AGREEMENT AND PLAN OF REORGANIZATION
AMONG
YAAK RIVER RESOURCES, INC. (A Colorado Corporation)
AND
LIFELINE NUTRACEUTICALS CORPORATION (A Colorado Corporation)
AS OF September ___, 2004
This Agreement and Plan of Reorganization Page 41 This Agreement and Plan
of Reorganization (the "Agreement") is made as of the ___ day of September,
2004, among YAAK River Resources, Inc., a Colorado corporation (the "Acquiring
Company") and Lifeline Nutraceuticals Corporation, a Colorado corporation
("Target"). The Acquiring Company and Target may collectively be referred to
herein as the "Parties" or individually as a "Party."
RECITALS
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The Boards of Directors of the Acquiring Company and Target each have
determined that it is in the best interests of their respective stockholders for
the Acquiring Company to acquire Target by offering to exchange the Acquiring
Company's Series A Common Stock (the "Series A Stock") for a sufficient number
of the outstanding shares of the Target's common stock to qualify for a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, upon the terms and conditions set forth herein.
The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Code.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and certain other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE 1
The Transaction
---------------
1.1 Acquisition and Consideration. At the Effective Date (as defined in
Section 1.3), the Acquiring Company shall acquire from the holders of the Target
Common Stock shares of the Target Common Stock in exchange for shares of Series
A Stock in a manner that constitutes a tax-free reorganization under the Code
(the "Transaction") following the satisfaction or waiver, if permissible, of the
conditions set forth in Articles 6 and 7.
(a) There currently are 67,308,857 shares of Series A Stock outstanding.
Immediately prior to the completion of the Transaction, the Acquiring Company
will complete a 68:1 reverse stock split, resulting in approximately 989,836
shares of Series A Stock outstanding after the completion of the reverse stock
split.
(b) Subject to, and following the completion of the reverse stock split
contemplated in Paragraph 1.1(a), the Acquiring Company will offer to issue
shares of its Series A Stock to stockholders of the Target at an exchange ratio
of .8034 shares of Acquiring Company for each share of the Target Common Stock
owned by such stockholder (the "Per Share Consideration"), subject to adjustment
as set forth in Section 3.7(a)(i), below.
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(c) Following the completion of this Transaction, the Acquiring Company
will issue notes ("Acquiring Company Notes") to all of the holders of notes that
previously had been issued by the Target ("Target Notes") and are in existence
on the date of the Closing, as hereinafter defined.
(d) As identified on Schedule 3.7C, certain outstanding Target Notes grant
warrants to the noteholders ("Target Note Warrants"). Pursuant to the terms of
the Target Note Warrants, the exercise price of the underlying warrant is
dependent upon the offering price of a private investment in a public entity
transaction ("PIPE"). Following the occurrence of the PIPE by the Acquiring
Company and at the option of the noteholder, any Target Note Warrant may convert
to an investment in the PIPE. The conversion rate is to be the same rate of the
PIPE offering made by the Acquiring Company to accredited investors. Thus, upon
electing to convert his or her Target Note Warrant to an investment in the PIPE,
the noteholder will receive from the Acquiring Company warrants ("Acquiring
Company Note Warrants") equal to the Target Note Warrants held by such
noteholder with an exercise price equal to the PIPE offering price. The
Acquiring Company Note Warrants will be exercisable for a period of one year
after closing the PIPE transaction.
(e) The Per Share Consideration payable to all holders of the Target Common
Stock, the Target Notes, and the Target Note Warrants is collectively referred
to as the "Total Consideration."
1.2 Continuing Corporate Existence. Except as may otherwise be set forth
herein, the corporate existence and identity of Target and the Acquiring
Company, with all its purposes, powers, franchises, privileges, rights and
immunities, shall continue unaffected and unimpaired by the Transaction at the
Effective Date.
1.3 Effective Date. The Transaction shall become effective at the Closing
as defined in Section 1.5, below. The date and time when the Transaction shall
become effective is hereinafter referred to as the "Effective Date."
1.4 Corporate Governance of the Acquiring Company.
(a) The Articles of Incorporation of the Acquiring Company, as such may be
amended at or prior to the Effective Date, shall continue in full force and
effect.
(b) The Bylaws of the Acquiring Company, as such may be amended at or prior
to the Effective Date, shall continue in full force and effect.
(c) Immediately prior to the Closing, the Board of Directors of the
Acquiring Company will appoint the following persons to the Board of Directors
of the Acquiring Company and will immediately thereafter resign: Paul Myhill and
Daniel W. Streets. Following the Closing, the Directors of the Acquiring
Company, except Paul Myhill and Daniel W. Streets, shall resign.
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(d) Immediately following the Effective Date, the Board of Directors of the
Acquiring Company will appoint the officers of the Acquiring Company.
1.5 Closing. Completion of the Transaction (the "Closing") shall take place
at the offices of Burns, Figa & Will, P.C. at 2:00 pm on September ___, 2004 (or
at such other place, time and date as shall be fixed by mutual agreement between
the Acquiring Company and the Target), provided all of the conditions set forth
in Articles 6 and 7 have been fulfilled or waived in writing. The day on which
the Closing shall occur is referred to herein as the "Closing Date."
(a) Each party will cause to be prepared, executed and delivered all appropriate
and customary documents as any party or its counsel may reasonably request for
the purpose of completing the Transaction.
(b) Without limitation of the foregoing, the Acquiring Company shall have
certificates representing the Per Share Consideration available at the Closing
to deliver to each consenting Target stockholder against delivery at the Closing
(or thereafter) of certificates representing the Target Common Stock. In each
case, the certificates representing the Per Share Consideration will bear all
appropriate restrictive legends.
(c) All actions taken at the Closing shall be deemed to have been taken
simultaneously at the time the last of any such actions is taken or completed.
1.6 Tax Consequences. It is intended by the parties hereto that the
Transaction shall constitute a reorganization within the meaning of Section
368(a)(1)(B) of the Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Income Tax Regulations.
ARTICLE 2
Exchange of Shares, Notes and Warrants
--------------------------------------
2.1 Exchange of Shares; Payment of the Per Share Consideration. At the
Effective Date, by virtue of the Transaction and without any action on the part
of the holder thereof (except for such holder's consent (which must be in
writing)), each share of Target Common Stock which shall be outstanding
immediately prior to the Effective Date (which share is held by a person who has
been offered the right to exchange his share of Target Common Stock for the Per
Share Consideration and who has accepted that offer) shall at the Effective Date
be converted into and represent the right to receive the Per Share
Consideration.
2.2. Exchange of Target Notes. Following the completion of this
Transaction, the Acquiring Company will issue Acquiring Company Notes in
exchange for all issued and outstanding Target Notes that are in existence on
the date of the Closing to the extent the holders of the Target Notes elect to
exchange the Target Notes. The terms and conditions of the Acquiring Company
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Notes shall be identical to the terms and conditions of the Target Notes except
that the Acquiring Company will be the obligor. Upon the issuance of the
Acquiring Company Notes, the Target Notes then will be cancelled by the Target
2.3. Exchange of Target Note Warrants. Following the completion of this
Transaction, the Acquiring Company will issue Acquiring Company Note Warrants to
all holders of Target Note Warrants previously issued and in existence on the
date of the Closing to the extent the holders of the Target Note Warrants elect
to exchange the Target Note Warrants. The terms and conditions of the Acquiring
Company Note Warrants shall be identical to the terms and conditions of the
Target Note Warrants except that the Acquiring Company Note Warrants will be
exercisable to acquire shares of Series A Stock. Upon the issuance of the
Acquiring Company Note Warrants, the Target Note Warrants then will be cancelled
by the Target.
2.4 Adjustment. If, between the date of this Agreement and the Closing Date
or the Effective Date, as the case may be, the outstanding shares of the Target
Common Stock or the common stock of the Acquiring Company shall have been
changed into a different number of shares or a different class by reason of any
classification, recapitalization, split-up, combination, exchange of shares, or
readjustment or a stock dividend thereon shall be declared with a record date
within such period (not including the reverse stock split to be completed
immediately prior to the Effective Date as described in Paragraph 1.1(a),
above), then the Total Consideration (and each component thereof) shall be
adjusted to accurately reflect such change.
ARTICLE 3
Representations and Warranties of Target
----------------------------------------
Target represents and warrants to the Acquiring Company that the statements
contained in Article 3 are true and correct in all material respects and will be
true and correct as of the Closing Date and the Effective Date, except as set
forth in the schedules attached hereto. As used in this Article 3 and elsewhere
in this Agreement, the phrases "to Target's knowledge" or "to Target's actual
knowledge" shall mean to the actual and personal knowledge the Chief Executive
Officer and the Chief Financial Officer of Target.
3.1 Organization and Good Standing of Target. Target is a corporation duly
organized, validly existing and in good standing under the laws of Colorado.
Target represents that it is in the process of adopting an amended and restated
articles of incorporation and amended bylaws which will govern the Target at the
Effective Date.
3.2 No Subsidiaries or Investments. Target owns no equity or debt interest
in any subsidiary corporation, limited liability company, partnership, or other
business entity.
3.3 Foreign Qualification. Target is not conducting business and is not
qualified to do business in any jurisdiction but Colorado.
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3.4 Company Power and Authority. Target has the corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as currently being conducted. Target has the corporate power and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement and to complete the Transaction as described herein. The
execution, delivery and performance by Target of this Agreement has been duly
authorized by all necessary corporate action.
3.5 Binding Effect. This Agreement has been duly executed and delivered by
Target and is the legal, valid and binding obligation of Target enforceable in
accordance with its terms except that:
(a) enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification may be limited by considerations of public
policy.
3.6 Absence of Restrictions and Conflicts. The execution, delivery and
performance of this Agreement and the completion of the Transaction and the
fulfillment of and compliance with the terms and conditions of this Agreement do
not and will not, with the passing of time or the giving of notice or both,
violate or conflict with, constitute a breach of or default under, result in the
loss of any material benefit under, or permit the acceleration of any obligation
under, (a) any term or provision of the articles of incorporation or bylaws of
Target, (b) any "Material Contract" (as defined in Section 3.13), (c) any
judgment, decree or order of any court or governmental authority or agency to
which Target is a party or by which Target or any of its properties is bound, or
(d) any statute, law, regulation or rule applicable to Target other than such
violations, conflicts, breaches or defaults which would not have a Target
Material Adverse Effect. Except for the approval of the stockholders of Target
and blue sky qualification by the Acquiring Company, no consent, approval, order
or authorization of, or registration, declaration or filing with, any
governmental agency or public or regulatory unit, agency, body or authority with
respect to Target is required in connection with the execution, delivery or
performance of this Agreement by Target or the completion of the transactions
contemplated hereby. For the purposes of this Agreement, the term "Target
Material Adverse Effect" means any event, contract, transaction or circumstance
that would result in a capital expenditure or expense to the Target (either
individually or together with other events, contracts, transactions or other
circumstances) greater than $10,000 over any twelve month period, not including
those events, contracts, transactions, or circumstances specifically
contemplated in this Agreement or the schedules hereto.
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3.7 Capitalization of Target.
(a) The authorized capital stock of Target consists of 50,000,000 shares of
common stock and 10,000,000 shares of preferred stock (which has not been
established in any series). As of the date hereof:
(i) There were 23,650,000 shares of Target Common Stock issued and
outstanding as illustrated on Schedule 3.7A. To the extent the number of shares
of Target Common Stock changes between the date of this Agreement and the
completion of the Transactions contemplated hereby, the Per Share Consideration
will be adjusted so that the holders of Target Common Stock (if all holders
tender their shares to the Acquiring Company for exchange) will own 95% of the
Acquiring Company Common Stock;
(ii) There were no shares of preferred stock of the Target Company (or any
series thereof) issued or outstanding; and
(iii) There were no shares of Target Common Stock or preferred stock (or
any series thereof) reserved for issuance upon the exercise of any options,
warrants, or other rights to acquire shares of capital stock except 480,000
shares of Target Common Stock issuable upon conversion of certain of the Target
Notes (with a principal amount of $240,000) as shown on Schedule 3.7B, and
shares of Target Common Stock, in an amount to be determined as described in
Section 1.1(d) above, issuable upon conversion of Target Note Warrants as shown
on Schedule 3.7C (which underlie other Target Notes with a principal amount of
$250,000, as of August 31, 2004, which amount may be increased due to the
receipt of additional funds, as shown on Schedule 3.7B).
(b) All of the issued and outstanding shares of Target Common Stock have
been duly authorized and validly issued and are fully paid, nonassessable and
free of preemptive rights.
(c) There are no voting trusts, stockholder agreements or other voting
arrangements by the stockholders of Target.
3.8 Target Information. Target has made or will make available to the
Acquiring Company all information that Target has available (including all tax
returns, financial statements given to any other person, contracts, payroll
schedules, financial books and records, and all other information regarding
Target, its business, its customers, its management, and its financial condition
which the Acquiring Company may have requested (all such information being
referred to herein as the "Target Information"). As of their respective dates,
the Target Information did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
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3.9 Financial Statements and Records of Target. The unaudited financial
statements Target attached hereto as Schedule 3.9 (the "Target Financial
Statements") have been prepared from, and are in accordance with, the books and
records of Target and present fairly, in all material respects, the consolidated
financial position of Target as of the dates thereof and the results of
operations and cash flows thereof for the periods then ended, in each case in
conformity with generally accepted accounting principles, consistently applied,
except as noted therein. Adequate reserves are set forth on the Target Financial
Statements. Since the date of the Target Financial Statements, there has been no
change in accounting principles applicable to, or methods of accounting utilized
by, Target except as noted in the Target Financial Statements. The books and
records of Target have been and are being maintained in accordance with good
business practice, reflect only valid transactions, are complete and correct in
all material respects and present fairly in all material respects the basis for
the financial position and results of operations of Target as set forth on the
Target Financial Statements.
3.10 Absence of Certain Changes. Since the date of the Target Financial
Statements, and except as otherwise set forth in the Target Information or the
Target Financial Statements, and except for the adoption of amended and restated
articles of incorporation and bylaws, Target has not:
(a) suffered any adverse change in the business, operations, assets, or
financial condition, except for such changes that would not result in a Target
Material Adverse Effect;
(b) suffered any material damage or destruction to or loss of the assets of
Target, whether or not covered by insurance, which property or assets are
material to the operations or business of Target;
(c) settled, forgiven, compromised, canceled, released, waived or permitted
to lapse any material rights or claims other than in the ordinary course of
business;
(d) entered into or terminated any material agreement, commitment or
transaction, or agreed or made any changes in material leases or agreements,
other than renewals or extensions thereof and leases, agreements, transactions
and commitments entered into or terminated in the ordinary course of business
except relating to the launch of Protandim CF and the and the issuance of
additional Target Notes in its ongoing bridge capital financing and the
underlying Target Note Warrants;
(e) written up, written down or written off the book value of any material
amount of assets other than in the ordinary course of business;
(f) declared, paid or set aside for payment any dividend or distribution
with respect to Target's capital stock;
(g) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of Target's capital stock or
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securities or any rights to acquire such capital stock or securities, or agreed
to changes in the terms and conditions of any such rights outstanding as of the
date of this Agreement except related to the issuance of additional Target Notes
related to the ongoing bridge financing and the underlying Target Note Warrants;
(h) increased the compensation of or paid any bonuses to any employees or
contributed to any employee benefit plan;
(i) entered into any employment, consulting or compensation agreement with
any person or group;
(j) entered into any collective bargaining agreement with any person or
group;
(k) entered into, adopted or amended any employee benefit plan; or
(l) entered into any agreement to do any of the foregoing.
3.11 No Material Undisclosed Liabilities. There are no material liabilities
or obligations of Target of any nature, whether absolute, accrued, contingent,
or otherwise, other than:
(a) the liabilities and obligations that are reflected, accrued or reserved
against on the Target Financial Statements, or referred to in the footnotes to
the Target Financial Statements or incurred in the ordinary course of business
and consistent with past practices since June 30, 2004 (the date of the most
recent audited Target Financial Statements);
(b) liabilities and obligations which in the aggregate would not result in
a Target Material Adverse Effect; or
(c) Target Notes and the underlying Target Note Warrants.
3.12 Tax Returns; Taxes. Target has duly filed all U.S. federal and
material state, county, local and foreign tax returns and reports required to be
filed by it, including those with respect to income, payroll, property,
withholding, social security, unemployment, franchise, excise and sales taxes
and all such returns and reports are correct in all material respects; has
either paid in full all taxes that have become due as reflected on any return or
report and any interest and penalties with respect thereto or has fully accrued
on its books or have established adequate reserves for all taxes payable but not
yet due; and has made cash deposits with appropriate governmental authorities
representing estimated payments of taxes, including income taxes and employee
withholding tax obligations. No extension or waiver of any statute of
limitations or time within which to file any return has been granted to or
requested by Target with respect to any tax. No unsatisfied deficiency,
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delinquency or default for any tax, assessment or governmental charge has been
claimed, proposed or assessed against Target, nor has Target received notice of
any such deficiency, delinquency or default. Target has no material tax
liabilities other than those reflected on the Target Financial Statements, and
those arising in the ordinary course of business since the date thereof. Target
will make available to the Acquiring Company true, complete and correct copies
of Target's consolidated U.S. federal tax returns since its incorporation and
make available such other tax returns requested by the Acquiring Company. There
is no dispute or claim concerning any tax liability of Target or any of its
subsidiaries either: (a) raised by any taxing authority in writing; (b) as to
which Target has received notice concerning a potential audit of any return
filed by Target; and (c) there is no outstanding audit or pending audit of any
tax return filed by Target.
3.13 Material Contracts. Target has furnished or made available to the
Acquiring Company accurate and complete copies of the Material Contracts (as
defined herein) applicable to Target. Except as set forth on Schedule 3.13,
there is not under any of the Material Contracts any existing breach, default or
event of default by Target nor event that with notice or lapse of time or both
would constitute a breach, default or event of default by Target other than
breaches, defaults or events of default which would not have a Target Material
Adverse Effect nor does Target know of, and Target has not received notice of,
or made a claim with respect to, any breach or default by any other party
thereto which would, severally or in the aggregate, have a Target Material
Adverse Effect. As used herein, the term "Material Contracts" shall mean all
contracts and agreements providing for expenditures or commitments by Target in
excess of $10,000 over not more than a 12 month period.
3.14 Litigation and Government Claims. Except as disclosed in the Target
Information, there is no pending suit, claim, action or litigation, or
administrative, arbitration or other proceeding or governmental investigation or
inquiry against Target to which its businesses or assets are subject which
would, severally or in the aggregate, reasonably be expected to result in a
Target Material Adverse Effect. To the knowledge of Target, and except as
disclosed in the Target Information, there are no such proceedings threatened or
contemplated which would, severally or in the aggregate, have a Target Material
Adverse Effect. Target is not subject to any judgment, decree, injunction, rule
or order of any court, or, to the knowledge of Target, any governmental
restriction applicable to Target which is reasonably likely (a) to have a Target
Material Adverse Effect or (b) to cause a material limitation on the ability to
operate the business of Target (as it is currently operated) after the Closing.
3.15 Compliance With Laws. Target has all material authorizations,
approvals, licenses and orders to carry on its business as it is now being
conducted, to own or hold under lease the properties and assets it owns or holds
under lease and to perform all of its obligations under the agreements to which
its is a party, except for instances which would not have a Target Material
Adverse Effect. Target has been and is, to the knowledge of Target, in
compliance with all applicable laws (including those referenced in the Target
Information), regulations and administrative orders of any country, state or
municipality or of any subdivision of any thereof to which its business and its
employment of labor or its use or occupancy of properties or any part hereof are
subject, the violation of which would have a Target Material Adverse Effect.
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3.16 Employee Benefit Plans. Target has no employee benefit plan, as such
term is defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") except the following: Target has a Client Service
Agreement with Administaff Companies II, L.P., a professional employer
organization, serving as an off-site, full service human resource department, as
disclosed in Schedule 3.13.
3.17 Employment Agreements; Labor Relations.
(a) Target is not a party to any employee benefit or compensation plans,
agreements and arrangements except agreements that will be cancelled as of the
Closing Date or as set forth on Schedule 3.17.
(b) Target is in compliance in all material respects with all laws
(including Federal and state laws) respecting employment and employment
practices, terms and conditions of employment, wages and hours, and is not
engaged in any unfair labor or unlawful employment practice. To Target's
knowledge, there is no unlawful employment practice discrimination charge
pending before the EEOC or EEOC recognized state "referral agency." Except as
would not have a Target Material Adverse Effect, there is no unfair labor
practice charge or complaint against Target pending before the National Labor
Review Board. There is no labor strike, dispute, slowdown or stoppage actually
pending or, to the knowledge of Target, threatened against or involving or
affecting Target and no National Labor Review Board representation question
exists respecting their respective employees. Except as would not have a Target
Material Adverse Effect, no grievances or arbitration proceeding is pending and
no written claim therefor exists. There is no collective bargaining agreement
that is binding on Target.
3.18 Intellectual Property. Target owns or has valid, binding and
enforceable rights to use all material patents, trademarks, trade names, service
marks, service names, copyrights, applications therefor and licenses or other
rights in respect thereof ("Intellectual Property") used or held for use in
connection with the business of Target, without any known conflict with the
rights of others, except for such conflicts as do not have a Target Material
Adverse Effect. Target has not received any notice from any other person
pertaining to or challenging the right of Target to use any Intellectual
Property or any trade secrets, proprietary information, inventions, know-how,
processes and procedures owned or used or licensed to Target, except with
respect to rights the loss of which, individually or in the aggregate, would not
have a Target Material Adverse Effect.
3.19 Title to Properties and Related Matters.
(a) Target has a valid leasehold interest in the only real estate that it
has under lease (the "Leasehold Interest") and Target owns no other interest in
any real estate, and its Leasehold Interest is free and clear of any lien, claim
or encumbrance, except that the Leasehold Interest is subject to the lease for
such property, and except for:
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(i) liens for taxes, assessments or other governmental charges not yet due
and payable or the validity of which are being contested in good faith by
appropriate proceedings;
(ii) statutory liens incurred in the ordinary course of business that are
not yet due and payable or the validity of which are being contested in good
faith by appropriate proceedings;
(iii) landlord liens contained in leases entered in the ordinary course of
business; and
(iv) other liens, claims or encumbrances that, in the aggregate, do not
materially subtract from the value of, or materially interfere with, the present
use of, the Leasehold Interest.
(b) Target has received no notice of, and has no actual knowledge of, any
material violation of any zoning, building, health, fire, water use or similar
statute, ordinance, law, regulation or code in connection with the Leasehold
Interest.
(c) To Target's knowledge, no hazardous or toxic material (as hereinafter
defined) exists in any structure located on, or exists on or under the surface
of, the Leasehold Interest which is, in any case, in material violation of
applicable environmental law. For purposes of this Agreement, "hazardous or
toxic material" shall mean waste, substance, materials, smoke, gas or
particulate matter designated as hazardous, toxic or dangerous under any
applicable environmental law. For purposes of this Agreement, "environmental
law" shall include the Comprehensive Environmental Response Compensation and
Liability Act, the Clean Air Act, the Clean Water Act and any other applicable
federal, state or local environmental, health or safety law, rule or regulation
relating to or imposing liability or standards concerning or in connection with
hazardous, toxic or dangerous waste, substance, materials, smoke, gas or
particulate matter.
3.20 Brokers and Finders. No broker, finder, agent or similar intermediary
has acted for or on behalf of Target in connection with this Agreement, and no
broker, finder, agent or similar intermediary is entitled to any broker's,
finder's or similar fee or other commission in connection therewith based on any
agreement, arrangement or understanding with Target.
3.21 Accuracy and Completeness of Documents. All documents delivered by or
on behalf of Target in connection with the transactions contemplated hereby are,
as of the date thereof, true, complete, accurate, and authentic in all material
respects. No representation or warranty of Target contained in this Agreement
contains, and no document delivered or to be delivered at the Closing will
contain, as of the date hereof or thereof (with respect to such documents), an
untrue statement of a material fact or will omit to state a material fact
required to be stated therein or necessary to make the statements made, in the
context in which made, not materially false or misleading. Target does not have
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any actual knowledge that any representation, warranty, or statement of the
Acquiring Company contained herein or delivered to Target contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements made, in the context in which
made, not materially false or misleading.
ARTICLE 4
Representations and Warranties of
the Acquiring Company
---------------------
Acquiring Company represents and warrants to the Target that the statements
contained in Article 4 are true and correct in all material respects and will be
true and correct as of the Closing Date and the Effective Date, except as set
forth in the schedules attached hereto. As used in this Article 4 and elsewhere
in this Agreement, the phrases "to Acquiring Company's knowledge" or "to
Acquiring Company's actual knowledge" shall mean to the actual and personal
knowledge the Chief Executive Officer and the Chief Financial Officer of
Acquiring Company.
4.1 Organization and Good Standing of Acquiring Company. Acquiring Company
is a corporation duly organized, validly existing and in good standing under the
laws of Colorado. Acquiring Company represents that it has approved for adoption
by its stockholders amended and restated articles of incorporation in the form
attached as Schedule 4.1a and has approved amended bylaws in the form attached
as Schedule 4.1b.
4.2 No Subsidiaries or Investments. Acquiring Company owns no equity or
debt interest in any subsidiary corporation, limited liability company,
partnership, or other business entity.
4.3 Foreign Qualification. Acquiring Company is not conducting business and
is not qualified to do business in any jurisdiction but Colorado.
4.4 Company Power and Authority. Acquiring Company has the corporate power
and authority to own, lease and operate its properties and assets and to carry
on its business as currently being conducted. Acquiring Company has the
corporate power and authority to execute and deliver this Agreement and to
perform its obligations under this Agreement and to complete the Transaction as
described herein. The execution, delivery and performance by Acquiring Company
of this Agreement has been duly authorized by all necessary corporate action.
4.5 Binding Effect. This Agreement has been duly executed and delivered by
Acquiring Company and is the legal, valid and binding obligation of Acquiring
Company enforceable in accordance with its terms except that:
(a) enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
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(c) rights to indemnification may be limited by considerations of public
policy.
4.6 Absence of Restrictions and Conflicts. The execution, delivery and
performance of this Agreement and the completion of the Transaction and the
fulfillment of and compliance with the terms and conditions of this Agreement do
not and will not, with the passing of time or the giving of notice or both,
violate or conflict with, constitute a breach of or default under, result in the
loss of any material benefit under, or permit the acceleration of any obligation
under, (a) any term or provision of the articles of incorporation or bylaws of
Acquiring Company, (b) any "Material Contract" (as defined in Section 3.13), (c)
any judgment, decree or order of any court or governmental authority or agency
to which Acquiring Company is a party or by which Acquiring Company or any of
its properties is bound, or (d) any statute, law, regulation or rule applicable
to Acquiring Company other than such violations, conflicts, breaches or defaults
which would not have an Acquiring Company Material Adverse Effect. Except for
blue sky qualification, no consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental agency or public or
regulatory unit, agency, body or authority with respect to Acquiring Company is
required in connection with the execution, delivery or performance of this
Agreement by Acquiring Company or the completion of the transactions
contemplated hereby. For the purposes of this Agreement, the term "Acquiring
Company Material Adverse Effect" means any event, contract, transaction or
circumstance that would result in a capital expenditure or expense to the
Acquiring Company (either individually or together with other events, contracts,
transactions or other circumstances) greater than $10,000 over any twelve month
period, not including those events, contracts, transactions, or circumstances
specifically contemplated in this Agreement or the schedules hereto.
4.7 Capitalization of Acquiring Company.
(a) The authorized capital stock of Acquiring Company consists of
250,000,000 shares of $.001 par value Series A common stock which is voting
stock (the "Series A Stock"), 250,000,000 shares of $.001 par value non-voting
Series B common stock, and 50,000,000 shares of $.001 par value preferred stock
(which has not been established in any series). As of the date hereof:
(i) There were 67,308,857 shares of Series A Stock issued and outstanding;
(ii) There were no shares of Series B common stock issued and outstanding;
(iii) There were no shares of preferred stock (or any series thereof)
issued or outstanding; and
(iv) There were no shares of Series A Stock, Series B common stock, or
preferred stock (or any series thereof) reserved for issuance upon the exercise
of any options, warrants, or other rights to acquire shares of capital stock.
13
(b) All of the issued and outstanding shares of Series A Stock have been
duly authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights.
(c) There are no voting trusts, stockholder agreements or other voting
arrangements by the stockholders of Acquiring Company.
4.8 Acquiring Company Information. Acquiring Company has made or will make
available to the Target all information that Acquiring Company has available
(including all tax returns, financial statements given to any other person,
contracts, payroll schedules, financial books and records, and all other
information regarding Acquiring Company, its business, its customers, its
management, and its financial condition which the Target may have requested (all
such information being referred to herein as the "Acquiring Company
Information")). As of their respective dates, the Acquiring Company Information
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.9 Financial Statements and Records of Acquiring Company. The financial
statements Acquiring Company attached hereto as Schedule 4.9 (the "Acquiring
Company Financial Statements") have been prepared from, and are in accordance
with, the books and records of Acquiring Company and present fairly, in all
material respects, the consolidated financial position of Acquiring Company as
of the dates thereof and the results of operations and cash flows thereof for
the periods then ended, in each case in conformity with generally accepted
accounting principles, consistently applied, except as noted therein. Adequate
reserves are set forth on the Acquiring Company Financial Statements. Since the
date of the Acquiring Company Financial Statements, there has been no change in
accounting principles applicable to, or methods of accounting utilized by,
Acquiring Company except as noted in the Acquiring Company Financial Statements.
The books and records of Acquiring Company have been and are being maintained in
accordance with good business practice, reflect only valid transactions, are
complete and correct in all material respects and present fairly in all material
respects the basis for the financial position and results of operations of
Acquiring Company as set forth in the Acquiring Company Financial Statements.
4.10 Absence of Certain Changes. Since the date of the Acquiring Company
Financial Statements, and except as otherwise set forth in the Acquiring Company
Information or the Acquiring Company Financial Statements, and except for the
adoption of amended and restated articles of incorporation and bylaws, Acquiring
Company has not:
(a) suffered any adverse change in the business, operations, assets, or
financial condition, except for such changes that would not result in an
Acquiring Company Material Adverse Effect;
(b) suffered any material damage or destruction to or loss of the assets of
Acquiring Company, whether or not covered by insurance, which property or assets
are material to the operations or business of Acquiring Company;
14
(c) settled, forgiven, compromised, canceled, released, waived or permitted
to lapse any material rights or claims other than in the ordinary course of
business;
(d) entered into or terminated any material agreement, commitment or
transaction, or agreed or made any changes in material leases or agreements,
other than renewals or extensions thereof and leases, agreements, transactions
and commitments entered into or terminated in the ordinary course of business;
(e) written up, written down or written off the book value of any material
amount of assets other than in the ordinary course of business;
(f) declared, paid or set aside for payment any dividend or distribution
with respect to Acquiring Company's capital stock;
(g) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of Acquiring Company's
capital stock or securities or any rights to acquire such capital stock or
securities, or agreed to changes in the terms and conditions of any such rights
outstanding as of the date of this Agreement;
(h) increased the compensation of or paid any bonuses to any employees or
contributed to any employee benefit plan;
(i) entered into any employment, consulting or compensation agreement with
any person or group;
(j) entered into any collective bargaining agreement with any person or
group;
(k) entered into, adopted or amended any employee benefit plan; or
(l) entered into any agreement to do any of the foregoing.
4.11 No Material Undisclosed Liabilities. There are no material liabilities
or obligations of Acquiring Company of any nature, whether absolute, accrued,
contingent, or otherwise, other than:
(a) the liabilities and obligations that are reflected, accrued or reserved
against on the Acquiring Company Financial Statements, or referred to in the
footnotes to the Acquiring Company Financial Statements or incurred in the
ordinary course of business and consistent with past practices since June 30,
2004; or
(b) liabilities and obligations which in the aggregate would not result in
an Acquiring Company Material Adverse Effect.
15
4.12 Tax Returns; Taxes. Acquiring Company has duly filed all U.S. federal
and material state, county, local and foreign tax returns and reports required
to be filed by it, including those with respect to income, payroll, property,
withholding, social security, unemployment, franchise, excise and sales taxes
and all such returns and reports are correct in all material respects; has
either paid in full all taxes that have become due as reflected on any return or
report and any interest and penalties with respect thereto or has fully accrued
on its books or have established adequate reserves for all taxes payable but not
yet due; and has made cash deposits with appropriate governmental authorities
representing estimated payments of taxes, including income taxes and employee
withholding tax obligations. No extension or waiver of any statute of
limitations or time within which to file any return has been granted to or
requested by Acquiring Company with respect to any tax. No unsatisfied
deficiency, delinquency or default for any tax, assessment or governmental
charge has been claimed, proposed or assessed against Acquiring Company, nor has
Acquiring Company received notice of any such deficiency, delinquency or
default. Acquiring Company has no material tax liabilities other than those
reflected on the Acquiring Company Financial Statements, and those arising in
the ordinary course of business since the date thereof. Acquiring Company will
make available to the Target true, complete and correct copies of Acquiring
Company's consolidated U.S. federal tax returns since its incorporation and make
available such other tax returns requested by the Target. There is no dispute or
claim concerning any tax liability of Acquiring Company or any of its
subsidiaries either: (a) raised by any taxing authority in writing; (b) as to
which Acquiring Company has received notice concerning a potential audit of any
return filed by Acquiring Company; and (c) there is no outstanding audit or
pending audit of any tax return filed by Acquiring Company.
4.13 Material Contracts. Acquiring Company has furnished or made available
to the Target accurate and complete copies of the Material Contracts (as defined
herein) applicable to Acquiring Company. Except as set forth on Schedule 4.13,
there is not under any of the Material Contracts any existing breach, default or
event of default by Acquiring Company nor event that with notice or lapse of
time or both would constitute a breach, default or event of default by Acquiring
Company other than breaches, defaults or events of default which would not have
an Acquiring Company Material Adverse Effect nor does Acquiring Company know of,
and Acquiring Company has not received notice of, or made a claim with respect
to, any breach or default by any other party thereto which would, severally or
in the aggregate, have an Acquiring Company Material Adverse Effect. As used
herein, the term "Material Contracts" shall mean all contracts and agreements
providing for expenditures or commitments by Acquiring Company in excess of
$1,000 over not more than a 12 month period.
4.14 Litigation and Government Claims. Except as disclosed in the Acquiring
Company Information, there is no pending suit, claim, action or litigation, or
administrative, arbitration or other proceeding or governmental investigation or
inquiry against Acquiring Company to which its businesses or assets are subject
which would, severally or in the aggregate, reasonably be expected to result in
an Acquiring Company Material Adverse Effect. To the knowledge of Acquiring
Company, and except as disclosed in the Acquiring Company Information, there are
16
no such proceedings threatened or contemplated which would, severally or in the
aggregate, have an Acquiring Company Material Adverse Effect. Acquiring Company
is not subject to any judgment, decree, injunction, rule or order of any court,
or, to the knowledge of Acquiring Company, any governmental restriction
applicable to Acquiring Company which is reasonably likely (a) to have an
Acquiring Company Material Adverse Effect or (b) to cause a material limitation
on the ability to operate the business of Acquiring Company (as it is currently
operated) after the Closing.
4.15 Compliance With Laws. Acquiring Company has all material
authorizations, approvals, licenses and orders to carry on its business as it is
now being conducted, to own or hold under lease the properties and assets it
owns or holds under lease and to perform all of its obligations under the
agreements to which its is a party, except for instances which would not have an
Acquiring Company Material Adverse Effect. Acquiring Company has been and is, to
the knowledge of Acquiring Company, in compliance with all applicable laws
(including those referenced in the Acquiring Company Information), regulations
and administrative orders of any country, state or municipality or of any
subdivision of any thereof to which its business and its employment of labor or
its use or occupancy of properties or any part hereof are subject, the violation
of which would have an Acquiring Company Material Adverse Effect.
4.16 Employee Benefit Plans. Acquiring Company has no employee benefit
plan, as such term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
4.17 Employment Agreements; Labor Relations.
(a) Acquiring Company is not a party to any employee benefit or
compensation plans, agreements and arrangements except agreements that will be
cancelled as of the Closing Date or as set forth on Schedule 4.17.
(b) Acquiring Company is in compliance in all material respects with all
laws (including Federal and state laws) respecting employment and employment
practices, terms and conditions of employment, wages and hours, and is not
engaged in any unfair labor or unlawful employment practice. To Acquiring
Company's knowledge, there is no unlawful employment practice discrimination
charge pending before the EEOC or EEOC recognized state "referral agency."
Except as would not have an Acquiring Company Material Adverse Effect, there is
no unfair labor practice charge or complaint against Acquiring Company pending
before the National Labor Review Board. There is no labor strike, dispute,
slowdown or stoppage actually pending or, to the knowledge of Acquiring Company,
threatened against or involving or affecting Acquiring Company and no National
Labor Review Board representation question exists respecting their respective
employees. Except as would not have an Acquiring Company Material Adverse
Effect, no grievances or arbitration proceeding is pending and no written claim
therefor exists. There is no collective bargaining agreement that is binding on
Acquiring Company.
17
4.18 Intellectual Property. Acquiring Company owns or has valid, binding
and enforceable rights to use all material patents, trademarks, trade names,
service marks, service names, copyrights, applications therefor and licenses or
other rights in respect thereof ("Intellectual Property") used or held for use
in connection with the business of Acquiring Company, without any known conflict
with the rights of others, except for such conflicts as do not have an Acquiring
Company Material Adverse Effect. Acquiring Company has not received any notice
from any other person pertaining to or challenging the right of Acquiring
Company to use any Intellectual Property or any trade secrets, proprietary
information, inventions, know-how, processes and procedures owned or used or
licensed to Acquiring Company, except with respect to rights the loss of which,
individually or in the aggregate, would not have an Acquiring Company Material
Adverse Effect.
4.19 Title to Properties and Related Matters.
(a) Acquiring Company owns that certain real property described on Schedule
4.19a (the "Real Property") free and clear of all liens and encumbrances, and
has marketable title thereto, subject only to:
(i)an agreement with Donald J. Smith to convey Mr. Smith the Real Property
by quitclaim deed in full satisfaction of all amounts that the Acquiring Company
owes to Mr. Smith, without recourse to the Acquiring Company on the part of Mr.
Smith. The Acquiring Company has made, and will make, no warranty of title to
Mr. Smith. The agreement between the Acquiring Company and Mr. Smith shall
contain an indemnification provision relating to environmental claims. The
agreement between the Acquiring Company and Mr. Smith is subject to the
Acquiring Company's stockholder approval.
(ii) liens for taxes, assessments or other governmental charges not yet due
and payable or the validity of which are being contested in good faith by
appropriate proceedings;
(iii) statutory liens incurred in the ordinary course of business that are
not yet due and payable or the validity of which are being contested in good
faith by appropriate proceedings; and
(iv) other liens, claims or encumbrances that, in the aggregate, do not
materially subtract from the value of, or materially interfere with, the present
use of, the Real Property.
(b) Acquiring Company has a valid leasehold interest in the only real
estate that it has under lease as described in Schedule 4.19b (the "Leasehold
Interest") and Acquiring Company owns no other interest in any real estate, and
its Leasehold Interest is free and clear of any lien, claim or encumbrance,
except that the Leasehold Interest is subject to the lease for such property,
and except for:
18
(i) liens for taxes, assessments or other governmental charges not yet due
and payable or the validity of which are being contested in good faith by
appropriate proceedings;
(ii) statutory liens incurred in the ordinary course of business that are
not yet due and payable or the validity of which are being contested in good
faith by appropriate proceedings;
(iii) landlord liens contained in leases entered in the ordinary course of
business; and
(iv) other liens, claims or encumbrances that, in the aggregate, do not
materially subtract from the value of, or materially interfere with, the present
use of, the Leasehold Interest.
(c) Acquiring Company has received no notice of, and has no actual
knowledge of, any material violation of any zoning, building, health, fire,
water use or similar statute, ordinance, law, regulation or code in connection
with the Leasehold Interest or Real Property.
(d) To Acquiring Company's knowledge, no hazardous or toxic material (as
hereinafter defined) exists in any structure located on, or exists on or under
the surface of, the Real Property or the Leasehold Interest which is, in any
case, in material violation of applicable environmental law. For purposes of
this Agreement, "hazardous or toxic material" shall mean waste, substance,
materials, smoke, gas or particulate matter designated as hazardous, toxic or
dangerous under any applicable environmental law. For purposes of this
Agreement, "environmental law" shall include the Comprehensive Environmental
Response Compensation and Liability Act, the Clean Air Act, the Clean Water Act
and any other applicable federal, state or local environmental, health or safety
law, rule or regulation relating to or imposing liability or standards
concerning or in connection with hazardous, toxic or dangerous waste, substance,
materials, smoke, gas or particulate matter.
4.20 Brokers and Finders. No broker, finder, agent or similar intermediary
has acted for or on behalf of Acquiring Company in connection with this
Agreement, and no broker, finder, agent or similar intermediary is entitled to
any broker's, finder's or similar fee or other commission in connection
therewith based on any agreement, arrangement or understanding with Acquiring
Company.
4.21 Accuracy and Completeness of Documents. All documents delivered by or
on behalf of Acquiring Company in connection with the transactions contemplated
hereby, and each document filed by the Acquiring Company with the Securities and
Exchange Commission are, as of the date thereof, true, complete, accurate, and
authentic in all material respects. No representation or warranty of Acquiring
Company contained in this Agreement contains, and no document delivered or to be
delivered at the Closing will contain, as of the date hereof or thereof (with
respect to such documents), an untrue statement of a material fact or will omit
19
to state a material fact required to be stated therein or necessary to make the
statements made, in the context in which made, not materially false or
misleading. Acquiring Company does not have any actual knowledge that any
representation, warranty, or statement of the Target contained herein or
delivered to Acquiring Company contains any untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements made, in the context in which made, not materially false or
misleading.
ARTICLE 5
Certain Covenants and Agreements
--------------------------------
5.1 Conduct of Business by Target. From the date hereof to the Effective
Date, Target will, except as required in connection with the Transaction and the
other transactions contemplated by this Agreement and except as otherwise
disclosed on the schedules hereto or consented to in writing by the Acquiring
Company:
(a) carry on its business in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in any new
line of business, or enter into any material agreement, transaction or activity
or make any material commitment except those in the ordinary and regular course
of business and not otherwise prohibited under this Section 5.1 with the
exceptions of the planned product launch and the continuing bridge financing
which will result in the issuance of additional Target Notes and underlying
Target Note Warrants;
(b) neither change nor amend its Articles of Incorporation or Bylaws;
(c) not issue or sell shares of capital stock of Target or issue, sell or
grant options, warrants or rights to purchase or subscribe to, or enter into any
arrangement or contract with respect to the issuance or sale of any of the
capital stock of Target or rights or obligations convertible into or
exchangeable for any shares of the capital stock of Target or make any changes
(by split-up, combination, reorganization or otherwise) in the capital structure
of Target;
(d) not declare, pay or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity securities of
Target and not redeem, purchase or otherwise acquire any shares of the capital
stock or other securities of Target or rights or obligations convertible into or
exchangeable for any shares of the capital stock or other securities of Target
or obligations convertible into such, or any options, warrants or other rights
to purchase or subscribe to any of the foregoing;
(e) not acquire or enter into any agreement to acquire, by merger,
consolidation or purchase of stock or assets, any business or entity;
(f) use its best efforts to preserve intact the corporate existence,
goodwill, and business organization of Target, to keep the officers and
employees of Target available to Target and to preserve the relationships of
Target with suppliers, customers and others having business relations with
20
Target, and preserve, maintain and enforce all of Target's material licenses,
permits, and similar rights, except for such instances which would not have a
Target Material Adverse Effect;
(g) Not (i) enter into, modify or extend in any manner the terms of any
employment, severance or similar agreements with officers and directors, (ii)
grant any increase in the compensation of officers or directors, whether now or
hereafter payable or (iii) grant any increase in the compensation of any other
employees (it being understood by the parties hereto that for the purposes of
(ii) and (iii) above increases in compensation shall include any increase
pursuant to any option, bonus, stock purchase, pension, profit-sharing, deferred
compensation, retirement or other plan, arrangement, contract or commitment);
(h) except in instances which would not have a Target Material Adverse
Effect, perform all of its obligations under all Material Contracts (except
those being contested in good faith) and not enter into, assume or amend any
contract or commitment that would be a Material Contract other than contracts to
provide services entered into in the ordinary course of business;
(i) except in instances which would not have a Target Material Adverse
Effect, prepare and file all federal, state, local and foreign returns for taxes
and other tax reports, filings and amendments thereto required to be filed by
it, and allow the Acquiring Company to review all such returns, reports, filings
and amendments at Target's offices prior to the filing thereof, which review
shall not interfere with the timely filing of such returns; and
(j) Not borrow any funds under existing lines of credit or otherwise except
as the Target deems reasonably necessary for the ordinary operation of Target's
business, including the issuance of additional Target Notes and Target Note
Warrants pursuant to the continuing bridge financing.
In connection with the continued operation of the business of Target
between the date of this Agreement and the Effective Date, Target shall confer
in good faith and on a regular and frequent basis with one or more
representatives of the Acquiring Company designated in writing to report
operational matters of materiality and the general status of ongoing operations.
In addition, during regular business hours, Target will allow employees and
agents of the Acquiring Company to be present at Target's business locations to
observe the business and operations of Target. Target acknowledges that the
Acquiring Company does not and will not waive any rights it may have under this
Agreement as a result of such consultations nor shall the Acquiring Company (or
either of them) be responsible for any decisions made by Target's officers and
directors with respect to matters which are the subject of such consultation.
5.2 Conduct of Business by Acquiring Company. From the date hereof to the
Effective Date, Acquiring Company will, except as required in connection with
the Transaction and the other transactions contemplated by this Agreement and
except as otherwise disclosed on the schedules hereto or consented to in writing
by the Acquiring Company:
21
(a) carry on its business in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in any new
line of business or enter into any material agreement, transaction or activity
or make any material commitment except those in the ordinary and regular course
of business and not otherwise prohibited under this Section 5.2;
(b) neither change nor amend its Articles of Incorporation or Bylaws;
(c) not issue or sell shares of capital stock of Acquiring Company or
issue, sell or grant options, warrants or rights to purchase or subscribe to, or
enter into any arrangement or contract with respect to the issuance or sale of
any of the capital stock of Acquiring Company or rights or obligations
convertible into or exchangeable for any shares of the capital stock of
Acquiring Company or make any changes (by split-up, combination, reorganization
or otherwise) in the capital structure of Acquiring Company;
(d) not declare, pay or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity securities of
Acquiring Company and not redeem, purchase or otherwise acquire any shares of
the capital stock or other securities of Acquiring Company or rights or
obligations convertible into or exchangeable for any shares of the capital stock
or other securities of Acquiring Company or obligations convertible into such,
or any options, warrants or other rights to purchase or subscribe to any of the
foregoing;
(e) not acquire or enter into any agreement to acquire, by merger,
consolidation or purchase of stock or assets, any business or entity;
(f) use its best efforts to preserve intact the corporate existence,
goodwill, and business organization of Acquiring Company, to keep the officers
and employees of Acquiring Company available to Acquiring Company and to
preserve the relationships of Acquiring Company with its stockholders and others
having business relations with Acquiring Company, and preserve, maintain and
enforce all of Acquiring Company's material licenses, permits, and similar
rights, except for such instances which would not have an Acquiring Company
Material Adverse Effect;
(g) Not (i) enter into, modify or extend in any manner the terms of any
employment, severance or similar agreements with officers and directors, (ii)
grant any increase in the compensation of officers or directors, whether now or
hereafter payable or (iii) grant any increase in the compensation of any other
employees (it being understood by the parties hereto that for the purposes of
(ii) and (iii) above increases in compensation shall include any increase
pursuant to any option, bonus, stock purchase, pension, profit-sharing, deferred
compensation, retirement or other plan, arrangement, contract or commitment);
(h) except in instances which would not have an Acquiring Company Material
Adverse Effect, perform all of its obligations under all Material Contracts
(except those being contested in good faith) and not enter into, assume or amend
22
any contract or commitment that would be a Material Contract other than
contracts to provide services entered into in the ordinary course of business;
(i) except in instances which would not have an Acquiring Company Material
Adverse Effect, prepare and file all federal, state, local and foreign returns
for taxes and other tax reports, filings and amendments thereto required to be
filed by it, and allow the Target to review all such returns, reports, filings
and amendments at Acquiring Company's offices prior to the filing thereof, which
review shall not interfere with the timely filing of such returns;
(j) Not borrow any funds under existing lines of credit or otherwise except
as reasonably necessary for the ordinary operation of Acquiring Company's
business;
(k) File all reports required with the Securities and Exchange Commission
in a timely manner, and ensure that each such report filed is accurate and
complete in all material respects as of the date filed; and
(l) Not offer the Per Share Consideration to any shareholder of Target
without the Target's prior written consent, and make the offer of the Per Share
Consideration to such shareholders, with such documentation, at such time and in
such manner as the Target may reasonably approve.
In connection with the continued operation of the business of Acquiring
Company between the date of this Agreement and the Effective Date, Acquiring
Company shall confer in good faith and on a regular and frequent basis with one
or more representatives of the Target designated in writing to report
operational matters of materiality and the general status of ongoing operations.
In addition, during regular business hours, Acquiring Company will allow
employees and agents of the Target to be present at Acquiring Company's business
locations to observe the business and operations of Acquiring Company. Acquiring
Company acknowledges that the Target does not and will not waive any rights it
may have under this Agreement as a result of such consultations nor shall the
Target (or either of them) be responsible for any decisions made by Acquiring
Company's officers and directors with respect to matters which are the subject
of such consultation.
5.3 Notice of any Material Change. Each of the Target and the Acquiring
Company shall (with respect only to itself), promptly after the first notice or
occurrence thereof but not later than the Closing Date, advise the other in
writing of any event or the existence of any state of facts that (a) would make
any of its representations and warranties in this Agreement untrue in any
material respect, or (b) would otherwise constitute either a Target Material
Adverse Effect or an Acquiring Company Material Adverse Effect.
5.4 Inspection and Access to Information.
(a) Between the date of this Agreement and the Effective Date, the Target
will provide to the Acquiring Company and its accountants, counsel and other
authorized representatives reasonable access, during normal business hours to
23
its premises, properties, contracts, commitments, books, records and other
information (including tax returns filed and those in preparation) and will
cause its officers to furnish to the Acquiring Company and its authorized
representatives such financial, technical and operating data and other
information pertaining to its business, as the Acquiring Company shall from time
to time reasonably request.
(b) Between the date of this Agreement and the Effective Date, the
Acquiring Company will provide to the Target and its accountants, counsel and
other authorized representatives reasonable access, during normal business hours
to its premises, properties, contracts, commitments, books, records and other
information (including tax returns filed and those in preparation) and will
cause its officers to furnish to the Target and its authorized representatives
such financial, technical and operating data and other information pertaining to
its business, as the Target shall from time to time reasonably request.
5.5 Confidentiality.
(a) Definition Of Confidential Information.
(i) As used in this Section 5.5, the term "Confidential Information"
includes any and all of the following information of Target or the Acquiring
Company that has been or may hereafter be disclosed in any form, whether in
writing, orally, electronically or otherwise, or otherwise made available by
observation, inspection or otherwise by any party ("Disclosing Party") to the
other party (a "Receiving Party"):
all information that is a trade secret under applicable trade
secret or other law; and
all information concerning customer and vendor lists, current and
anticipated customer requirements, current and anticipated
product offers, market studies, business plans, projected sales,
financial projections, historical financial information, trade
secrets, information shared during due diligence, policies and
procedures and proprietary information, computer hardware,
computer software and database technologies, systems, structures,
architectures and contents.
(ii) Any trade secrets of a Disclosing Party shall also be entitled to all
of the protections and benefits under applicable trade secret law and any other
applicable law. If any information that a Disclosing Party deems to be a trade
secret is found by a court of competent jurisdiction not to be a trade secret
for purposes of this Section 5.5, such information shall still be considered
Confidential Information of that Disclosing Party for purposes of this Section
5.5 to the extent included within the definition. In the case of trade secrets,
each of the parties hereby waives any requirement that the other party submit
proof of the economic value of any trade secret or post a bond or other
security.
(b) Restricted Use of Confidential Information.
24
(i) Each Receiving Party acknowledges the confidential and proprietary
nature of the Confidential Information of the Disclosing Party and agrees that
such Confidential Information: (A) shall be kept confidential by the Receiving
Party; (B) shall not be used for any reason or purpose other than to evaluate
and complete the transactions contemplated hereby; and (C) without limiting the
foregoing, shall not be disclosed by the Receiving Party to any person, except
in each case as otherwise expressly permitted by the terms of this Agreement or
with the prior written consent of an authorized representative of Disclosing
Party.
(ii) Each party to this Agreement shall: (A) enforce the terms of this
Section 5.5 as to its respective agents and representatives; (B) take such
action to the extent necessary to cause its agents and representatives to comply
with the terms and conditions of this Section 5.5; and (C) be responsible and
liable for any breach of the provisions of this Section 5.5 by it or its agents
or representatives.
(iii) Unless and until this Agreement is terminated, the Receiving Party
shall maintain as confidential any Confidential Information as it generally
would its own confidential information in the ordinary course of its business.
(c) Exceptions. Section 5.5(b) does not apply to that part of the
Confidential Information of a Disclosing Party that a Receiving Party
demonstrates: (i) was, is or becomes generally available to the public other
than as a result of a breach of this Section 5.5; (ii) was or is developed by
the Receiving Party independently of and without reference to any Confidential
Information of the Disclosing Party; or (iii) was, is or becomes available to
the Receiving Party on a non-confidential basis from a third party (who is not a
Disclosing Party) not bound by a confidentiality agreement or any legal,
fiduciary or other obligation restricting disclosure.
(d) Legal Proceedings. If a Receiving Party becomes compelled in any
proceeding or is requested by a governmental body having regulatory jurisdiction
over the Receiving Party to make any disclosure that is prohibited or otherwise
constrained by this Section 5.5, that Receiving Party shall provide the
Disclosing Party with prompt notice of such compulsion or request so that it may
seek an appropriate protective order or other appropriate remedy or waive
compliance with the provisions of this Section 5.5. In the absence of a
protective order or other remedy, the Receiving Party may disclose that portion
(and only that portion) of the Confidential Information of the Disclosing Party
that, based upon advice of the Receiving Party's counsel, the Receiving Party is
legally compelled to disclose or that has been requested by such governmental
body, provided, however, that the Receiving Party shall use reasonable efforts
to obtain reliable assurance that confidential treatment will be accorded by any
Person to whom any Confidential Information is so disclosed. The provisions of
this Section 5.5(d) do not apply to any proceedings between the parties to this
Agreement.
(e) Return Or Destruction Of Confidential Information. If this Agreement is
terminated, each Receiving Party shall (i) destroy all Confidential Information
of the Disclosing Party prepared or generated by the Receiving Party without
retaining a copy of any such material; (ii) promptly deliver to the Disclosing
Party all other Confidential Information of the Disclosing Party, together with
25
all copies thereof, in the possession, custody or control of the Receiving Party
or destroy all such Confidential Information; and (iii) certify all such
destruction in writing to the Disclosing Party, provided, however, that the
Receiving Party may retain a list that contains general descriptions of the
information it has returned or destroyed to facilitate the resolution of any
controversies after the Disclosing Party's Confidential Information is returned.
5.6 Reasonable Efforts; Further Assurances; Cooperation. Subject to the
other provisions of this Agreement, the parties hereby shall each use their
reasonable efforts to perform their obligations herein and to take, or cause to
be taken or do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable law to obtain all regulatory approvals and satisfy
all conditions to the obligations of the parties under this Agreement and to
cause the Transaction and the other transactions contemplated herein to be
carried out promptly in accordance with the terms hereof. The parties agree to
use their reasonable best efforts to complete the transactions contemplated
hereby by the date specified in Section 8.1(b) hereof. The parties shall
cooperate fully with each other and their respective officers, directors,
employees, agents, counsel, accountants and other designees in connection with
any steps required to be taken as a part of their respective obligations under
this Agreement, including without limitation:
(a) In the event any claim, action, suit, investigation or other proceeding
by any governmental body or other person is commenced which questions the
validity or legality of the Transaction or any of the other transactions
contemplated hereby or seeks damages in connection therewith, the parties agree
to cooperate and use all reasonable efforts to defend against such claim,
action, suit, investigation or other proceeding and, if an injunction or other
order is issued in any such action, suit or other proceeding, to use all
reasonable efforts to have such injunction or other order lifted, and to
cooperate reasonably regarding any other impediment to the completion of the
transactions contemplated by this Agreement.
(b) Each party shall give prompt written notice to the other of (i) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty of the Target or the Acquiring
Company, as the case may be, contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Date or that will or may result in the failure to satisfy the
conditions specified in Article 6 or 7 and (ii) any failure of the Target or the
Acquiring Company, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder.
5.7 Public Announcements. Prior to Closing, no party will make any public
announcement regarding this Agreement without the prior written consent of the
other parties. The Target and the Acquiring Company acknowledge that they will
each need to advise their officers, directors, certain employees and advisors of
the terms and nature of this Agreement, and they agree that such disclosure does
not constitute a "public announcement" provided that the recipients of such
disclosure are under obligations of confidentiality to the Disclosing Party.
26
5.8 Non-Solicitation.
(a) In consideration of the substantial expenditures of time, effort, and
expense to be undertaken by the Acquiring Company in completing the transactions
contemplated by this Agreement, the Target agrees that it will not (and it will
not cause or permit any officer, director, affiliate, employee, agent, or
representative of Target) indirectly or directly seek, solicit, initiate, or
participate in discussions, negotiations, or agreements of any kind or nature
with any person or entity other than the Acquiring Company which discussions,
negotiations, or agreements in any way concern the acquisition the Target common
stock or the assets of Target.
(b)In consideration of the substantial expenditures of time, effort, and
expense to be undertaken by the Target in completing the transactions
contemplated by this Agreement, the Acquiring Company agrees that it will not
(and it will not cause or permit any officer, director, affiliate, employee,
agent, or representative of the Acquiring Company) indirectly or directly seek,
solicit, initiate, or participate in discussions, negotiations, or agreements of
any kind or nature with any person or entity other than the Target which
discussions, negotiations, or agreements in any way concern the acquisition the
Acquiring Company common stock.
ARTICLE 6
Conditions Precedent to Obligations of Target
---------------------------------------------
Except as may be waived by the Target, the obligations of the Target to
complete the transactions contemplated by this Agreement shall be subject to the
satisfaction on or before the Closing Date of each of the following conditions:
6.1 Compliance. The Acquiring Company shall have, or shall have caused to
be, satisfied or complied with and performed in all material respects all terms,
covenants and conditions of this Agreement to be complied with or performed by
the Acquiring Company on or before the Closing Date.
6.2 Representations and Warranties. All of the representations and
warranties made by the Acquiring Company in this Agreement shall be true and
correct in all material respects at and as of the Closing Date with the same
force and effect as if such representations and warranties had been made at and
as of the Closing Date, except for changes permitted or contemplated by this
Agreement.
6.3 Acquiring Company Board of Director Action. The Board of Directors of
the Acquiring Company shall have:
(a) Approved the amended and restated articles of incorporation and shall
have recommended such agreement to the stockholders of
the Acquiring Company approval;
27
(b) Approved the agreement to exchange the Real Property with Donald J.
Smith for the cancellation of all indebtedness that the Acquiring Company owes
to Mr. Smith, without warranty of title and without recourse, and shall have
recommended to the stockholders of the Acquiring Company approval;
(c) Agreed irrevocably and in writing as individuals and as stockholders of
the Acquiring Company to vote for the matters described in Sections 6.3(a) and
(b) when presented to the stockholders of the Acquiring Company for approval;
(d) Approved and implemented amended and restated bylaws for the Acquiring
Company in a form reasonably satisfactory to the Target;
(e) Adopted such other resolutions as may be reasonably necessary or
appropriate to cure or clarify any previous actions taken by the Acquiring
Company or its board of directors or officers; and
(f) Approved employment agreements with the persons to be appointed
officers of the Acquiring Company after the Effective Date in a form that
provides for mandatory indemnification to the maximum extent permitted by the
Colorado Business Corporation Act and public policy, and otherwise is in form
and substance satisfactory to each such person.
6.4 Minutes for Prior Asset Sale. The Acquiring Company shall have provided
the final minutes for the asset sale approved by its stockholders in December
1999 which reflect approval of sufficient number of shares for such approval as
required by its articles of incorporation and the Colorado Business Corporation
Act, or shall have provided a legal opinion that such approval was not
necessary.
6.5 Reverse Stock Split; Name Change. The Acquiring Company shall have
completed such actions as may be necessary or appropriate to complete the
reverse stock split (described in Section 1.1(a), above) and a name change of
the Acquiring Company to "Lifeline Therapeutics, Inc." effective at the
Effective Date, including all actions necessary to obtain the necessary CUSIP
number and to commence trading on the OTC Bulletin Board on the day after the
Effective Date under a symbol reasonably acceptable to the Target.
6.6 Section 14(f) Notification. The Acquiring Company shall have complied
with the requirements of Section 14(f) of the Securities Exchange Act of 1934 to
permit the Acquiring Company to appoint the new directors as contemplated by
Section 1.4(c), above.
6.7 Financial Condition. The Acquiring Company's shall have no assets and
shall have no liabilities greater than $25,000 as of the Effective Date (not
including the Real Property or the debt owed to Mr. Smith which will be
addressed in a separate agreement as described in Section 6.3(b), above). The
maximum liabilities permitted of the Acquiring Company pursuant to this Section
includes (but is not limited to) any liabilities owed by the Acquiring Company
to any attorney, accountant, advisor, or consultant engaged by the Acquiring
Company in connection with the transactions contemplated hereby and any
28
compensation owed to any officer, director, or employee of or consultant to the
Acquiring Company for services rendered to and including the Closing, and those
services not specifically approved in writing by the Target Company to be
rendered after the Closing.
6.8 Disclosure to Target's Stockholders. The Acquiring Company shall make
disclosure to the Target's stockholders and to the holders of the Target Notes
and Target Note Warrants, which is accurate and complete in all material
respects and which is sufficient to provide each of them a basis for determining
whether to exchange their shares of the Target's common stock for their portion
of the Total Consideration.
6.9 Availability of an Exemption From Registration. The Acquiring Company
shall take such steps as may be reasonably required to ensure that there is an
exemption from registration available to it for the issuer of the Total
Consideration upon completion of the Transaction.
6.10 Effectiveness of Agreement with Donald J.Smith. The Agreement with Mr.
Smith (which is an exception to the title to the Acquiring Company's Real
Property as described in Section 4.19(a)) is valid, binding, and enforceable in
accordance with its terms and is reasonably satisfactory to the Target. This
will be considered to be reasonably satisfactory if the agreement includes a
binding obligation on the part of Mr. Smith to accept the Real Property from the
Acquiring Company by quitclaim deed in full satisfaction of all amounts that the
Acquiring Company owes to Mr. Smith, without recourse to the Acquiring Company
on the part of Mr. Smith. This Agreement will be subject to no condition
precedent other than approval by the shareholders of the Acquiring Company.
6.11 Certificates. The Target shall have received a certificate or
certificates, executed on behalf of the Acquiring Company by its president,
chairman and chief financial officer to the effect that the conditions contained
in Sections 6.1, 6.2, 6.3, 6.4, 6.5 6.6, 6.7, 6.8 and 6.9 hereof have been
satisfied.
6.12 No Taxation. Neither the Target, the Acquiring Company, nor the
stockholders of the Target will recognize any gain or loss as a result of the
Transaction.
6.13 Offer to Target Company Shareholders. The Acquiring Company shall make
an offer to all Target Company shareholders for the Target Common Stock held by
such persons, not including persons who are not accredited investors or who are
otherwise subject to sanctions imposed by the National Association of Securities
Dealers, Inc., the Securities and Exchange Commission, or a state securities
agency of the nature that would require disclosure an that may preclude, or make
more difficult, the listing of the Acquiring Company on a stock exchange
following the completion of the Transaction.
29
6.14 Legal Opinion. The Target shall have received a legal opinion from
counsel to the Acquiring Company, in form satisfactory to the Target, that:
(a) The Acquiring Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Colorado, with
corporate power to own its properties and to conduct its business.
(b) This Agreement and the documents delivered by the Acquiring Company to
complete the Transaction have been duly authorized by all requisite corporate
action by the Acquiring Company, and constitute the valid and binding
obligations of the Acquiring Company, enforceable against the Acquiring Company
in accordance with the terms of each document to which the Acquiring Company is
a party.
(c) The shares of the Series A Stock to be issued as the Total
Consideration upon the completion of the Transaction have been duly authorized
and, upon issuance, delivery, and the completion of the Transaction as described
herein, will be validly issued, fully paid and nonassessable.
(d) Any opinion required by Section 6.4, above.
6.15 Consents; Litigation. All authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations or terminations of
waiting periods imposed by any governmental entity, and all required third-party
consents, the failure to obtain which would have a material adverse effect on
the Acquiring Company, shall have been obtained. In addition, no preliminary or
permanent injunction or other order shall have been issued by any court or by
any governmental or regulatory agency, body or authority which prohibits the
completion of the Transaction and the transactions contemplated by this
Agreement and which is in effect at the Effective Date.
6.16 Form 8-K. The Acquiring Company shall have prepared, for filing
promptly after the Effective Date in accordance with the requirements of the
Securities and Exchange Commission, a current report on Form 8-K reporting the
Transaction pursuant to Item 2 thereof, and including the necessary financial
statements and other relevant and material information in form reasonably
satisfactory to the Target.
ARTICLE 7
Conditions Precedent to Obligations of
the Acquiring Company
---------------------
Except as may be waived by the Acquiring Company, the obligations of the
Acquiring Company to complete the transactions contemplated by this Agreement
shall be subject to the satisfaction on or before the Closing Date of each of
the following conditions:
30
7.1 Compliance. The Target shall have, or shall have caused to be,
satisfied or complied with and performed in all material respects all terms,
covenants and conditions of this Agreement to be complied with or performed by
the Target on or before the Closing Date.
7.2 Representations and Warranties. All of the representations and
warranties made by the Target in this Agreement shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as if such representations and warranties had been made at and as of the Closing
Date, except for changes permitted or contemplated by this Agreement or as
required by the investment banker for purposes of effectuating the private
placement.
7.3 Target Corporate Action. The Target shall have taken all steps
necessary to:
(a) Approve and file with the Secretary of State of Colorado amended and
restated articles of incorporation;
(b) Approve and implement amended and restated bylaws for the Target;
(c) Adopt such other resolutions as may be reasonably necessary or
appropriate to cure or clarify any previous actions taken by the Target or its
board of directors or officers;
(d) Provide to the Acquiring Company audited financial statements of the
Target that do not differ materially from the Financial Statements described in
Section 3.9, above; and
(e) Terminate, with the consent of each party thereto, each employment
agreement to which the Target is a party, effective as of the Effective Date
(subject to the approval of employment agreements by the Acquiring Company with
those persons on terms that are not materially different from their existing
employment agreements.
7.4 Section 14(f) Notification. The Target shall have provided the
information to the Acquiring Company reasonably necessary so that the Acquiring
Company can comply with the requirements of Section 14(f) of the Securities
Exchange Act of 1934.
7.5 Offer to Target Company Shareholders. The Acquiring Company shall have
made an offer to all Target Company shareholders for the Target Common Stock
held by such persons, not including persons who are not accredited investors or
who are otherwise subject to sanctions imposed by the National Association of
Securities Dealers, Inc., the Securities and Exchange Commission, or a state
securities agency of the nature that would require disclosure an that may
preclude, or make more difficult, the listing of the Acquiring Company on a
stock exchange following the completion of the Transaction.
31
7.6 Accredited Investors; Disclosure; Investment Intent. Each of the
Target's stockholders, noteholders and warrant holders receiving any portion of
the Total Consideration will make the following representations to the Acquiring
Company (in addition to such other representations as the Acquiring Company may
deem necessary or appropriate in the circumstances):
(a) Such stockholder, noteholder and warrant holder is an accredited
investor as that term is defined in Section 2(a)(15) of the Securities Act of
1933, as amended, and in Rules 215 and 501(a) thereunder;
(b) Such stockholder, noteholder, and warrant holder is a resident of the
state of Colorado;
(c) Such stockholder, noteholder, and warrant holder is acquiring the
Series A Stock for investment only and not with a view to the further
distribution, resale or other transfer thereof;
(d) Such stockholder, noteholder, and warrant holder understands that the
Acquiring Company has not registered its Series A Stock under the Securities Act
of 1933 or any state law and the availability of an exemption from registration
depends upon, among other things, the bona fide nature of the investment intent
as expressed by such stockholder;
(e) Through their own due diligence, each such stockholder, noteholder, and
warrant holder is fully aware of the type of business, financial condition,
historical performance, and other factors affecting its ownership of an interest
in the Target and the Acquiring Company has further discussed the advisability
of such stockholder's participation in the Transaction with his or her
respective legal, financial, tax, investment, accounting, and other advisors to
the extent each stockholder determines such consultation to be necessary or
appropriate in the circumstances; and
(f) Each stockholder, noteholder, and warrant holder will represent that he
or she (directly or with the assistance of his or her advisors) has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the Transaction and the contemplated
investment in the Series A Stock and he or she is able to bear the economic
risks of such investment.
7.7 Certificates. The Acquiring Company shall have received a certificate
or certificates, executed on behalf of the Target by its president, chairman and
chief financial officer to the effect that the conditions contained in Sections
7.1, 7.2, 7.3, and 7.4, hereof have been satisfied.
7.8 No Taxation. Neither the Acquiring Company, the Target, nor the
stockholders of the Acquiring Company will recognize any gain or loss as a
result of the Transaction.
32
7.9 Legal Opinion. The Acquiring Company shall have received a legal
opinion from counsel to the Target, in form satisfactory to the Acquiring
Company, that:
(a) The Target is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Colorado, with corporate power to
own its properties and to conduct its business.
(b) This Agreement and the documents delivered by the Target to complete
the Transaction have been duly authorized by all requisite corporate action by
the Target, and constitute the valid and binding obligations of the Target,
enforceable against the Target in accordance with the terms of each document to
which the Target is a party.
7.10 Consents; Litigation. All authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations or terminations of
waiting periods imposed by any governmental entity, and all required third-party
consents, the failure to obtain which would have a material adverse effect on
the Target, shall have been obtained. In addition, no preliminary or permanent
injunction or other order shall have been issued by any court or by any
governmental or regulatory agency, body or authority which prohibits the
completion of the Transaction and the transactions contemplated by this
Agreement and which is in effect at the Effective Date.
7.11 Form 8-K. The Target shall have provided the Acquiring Company the
information reasonably necessary to be included in the Form 8-K reporting the
completion of the Transaction promptly after the Effective Date in accordance
with the requirements of the Securities and Exchange Commission.
ARTICLE 8
Miscellaneous
-------------
8.1 Termination. In addition to the provisions regarding termination set
forth elsewhere herein, this Agreement and the transactions contemplated hereby
may be terminated at any time on or before the Closing Date:
(a) by mutual consent of Target and the Acquiring Company;
(b) by either of the Acquiring Company or the Target if the transactions
contemplated by this Agreement have not been completed by September 30, 2004,
unless such failure of completion is due to the failure of the terminating party
to perform or observe the covenants, agreements, and conditions hereof to be
performed or observed by it at or before the Closing Date; or
(c) by either the Target or the Acquiring Company if the transactions
contemplated hereby violate any nonappealable final order, decree, or judgment
of any court or governmental body or agency having competent jurisdiction.
33
8.2 Expenses.
(a) Subject only to Section 6.7 hereof, each party shall pay its own
broker, legal, and accounting fees and such other expenses incurred by such
party in connection with the transactions described in this Agreement.
(b) Notwithstanding the foregoing, if any party shall breach any material
provision of this Agreement in any material respect, such party (the "Breaching
Party") will be liable to the other party (the "Non-Breaching Party") for
damages.
8.3 Entire Agreement. This Agreement and the schedules hereto contain the
complete agreement among the parties with respect to the transactions
contemplated hereby and supersede all prior agreements and understandings among
the parties with respect to such transactions. Section and other headings are
for reference purposes only and shall not affect the interpretation or
construction of this Agreement. The parties hereto have not made any
representation or warranty except as expressly set forth in this Agreement or in
any certificate or schedule delivered pursuant hereto. The obligations of any
party under any agreement executed pursuant to this Agreement shall not be
affected by this section.
8.4 Survival All representations, warranties, covenants and agreements of
the Target and the Acquiring Company shall survive the execution and delivery of
this Agreement and the Closing hereunder as provided in this Agreement
including, without limitation, the following:
Sections 3.20 and 4.9 No Broker
Article 8 General Indemnification
Section 5.5 Confidentiality
Section 5.7 Public announcement
Section 8.13 Remedies and Venue
Section 5.6 Further assurances
Section 8.2 Expenses
Section 8.7 Post-Closing Negative Covenant
as well as any agreement, representation, or warranty contained in any document
delivered or to be delivered by any party at the Closing. All representations
and warranties of the Target and the Acquiring Company contained in this
Agreement shall survive for the periods of the statute of limitations applicable
to breaches thereof.
8.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
8.6 Notices. All notices, demands, requests, or other communications that
may be or are required to be given, served, or sent by any party to any other
34
party pursuant to this Agreement shall be in writing and shall be sent by
facsimile transmission, next-day courier or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
hand delivery, addressed as follows:
(a) If to the Target:
Lifeline Nutraceuticals Corporation
Suite 1750
6400 South Fiddler's Green Circle
Englewood, CO 80111
Attention: Bill Driscoll, CEO
Tel: 720-488-1711
Fax: 720-488-1722
with a copy (which shall not constitute notice) to:
Burns, Figa & Will, P.C.
Suite 1030
6400 South Fiddler's Green Circle
Englewood, CO 80111
Attn: Herrick K. Lidstone, Jr., Esq.
Tel: 303-796-2626
Fax: 720-493-9951
(b) If to the Acquiring Company:
With a copy (which shall not constitute notice) to:
Michael A. Littman, Esq.
7609 Ralston Road
Arvada, CO 80002
Tel: 303-422-8127
Fax:
Each party may designate by notice in writing a new address to which any
notice, demand, request, or communication may thereafter be so given, served, or
sent. Each notice, demand, request, or communication that is mailed, delivered,
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent, and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt or the affidavit of
messenger being deemed conclusive evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
35
8.7 Post-Closing Negative Covenant. The Acquiring Company will not, during
the period ending twelve months after the Closing, complete a reverse stock
split of its outstanding common stock.
8.8 Successors; Assignments. This Agreement and the rights, interests, and
obligations hereunder shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, by operation of law or otherwise, by any of the parties hereto without
the prior written consent of the other.
8.9 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the substantive laws of the State of Colorado
without application of its conflicts of laws principles.
8.10 Waiver and Other Action. This Agreement may be amended, modified, or
supplemented only by a written instrument executed by the parties against which
enforcement of the amendment, modification or supplement is sought.
8.11 Severability. Each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this Agreement.
8.12 No Third Party Beneficiaries. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person,
firm or corporation other than the parties hereto and their stockholders, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement or result in such person, firm or corporation being deemed a third
party beneficiary of this Agreement, even if such person is specifically named
herein.
8.13 Mutual Contribution. The parties to this Agreement and their counsel
have mutually contributed to its drafting. Consequently, no provision of this
Agreement shall be construed against any party on the ground that such party
drafted the provision or caused it to be drafted or the provision contains a
covenant of such party.
8.14 Remedies and Venue. Any person having any rights under any provision
of this Agreement will be entitled to enforce such rights specifically, to
recover damages by reason of any breach of any provision of this Agreement, and
to exercise all other rights granted by law, which rights may be exercised
cumulatively and not alternatively. Jurisdiction and venue for the enforcement
of any rights or any other action hereunder, except arbitration, rests in the
Colorado district court for Arapahoe County, Colorado.
36
8.15 Arbitration. Except for injunction proceedings to enforce the
provisions of Section 5.5, all claims arising out of or related to this
Agreement or breach thereof shall be submitted to final binding arbitration
pursuant to this Section 8.14. The arbitration shall be conducted in accordance
with the Colorado Uniform Arbitration Act. The arbitrators shall be required to
follow Colorado law in making an order. The arbitration shall be conducted in
Arapahoe County, Colorado. The panel of arbitrators shall consist of three
arbitrators. One arbitrator shall be appointed by the Target, one arbitrator
shall be appointed by the Acquiring Company (if prior to the Closing) or the
persons who were members of the Board of Directors of the Acquiring Company
immediately prior to the Effective Date (if after the Closing), and one
arbitrator shall be appointed by the two arbitrators so chosen. Each party shall
pay the costs and fees of an attorney the party engages to assist the party in
the arbitration and the arbitrator the party chooses. The Target and the
Acquiring Company shall each pay 50% of the costs and fees of the third
arbitrator.
8.16 Schedules. The following Schedules constitute a part of, and
incorporated into, this Agreement.
Schedule Description
-------- -----------
3.7A Holders of the Target's stock
3.7B Holders of Target Notes
3.7C Holders of Target Note Warrants
3.9 Target Financial Statements
3.13 Target Material Contracts
3.17 Target Employee Agreements
4.1a Form of Acquiring Company's Amended and Restated Articles of
Incorporation
4.1b Form of Acquiring Company's Amended and Restated Bylaws
4.9 Acquiring Company Financial Statements
4.13 Acquiring Company Material Contracts
4.19a Real Property
4.19b Leasehold Interests
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
YAAK RIVER RESOURCES, INC., LIFELINE NUTRACEUTICALS CORPORATION,
the Acquiring Company the Acquiring Company
By: By:
Name Bill Driscoll, President
Title
37
Schedule 3.7A
LIST OF THE SHAREHOLDERS OF LIFELINE NUTRACEUTICALS CORPORATION
As of August 31, 2004
Name, Address and
Tax ID Number Number of Shares Consideration Paid Date Issued
- ------------------------------------------------------------------------------------------------------------
William Driscoll 4,500,000 shares $2,250 8/2003
2,500,000 shares $2,500 5/2004
Michael Barber 4,500,000 shares $2,250 8/2003
Paul Myhill 1,000,000 shares $500 8/2003
3,500,000 shares $3,500 2/2004
1,350,000 shares $1,350 5/2004
Christopher Micklatcher 50,000 shares $25 8/2003
100,000 shares $50 12/2003
550,000 shares $550 8/2004
Kim Gannon 50,000 shares $25 8/2003
Melva Hahn 50,000 shares $25 8/2003
Joseph McCord 200,000 shares $200 5/2004
800,000 shares $800 7/2004
1,400,000 shares $1,400 8/2004
George Betts 50,000 shares $50 5/2004
Daniel Streets 200,000 shares $200 5/2004
300,000 shares $300 7/2004
2,000,000 shares $2,000 8/2004
Steve Parkinson 250,000 shares $250 8/2003
John Bradley 250,000 shares $250 8/2004
Will Stevenson 50,000 shares $50 8/2004
Total shares 23,650,000
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Schedule 3.7B
Holders of Target Convertible Loans
Name, Address and Tax ID Interest
Number Original Date ($ accrued through
Amount 8/31/2004) Term Shares
- -----------------------------------------------------------------------------------------------------------------
Barbara M. Hadley $50,000 9/9/03 10% 1 year 100,000
($4,904)
Robert Wolta $60,000 12/10/03 10% 1 year 120,000
($4,356)
Robert Wolta $35,000 4/7/04 10% 1 year 70,000
($1,400)
Tim Colleran $25,000 3/2/04 10% 1 year 50,000
($1,034)
Tim/Lisa Bates $20,000 4/24/04 10% 1 year 40,000
($707)
Daniel McGregor $50,000 4/28/04 10% 1 year 100,000
($1,712)
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Schedule 3.7C Holders of Target Bridge Loans
Name, Address and Tax Interest
ID Number Original Date ($ accrued through
Amount 8/31/2004) Term Shares
(estimated)
- --------------------------------------------------------------------------------------------------------------------
Altis Accredited Capital $50,000 6/9/04 10% 1 year 50,000
($1,137)
Daniel McGregor $50,000 6/16/04 10% 1 year 50,000
($1,041)
Carol H. Streets - Roth $50,000 6/14/04 10% 1 year 50,000
IRA ($1,068)
Paul L. Mista $25,000 7/23/04 10% 1 year 25,000
($267)
Kelsey Ellen Dihle $12,500 8/3/04 10% 1 year 12,500
Irrevocable Trust ($99)
Joshua Martin Dihle $12,500 8/3/04 10% 1 year 12,500
Irrevocable Trust ($99)
Philip Peterson $25,000 8/17/04 10% 1 year 25,000
($96)
Paul L. Mista $25,000 8/31/04 10% 1 year 25,000
($7)
Bridge Loan holders will receive a number of warrants equivalent to their loan
amount divided by the share price in the private placement. For example a loan
of $50,000 divided by a per share offering price of $1.00 would yield 50,000
warrants.
40