversion, and conversion of the Nesco Stockholder Debt and the Nesco
Debentures and Nesco Debenture Shares that may be issued to the holder of
the Nesco Stockholder Debt, and (ii) HDS shall instruct its transfer agent,
18
on the Closing Date, to annotate the applicable records to reflect the
restrictions on transfer contained in this Agreement with respect to the
shares of HDS Common tendered in the Exchange;
6.9 Reservation of Shares. (a) As promptly as practicable following the
Closing Date, Nesco shall file the Additional Capitalization Amendment with the
Nevada Secretary or Department of State and provided a certified copy thereof to
HDS; (b) on the Closing Date or any earlier date of issuance pursuant to the
terms of this Agreement, Nesco shall have reserved for issuance the number of
shares of Nesco Common and Nesco Series B Preferred sufficient to satisfy its
obligations to issue the Nesco Exchange Shares, the Adviser Shares, the NAC
Shares, the Nesco Debenture Shares, the Nesco Warrant Shares, all other shares
of Nesco Common issuable on or prior to the Closing Date pursuant to this
Agreement or pursuant to the exercise of Nesco Options outstanding on the date
hereof; and (c) no later than the date of effectiveness of the Capitalization
Increase Amendment, Nesco shall have reserved for issuance the number of shares
of Nesco Common sufficient to satisfy its obligations to issue Nesco Common upon
automatic conversion of the Nesco Series B Preferred issued or issuable in
connection with the Exchange, including shares of Nesco Series B Preferred
issuable upon exercise of the Harriton Option and any and all Nesco Exchange
Options and Nesco Exchange Warrants, and (ii) consummation of the transactions
contemplated by this Agreement and the other Transaction Documents.
6.10 Obligation to Participate in the Exchange; Exchange Procedures. On the
Closing Date, each HDS Signatory Stockholder shall tender to Nesco for exchange
all shares of HDS Common and HDS Series B Preferred owned by such Stockholder on
the date hereof or issued to such Stockholder (not in contravention of this
Agreement) between the date hereof and the Closing Date, and Nesco shall issue
and deliver to each such HDS Stockholder (and/or its designees) the number and
classification of Nesco Exchange Shares set forth above in this Section 6.
6.11 Expenses of Exchange and Other Transactions. Except as otherwise
provided in Section 16.3, each party shall pay all expenses, including legal and
auditing fees, incurred by such party in connection with the execution, delivery
and performance of this Agreement and consummation of the Exchange and the other
transactions contemplated hereby or by the other Transaction Documents.
7. CLOSING; CLOSING DATE.
7.1 Closing. The Closing of the Exchange and the other transactions
contemplated hereby or by any of the other Transaction Documents to take place
on the Closing Date (the "Closing Transactions") shall take place at 10:00 a.m.,
Eastern Time, on the Closing Date at the offices of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, or at such other time
and place as Nesco and HDS may agree.
7.2 Closing Date. The Closing of the Exchange and the other Closing
Transactions shall take place upon five days' written notice from Nesco to HDS,
but not later than sixty (60) days from the date hereof except as modified by
agreement of Nesco and HDS or terminated pursuant to Section 16.3 (the "Closing
Date"). The parties agree to use their best efforts to cause the Nesco
Preliminary Information Statement and the Nesco Information Statement to be
filed with the SEC and the Exchange to be consummated as soon as practicable
hereafter.
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7.3 Subsequent Closing Dates. The closing of the Exchange between Nesco and
those HDS Preferred Stockholders, HDS Common Stockholders, and holders of HDS
Options and HDS Warrants who are not HDS Signatory Stockholders and who,
following the Closing Date, wish to participate in the Exchange and comply with
the applicable requirements set forth in Section 6, shall take place on
Subsequent Closing Date(s) to be selected in compliance with the terms of said
Section.
8. EMPLOYMENT AGREEMENT; HARRITON OPTION.
8.1 Employment Agreement. Immediately following the Closing, Nesco shall
enter into an employment agreement with ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, effective as of the
Closing Date, substantially in the form of Exhibit 8.1 hereto (the "Employment
Agreement").
8.2 Harriton Option. On the Closing Date, Nesco shall issue to ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ an option to purchase Nesco Common on the following terms (the
"Harriton Option"):
8.2.1 The Harriton Option shall grant ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ the right to
purchase up to 5,000,000 shares of Nesco Common at the Applicable Trading
Price per share.
8.2.2 The Harriton Option shall be exercisable for a period of five
(5) years commencing on the Closing Date (the "Exercise Period") and shall
be immediately exercisable for the purchase of 2,000,000 shares of Nesco
Common and exercisable as to an additional 1,000,000 shares of Nesco Common
commencing on each of the first, second and third anniversaries of the
Closing Date, respectively, provided that grantee remains a consultant to
or employee of Nesco or any subsidiary of Nesco, but if Nesco exercises its
right to terminate the Employment Agreement after the Initial Term without
specifying reasons for termination that constitute grounds for termination
for "cause" as defined in the Employment Agreement, the Harriton Option
shall become immediately exercisable as to all 5,000,000 shares. Following
termination of the Employment Agreement for any reason, the Harriton Option
shall thereafter remain exercisable for the balance, if any, of the
Exercise Period for the same number of shares of Nesco Common for which the
Harriton Option was exercisable upon termination of the Employment
Agreement, subject to the provisions of the immediately preceding sentence.
8.2.3 Anything contained in this Section 8.2 to the contrary
notwithstanding, the Harriton Option shall provide that until the last to
occur of the filing of the Information Statement with the SEC and filing of
the Additional Capitalization Amendment pursuant to the NRS, to the extent
that the Harriton Option is exercisable for shares of Nesco Common as
provided in Section 8.2.2, it shall instead be exercisable for the
equivalent number of shares of Nesco Series B Preferred.
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9. REPRESENTATIONS AND WARRANTIES OF NESCO AND THE NESCO SIGNATORY STOCKHOLDERS.
Nesco and the Nesco Signatory Stockholders represent and warrant:
9.1 Corporate Existence and Power. Nesco is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Nevada and has all corporate power and authority and all Governmental Permits
required to carry on its business as now conducted, except for those
Governmental Permits, the absence of which would not, individually or in the
aggregate, have a Material Adverse Effect. Nesco is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is necessary, except for those jurisdictions where
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on Nesco.
9.2 Articles of Incorporation and By-laws; Minute Books. The copies of the
articles of incorporation and by-laws of Nesco, each as amended , provided by
Nesco to HDS are true, correct and complete. The minute books of Nesco contain
true and complete records of all meetings and consents in lieu of meetings of
its Board of Directors (and any committees thereof), or similar governing
bodies, and true, correct and complete records of all meetings and consents in
lieu of meetings of Nesco's stockholders since the time of its organization. The
stock books of Nesco are true, correct and complete.
9.3 Corporate Authorization. The execution, delivery and performance by
Nesco of this Agreement and the other Transaction Documents and the consummation
by it of the transactions contemplated hereby and thereby are within Nesco s
corporate powers and have been duly authorized by all necessary corporate
action. No vote of the holders of the outstanding shares of Nesco Common, Nesco
Series A Preferred or any other securities of Nesco is necessary in connection
with the consummation of the Exchange on the Closing Date and the other
transactions contemplated hereby to be consummated on the Closing Date. Each of
this Agreement and the other Transaction Documents constitutes a valid and
binding agreement of Nesco enforceable against Nesco in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally now or hereafter in effect and subject to the application of equitable
principles and the availability of equitable remedies.
9.4 Nesco Board Consent. The execution, delivery and performance by Nesco
of this Agreement and each of the other Transaction Documents has been duly
authorized by Nesco s Board of Directors which, at a meeting duly called and
held, duly (a) determined that this Agreement and the other Transaction
Documents, the Exchange and the other transactions contemplated hereby and
thereby are fair to and in the best interests of Nesco s Stockholders, and (b)
approved and adopted this Agreement, the other Transaction Documents, the
Exchange and the other transactions contemplated hereby or thereby, which
approval satisfies in full any applicable requirements of the NRS. The
resolutions of the Nesco Board attached to Exhibit 9.4 hereto are true, complete
and correct copies of the resolutions duly adopted by Nesco's Board relating to
this Agreement, the other Transaction Documents, the Exchange and the other
transactions contemplated hereby and thereby.
9.5 Governmental Authorization. The execution, delivery and performance by
Nesco of this Agreement and the other Transaction Documents and the consummation
by Nesco of the transactions contemplated hereby or thereby require no action by
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or in respect of, or filing with, any Governmental Authority other than (a) the
filing of the Additional Capitalization Amendment and the Reverse Split
Amendment in accordance with the NRS, (b) filing with the SEC of Current Reports
on Form 8-K with respect to (i) the execution and delivery of this Agreement and
(ii) the Closing, (c) compliance with any applicable requirements of Regulation
D and Blue Sky Laws, and (d) any other filings, including the Nesco Information
Statement in connection with dissenters rights, if any, and/or other approvals
or authorizations which, if not obtained, would not, individually or in the
aggregate, have a Material Adverse Effect on Nesco or materially impair the
ability of Nesco to consummate the transactions contemplated by this Agreement.
9.6 Non-Contravention. The execution, delivery and performance by Nesco of
this Agreement and the other Transaction Documents and the consummation by Nesco
of the transactions contemplated hereby and thereby do not and will not (a)
violate the certificate of incorporation or bylaws of Nesco, (b) assuming
compliance with the matters referred to in Section 9.5(d), violate any
applicable law, rule, regulation, judgment, injunction, order or decree, (c)
require any consent or other action by any Person under, constitute a default
under, or give rise to any right of termination, cancellation or acceleration of
any right or obligation of Nesco or to a loss of any benefit to which Nesco is
entitled under any provision of any agreement or other instrument binding upon
Nesco or any Governmental Permit, or other similar authorization affecting, or
relating in any way to, the assets or business of Nesco, or (d) result in the
creation or imposition of any Lien or Encumbrance on any asset of Nesco except,
in the case of clauses (b), (c) and (d), for such matters as would not,
individually or in the aggregate, have Material Adverse Effect on Nesco or
materially impair the ability of Nesco to consummate the transactions
contemplated by this Agreement.
9.7 Capitalization; Validity of Securities. As of the Closing Date, the
authorized capital stock of Nesco will consist of 25,000,000 shares of Nesco
Common and 1,000,000 shares of preferred stock, of which Nesco shall have
designated as Nesco Series B Preferred a number of shares sufficient to meet
Nesco's obligations under this Agreement and effectuate the transactions
contemplated hereby. As of the date hereof, the authorized capital stock of
Nesco is as set forth in Section 3.1.1 and the outstanding capital stock and
other securities of Nesco are as set forth in Sections 3.1.2 through 3.1.5. All
outstanding shares of capital stock and other securities of Nesco have been duly
authorized and validly issued an are fully paid and non-assessable. Except as
set forth in Sections 3.1.2 through 3.1.4, there are no outstanding (a) shares
of capital stock or voting securities of Nesco, (b) securities of Nesco
convertible into or exercisable or exchangeable for shares of capital stock or
voting securities of Nesco or (c) options, restricted stock, other stock-based
compensation awards or other rights to acquire from Nesco or other obligation of
Nesco to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of Nesco. Other than
as provided in this Agreement, there are no outstanding obligations of Nesco or
any of its subsidiaries to repurchase, redeem or otherwise acquire any
securities referred to in clauses (a), (b) or (c) above. The Nesco Exchange
Shares, the Adviser Shares, the NAC Shares, the Nesco Warrant Shares, the Nesco
Debentures, the Nesco Debentures Shares when issued, sold and delivered, and the
Nesco Exchange Options and Nesco Exchange Warrants when deemed exchanged for HDS
Options and HDS Warrants pursuant to the terms of this Agreement, will be duly
and validly issued (including compliance with Regulation D and applicable Blue
Sky Laws), fully-paid, and non-assessable and shall be free and clear of all
Liens and Encumbrances of any nature whatsoever. The Nesco Preliminary
22
Information Statement and the Nesco Information Statement shall provide for an
increase in the number of shares of Nesco Common which Nesco is currently
authorized to issue to 400,000,000 shares, and the same shall be set forth in
the Additional Capitalization Amendment.
9.8 Subsidiaries; No Liability for Obligations of NAC Entities. Nesco has
no subsidiaries other than the NAC Entities. Prior to the Closing, the NAC
Entities shall have been disposed of in compliance with the terms of Section
4.5.
9.9 SEC Filings.
9.9.1 Nesco has delivered to HDS (i) Nesco's Annual Report for its
1999 through 2003 fiscal years, (ii) all proxy or information statements
relating to meetings of, or actions taken without a meeting by, the
stockholders of Nesco since November 1, 1999 and (c) all of its other
reports, statements, schedules and registration statements filed by Nesco
with the SEC since November 1, 1999 (all of the documents referred to in
this Section 9.9.1 collectively, the "Nesco SEC Filings").
9.9.2 As of its filing date, each Nesco SEC Filing complied as to form
and in substance in all material respects with the applicable requirements
of the Securities Act and the Exchange Act and did not contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
9.10 Financial Statements. The audited consolidated financial statements
and unaudited consolidated interim financial statements of Nesco included in the
SEC Filings fairly present, in conformity with GAAP (except, as to application
on a consistent basis, as may be indicated in the notes thereto), the
consolidated financial position of Nesco as of the dates there of and the
consolidated results of operations and cash flows for the periods then ended
(subject to normal year- end adjustments in the case of any unaudited interim
financial statements). For purposes of this Agreement, "Nesco Balance Sheet"
means the unaudited consolidated balance sheet of Nesco as of October 31, 2003
set forth in Nesco's Quarterly Report for the period end October 31, 2003 on
Form 10-QSB, as filed with the SEC on December 22, 2003, and "Nesco Balance
Sheet Date" means October 31, 2003.
9.11 Absence of Certain Changes. Since Nesco Balance Sheet Date, the
business of Nesco has been conducted in the ordinary course consistent with past
practices and there has not been, except as set forth in Section 9.11 of the
Nesco Disclosure Schedule or any SEC Filing made between the Balance Sheet Date
and the date hereof or required pursuant to the terms of this Agreement:
9.11.1 any event, occurrence, development or state of circumstances or
facts which would, individually or in the aggregate, have a Material
Adverse Effect on Nesco, other than adverse effects resulting from the
execution and performance of this Agreement;
9.11.2 any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of Nesco;
23
9.11.3 except for the Additional Capitalization Amendment and the
Reverse Split Amendment, there has not been any amendment of any material
term of any outstanding security of Nesco.
9.11.4 any incurrence, assumption or guarantee by Nesco of any
material indebtedness for borrowed money other than in the ordinary course
and in amounts and on terms consistent with past practices;
9.11.5 any creation or other incurrence by Nesco of any Lien or
Encumbrance on any material asset other than in the ordinary course
consistent with past practices;
9.11.6 any making of any material loan, advance or capital
contributions to or investment in any Person;
9.11.7 any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of Nesco which
would, individually or in the aggregate, have a Material Adverse Effect on
Nesco;
9.11.8 any transaction or commitment made, or any contract or
agreement entered into, by Nesco relating to its assets or business
(including the acquisition or disposition of any assets) or any
relinquishment by Nesco of any contract or other right, in either case,
material to Nesco as a whole, other than transactions and commitments in
the ordinary course consistent with past practices and those contemplated
by this Agreement;
9.11.9 any change in any method of accounting, method of tax
accounting, or accounting practice by Nesco except for any such change
required by reason of a concurrent change in GAAP or Regulation S-X
promulgated under the Exchange Act;
9.11.10 any (i) grant of any severance or termination pay to any
current or former director, officer or employee of Nesco, (ii) increase in
benefits payable under any existing severance or termination pay policies
or employment agreements, (iii) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such
existing agreement) with any current or former director, officer or
employee of the Nesco, (iv) establishment, adoption or amendment (except as
required by applicable law) of any collective bargaining, bonus, profit
sharing, thrift, pension, retirement, deferred compensation, compensation,
stock option, restricted stock or other benefit plan or arrangement
covering any current or former director, officer or employee of Nesco, or
(v) increase in compensation, bonus or other benefits payable or otherwise
made available to any current or former director, officer or employee of
Nesco;
9.11.11 any material dispute or, with any officer, director or
employee of Nesco; or any tax election or any settlement or compromise of
any tax liability, that, individually or in the aggregate, are material to
Nesco.
9.12 No Undisclosed Material Liabilities. As of the date hereof, there are
no liabilities of Nesco of any kind whatsoever, whether accrued, contingent,
24
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, other than:
9.12.1 liabilities or obligations provided for in Nesco Balance Sheet
or disclosed in the notes thereto;
9.12.2 other liabilities or obligations, which would not, individually
or in the aggregate, have a Material Adverse Effect on Nesco; and
9.12.3 liabilities or obligations under this Agreement.
9.13 Compliance with Laws and Court Orders. Except as set forth in Section
9.13 of the Nesco Disclosure Schedule or in any SEC Filing made between the
Balance Sheet Date and the date hereof, Nesco is and has been in compliance
with, and to the best knowledge of Nesco, is not under investigation with
respect to and has not been threatened to be charged with or given notice of any
violation of, any applicable law, rule, regulation, judgment, injunction, order
or decree, including, without limitation, the requirements of the Exchange Act,
the Securities Act, ERISA or any federal labor laws except for such matters as
would not, individually or in the aggregate, have a Material Adverse Effect on
Nesco.
9.14 Litigation. Except as specifically set forth in any SEC Filings made
between the Nesco Balance Sheet Date and the date hereof or Section 9.14 of the
Nesco Disclosure Schedule, there is: (a) no claim, dispute, action, suit,
proceeding or investigation pending or, to the knowledge of Nesco, threatened,
against or affecting the business of Nesco, or challenging the validity or
propriety of the transactions contemplated by this Agreement or any of the other
Transaction Documents, at law or in equity or admiralty or before any federal,
state, local, foreign or other governmental authority, board, agency, commission
or instrumentality, nor to the knowledge of Nesco, has any such claim, dispute,
action, suit, proceeding or investigation been pending or threatened, during the
12 month period preceding the date hereof; (b) no outstanding judgment, order,
writ, ruling, injunction, stipulation or decree of any court, arbitrator or
federal, state, local, foreign or other governmental authority, board, agency,
commission or instrumentality, against or materially affecting the business of
Nesco; and (c) Nesco has not received any written or verbal inquiry from any
federal, state, local, foreign or other governmental authority, board, agency,
commission or instrumentality concerning the possible violation of any law, rule
or regulation or any matter disclosed in respect of its business. The disclosure
in such SEC Filings with respect to any matters covered by this Section 9.14 are
true, correct and complete in all material respects on the dates when made and
on the date hereof and do not contain any misstatement of any related material
fact or omit to state any such material fact required to be stated therein in
order to make the statements contained therein not misleading.
9.15 Finder's Fee. There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
Nesco who might be entitled to any fee or commission in connection with the
transactions contemplated by this Agreement.
9.16 Taxes. Except as set forth in the Nesco Balance Sheet (including the
notes thereto) and except as would not, individually or in the aggregate, have a
Material Adverse Effect on Nesco, (a) all tax returns, statements, reports and
forms (collectively, the "Nesco Returns") required to be filed with any taxing
25
authority by, or with respect to, Nesco and each affiliated, combined,
consolidated or unitary group of which Nesco is a member are true, correct and
complete and have been filed in accordance with all applicable laws; (b) Nesco
has timely paid all taxes shown as due and payable on the Nesco Returns that
have been so filed (other than taxes which are being contested in good faith and
for which adequate reserves are reflected on the Nesco Balance Sheet) and, as of
the time of filing, the Nesco Returns correctly reflected the facts regarding
the income, business, assets, operations, activities and the status of Nesco;
(c) Nesco has made adequate provision in accordance with GAAP for all taxes
payable by Nesco for which no Nesco Return has yet been filed; (d) the charges,
accruals and reserves for taxes with respect to Nesco reflected on the Nesco
Balance Sheet are adequate under GAAP to cover the tax liabilities accruing
through the date thereof; (e) there is no action, suit, proceeding, audit or
claim now proposed or pending against or with respect to Nesco in respect of any
tax where there is a reasonable possibility of an adverse determination; (f)
Nesco is not and has not been a member of an affiliated, consolidated, combined
or unitary group other than one of which Nesco was the common parent.
9.17 Employee Benefit Plans. Other than as shall be fully described on the
Nesco Disclosure Schedule, Nesco does not maintain, nor has Nesco maintained in
the past, any "employee benefit plans" (as defined in Section 3(3) of ERISA, or
any plans, programs, policies, practices, arrangements or contracts (whether
group or individual) providing for payments, benefits or reimbursements to
employees of Nesco, former employees, their beneficiaries and dependents under
which such employees, former employees, their beneficiaries and dependents are
covered through an employment relationship with Nesco, any entity required to be
aggregated in a controlled group or affiliated service group with Nesco for
purposes of ERISA or the Code (including, without limitation, under Section
414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA, at any relevant
time ("Benefit Plans").
9.18 Environmental Matters. Except as set forth in Nesco SEC Filings prior
to the date hereof and except as would not, individually or in the aggregate,
have a Material Adverse Effect on Nesco:
9.18.1 no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been filed,
no penalty has been assessed, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of Nesco, is
threatened by any governmental entity or other person relating to or
arising out of any Environmental Law;
9.18.2 Nesco is and has been in compliance with all Environmental Laws
and all Environmental Permits; and
9.18.3 There are no liabilities of or relating to Nesco of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise arising under or relating to any Environmental Law and there
are no facts, conditions, situations or set of circumstances which could
reasonably be expected to result in or be the basis for any such liability.
26
9.18.4 The terms "Nesco" shall, for purposes of this Section, include
any entity which is, in whole or in part, a corporate predecessor of Nesco
or any of the NAC Entities or any other subsidiary of Nesco.
9.19 Patents and Other Proprietary Rights. Nesco does not have any
Intellectual Property Right that is material to its business as now conducted.
To the best of Nesco's knowledge, Nesco has not and does not violate or infringe
any Intellectual Property Right of any other person, and Nesco has not received
any communication alleging that it violates or infringes any Intellectual
Property Right of any other person. Except for such matters as would not,
individually or in the aggregate, have a Material Adverse Effect on Nesco, Nesco
has not been sued for infringing any Intellectual Property Right of another
person.
9.20 Antitakeover Statutes. Excluding any statute or regulation applicable
solely by virtue of the jurisdiction of incorporation of HDS as to which Nesco
takes no position nor makes any representation or warranty, no antitakeover or
similar statute or regulation applies to the transactions contemplated hereby.
9.21 Affiliate Transactions. Except as disclosed in Section 9.21 of the
Nesco Disclosure Statement or any SEC Filing(s) made between the Nesco Balance
Sheet Date and the date hereof, either Nesco nor any officer, director or
employee of Nesco or any of the relatives, Affiliates or Associates of any of
the aforementioned Persons) is a party to any agreement, contract, commitment or
transaction with Nesco or affecting the business of Nesco or any of its
subsidiaries, or has any interest in any property, whether real, personal or
mixed, or tangible or intangible, used in or necessary to Nesco or any of its
subsidiaries which will subject Nesco, HDS or any of the Sellers to any
liability or obligation from and after the Closing Date.
9.22 Trading; Reporting Company Status. Nesco Common is currently listed
for trading on the OTCBB, and Nesco has received no notice that the Nesco Common
is subject to being delisted therefrom. Nesco is a reporting company under
Section 12(g) of the Exchange Act and has timely filed all reports and other
documents required to be filed by it under the Exchange Act.
9.23 Investment Representations. Nesco is acquiring shares of HDS Common
and HDS Series B Preferred for investment for its own account and not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof. Nesco understands that the offer and sale of shares of HDS Common and
HDS Series B Preferred have not been and will not be registered under the
Securities Act or applicable state securities laws on the ground that the sale
and the issuance of securities hereunder is exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, and that reliance by HDS on
such exemption is predicated on the representations of Nesco set forth in this
Section 9.23 and Section 9.26.
9.24 Insurance. Nesco has in effect directors' and officers' liability
insurance for the coverage amounts set forth in Section 9.24(a) of the Nesco
Disclosure Schedule. Each policy providing such directors' and officers'
liability insurance, the name(s) of the insured(s) and any additional loss
payee(s), the amounts and types of coverage and policy numbers are as set forth
in Section 9.24(a) of the Nesco Disclosure Schedule. Nesco shall take all
actions and deliver all written materials and execute such documents and
instruments as may be required to ensure that all Persons who will serve as
27
executive officers or directors of Nesco following the Exchange who do not serve
in such capacities on the date hereof are covered by such directors' and
officers' liability insurance policy or policies in amounts consented to by HDS,
which consent shall not be unreasonably withheld.
Nesco and/or the NAC Entities maintain in effect the liability insurance
and other business insurance policies described in Section 9.24(b) of the Nesco
Disclosure Schedule; Nesco shall do all things necessary and proper to retain
its status as an insured and additional loss payee on each such liability
insurance policy relating to any of the activities of any NAC Entity after the
date of disposition of each NAC Entity with respect to losses and claims that
may arise relating to any period on or prior to the Closing Date. Nesco has
provided to HDS true, complete and correct copies of all of the foregoing
insurance policies, each as currently in effect.
9.25 Ownership of Signatory Stockholders. On the date hereof, the Nesco
Signatory Stockholders hold a sufficient percentage of the securities of Nesco
entitled to vote (or that will be entitled to vote on the Closing Date), on a
fully-diluted basis, that is required by the NRS and the articles of
incorporation and by-laws of Nesco to bind Nesco to its obligations hereunder
and to authorize and effectuate the Exchange, the Reverse Split, the Reverse
Split Amendment, the Nesco Name Change, the Additional Capitalization Amendment
and the other transactions required to be effected by Nesco pursuant to this
Agreement. Except as otherwise expressly provided herein, the Nesco Signatory
Stockholders shall not offer, sell, transfer, pledge, assign or otherwise
dispose of any of their shares of Nesco Common or securities convertible into or
exchangeable for Nesco Common or Nesco Series B Preferred (other than the Nesco
Warrant Shares) from the date hereof until the earlier of (a) termination of
this Agreement, (b) the date of filing of the Nesco Information Statement with
the SEC and (c) the date of filing of the Additional Capitalization Amendment
pursuant to the NRS. On the date hereof the Nesco Signatory Stockholders own,
and shall at all relevant times continue to own, a sufficient number of shares
of Nesco Common and Nesco Series A Preferred to authorize the consummation of
the Exchange and the other transactions contemplated by this Agreement and the
other Transaction Documents by written consent. There is no provision of the
articles of incorporation or by-laws of Nesco or any other agreement to which
Nesco or any security holder of Nesco is a party that would prohibit the Nesco
Signatory Stockholders from authorizing consummation of the Exchange and the
other transactions contemplated hereby and by the other transaction documents by
written consent.
9.26 Accredited Investor Status. Each Nesco creditor and each Person who,
on the date hereof, is the beneficial owner of any securities of Nesco and who,
pursuant to the terms of this Agreement, will receive any shares of Nesco Common
or any securities convertible into or exchangeable for Nesco Common pursuant to
the terms of this Agreement is an Accredited Investor. Each such Person shall
confirm in writing that such Person is an Accredited Investor prior to the
Closing.
9.27 Nesco Signatories. The Nesco Signatory Stockholders include each
officer, director and holder of 5% of each class of outstanding voting
securities of Nesco. Each Nesco Signatory Stockholder hereby consents, in
respect of all voting securities of Nesco held by such Stockholder, to the
Exchange and the other transactions contemplated hereby and by the other
Transaction Documents. Each Nesco Signatory Stockholder covenants, represents
and warrants that such Stockholder shall do all acts and things, including the
execution and delivery of all documents and instruments, necessary or proper (a)
28
to effectuate the Exchange and the other transactions contemplated hereby and by
any of the other Transaction Documents and (b) to cause Nesco to carry out its
obligations hereunder and under each of the other Transaction Documents, whether
by vote or written consent of such Stockholder, or otherwise.
9.28 No General Solicitation. Solicitation by Nesco of participants in the
Exchange and the exchange of currently outstanding Nesco securities for shares
of Nesco Common or Nesco Series B Preferred shall be effected without use of any
form of general solicitation or advertising and in all other respects in
compliance with the requirements for an exemption from registration pursuant to
Regulation D.
10. REPRESENTATION AND WARRANTIES OF HDS AND THE HDS SIGNATORY STOCKHOLDERS. HDS
and the HDS Signatory Stockholders that are executive officers or directors of
HDS represent and warrant that, except as otherwise set forth herein or in HDS
Disclosure Schedule:
10.1 Corporate Existence and Power. HDS is a company duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has all corporate power and authority and all Governmental Permits required
to carry on its business as now conducted, except for those Governmental Permits
the absence of which would not, individually or in the aggregate, have a
Material Adverse Effect.
10.2 Certificate of Incorporation and By-laws; Minute Books. The copies
provided to Nesco by HDS of its certificate of incorporation and by-laws are
true, correct and complete copies thereof, each as amended to date. The minute
books of HDS contain true and complete records of all meetings and consents in
lieu of meetings of its Board of Directors (and any committees thereof), or
similar governing bodies, since the time of its organization. The stock books of
HDS are true, correct and complete.
10.3 Corporate Authorization. The execution, delivery and performance by
HDS of this Agreement and the other Transaction Documents and the consummation
by HDS of the transactions contemplated hereby and thereby are within HDS's
corporate powers and have been duly authorized by all necessary corporate action
of HDS. If any vote of or consent by the holders of any outstanding shares of
HDS Common or any other securities of HDS is necessary in connection with the
consummation of the Exchange and the other transactions contemplated hereby,
each HDS Signatory Stockholder shall vote in favor thereof or provide written
consent thereto. This Agreement and each of the other Transaction Documents
constitutes a valid and binding agreement of HDS, enforceable against HDS in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally now or hereafter in effect and subject to the
application of equitable principles and the availability of equitable remedies.
This Agreement and each of the other Transaction Documents constitutes a valid
and binding agreement of each HDS Signatory Stockholder, enforceable against
each such Stockholder in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or other
laws affecting the enforcement of creditors' rights generally now or hereafter
in effect and subject to the application of equitable principles and the
availability of equitable remedies.
29
10.4 HDS Board Consent. The execution, delivery and performance by HDS of
this Agreement and each of the other Transaction Documents to which HDS is a
party have been duly authorized by HDS s Board of Directors, which, approved and
adopted this Agreement, such other Transaction Documents, the Exchange and the
other transactions contemplated hereby or thereby and involving HDS. The
resolutions of the HDS Board attached as Exhibit 10.4 hereto are true, complete
and correct copies of resolutions duly adopted by HDS's Board relating to this
Agreement, the other Transaction Documents, the Exchange and the other
transactions contemplated hereby and thereby.
10.5 Governmental Authorization. The execution, delivery and performance by
HDS and each HDS Signatory Stockholder of this Agreement and the other
Transaction Documents to be executed by HDS and the consummation by HDS of the
transactions contemplated hereby or thereby involving HDS require no action by
or in respect of, or filing with, any Governmental Authority other than
compliance with any applicable requirements of Regulation D and Blue Sky Laws,
and any other filings, approvals or authorizations which, if not obtained, would
not, individually or in the aggregate, have a material adverse effect on HDS or
materially impair the ability of HDS or any of the HDS Signatory Stockholders to
consummate the transactions contemplated by this Agreement or any of the other
Transaction Documents.
10.6 Non-Contravention. The execution, delivery and performance by HDS or
any of the HDS Signatory Stockholders of this Agreement and the other
Transaction Documents and the consummation by HDS of the Exchange and the other
transactions involving HDS contemplated hereby or thereby do not and will not
(a) violate the certificate of incorporation or by-laws of HDS, (b) assuming
compliance with the matters referred to in Sections 9.5 and 10.5, violate any
applicable law, rule, regulation, judgment, injunction, order or decree, (c)
require any consent or other action by any Person under, constitute a default
under, or give rise to any right of termination, cancellation or acceleration of
any right or obligation of HDS or a loss of any benefit to which HDS is entitled
under any provision of any agreement or other instrument binding upon HDS (other
than the Certificate of Designation with respect to the HDS Series B Preferred)
or any Governmental Permit other similar authorization affecting, or relating in
any way to, the assets or business of HDS or any of its subsidiaries, or (d)
result the creation or imposition of any Lien or Encumbrance on any asset of HDS
except, in the case of clauses (b), (c) and (d), for such matters as would not,
individually or in the aggregate, have Material Adverse Effect on HDS or
materially impair the ability of HDS to consummate the transactions contemplated
by this Agreement or any of the other Transaction Documents.
10.7 Capitalization; Validity of Securities. As of the date hereof, the
authorized capital stock of HDS is as set forth in Section 3.1.3 hereof. As of
the date hereof, the outstanding capital stock and other securities of HDS are
as set forth in Section 3.3.2. All outstanding shares of capital stock of HDS
have been duly authorized and validly issued an are fully paid and
non-assessable. Except as set forth in this Agreement, there are no outstanding
(a) shares of capital stock or voting securities of HDS, (b) securities of HDS
convertible into exchangeable for shares of capital stock or voting securities
of HDS or (c) options, restricted stock, other stock-based compensation awards
or other rights to acquire from HDS or other obligation of HDS to issue, any
capital stock, voting securities or securities convertible into or exercisable
or exchangeable for capital stock or voting securities of HDS. There are no
outstanding obligations of HDS or any of its subsidiaries to repurchase, redeem
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or otherwise acquire any securities referred to in clauses (a), (b) or (c)
above. The shares of HDS Common and HDS Series B Preferred, when transferred and
delivered pursuant to the terms of this Agreement, will be duly and validly
issued (including, without limitation, compliance with Regulation D and
applicable Blue Sky Laws), fully-paid, and non-assessable. The assignments,
endorsements, stock powers and other instruments of transfer to be delivered by
each Seller to Nesco at the Closing will be sufficient to transfer such Seller's
entire interest, legal and beneficial, in such HDS shares. Each HDS Signatory
Stockholder has full power and authority to transfer its shares of HDS Common
and/or HDS Series B Preferred, and upon transfer to Nesco of the instruments
representing such shares, Nesco will receive good and marketable title to such
shares, free and clear of all Liens and Encumbrances.
10.8 Subsidiaries. HDS does not as of the date hereof own, directly or
indirectly, any capital stock, equity or interest in any corporation, firm,
partnership, joint venture or other entity other than those listed in Section
10.8 of the HDS Disclosure Schedule.
10.9 Financial Statements; Absence of Certain Changes. For purposes of this
Agreement, "HDS Balance Sheet" means the unaudited balance sheet of HDS, as of
October 31, 2003 included as Exhibit 10.9 to this Agreement, and "HDS Balance
Sheet Date" means October 31, 2003. Except as otherwise set forth in Section
10.9 of the HDS Disclosure Schedule or required by the terms of this Agreement
or any of the other Transaction Documents, since the HDS Balance Sheet Date, the
business of HDS and its subsidiaries has been conducted in the ordinary course
consistent with past practices and there has not been:
10.9.1 any even, occurrence, development or state of circumstances or
facts which would, individually or in the aggregate, have a Material
Adverse Effect on HDS, other than adverse effects resulting from the
execution and performance of this Agreement;
10.9.2 any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of HDS;
10.9.3 there has not been any amendment of any material term of any
outstanding security of HDS or any of its subsidiaries;
10.9.4 any incurrence, assumption or guarantee by HDS or any of its
subsidiaries of any material indebtedness for borrowed money other than in
the ordinary course and in amounts and on terms consistent with past
practices;
10.9.5 any creation or other incurrence by HDS or any of its
subsidiaries of any Lien or Encumbrance on any material asset other than in
the ordinary course consistent with past practices;
10.9.6 any making of any material loan, advance or capital
contributions to or investment in any person other than loans, advances or
capital contributions made in the ordinary course consistent with past
practices;
10.9.7 any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of HDS or any of its
subsidiaries which would, individually or in the aggregate, have a Material
Adverse Effect on HDS.
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10.9.8 any transaction or commitment made, or any contract or
agreement entered into, by HDS or any of its subsidiaries relating to its
assets or business (including the acquisition or disposition of any assets)
or any relinquishment by HDS or any of its subsidiaries of any contract or
other right, in either case, material to HDS and its subsidiaries, taken as
a whole, other than transactions and commitments in the ordinary course
consistent with past practices and those contemplated by this Agreement;
10.9.9 any (i) grant of any severance or termination pay to any
current or former director, officer or employee of HDS or any of its
subsidiaries, (ii) increase in benefits payable under any existing
severance or termination pay policies or employment agreements, (iii)
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any
current or former director, officer or employee of the Nesco or any of its
subsidiaries, (iv) establishment, adoption or amendment (except as required
by applicable law) of any collective bargaining, bonus, profit sharing,
thrift, pension, retirement, deferred compensation, compensation, stock
option, restricted stock or other benefit plan or arrangement covering any
current or former director, officer or employee of HDS or any of its
subsidiaries, or (v) increase in compensation, bonus or other benefits
payable or otherwise made available to any current or former director,
officer or employee of HDS or any of its subsidiaries;
10.9.10 any material dispute or, with any officer, director or
employee of HDS; or any tax election or any settlement or compromise of any
tax liability, in either case that is material to HDS and its subsidiaries,
taken as a whole.
10.10 No Undisclosed Material Liabilities. As of the date hereof, there are
no liabilities of HDS or any of its subsidiaries 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, other than:
10.10.1 liabilities or obligations provided for in HDS Balance Sheet
or disclosed in the notes thereto;
10.10.2 other liabilities or obligations, which would not,
individually or in the aggregate, have a Material Adverse Effect on HDS;
10.10.3 liabilities or obligations under this Agreement; and
10.10.4 liabilities or obligations described in this Agreement or in
Section 10.10 of the HDS Disclosure Schedule.
10.11 Compliance with Laws and Court Orders. HDS and each of its
subsidiaries is and has been in compliance with, and to the best knowledge of
HDS, is not under investigation with respect to and has not been threatened to
be charged with or given notice of any violation of, any applicable law, rule,
regulation, judgment, injunction, order or decree, except for such matters as
would not, individually or in the aggregate, have a Material Adverse Effect on
HDS.
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10.12 Litigation. There is no claim, dispute, action, suit, proceeding or
investigation pending or, to the knowledge of HDS, threatened, against or
affecting the business of HDS, or challenging the validity or propriety of the
transactions contemplated by this Agreement, at law or in equity or admiralty or
before any federal, state, local, foreign or other governmental authority,
board, agency, commission or instrumentality, nor to the knowledge of HDS, has
any such claim, dispute, action, suit, proceeding or investigation been pending
or threatened, during the 12 month period preceding the date hereof; (b) there
is no outstanding judgment, order, writ, ruling, injunction, stipulation or
decree of any court, arbitrator or federal, state, local, foreign or other
governmental authority, board, agency, commission or instrumentality, against or
materially affecting the business of HDS ; and (c) HDS has not received any
written or verbal inquiry from any federal, state, local, foreign or other
governmental authority, board, agency, commission or instrumentality concerning
the possible violation of any law, rule or regulation or any matter disclosed in
respect of its business.
10.13 Finder's Fee. There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of HDS
or any of its subsidiaries who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement other than
Adviser. Adviser has agreed that its sole compensation for acting as an adviser
to HDS in connection with the Exchange and any other transactions contemplated
hereby or by any other Transaction Document shall be the Adviser Shares.
10.14 Taxes. Except as set forth in the HDS Balance Sheet (including the
notes thereto) or Section 10.14 of the HDS Disclosure Schedule and except as
would not, individually or in the aggregate, have a Material Adverse Effect on
HDS, (a) all tax returns, statements, reports and forms (collectively, the "HDS
Returns") required to be filed with any taxing authority by, or with respect to,
HDS and its subsidiaries and each affiliated, combined, consolidated or unitary
group of which HDS is a member are true, correct and complete and have been
filed in accordance with all applicable laws; (b) HDS and its subsidiaries have
timely paid all taxes shown as due and payable on the HDS Returns that have been
so filed (other than taxes which are being contested in good faith and for which
adequate reserves are reflected on the HDS Balance Sheet) and, as of the time of
filing, the HDS Returns correctly reflected the facts regarding the income,
business, assets, operations, activities and the status of HDS and its
subsidiaries; (c) the charges, accruals and reserves for taxes with respect to
HDS and its subsidiaries reflected on the HDS Balance Sheet are adequate under
GAAP to cover the tax liabilities accruing through the date thereof; (d) there
is no action, suit, proceeding, audit or claim now proposed or pending against
or with respect to HDS or any of its subsidiaries in respect of any tax where
there is a reasonable possibility of an adverse determination; and (e) neither
HDS nor any of its subsidiaries has been a member of an affiliated,
consolidated, combined or unitary group other than one of which HDS was the
common parent.
10.15 Employee Benefit Plans. Except as set forth in Section 10.15 of the
HDS Disclosure Schedule, HDS does not maintain, nor has HDS maintained in the
past, any "employee benefit plans"as defined in Section 3(3) of ERISA, or any
plans, programs, policies, practices, arrangements or contracts (whether group
or individual) providing for payments, benefits or reimbursements to employees
of HDS, former employees, their beneficiaries and dependents under which such
employees, former employees, their beneficiaries and dependents are covered
through an employment relationship with HDS, any entity required to be
aggregated in a controlled group or affiliated service group with HDS for
purposes of ERISA or the Code (including, without limitation, under Section
414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA), at any relevant
time.
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10.16 Environmental Matters. Except as would not, individually or in the
aggregate, have a Material Adverse Effect on HDS: (a) no notice, notification,
demand, request for information, citation, summons or order has been received,
no complaint has been filed, no penalty has been assessed, and no investigation,
action, claim, suit, proceeding or review is pending or, to the knowledge of
HDS, is threatened by any governmental entity or other person relating to or
arising out of any Environmental Law; and (b) there are no liabilities of or
relating to HDS or any of its subsidiaries of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise arising
under or relating to any Environmental Law and there are no facts, conditions,
situations or set of circumstances which could reasonably be expected to result
in or be the basis for any such liability.
10.17 Patents and Other Proprietary Rights. HDS has all Intellectual
Property Rights material to its business as currently conducted. To the best of
HDS's knowledge, neither HDS nor any of its subsidiaries has not and does not
violate or infringe any Intellectual Property Right of any other person, and
neither HDS nor any of its subsidiaries has received any communication alleging
that it violates or infringes any Intellectual Property Right of any other
person. Except for such matters as would not, individually or in the aggregate,
have a Material Adverse Effect on HDS, neither HDS nor any of its subsidiaries
has been sued for infringing any Intellectual Property Right of another person.
10.18 Antitakeover Statutes. Excluding any statute or regulation applicable
solely by virtue of the jurisdiction of incorporation of Nesco as to which HDS
takes no position nor makes any representation or warranty, and except as
provided in Section 10.5, no antitakeover or similar statute or regulation
applies to the transactions contemplated hereby.
10.19 Beneficial Ownership of Signatory Stockholders. The HDS Signatory
Stockholders own, in the aggregate, not less than 50.1% of (a) the shares of HDS
Common and (b) the shares of HDS Series B Preferred, in each case, issued and
outstanding on the date hereof. Except as otherwise expressly provided herein,
the HDS Signatory Stockholders shall not offer, sell, transfer, pledge, assign
or otherwise dispose of any of their shares of HDS Common, HDS Series B
Preferred or securities convertible into or exchangeable for HDS Common (and any
Nesco Exchange Shares received in accordance with this Agreement) from the date
hereof until the earlier of (a) termination of this Agreement and (b)
effectuation of the Exchange Transactions.
10.20 HDS Signatories. The HDS Signatory Stockholders include each officer,
director and holder of 5% of any class of outstanding voting securities of HDS.
Each HDS Signatory Stockholder agrees to vote all voting securities of HDS held
by such Stockholder (and any Nesco Exchange Shares received in accordance with
this Agreement) in favor of and/or to consent in writing to, the Exchange and
the other transactions contemplated hereby and by the other Transaction
Documents. Each HDS Signatory Stockholder covenants, represents and warrants
that such Stockholder shall do all acts and things, including the execution and
delivery of all documents and instruments, necessary or proper (a) to effectuate
the Exchange, effectuate the Exchange Transactions and the other transactions
contemplated hereby and by any of the other Transaction Documents and (b) to
cause HDS to carry out its obligations hereunder and under each of the other
Transaction Documents.
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10.21 No General Solicitation. Solicitation by HDS of participants in the
Exchange shall be effected without use of any form of general solicitation or
advertising and in all other respects in compliance with the requirements for an
exemption from registration pursuant to Regulation D.
10.22 Investment Representations.
10.22.1 Each HDS Signatory Stockholder is acquiring Nesco Exchange
Shares for investment for such Stockholder's own account and not as a
nominee or agent, and not with a view to the resale or distribution of any
part thereof.
10.22.2 Each HDS Signatory Stockholder understands, and each other
Seller shall execute and deliver, at or prior to the Closing, a statement
that such Seller understands, that the offer and sale of the Nesco Exchange
Shares have not been and will not be registered under the Securities Act on
the ground that the sale and the issuance of securities hereunder is exempt
from registration under the Securities Act pursuant to Section 4(2)
thereof, and that Nesco's reliance on such exemption is predicated on such
Seller's representations set forth in Sections 10.22.2 and 10.22.4 hereof.
10.22.3 Each HDS Signatory Stockholder hereby confirms that such
Stockholder is an Accredited Investor.
10.22.4 Each HDS Signatory Stockholder acknowledges, and each other
Seller shall acknowledge in writing on or prior to the Closing Date, that
such Person can bear the economic risk of this investment, and has such
knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the Exchange and the related
investment in Nesco Exchange Shares.
11. COVENANTS OF NESCO AND NESCO SIGNATORY STOCKHOLDERS PENDING CLOSING. Each of
(a) the Nesco Signatory Stockholders, to the extent within such Stockholder's
control, and (b) Nesco covenants that, except as otherwise provided in this
Agreement, from the date hereof until the first to occur of the Closing Date and
the Termination Date:
11.1 Preservation. Nesco shall:
11.1.1 maintain its corporate existence in good standing;
11.1.2 preserve intact in all material respects its business
organization, preserve its goodwill, exercise reasonable efforts to keep
available the services of Nesco's current officers and employees, to
preserve the goodwill of those having business relations with Nesco, and
perform all contracts to which Nesco is a party; and
11.1.3 maintain in effect all of its currently existing insurance
coverage, if any, or substantially equivalent insurance coverage; and
11.1.4 notify HDS immediately of any litigation or other proceeding in
which Nesco or any of its executive officers or directors is named as a
defendant or respondent and any claim for insurance not disclosed in detail
35
in any Nesco SEC Filing made prior to January 1, 2004.
11.2 Negative Covenants. Nesco shall not and the Nesco Signatory
Stockholders agree they shall not, except as contemplated by this Agreement
or as may be necessary to effectuate the transactions contemplated by this
Agreement or any other Transaction Document, do or propose to do or vote
their shares in favor of or consent to any of the following:
11.2.1 amend or otherwise modify its certificate of incorporation
or by-laws;
11.2.2 issue, sell, dispose of or subject to any Lien or
Encumbrance or authorize the issuance, sale, disposition, or creation
or sufferance of any Lien or Encumbrance on, or grant or issue any
option, warrant or other right to acquire, or make any agreement with
respect to, any shares of any class of Nesco's capital stock or any
security convertible into or exercisable for any such shares, or alter
any of the terms of any outstanding security or make any change in its
authorized or outstanding capital stock or its capitalization, whether
by reason of any reclassification, recapitalization, stock split,
combination, exchange or readjustment of shares, any stock dividend or
otherwise, or permit the exercise of any outstanding options;
11.2.3 declare, set aside, make or pay any dividend or other
distribution to any Nesco Stockholder with respect to any class of
capital stock of Nesco or any NAC Entity; or
11.2.4 redeem, purchase or otherwise acquire any of its
outstanding securities;
11.2.5 encumber any of its material assets or properties;
11.2.6 increase the compensation or other remuneration or
benefits payable or to become payable to any director or executive
officer, or increase the compensation or other remuneration of
benefits payable or to become payable to any other employee,
consultant or agent;
11.2.7 adopt or, except as required by applicable law, amend or
make any unscheduled contribution to any employee benefit plan for or
with employees, or hire any employees;
11.2.8 enter into any material contracts or terminate or modify
any contract, other than in furtherance of the purposes of this
Agreement, except for any termination upon the expiration of any
contract prior to the earlier of the Closing Date or Termination Date
in accordance with the terms of such contract;
11.2.9 create, incur, assume or otherwise become liable for any
indebtedness in an aggregate amount in excess of $5,000, other than
indebtedness directly in furtherance of the transactions contemplated
by any of the Transaction Documents;
36
11.2.10 commence any new operations, whether by acquiring or
developing any line of business;
11.2.11 cancel, compromise, release or waive any material
receivable, claim or right;
11.2.12 change its method of accounting or the accounting
principles or practices used in the preparation of the Nesco Financial
Statements, other than as required by GAAP or SEC accounting rules or
as may be requested in writing by HDS's auditors;
11.2.13 make any loan or advance to any person or acquire any
capital stock or other securities or ownership interest in or any
material amount of assets of any other business enterprise, or make
any material capital investment or expenditure or capital improvement;
11.2.14 institute or settle any action or proceeding before any
Governmental Authority relating to Nesco, the issuance of any
securities of Nesco, or any of its material assets or properties;
11.2.15 adopt any plan of dissolution or liquidation;
11.2.16 make any new election or change in any current election
with respect to any Taxes, or settle or compromise any federal, state
local or foreign Tax liability or agree to the extension of any
statute of limitations;
11.2.17 take any action that would render any of the
representations or warranties of Nesco or the Nesco Signatory
Stockholders contained in this Agreement misleading, untrue or
incorrect in any material respect (subject to any limitations on
materiality set forth therein), or cause Nesco or any Nesco Signatory
Stockholder to breach or fail to satisfy or comply with any covenant,
condition or agreement of Nesco or any Nesco Signatory Stockholder
contained herein or in any of the other Transaction Documents in any
material respect.
11.2.18 violate the terms of the Standstill Agreement.
11.3 Access and Information. Subject to the provisions of Section 13.3,
Nesco shall comply with the provisions of Section 4.10.
11.4 Reservation of Shares of Nesco Common. Prior to the Closing, Nesco
shall have reserved for issuance pursuant to this Agreement the number of shares
of Nesco Common sufficient to meet all of Nesco's obligations hereunder.
11.5 Board of Directors.
11.5.1 Nesco and each Nesco Signatory Stockholder who is a member of
the Nesco Board hereby covenant and agree that from and after the Closing,
the two (2) current members of the Nesco Board shall appoint ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ and another Person to be designated by HDS (the "HDS Designees")
to fill two (2) of the three (3) vacancies currently existing of Nesco's
Board of Directors; the foregoing to be acceptable to the Nesco Board in
37
the good faith exercise of its reasonable business judgment, which right
shall not be assignable. Nesco and each Nesco Signatory Stockholder who is
a member of the Nesco Board further agrees that they shall take all action
necessary to nominate the HDS Designees to stand for election as directors
of Nesco at the initial annual meeting of Nesco Stockholders held after the
Closing and at every annual meeting thereafter unless waived by the HDS
Signatory Stockholders.
11.5.2 The HDS Designees may not be removed or replaced without the
prior written consent of the HDS Signatory Stockholders (other than any
such Stockholders who, at the time consent is requested, are no longer
holders of Nesco Common or officers or directors of HDS) except for removal
for Cause (but subject to the rights of such HDS Signatory Stockholders to
designate the individual to fill any such vacancy and of the Board of
Directors to accept the HDS Designee, as provided herein).
11.5.3 Nesco agrees that the HDS Designees shall be entitled to and
shall receive the same compensation as other members of the Nesco Board
receive for serving on the Nesco Board.
11.5.4 Anything contained in this Section 11.5 to the contrary
notwithstanding, Nesco, the Nesco Board and each Nesco Signatory
Stockholder who is a member of the Nesco Board shall not have any
obligation under this Section 11 to do any act or thing which violates any
provision of applicable law, rule or regulation whether of Nevada or
applicable Federal or state securities law, rule or regulation.
11.5.5 The parties shall comply with the Exchange Act, including Rule
14-f-1 promulgated thereunder, in connection with the changes to be made in
the composition of the Nesco Board pursuant to this Section 11.5.
12. COVENANTS OF HDS AND HDS SIGNATORY STOCKHOLDERS PENDING CLOSING. HDS and the
HDS Signatory Stockholders, as applicable, covenant and agree that except as
otherwise provided in this Agreement, from the date hereof until the first to
occur of the Closing Date and the Termination Date:
12.1 Preservation. HDS shall:
12.1.1 maintain its corporate existence in good standing;
12.1.2 preserve intact in all material respects its business
organization, preserve its goodwill, exercise reasonable efforts to keep
available the services of its current officers and perform all contracts to
which HDS is or becomes a party;
12.1.3 maintain in effect all of its currently existing insurance
coverage, if any, or substantially equivalent insurance coverage; and
12.1.4 notify Nesco immediately of any litigation or other proceeding
in which HDS or any of its executive officers or directors is named as a
defendant or respondent.
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12.2 Negative Covenants. HDS shall not and the HDS Signatory Stockholders
agree they shall not, except as contemplated by this Agreement or as may be
necessary to effect the transactions contemplated by this Agreement, do or
propose to do or vote their shares of HDS Common or HDS Series B Preferred or
otherwise consent to any of the following:
12.2.1 amend or otherwise modify its certificate of incorporation or
by-laws;
12.2.2 issue, sell, dispose of or subject to any Lien or Encumbrance
or authorize the issuance, sale, disposition, or imposition of any Lien or
Encumbrance on, or grant or issue any option, warrant or other right to
acquire, or make any agreement with respect to, any shares of any class of
capital stock of HDS or any security convertible into or exercisable for
any such securities, or alter any of the terms of any outstanding security
or make any change in its authorized or outstanding capital stock or its
capitalization, whether by reason of any reclassification,
recapitalization, stock split, combination, exchange or readjustment of
shares, any stock dividend or otherwise, or permit the exercise of any
outstanding options;
12.2.3 declare, set aside, make or pay any dividend or other
distribution to any HDS Stockholder in respect of any class of capital
stock of HDS;
12.2.4 redeem, purchase or otherwise acquire any of its outstanding
securities;
12.2.5 increase the compensation or other remuneration or benefits
payable or to become payable to any director or executive officer, or
increase the compensation or other remuneration of benefits payable or to
become payable to any other employee or consultant or agent;
12.2.6 adopt or, except as required by applicable law, amend or make
any unscheduled contribution to any employee benefit plan for or with
employees, or hire any employees;
12.2.7 terminate or modify any contract, other than in furtherance of
the purposes of this Agreement, except for any termination upon the
expiration of any contract prior to the earlier of the Closing Date or
Termination Date in accordance with the terms of such contract;
12.2.8 create, incur, assume or otherwise become liable for any
indebtedness in an aggregate amount in excess of $5,000, other than
indebtedness in furtherance of the transactions contemplated by any of the
Transaction Documents, any indebtedness to Nesco or any of its Affiliates
and indebtedness incurred in the ordinary course of business consistent
with past practices;
12.2.9 cancel, compromise, release or waive any material receivable,
claim or right of HDS;
12.2.10 adopt accounting principles or practices other than as
required by GAAP or SEC accounting rules or as may be recommended by HDS's
auditors;
39
12.2.11 make any loan or advance to any person or acquire any capital
stock or other securities, or ownership interest in or any material amount
of assets, of any other business enterprise, or make any material capital
investment or expenditure or capital improvement;
12.2.12 adopt any plan of dissolution or liquidation;
12.2.13 settle or compromise any federal, state local or foreign Tax
liability or agree to the extension of any statute of limitations;
12.2.14 take any action that would render any of the representations
or warranties of HDS contained in this Agreement misleading, untrue or
incorrect in any material respect (subject to any limitations on
materiality set forth herein), or cause HDS or any HDS Signatory
Stockholder to breach or fail to satisfy or comply with any covenant,
condition or agreement of HDS or any HDS Signatory Stockholder contained
herein or in any of the other Transaction Documents in any material
respect; or
12.2.15 violate the terms of the Standstill Agreement.
12.3 Access and Information. Subject to the provisions of Section 10.2
hereof, HDS shall comply with the provisions of Section 5.2.
12.4 Covenants of HDS Signatory Stockholders. The HDS Signatory
Stockholders agree to vote their respective shares of HDS Common and/or HDS
Series B Preferred in favor of, or consent to, an action that may be required to
be taken by HDS Stockholders in connection with the transactions contemplated by
this Agreement or any other Transaction Document.
13. CERTAIN COVENANTS OF THE PARTIES PENDING AND FOLLOWING CLOSING.
13.1 Covenants of Nesco Signatory Stockholders and HDS Signatory
Stockholders. By executing this Agreement, the Nesco Signatory Stockholders and
the HDS Signatory Stockholders agree, subject to filing of the Information
Statement, to vote their respective shares of voting securities of Nesco
(whether held on the date hereof or acquired at any time from the date hereof
through the Closing Date) in favor of, or to consent to, the following: (i) the
Nesco Name Change, (ii) an increase in the number of authorized shares of Nesco
Common pursuant to the Additional Capitalization Amendment and such Amendment,
(iii) the Reverse Split and the Reverse Split Amendment and (iv) election of the
two HDS Directors to the Nesco Board as provided in Section 11.5 and any other
actions that may be necessary or proper to effectuate any of the foregoing (the
"Exchange Transactions"). Each of the Nesco Signatory Stockholders and the HDS
Signatory Stockholders further acknowledges and agrees that except for the
exercise or exchange of securities contemplated by this Agreement, such
Stockholders may not offer, sell, transfer, pledge, assign, hypothecate or
otherwise dispose of their respective securities of Nesco (whether held on the
date hereof or acquired at any time from the date hereof through the Closing
Date) until the Exchange Transactions shall have been effected. Each Nesco
Signatory Stockholder who is and each HDS Signatory Stockholder who becomes a
member of the Nesco Board agrees to act in furtherance of the obligations
provided in Section 11.5, provided, however, that anything contained in this
Section 13.1 to the contrary notwithstanding, no such Stockholder shall have any
40
obligation under this Section to do any act or thing which violates its duties
as a director under applicable law or any other provision of applicable laws,
rules or regulations, whether applicable state corporate law or applicable state
or Federal securities laws, rules or regulations.
13.2 Initial 8-K. Upon execution and delivery of this Agreement, Nesco
shall prepare and cause its counsel to prepare and provide to HDS and its
counsel for review, a Current Report on Form 8-K for filing with the SEC with
respect to such execution and delivery (the "Initial 8-K"). HDS and its counsel
shall provide Nesco and its counsel with any comments on the Initial 8-K no
later than one business day prior to the due date for filing same with the SEC,
provided that HDS and its counsel shall have received a draft of same no later
than five (5) business days prior to such due date. HDS shall provide Nesco with
such information as Nesco may reasonably request in connection with the
preparation of the Initial 8-K.
13.3 Confidentiality. Each of the parties covenants and agrees to keep
confidential any and all material non-public information which it has heretofore
obtained or shall hereafter obtain, directly or indirectly, from Nesco or HDS
pursuant to this Agreement or otherwise, and agrees to use the same only for the
purposes of this Agreement but without disclosing the same to any party except
as provided below, without Nesco's prior written consent; provided that the
terms of this Section 13.3 shall not extend to any such information that: (a) is
already publicly known; (b) has become publicly known without any fault of the
disclosing party or anyone to whom HDS or Nesco has made disclosure in
compliance with the terms of this Section 13.3; or (c) is required to be
disclosed to any Governmental Authority as a result of operation of law,
regulation, or court order; provided, however, that party wishing to make any
disclosure pursuant to this clause (c) shall have first given prompt written
notice, if permitted, of such requirement to HDS and Nesco and cooperates with
Nesco and HDS to restrict such disclosure and/or obtain confidential treatment
thereof. The foregoing notwithstanding, each of HDS and Nesco may disclose such
information to its Affiliates and its directors, officers and employees and
representatives or the directors, officers, employees and representatives of any
of its Affiliates that have a need to know such information (collectively, the
"HDS Parties" and the "Nesco Parties," respectively); provided that HDS or
Nesco, as the case may be, informs such Persons of the restrictions set forth in
this Section 13.3 with respect to such information and such Persons agree to
comply with the provisions of this Section 13.3. Each of HDS and Nesco further
agrees to give prompt notice to the other of any disclosure made by any of the
HDS Parties or the Nesco Parties, respectively, in breach of this Section 13.3,
to the extent HDS or Nesco, respectively, has knowledge of such disclosure;
provided that HDS or Nesco, respectively, shall have no liability for losses
incurred by the other party or any of its Affiliates or their respective
officers, directors, stockholders, employees, or representatives solely as the
result of the failure by Nesco or HDS, respectively, following its actual
receipt of notice from HDS or Nesco, respectively, of disclosure of information
in breach of this Agreement, to make prompt public disclosure of the information
so disclosed. For purposes of this Section 13.3, the knowledge of HDS shall mean
the actual knowledge of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or any successors to him as Chief
Executive Officer of HDS and the knowledge of Nesco shall mean the actual
knowledge of its Chief Executive Officer.
13.4 Standstill Agreement. Except as otherwise provided in this Agreement,
the parties agree that the following affirmative and negative covenants apply
between the date hereof and the first to occur of (a) the Closing Date and (b)
termination of this Agreement (the "Standstill Agreement"):
41
13.4.1 neither Nesco or any of the Nesco Signatory Stockholders shall
discuss or negotiate with any other Person, or entertain or consider any
inquiries, or proposals relating to any the possible issuance of any
capital stock or other securities of Nesco in connection with any
acquisition of another Person by Nesco or Nesco's acquisition by another
Person, whether through an exchange of securities, stock or asset
acquisition, merger, consolidation or otherwise; and Nesco shall, and the
Nesco Signatory Stockholders shall cause Nesco to, conduct business only in
the ordinary course.
13.4.2 neither HDS or any of the HDS Signatory Stockholders shall
discuss or negotiate with any other Person, or entertain or consider any
inquiries, or proposals relating to any the possible issuance of any
capital stock or other securities of HDS in connection with any acquisition
of another Person by HDS or HDS's acquisition by another Person, whether
through an exchange of securities, stock or asset acquisition, merger,
consolidation or otherwise; and HDS shall, and the HDS Signatory
Stockholders shall cause HDS to, conduct business only in the ordinary
course.
13.4.3 Notwithstanding the foregoing provisions of this Section 13.4,
Nesco and HDS shall be free to engage in activities described in Sections
13.4.1 and 13.4.2, respectively, which are designed to further the mutual
interests of the parties for the contemplated Exchange, their
reorganization and advancement of HDS's business plan.
13.5 Notification as to Certain Events. Each party shall promptly notify
the others of (a) the occurrence or non-occurrence of any fact or event of which
such party has knowledge that would be reasonably likely (i) to cause any
representation or warranty of such party contained in this Agreement to be
untrue or incorrect in any material respect at any time from the date hereof to
the Closing or (ii) to cause any covenant, condition or agreement of such party
in this Agreement not to be complied with or satisfied in any material respect
and (b) any failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder in any
material respect; provided, however, that no such notification shall affect any
of the representations or warranties of such party, or the right of the other
party to rely thereon, or the conditions to the obligations of the parties, or
the remedies available hereunder, except as otherwise provided in Section 16.
The parties shall give prompt notice to the other parties of any notice or other
communication from any third Person alleging that the consent of such third
Person is or may be required in connection with the transactions contemplated by
this Agreement.
13.6 Reasonable Efforts; Further Action. Upon the terms and subject to the
conditions contained herein, each of the parties hereto shall use its reasonable
efforts (exercised diligently and in good faith) to take, or cause to be taken,
all actions and to do, or cause to be done, all other things reasonably
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, to obtain in a
timely manner all necessary authorizations and approvals and to effect all
necessary registrations and filings, and otherwise to satisfy or cause to be
satisfied all conditions precedent to its obligations under this Agreement. If,
at any time after the Closing, any such further action is necessary or desirable
to carry out the purposes of this Agreement, the officers and directors of Nesco
and HDS immediately prior to the Closing are fully authorized in the name of
their respective companies or otherwise to take, and will take, all such lawful
and necessary or desirable action.
42
13.7 Nesco Charter Amendments. As promptly as practicable following the
Closing and otherwise in compliance with the terms of this Agreement, Nesco
shall increase to 400,000,000 the number of shares of Nesco Common which it is
authorized to issue and thereafter effectuate the Reverse Split. Prior to the
Closing Date, Nesco shall file the Certificate of Designation in Nevada in
compliance with the applicable provisions of the NRS.
13.8 Closing Report. Upon Closing, Nesco shall prepare and cause its
counsel to prepare and provide to HDS and its counsel for review, a Current
Report on Form 8-K for filing with the SEC with respect to the consummation of
the transactions contemplated by this Agreement (the "Closing Report"). HDS and
its counsel shall provide Nesco and its counsel with any comments on the draft
of the Closing 8-K no later than one business day prior to the due date for
filing same with the SEC, provided that HDS and its counsel shall have received
a draft of same no later than five (5) business days prior to such due date. HDS
shall provide Nesco with such information as Nesco may reasonably request in
connection with the preparation of the Closing 8-K. HDS and Nesco shall, and
shall cause their respective auditors to, cooperate in the preparation of the
financial statements required to be filed with or as an amendment to the Closing
Report (the "Exchange Financial Statements").
13.9 Additional Filings. The parties shall cooperate with respect to all
other filings, applications and notices required to be submitted to any
Governmental Authorities and other Persons, or necessary or proper to carry out
the transactions contemplated by any of the Transaction Documents.
13.10 Lock-Up. Each participant in the Exchange, other than holders of
Nesco Series A Preferred and Nesco Warrants, agrees not to offer, sell,
transfer, assign pledge, hypothecate or otherwise dispose of the Nesco Common or
Nesco Series B Preferred (or the Nesco Common same will convert into upon filing
of the Additional Capitalization Amendment) such stockholder receives in the
Exchange for a period commencing on the date on which such holder receives such
securities in the Exchange and continuing until the first anniversary of the
Closing Date (the "Lock-Up").
13.11 Underwritten Public Offering. In the event that shares of Nesco
Common are registered in connection with an underwritten public offering
undertaken at any time after one hundred twenty (120) days following the Closing
Date, all shares of Nesco Common held by the Nesco Signatory Stockholders, the
HDS Signatory Stockholders, the holder of the Nesco Stockholder Debt, and the
holders of the NAC Shares, the Nesco Warrants and the Nesco Series A Preferred
shall be entitled to include their shares of Nesco Common outstanding or
issuable on the date hereof or immediately following the Closing, subject to
underwriter cutbacks, in the underwriter's sole discretion (an "Underwritten
Offering"). In the event that Nesco does not have a written agreement providing
for an Underwritten Offering by the 180th day following the Closing Date, the
Nesco Signatory Stockholders holding 50.1% or more, in the aggregate, of the
then outstanding voting securities held by them, shall have the right to demand
that Nesco register their shares for resale under the Securities Act.
14. DELIVERIES AT CLOSING.
14.1 Nesco Deliveries. Nesco and the Nesco Signatory Stockholders shall
deliver to HDS at Closing:
43
14.1.1 certificates representing the Nesco Exchange Shares, duly
endorsed in blank for transfer;
14.1.2 the Nesco Exchange Debentures issuable to the holders of the
HDS Term Debt and the holder of the Nesco Stockholder Debt, if such holder
exercises its option to receive debentures in exchange for such Debt;
14.1.3 a certificate of an executive officer of Nesco certifying that
the representations and warranties of Nesco contained in this Agreement are
true and correct on the Closing Date (except those representations and
warranties which by their terms refer to another date or dates and that
Nesco has satisfied all of the conditions to Closing which it is required
to satisfy pursuant to this Agreement;
14.1.4 a copy of a certificate of good standing for Nesco issued not
more than five (5) days prior to Closing by the Nevada Secretary or
Department of State; and
14.1.5 a certificate of the Secretary of Nesco certifying as to the
incumbency and signatures of the officers of Nesco executing and delivering
documents at Closing, and that attached to such certificate are true and
correct copies of the certificate of incorporation and by-laws of Nesco,
each as amended to the Closing Date, and including the Additional
Capitalization Amendment.
14.1.6 opinion of counsel to Nesco to be annexed as Exhibit 14.1.6
hereto, in form and substance substantially as delivered in transactions of
this nature and legally satisfactory to counsel for HDS, in the exercise of
its reasonable legal judgment, provided that such opinion may be given by
Nesco's New York State counsel and may refer to, and rely upon, an opinion
of Nevada counsel to Nesco as to matters of Nevada law.
14.2 HDS Deliveries. HDS and/or the HDS Signatory Stockholders shall
deliver to Nesco at Closing:
14.2.1 certificates representing their shares of HDS Common and HDS
Series B Preferred or other evidence of issuance and ownership thereof;
14.2.2 Evidence of the HDS Term Debt for cancellation upon conversion;
14.2.3 a certificate of an executive officer of HDS certifying that
the representations and warranties of HDS contained in this Agreement are
true and correct on the Closing Date (except those representations and
warranties which by their terms refer to another date or dates and that HDS
has satisfied all of the conditions to Closing which it is required to
satisfy pursuant to Section 15 hereof;
14.2.4 a copy of a certificate of good standing for HDS issued not
more than five (5) days prior to Closing by the Department or Secretary of
State of Delaware; and
14.2.5 a certificate of the Secretary of HDS certifying as to the
incumbency and signatures of the officers of HDS executing and delivering
documents at Closing, and that attached to such certificate are true and
44
correct copies of the certificate of incorporation and by-laws of HDS, each
as amended to the Closing Date; and
14.2.6 an opinion of counsel to HDS to be annexed as Exhibit 14.2.6
hereto, in form and substance substantially as delivered in transaction of
this nature and legally satisfactory to counsel for Nesco, in the exercise
of its reasonable legal judgment.
15. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES.
15.1 Conditions Precedent to Obligations of All Parties. The obligations of
the parties to consummate the Exchange and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions:
15.1.1 Nesco shall have filed Form 99 and all other documents required
to be filed by it in connection with the Exchange under New York Blue Sky
Laws;
15.1.2 there shall be no default subsisting under the secured
equipment debt of HDS to Becton, ▇▇▇▇▇▇▇▇▇ in the outstanding principal
amount of $800,000 which shall not have been waived or cured, and the note
evidencing such debt shall have been restructured on terms which Nesco and
HDS agree can be serviced and amortized by Nesco in the ordinary course of
business;
15.1.3 HDS shall have entered into an amended deposit agreement with
Cygnus Corp., pursuant to which the $800,000 deposit shall have become
non-refundable and terms for applying the deposit or otherwise satisfying
the deposit obligation shall have been set forth; and
15.1.4 All required approvals of or consents to the Exchange and this
Agreement of any Governmental Authority shall have been obtained which may
be legally obtained on or before Closing Date.
15.2 Conditions Precedent to Obligations of Nesco and the Nesco Signatory
Stockholders. The obligations of Nesco and the Nesco Signatory Stockholders to
consummate the Exchange and the other transactions contemplated hereby are
subject to the satisfaction of the following conditions:
15.2.1 Each of HDS and the HDS Signatory Stockholders shall have
performed, in all material respects, all of their respective obligations
under this Agreement required to be performed by it or them prior to the
Closing Date;
15.2.2 the respective representations and warranties of HDS and the
HDS Signatory Stockholders contained in this Agreement and in any
certificate or other writing delivered by HDS or any such Stockholder
pursuant to this Agreement shall be true in all material respects at and as
of the Closing Date as if made at and as of such time, except to the extent
that particular representations or warranties are made as of other
specified date or dates, in which event, they shall be true in all material
respects as of such other date or dates, respectively, and Nesco shall have
45
received a certificate signed by an executive officer of HDS (which
certificate shall not impose any personal liability on such officer) to the
foregoing effect;
15.2.3 there shall have occurred no material adverse changes in the
business or financial condition of HDS between the date hereof and the
Closing Date; and
15.2.4 the holder (s)of the HDS Term Debt shall have agreed to effect
the HDS Term Debt Conversion upon Closing.
15.3 Conditions to Obligations of HDS and the HDS Signatory Stockholders.
The obligations of HDS and the HDS Signatory Stockholders to consummate the
Exchange and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, any of which may be waived by the HDS
Board with the consent of HDS Signatories holding a majority of the HDS Common
and HDS Series B Preferred held by such HDS Signatories:
15.3.1 Each of Nesco and the Nesco Signatory Stockholders shall have
performed, in all material respects, all of their respective obligations
under this Agreement required to be performed by it at or prior to the
Closing or the Closing Date;
15.3.2 the respective representations and warranties of Nesco and the
Nesco Signatory Stockholders contained in this Agreement and in any
certificate or other writing delivered by Nesco or any such Stockholder
pursuant to this Agreement shall be true in all material respects at and as
of the Closing Date as if made at and as of such time, except to the extent
that particular representations or warranties are made as of other
specified date or dates, in which event, they shall be true in all material
respects as of such other date or dates, respectively, and Nesco shall have
received a certificate signed by an executive officer of Nesco (which
certificate shall not impose any personal liability on such officer) to the
foregoing effect;
15.3.3 there shall have occurred no material adverse changes in the
business or financial condition of Nesco between the date hereof and the
Closing Date; and
15.3.4 The Nesco Warrant Conversion shall have been effected and the
Nesco Special Warrants shall have been cancelled prior to the Closing Date;
15.3.5 The Nesco Stockholder Debt shall have been converted into Nesco
Debentures as provided in this Agreement prior to the Closing Date;
15.3.6 Nesco shall have disposed of all of its right, title and
interest in the NAC Entities on the terms set forth in Section 4.6 hereof
prior to the Closing Date;
15.3.7 Nesco shall use its best efforts to have its shares of Nesco
Common re- admitted for quotation on the OTCBB as soon as practicable, and
there shall be no inquiry pending or threatened that could bar such
readmission or result in de-listing of Nesco Common for quotation or
trading on the OTCBB; Nesco and the Nesco Signatory Stockholders shall be
current in filing all reports and other documents required to be filed by
them, respectively, with the SEC;
46
15.3.8 On the Closing Date, Nesco shall have cash on hand of not less
than $550,000 and outstanding payables or debt not exceeding $200,000,
after giving effect to conversion of the Nesco Stockholder Debt as provided
in Section 4.4 hereof. The outstanding principal and accrued interest on
the Secured Term Loan in the principal amount of $125,000 between Hydrogel,
as borrower, and Nesco, as lender, shall be deemed part of the cash on hand
as required hereby;
15.3.9 The Exchange shall not violate any Federal or state law, rule
or regulation to which Nesco is subject, and Nesco shall have received all
necessary approvals and consents of the Nesco Board and its Stockholders,
if applicable.
15.3.10 Other than as provided in this Agreement, immediately prior to
the Closing, the number of shares of Nesco Common outstanding shall be no
greater than the number outstanding on the date hereof and no other
securities of Nesco shall be outstanding and there shall be no commitment
outstanding to issue any such securities.
16. TERMINATION.
16.1 Right to Terminate. This Agreement may be terminated prior to Closing,
and the contemplated transactions abandoned at any time prior to the Closing
Date without liability to either party, except as specified below in this
Section 16:
16.1.1 by mutual written agreement of Nesco and HDS;
16.1.2 by Nesco or HDS if (a) any provision of any applicable law or
regulation or (b) any judgment, injunction, order or decree of a court of
competent jurisdiction that prohibits the consummation of the Exchange is
entered and shall have become final and non- appealable, which law,
regulation, judgment, injunction, order or decree is not based upon the
requirement of approval of Nesco's Stockholders, provided that the party
seeking to terminate this Agreement pursuant to the foregoing provisions of
paragraph (b) of this Section 16.1.2 shall have used its reasonable best
efforts to remove any such injunction, order or decree.
16.1.3 by Nesco if: (i) any of the conditions precedent to the
obligations of Nesco set forth in Section 16.2 hereof shall not have been
satisfied in any material respect by the Closing Date or any other date
prior to the Closing provided herein for satisfaction thereof; or (ii) if,
on or prior to the Closing Date, the due diligence review by Nesco or its
representatives of the books and records of HDS reveals a material breach
of any of the representations and warranties of HDS or any HDS Signatory
Stockholder contained herein or in any certificate delivered pursuant to
this Agreement or there is any material adverse change in the financial
condition or results of operations of HDS from those as presented in the
HDS Balance Sheet, unless such change is reflected herein or in the HDS
Disclosure Schedule.
16.1.4 by HDS (i) if any of the conditions to the obligations of HDS
set forth in Section 16.3 hereof shall not have been satisfied in any
material respect by the Closing Date or any other date prior to the Closing
47
provided herein for satisfaction thereof; (ii) if, on or prior to the
Closing Date, the due diligence review by HDS or its representatives of
Nesco's books and records reveals a material breach of any of the
representations and warranties of Nesco or any Nesco Signatory Stockholder
contained herein or in any certificate delivered pursuant to this Agreement
or there is any material adverse change in the business or financial
condition or its results of operations of Nesco from those as presented in
the Nesco Annual Report and the Nesco 10-QSB for the period ended October
31, 2003; or (iii) pursuant to Section 4.5.2.
16.2 Termination Date; Notice of Termination. Any party may exercise its
right under Section to terminate this Agreement by giving notice thereof in
writing to each of the other parties (the "Termination Notice"). This Agreement
shall terminate on the date on which the first Termination Notice shall have
been given by HDS or Nesco pursuant to Section 18.
16.3 Effects of Termination. In the event of termination of this Agreement
pursuant to this Section 16 ("Termination"), each of the parties hereby
expressly waive their rights to recover all other damages, fees, costs, and
expenses, including incidental, consequential and punitive damages, from any of
the other parties as a result of any termination of this Agreement; provided,
however, that: (a) If either HDS or Nesco terminates this Agreement in bad
faith, the non-terminating party shall be entitled to recover reasonable
attorneys' and auditors' fees, costs and expenses expended in connection with
the Exchange; and (b) HDS may terminate this Agreement pursuant to the
provisions of Section 4.5.2. Effective as of the Termination Date, this
Agreement shall forthwith become void and of no further force or effect, except
for (i) the obligations set forth in this Section 16.3; and (ii) the obligations
of confidentiality set forth in Section 13.3 hereof.
17. NATURE AND SURVIVAL OF REPRESENTATIONS. All representations, warranties and
covenants of the parties contained herein or in any certificate or other
instrument delivered by or on behalf of any of the parties pursuant hereto, or
in connection with the transactions contemplated hereby, shall be deemed
representations and warranties by such party, respectively, but shall not
survive the Closing, provided, however, that representations of any party with
respect to any Tax matter, any Environmental Liability, any ERISA matter or
matter related to any employee benefit plan shall survive until expiration of
the applicable statute of limitations.
18. NOTICES. All notices, requests and other communications to any party
hereunder shall be in writing (including facsimile transmission) and shall be
given,
If to Nesco or any Nesco Signatory Stockholder, to:
Nesco Industries, Inc.
▇▇-▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No.: ____________________
Attention: ___________________
48
with a copy to:
Davidoff & Malto LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
If to HDS or any HDS Signatory Stockholder, to:
Hydrogel Design Systems, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Chief Executive Officer
with a copy to:
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
or to such other address or fax number as such party may hereafter specify
for purposes of notice by giving notice to the other parties hereto. All such
notices, requests and other communications shall be deemed given on the date of
receipt by the recipient thereof, if received prior to 5 p.m. in the place of
receipt and such day is a business day in the place of receipt, or if received
later, the next succeeding business day in the place of receipt.
19. AMENDMENTS; NO WAIVERS. Any provision of this Agreement may be amended or
waived prior to the first to occur of the Closing Date and the Termination Date
but only if such amendment or waiver is in writing and is signed, in the case of
an amendment, by each party to this Agreement, or in the case of a waiver, by
the party against whom the waiver is to be effective. No failure or delay by any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
20. GOVERNING LAW; ARBITRATION. This Agreement has been prepared, negotiated and
delivered in the State of New York and shall be governed by, and construed in
accordance with, the laws of that State, without giving effect to the principles
thereof relating to the conflict of laws. Any dispute arising pursuant to or in
any way related to this Agreement or the transactions contemplated hereby shall
be settled by arbitration, provided, however, that nothing in this Section shall
restrict the right of either party to apply to a court of competent jurisdiction
49
for emergency relief pending final determination of a claim by arbitration in
accordance with this Section. All arbitration shall be conducted in New York,
New York, in accordance with the rules and regulations of the American
Arbitration Association then obtaining. The laws of New York shall govern the
disposition of any such arbitration. The decision of the arbitrator shall be
binding upon the parties and judgment in accordance with that decision may be
entered in any court of competent jurisdiction. Each party hereby submits to the
jurisdiction of the American Arbitration Association and consents to the venue
stated in this Section.
21. ENFORCEABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable law, the parties
hereto hereby waive any provision of law which renders any provision hereof
prohibited or unenforceable in any respect.
22. SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto.
23. ENTIRE AGREEMENT. This Agreement, including all Exhibits and Schedules
hereto, constitutes the entire agreement between the parties with respect to the
subject matter of this Agreement and supersede all prior agreements and
understandings, both oral and written between or among any of the parties with
respect to the subject matter hereof and thereof.
24. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
SIGNATURE PAGES FOLLOW
50
COUNTERPART SIGNATURE PAGE
TO
SHARE EXCHANGE AGREEMENT DATED FEBRUARY __, 2004
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first written above, by signing on the appropriate signature page hereto.
HYDROGEL DESIGN SYSTEMS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Chief Executive Officer
SHAREHOLDERS
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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/s/ ▇▇▇ ▇▇▇▇
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/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
52
/s/ ▇▇▇▇ ▇▇▇▇
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/s/ ▇▇▇▇▇▇ ▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇
------------------
▇▇▇▇▇ ▇▇▇▇
The Falconwood Corp.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
JEF LTD Partnership
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Skyes Corp.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
K & A Trust
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------
▇▇▇▇▇▇ ▇▇▇▇▇
Embryo Development Corp.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Harto Family Partners, LP
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------
▇▇▇▇▇▇ ▇▇▇▇▇
KSH Strategic Fund
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
-------------------------
▇▇▇▇ ▇▇▇▇▇▇
KSH Investment Fund, 1, LP
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
-------------------------
▇▇▇▇ ▇▇▇▇▇▇
LW Marjac, LLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
The BRT Partnership
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
Solomon A. ▇▇▇▇▇▇▇
▇▇▇▇▇ Partners
By: /s/ ▇▇▇▇ ▇▇▇▇▇
-----------------------
Garo ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Educational Trust
By: /s/ ▇. ▇▇▇▇▇, tte.
------------------------
▇. ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ Revocable Living Trust
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇
-----------------------
▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇/SEP Bear ▇▇▇▇▇▇ as Custodian
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------
▇▇▇▇▇▇▇ ▇▇▇▇
The ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Trust
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
The ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ Trust
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
The ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Trust
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
MJH Trust
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
53
COUNTERPART SIGNATURE PAGE
TO
SHARE EXCHANGE AGREEMENT DATED FEBRUARY __, 2004
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first above written, by signing on the appropriate signature page hereto.
NESCO INDUSTRIES, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Chief Executive Officer
SHAREHOLDERS
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
--------------------
▇▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
----------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------
▇▇▇▇ ▇. ▇▇▇▇▇
KSH Strategic Investment Fund, 1, LP
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
-----------------------
▇▇▇▇ ▇▇▇▇▇▇
54
LIST OF EXHIBITS
Exhibit A NESCO DISCLOSURE SCHEDULE
Exhibit B HDS DISCLOSURE SCHEDULE
Exhibit 4.1 ADDITIONAL CAPITALIZATION AMENDMENT
Exhibit 8.1 EMPLOYMENT AGREEMENT
Exhibit 9.4 NESCO BOARD CONSENT
Exhibit 10.4 HDS BOARD CONSENT
Exhibit 10.9 HDS BALANCE SHEET
Exhibit 14.1.6 OPINION OF COUNSEL TO NESCO
Exhibit 14.2.6 OPINION OF COUNSEL TO HDS
55
Exhibit A
NESCO DISCLOSURE SCHEDULE
56
Exhibit B
HDS DISCLOSURE SCHEDULE
No additional information required.
57
Exhibit 4.1
ADDITIONAL CAPITALIZATION AMENDMENT
58
Exhibit 8.1
EMPLOYMENT AGREEMENT
59
Exhibit 9.4
NESCO BOARD CONSENT
60
Exhibit 10.4
HDS BOARD CONSENT
61
Exhibit 10.9
HDS BALANCE SHEET
62
Exhibit 14.1.6
OPINION OF COUNSEL TO NESCO
63
Exhibit 14.2.6
OPINION OF COUNSEL TO HDS
64
TABLE OF CONTENTS
1. INCORPORATION OF RECITALS; CERTAIN DEFINITIONS; CONSTRUCTION.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Recitals . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Certain Definitions. . . . . . . . . . . . . . . . . .1
1.3 Gender; Number; Certain Definitions, References. . . .7
1.4 Beneficial Ownership . . . . . . . . . . . . . . . . .8
2. PLAN OF REORGANIZATION. . . . . . . . . . . . . . . . . . .8
3. CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . .8
3.1 Capitalization of Nesco. . . . . . . . . . . . . . . .8
3.2 Nesco Security Ownership . . . . . . . . . . . . . . .9
3.3 HDS Capitalization . . . . . . . . . . . . . . . . . .9
3.4 HDS Beneficial Ownership . . . . . . . . . . . . . . .9
4. CERTAIN NESCO COVENANTS. . . . . . . . . . . . . . . . . 10
4.1 Additional Capitalization. . . . . . . . . . . . . . 10
4.2 Nesco Preferred Conversion . . . . . . . . . . . . . 10
4.3 Nesco Warrant Conversion . . . . . . . . . . . . . . 10
4.4 Conversion of Nesco Stockholder Debt . . . . . . . . 11
4.5 Disposition of NAC Entities. . . . . . . . . . . . . 11
4.6 Reverse Split. . . . . . . . . . . . . . . . . . . . 12
4.7 Change of Name . . . . . . . . . . . . . . . . . . . 12
4.8 Certificate of Designation . . . . . . . . . . . . . 12
4.9 Nesco Preliminary Information Statement. . . . . . . 13
4.10 Nesco Information Statement. . . . . . . . . . . . . 13
4.11 Due Diligence. . . . . . . . . . . . . . . . . . . . 13
5. CERTAIN HDS COVENANTS.. . . . . . . . . . . . . . . . . . 13
5.1 Cooperation. . . . . . . . . . . . . . . . . . . . . 13
5.2 Due Diligence. . . . . . . . . . . . . . . . . . . . 14
6. THE EXCHANGE. . . . . . . . . . . . . . . . . . . . . . . 14
6.1 Exchange of Securities . . . . . . . . . . . . . . . 14
6.2 HDS Debt . . . . . . . . . . . . . . . . . . . . . . 16
6.3 Adviser Shares . . . . . . . . . . . . . . . . . . . 17
6.4 Harriton Stock Option. . . . . . . . . . . . . . . . 17
6.5 Reverse Split; Information Statement . . . . . . . . 17
6.6 No Liens or Encumbrances . . . . . . . . . . . . . . 17
6.7 Change of Name . . . . . . . . . . . . . . . . . . . 17
6.8 Restrictions on Transfer . . . . . . . . . . . . . . 17
6.9 Reservation of Shares. . . . . . . . . . . . . . . . 19
6.10 Obligation to Participate in the Exchange; Exchange
Procedures . . . . . . . . . . . . . . . . . . . . . 19
6.11 Expenses of Exchange and Other Transactions. . . . . 19
65
7. CLOSING; CLOSING DATE.. . . . . . . . . . . . . . . . . . 19
7.1 Closing. . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Closing Date . . . . . . . . . . . . . . . . . . . . 19
7.3 Subsequent Closing Dates . . . . . . . . . . . . . . 20
8. EMPLOYMENT AGREEMENT; HARRITON OPTION. . . . . . . . . . 20
8.1 Employment Agreement . . . . . . . . . . . . . . . . 20
8.2 Harriton Option. . . . . . . . . . . . . . . . . . . 20
9. REPRESENTATIONS AND WARRANTIES OF NESCO AND THE NESCO
SIGNATORY STOCKHOLDERS . . . . . . . . . . . . . . . . . 21
9.1 Corporate Existence and Power. . . . . . . . . . . . 21
9.2 Articles of Incorporation and By-laws; Minute Books. 21
9.3 Corporate Authorization. . . . . . . . . . . . . . . 21
9.4 Nesco Board Consent. . . . . . . . . . . . . . . . . 21
9.5 Governmental Authorization . . . . . . . . . . . . . 21
9.6 Non-Contravention. . . . . . . . . . . . . . . . . . 22
9.7 Capitalization; Validity of Securities . . . . . . . 22
9.8 Subsidiaries; No Liability for Obligations of NAC
Entities . . . . . . . . . . . . . . . . . . . . . . 23
9.9 SEC Filings. . . . . . . . . . . . . . . . . . . . . 23
9.10 Financial Statements . . . . . . . . . . . . . . . . 23
9.11 Absence of Certain Changes . . . . . . . . . . . . . 23
9.12 No Undisclosed Material Liabilities. . . . . . . . . 24
9.13 Compliance with Laws and Court Orders. . . . . . . . 25
9.14 Litigation . . . . . . . . . . . . . . . . . . . . . 25
9.15 Finder's Fee . . . . . . . . . . . . . . . . . . . . 25
9.16 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 25
9.17 Employee Benefit Plans . . . . . . . . . . . . . . . 26
9.18 Environmental Matters. . . . . . . . . . . . . . . . 26
9.19 Patents and Other Proprietary Rights . . . . . . . . 27
9.20 Antitakeover Statutes. . . . . . . . . . . . . . . . 27
9.21 Affiliate Transactions . . . . . . . . . . . . . . . 27
9.22 Trading; Reporting Company Status. . . . . . . . . . 27
9.23 Investment Representations . . . . . . . . . . . . . 27
9.24 Insurance. . . . . . . . . . . . . . . . . . . . . . 27
9.25 Ownership of Signatory Stockholders. . . . . . . . . 28
9.26 Accredited Investor Status . . . . . . . . . . . . . 28
9.27 Nesco Signatories . . . . . . . . . . . . . . . 28
9.28 No General Solicitation. . . . . . . . . . . . . . . 29
10. REPRESENTATION AND WARRANTIES OF HDS AND THE HDS SIGNATORY
STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . 29
10.1 Corporate Existence and Power. . . . . . . . . . . . 29
10.2 Certificate of Incorporation and By-laws; Minute
Books. . . . . . . . . . . . . . . . . . . . . . . . 29
10.3 Corporate Authorization. . . . . . . . . . . . . . . 29
10.4 HDS Board Consent. . . . . . . . . . . . . . . . . . 30
66
10.5 Governmental Authorization . . . . . . . . . . . . .30
10.6 Non-Contravention. . . . . . . . . . . . . . . . . .30
10.7 Capitalization; Validity of Securities. . . . . . . 30
10.8 Subsidiaries . . . . . . . . . . . . . . . . . . . .31
10.9 Financial Statements; Absence of Certain Changes . .31
10.10 No Undisclosed Material Liabilities . . . . . . . . 32
10.11 Compliance with Laws and Court Orders . . . . . . . 32
10.12 Litigation. . . . . . . . . . . . . . . . . . . . . 33
10.13 Finder's Fee. . . . . . . . . . . . . . . . . . . . 33
10.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . 33
10.15 Employee Benefit Plans. . . . . . . . . . . . . . . 33
10.16 Environmental Matters . . . . . . . . . . . . . . . 34
10.17 Patents and Other Proprietary Rights. . . . . . . . 34
10.18 Antitakeover Statutes . . . . . . . . . . . . . . . 34
10.19 Beneficial Ownership of Signatory Stockholders. . . 34
10.20 HDS Signatories . . . . . . . . . . . . . . . . . . 34
10.21 No General Solicitation . . . . . . . . . . . . . . 35
10.22 Investment Representations. . . . . . . . . . . . . 35
11. COVENANTS OF NESCO AND NESCO SIGNATORY STOCKHOLDERS PENDING
CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . .35
11.1 Preservation . . . . . . . . . . . . . . . . . . . . 35
11.2 Negative Covenants . . . . . . . . . . . . . . . . . 36
11.3 Access and Information . . . . . . . . . . . . . . . 37
11.4 Reservation of Shares of Nesco Common. . . . . . . . 37
11.5 Board of Directors . . . . . . . . . . . . . . . . . 37
12. COVENANTS OF HDS AND HDS SIGNATORY STOCKHOLDERS PENDING
CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . .38
12.1 Preservation . . . . . . . . . . . . . . . . . . . . 38
12.2 Negative Covenants . . . . . . . . . . . . . . . . . 39
12.3 Access and Information . . . . . . . . . . . . . . . 40
12.4 Covenants of HDS Signatory Stockholders. . . . . . . 40
13. CERTAIN COVENANTS OF THE PARTIES PENDING AND FOLLOWING
CLOSING.. . . . . . . . . . . . . . . . . . . . . . . . . 40
13.1 Covenants of Nesco Signatory Stockholders and HDS
Signatory Stockholders . . . . . . . . . . . . . . . 40
13.2 Initial 8-K. . . . . . . . . . . . . . . . . . . . . 41
13.3 Confidentiality. . . . . . . . . . . . . . . . . . . 41
13.4 Standstill Agreement . . . . . . . . . . . . . . . . 41
13.5 Notification as to Certain Events. . . . . . . . . . 42
13.6 Reasonable Efforts; Further Action . . . . . . . . . 42
13.7 Nesco Charter Amendments . . . . . . . . . . . . . . 43
13.8 Closing Report . . . . . . . . . . . . . . . . . . . 43
13.9 Additional Filings . . . . . . . . . . . . . . . . . 43
13.10 Lock-Up . . . . . . . . . . . . . . . . . . . . . . 43
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13.11 Underwritten Public Offering. . . . . . . . . . . . 43
14. DELIVERIES AT CLOSING.. . . . . . . . . . . . . . . . . . 43
14.1 Nesco Deliveries . . . . . . . . . . . . . . . . . . 43
14.2 HDS Deliveries . . . . . . . . . . . . . . . . . . . 44
15. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES. . 45
15.1 Conditions Precedent to Obligations of All Parties . 45
15.2 Conditions Precedent to Obligations of Nesco and
the Nesco Signatory Stockholders . . . . . . . . . . 45
15.3 Conditions to Obligations of HDS and the HDS
Signatory Stockholders . . . . . . . . . . . . . . . 46
16. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . 47
16.1 Right to Terminate . . . . . . . . . . . . . . . . . 47
16.2 Termination Date; Notice of Termination. . . . . . . 48
16.3 Effects of Termination.. . . . . . . . . . . . . . . 48
17. NATURE AND SURVIVAL OF REPRESENTATIONS. . . . . . . . . . 48
18. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 48
19. AMENDMENTS; NO WAIVERS. . . . . . . . . . . . . . . . . . 49
20. GOVERNING LAW; ARBITRATION. . . . . . . . . . . . . . . . 49
21. ENFORCEABILITY. . . . . . . . . . . . . . . . . . . . . . 50
22. SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES. . . 50
23. ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . 50
24. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . 50
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