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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: November 30,1999
Commission file number: 1-15165
BULLET ENVIRONMENTAL TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 98-0208402
(State of incorporation) (IRS Employer Identification No.)
1177 WEST HASTINGS STREET, #1818, VANCOUVER BC, CANADA
(Address of principal executive offices)
(604) 602-1717
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes No X
State the number of shares outstanding of each of the issuer's classes of common
equity, as of November 30, 1999:
CLASS NUMBER OF SHARES
Common Stock, $0.0001 par value 2,150,475
TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE)
Yes X No
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BULLET ENVIRONMENTAL TECHNOLOGIES, INC.
(formerly, Anglo-Sierra Resources Corp.)
INDEX
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statements of Financial Condition -
November 30, 1999 and February 28, 1999 1
Statements of Operation - Three and
Nine Months Ended November 30, 1999 and 1998 2
Statements of Changes in Stockholders'
Equity - Nine Months Ended November 30, 1999 3
Statements of Comprehensive Income -
Nine Months Ended November 30, 1999 and 1998 4
Statements of Cash Flows - Nine Months
Ended November 30, 1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
</TABLE>
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PART I - FINANCIAL INFORMATION
BULLET ENVIRONMENTAL TECHNOLOGIES, INC.
(FORMERLY ANGLO-SIERRA RESOURCES CORP.)
ITEM 1. FINANCIAL STATEMENTS
The accompanying financial statements of BULLET ENVIRONMENTAL
TECHNOLOGIES, INC. (hereinafter, the "Company") are unaudited but, in the
opinion of management, reflect in all material respects, the Company's financial
condition and changes therein as of November 30, 1999, and the results of
operations and cashflows for the period, in conformity with generally accepted
accounting principles.
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BULLET ENVIRONMENTAL TECHNOLOGIES, INC. - (Unaudited) (Audited)
STATEMENTS OF FINANCIAL CONDITION: November 30, February 28,
1999 1999
- ------------------------------------------------------------------------------------------------------------------------------
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ASSETS
CURRENT
Cash and cash equivalents 526 327
==============================================================================================================================
TOTAL ASSETS $ 526 $ 327
==============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 434,446 $ 1,986
---------------- ----------------
STOCKHOLDERS' EQUITY
Capital stock (See Note 4)
Authorized:
30,000,000 Common shares, par value of $0.0001
5,000,000 Preference shares, par value of $0.0001
Issued:
2,150,475 Common shares (February 28, 1999 - 150,475) 215 15
Additional paid-in capital 411,084 311,284
Deficit accumulated during the development stage (850,197) (316,562)
Accumulative comprehensive other income 4,978 3,604
---------------- ----------------
Stockholder's Deficit (433,920) (1,659)
---------------- ----------------
==============================================================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS'DEFICIT $ 526 $ 327
==============================================================================================================================
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See Notes to 1999 Unaudited Financial Statements attached
1
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BULLET ENVIRONMENTAL Three Months Three Months Nine Months Nine Months
TECHNOLOGIES, INC. - Ended Ended Ended Ended
STATEMENTS OF OPERATIONS: November November 30, November 30, November 30,
(Unaudited) 30, 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
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REVENUES $ 0 $ 0 $ 0 $ 0
--------------------------------------------------------------------
EXPENSES
General and Administrative Expenses 60,172 30,628 169,347 39,807
Professional Fees 99,318 550 364,288 9,594
TOTAL EXPENSE 159,490 31,178 533,635 49,401
------- ------ ------- ------
OPERATING LOSS (159,490) (31,178) (533,635) (49,401)
-------- ------- --------- --------
NET INVESTMENT AND OTHER
Loss before income taxes - - - -
Provision for income taxes - - - -
Net Loss $(159,490) $(31,178) $(533,635) $(49,401)
===================================================================================================================================
NET INCOME(LOSS) PER SHARE
Basic $(0.07) $(0.25) $(0.27) $(0.42)
Diluted - - - -
Weighted average shares outstanding
Basic 2,150,475 125,898 1,968,657 117,857
Diluted - - - -
===================================================================================================================================
</TABLE>
See Notes to 1999 Unaudited Financial Statements attached
2
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BULLET ENVIRONMENTAL Deficit
TECHNOLOGIES, INC. - Accumulated
STATEMENTS OF CHANGES IN Number of Additional During the Cumulative
SHAREHOLDERS' EQUITY: Common Paid-in Development Translation
(Unaudited) Shares Amount Capital Stage Adjustment Total
- -----------------------------------------------------------------------------------------------------------------------------------
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BALANCE AT FEBRUARY 28, 1999 150,475 15 311,284 (316,562) 3,604 (1,659)
Shares issued for cash 2,000,000 200 99,800 - - 100,000
Loss for the period - - - (533,635) - (533,635)
Accumulative comprehensive
other income - - - - 1,374 1,358
----------- ------------- ------------- ------------- ------------ -------------
BALANCE AT NOVEMBER 30, 1999 2,150,475 $ 215 $ 411,084 $ (850,197) $ 4,978 $ (433,920)
===================================================================================================================================
</TABLE>
See Notes to 1999 Unaudited Financial Statements attached
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BULLET ENVIRONMENTAL TECHNOLOGIES, INC. -
STATEMENTS OF COMPREHENSIVE INCOME: Nine Months Ended Nine Months Ended
(Unaudited) November 30, 1999 November 30, 1998
- -------------------------------------------------------------------------------------------------------------------------
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LOSS FOR THE PERIOD $ (533,635) $ (49,401)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency
translation adjustments 1,374 0
----------------- -----------------
COMPREHENSIVE NET INCOME (LOSS)
FOR THE PERIOD $ (532,261) $ (49,401)
=========================================================================================================================
</TABLE>
See Notes to 1999 Unaudited Financial Statements attached
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BULLET ENVIRONMENTAL TECHNOLOGIES, INC. - Nine Month Nine Month
STATEMENTS OF CASH FLOWS: Period Ended Period Ended
(Unaudited) November 30, November 30,
1999 1998
- -------------------------------------------------------------------------------------------------------------------------
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CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period $ (533,635) $ (49,401)
Adjustments to reconcile loss to net cash
used in operating activities:
Amortization of incorporation costs 0 802
Changes in other operating assets and liabilities
Increase in accounts payable and accrued liabilities 432,460 18,036
----------------- -----------------
Net cash used in operating activities (101,175) (30,563)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of resource property - (9,665)
----------------- -----------------
Net cash used in investing activities - (9,665)-
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITY
Issuance of capital stock for cash 100,000 80,096
Share subscription received - -
----------------- -----------------
Net cash provided by financing activities 100,000 80,096
----------------- -----------------
CHANGE IN CASH AND CASH EQUIVALENTS DURING THE PERIOD (1,175) 39,868
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 1,374 -
----------------- -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS DURING THE PERIOD 199 39,868
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 327 -
----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 526 $ 39,868
=========================================================================================================================
CASH PAID DURING THE YEAR FOR:
Interest expense $ - $ -
Income taxes - -
=========================================================================================================================
</TABLE>
See Notes to 1999 Unaudited Financial Statements attached
5
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BULLET ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 31, 1999
1. HISTORY AND ORGANIZATION OF THE COMPANY
The Company was incorporated in Delaware on December 18, 1997. On
March 5, 1998, the Company changed its name from Innovin Development
Corporation to Anglo-Sierra Resources Corp. On March 15, 1999, the
Company changed its name from Anglo-Sierra Resources Corp. to Bullet
Environmental Technologies, Inc.
In the opinion of management, the accompanying financial statements
contain all adjustments necessary (consisting only of normal
recurring accruals) to present fairly the financial information
contained therein. These statements do not include all disclosures
required by generally accepted accounting principles and should be
read in conjunction with the audited financial statements of the
Company for the year ended February 28, 1999. The results of
operations for the nine months ended November 30, 1999 are not
necessarily indicative of the results to be expected for the year
ending February 29, 2000.
2. GOING CONCERN
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. However, the Company has no current
source of revenue. Without realization of additional capital, it
would be unlikely for the Company to continue as a going concern. It
is management's plan to seek additional capital through a private
placement.
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November 30, February 28,
1999 1999
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Deficit accumulated during the development stage $ (850,197) $ (316,562)
Working capital deficiency (433,920) (1,659)
=============================================================================================================
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3. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with
original maturities of three months or less. These are recorded at
cost which approximates market.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
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FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash
equivalents and accounts payable. Unless otherwise noted, it is
management's opinion that the Company is not exposed to significant
interest, currency or credit risks arising from these financial
instruments. The fair value of these financial instruments
approximate their carrying values, unless otherwise noted.
FOREIGN CURRENCY TRANSLATION
The Company has determined that the functional currency of its
operations is the local currency, the Canadian dollar. In accordance
with Statement of Financial Accounting Standards No. 52 ("SFAS 52"),
"Foreign Currency Translation", the assets and liabilities
denominated in foreign currency are translated into U.S. dollars at
the year-end exchange rates. Revenue and expenses are translated at
the rates of exchange prevailing on the dates such items are
recognized in earnings. Related exchange gains and losses are
included in a separate component of shareholders' equity under
cumulative translation adjustment. Exchange gains and losses
resulting from foreign currency transactions are included in income
for the year.
STOCK BASED COMPENSATION
FASB Statement No. 123, "Accounting for Stock-Based Compensation",
encourages, but does not require, companies to record compensation
cost for stock-based employee compensation plans at fair value. The
Company has chosen to account for stock-based compensation using
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of the grant over the amount an
employee is required to pay for the stock.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") which
establishes accounting and reporting standards for derivative
instruments and for hedging activities. SFAS 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The
Company does not anticipate that the adoption of the statement will
have a significant impact on its financial statements.
In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137 which deferred
the effective date of SFAS No. 133.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of". In the event that facts
and circumstances indicate that the carrying amount of an asset may
not be recoverable and an estimate of future undiscounted cash flows
is less than the carrying amount of the asset, an impairment loss
will be recognized.
INCOME TAXES
7
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Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes". A deferred tax asset or liability is recorded for all
temporary differences between financial and tax reporting and net
operating loss carryforwards. Deferred tax expenses (benefit) results
from the net change during the year of deferred tax assets and
liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130 "Reporting Comprehensive Income". SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and
its components (revenue, expenses, gains and losses). The purpose of
reporting comprehensive income is to present a measure of all changes
in stockholders' equity that result from recognized transactions and
other economic events of the period, other than transactions with
owners in their capacity as owners.
REPORTING ON COSTS OF START-UP ACTIVITIES
In April 1998, the American Institute of Certified Public
Accountant's issued Statement of Position 98-5 "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5") which provides guidance on
the financial reporting of start-up costs and organization costs. It
requires costs of start-up activities and organization costs to be
expensed as incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998 with initial adoption reported as
the cumulative effect of a change in accounting principle. The
Company does not anticipate that the statement will have a
significant impact on its future financial statements.
LOSS PER SHARE
Loss per share is computed based on the weighted average number of
common shares and common stock equivalents outstanding during each
period, unless the common stock equivalents are anti-dilutive.
4. CAPITAL STOCK
ADDITIONAL PAID-IN CAPITAL
The excess of proceeds received for common shares over their value of
$0.0001, less share issue costs, is credited to additional paid-in
capital.
REVERSE STOCK SPLIT
On March 15, 1999, the Company implemented a 50:1 reverse stock
split. Stockholders' equity has been restated to give retroactive
recognition of the reverse stock split for all periods presented by
reclassifying from common shares to additional paid-in capital the
par value of converted shares arising from the split. In addition,
all references to number
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of shares and per share amounts of common shares have been restated
to reflect the reverse stock split.
5. SUPPLEMENTAL DISCLOSURE FOR NON-CASH OPERATING, FINANCING AND
INVESTING ACTIVITIES
There were no non-cash transactions for the nine month period ended
November 30, 1999. The significant non-cash transaction for the nine
month period ended November 30, 1998 consisted of the Company issuing
28,000 common shares in the amount of $151,182 as consideration for
the acquisition of a resource properties.
6. INCOME TAXES
The Company's total deferred tax asset is as follows:
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November 30, February28,
1999 1999
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Tax benefit of net operating loss carryforward $ 124,456 $ 46,340
Valuation allowance (124,456) (46,340)
---------------- ----------------
$ 0 $ 0
==================================================================================================================
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The Company has a net operating loss carryforward of approximately
$850,197 (February 28, 1999 - $316,562). The valuation allowance
increased to $124,456 from $46,340 during the nine month period ended
November 30, 1999 since the realization of the operating loss
carryforwards are doubtful. It is reasonably possible that the
Company's estimate of valuation allowance will change.
The operating loss carryforwards expire as follows:
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2005 $ 1,626
2006 314,936
2007 533,635
----------------
$ 850,197
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7. COMPREHENSIVE INCOME
Total comprehensive net income (loss) for the nine month periods
ended November 30, 1999 and 1998, were $(532,261) and $(49,401),
respectively. The only item included in other comprehensive income is
foreign currency translation adjustments in the amounts of $1,374 for
the nine month period ended November 30, 1999 and $Nil for the nine
month period ended November 30, 1998.
9
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion is based on the Company's Consolidated
Financial Statements included elsewhere in this filing. Such financial
statements have been prepared in accordance with generally accepted accounting
principles.
FORWARD-LOOKING STATEMENTS. The statements contained in this filing
that are not historical fact are "forward-looking statements". These statements
can often be identified by the use of forward-looking terminology such as
"estimates," "projects," "believes," "expects," "may," "will," "should,"
"intends," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy that involve risks and
uncertainties. Management wishes to caution the reader that these
forward-looking statements, such as the timing, costs and scope of its
acquisition of, or investments in, existing businesses, the revenue and
profitability levels of such businesses, and other matters contained above and
herein in this filing regarding matters that are not historical facts, are only
predictions. No assurance can be given that the future results indicated,
whether expressed or implied, will be achieved. While sometimes presented with
numerical specificity, these projections and other forward-looking statements
are based upon a variety of assumptions relating to the business of the Company
which, although considered reasonable by the Company, may not be realized.
Because of the number and range of the assumptions underlying the Company's
projections and forward-looking statements, many of which are subject to
significant uncertainties and contingencies that are beyond the reasonable
control of the Company, some of the assumptions inevitably will not materialize
and unanticipated events and circumstances may occur subsequent to the date of
this filing. These forward-looking statements are based on current expectations,
and the Company assumes no obligation to update this information. Therefore, the
actual experience of the Company and results achieved during the period covered
by any particular projections or forward-looking statements may differ
substantially from those projected. Consequently, the inclusion of projections
and other forward-looking statements should not be regarded as a representation
by the Company or any other person that these estimates and projections will be
realized, and actual results may vary materially. There can be no assurance that
any of these expectations will be realized or that any of the forward-looking
statements contained herein will prove to be accurate.
OVERVIEW AND PLAN OF OPERATION. As of November 30, 1999, the Company
has not been engaged in any business and has not earned any revenues. The
Company's plan of operation is to acquire a financial services company which
currently offers a limited group of products and expand its operations to create
a company providing diversified business services, including financial research,
investment banking, money management, and securities brokerage. In marketing
these services, the Company intends to focus on emerging and high-growth
companies. On June 18, 1999, the Company entered into a non-binding letter of
intent with Somerset Financial Partners, Inc. (hereinafter, "Somerset"), the
parent company of a wholly-owned registered broker-dealer and member of the
NASD.
Pursuant to the non-binding letter of intent, the Company, Somerset,
and the holders of all of the issued and outstanding shares of Somerset's
capital stock (hereinafter, the "Somerset Shareholders") entered into a Share
Exchange Agreement dated November 15, 1999 ("Share Exchange Agreement") pursuant
to which the Somerset Shareholders agreed to sell to the Company, and the
Company agreed to purchase from the Somerset Shareholders, all of the issued and
outstanding stock of Somerset in exchange for 500,000 shares of the Company's
common stock.
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The Share Exchange Agreement expressly conditions the consummation of
the Company's acquisition of Somerset upon several factors, principally (i) the
approval of the National Association of Securities Dealers, Inc.("NASD"), which
regulates the broker-dealer owned by Somerset and (ii) the Company's raising at
least $5,000,000 in cash through a private placement of between 1,000,000 and
2,000,000 shares of the Company's common stock. Somerset has obtained the NASD's
approval for the transaction, and the Company intends to raise the required
funds as discussed further herein.
The Company anticipates that additional capital of $5,000,000, as
required by the Share Exchange Agreement, will be necessary for operations
during the twelve months following the acquisition of Somerset. The Company
plans to raise the necessary capital through a private placement of common
stock. The Company entered into a Placement Agreement dated October 12, 1999
("Placement Agreement") with MFC Merchant Bank S.A., a Swiss Corporation
("MFC"). Pursuant to the Placement Agreement, the Company has engaged MFC as its
exclusive agent to privately place between 1,000,000 and 2,000,000 "Units" at a
price of $5 per Unit, with each Unit consisting of one share of the Company's
common stock together with a warrant to purchase an additional share of the
Company's common stock at a price of $10.
If the transaction defined in the Share Exchange Agreement is not
completed, the Company intends to explore the acquisition of other financial
services companies.
MATERIAL CHANGES IN FINANCIAL CONDITION. Due to the Company not being
engaged in any business, the only material change to the financial condition of
the Company is reflected in the increase in expenses incurred by the Company,
with a corresponding increase to the reported accounts payable. For the three
months ended November 30, 1999, total expenses were $159,490 compared with
$31,178 in the three months ended November 30, 1998. The increase is primarily
attributable to the professional service costs associated with registration
under the Securities Exchange Act and with contracting to acquire Somerset. The
expenses incurred include: $10,585 in printing expenses; $99,318 in professional
fees; and $1,499 in transfer agent fees.
YEAR 2000 READINESS DISCLOSURE. The year 2000 issue ("Y2K Issue") is
the result of computer systems and applications that currently use two digits
rather than four to recognize a particular year. The Y2K issue affects
information technology ("IT") systems (i.e., computer systems, network elements
and software applications), as well as other business systems that have time
sensitive programs or microprocessors ("non-IT systems") that may not properly
reflect or recognize the year 2000. The failure to reflect or recognize dates
after 1999 could cause IT and non-IT systems to fail or cause errors which could
lead to disruptions in operations or increased costs.
As the Company is not presently engaged in any business, the risk of
such occurrence is limited. The Company will however, be considering such
implications related to its business plans moving forward and if needed, develop
contingency plans for its mission critical IT and non-IT systems to timely
address potential Y2K problems.
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PART II - OTHER INFORMATION
BULLET ENVIRONMENTAL TECHNOLOGIES,INC.
(formerly Anglo-Sierra Resources, Inc.)
ITEM 1. LEGAL PROCEEDINGS - None.
ITEM 2. CHANGES IN SECURITIES - None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.
ITEM 5. OTHER INFORMATION - None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
10 Material Contracts.
a. Share Exchange Agreement dated November 15, 1999.
b. Placement Agreement dated October 12, 1999.
27 Financial Data Schedule for the period ended November 30,
1999.
(b) REPORTS ON FORM 8-K - None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BULLET ENVIRONMENTAL TECHNOLOGIES, INC.
Date: January 5, 2000 ----------------------------
Norman Wareham
President, Treasurer and
Chief Executive Officer
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EXHIBIT 10(a)
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SHARE EXCHANGE AGREEMENT
BY AND BETWEEN
BULLET ENVIRONMENTAL TECHNOLOGIES, INC.
AND
DOUGLAS TOTH, WILLIAM E. SCHLOTH, NICHOLAS THOMPSON
AND MFC BANCORP LTD
AND
SOMERSET FINANCIAL PARTNERS, INC.
DATED AS OF NOVEMBER 15, 1999
================================================================================
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TABLE OF CONTENTS
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SECTION 1 PURCHASE AND SALE OF STOCK.......................................................................1
1.1 Purchase and Sale of Stock.................................................................1
1.2 Consideration; Share Exchange..............................................................1
1.3 Closing....................................................................................2
SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
AND SOMERSET...............................................................................2
2.1 Organization and Good Standing.............................................................2
2.2 Authority and Validity.....................................................................2
2.3 Title to Somerset Stock....................................................................3
2.4 Capitalization of Somerset.................................................................3
2.5 Somerset Subsidiaries......................................................................3
2.6 Noncontravention...........................................................................4
2.7 Actions and Proceedings....................................................................4
2.8 Compliance.................................................................................4
2.9 Filings, Consents and Approvals............................................................5
2.10 [Intentionally Deleted]....................................................................5
2.11 Financial Representations..................................................................6
2.12 Accounts...................................................................................6
2.13 Absence of Undisclosed Liabilities.........................................................6
2.14 Tax Matters................................................................................7
2.15 Absence of Changes.........................................................................7
2.16 Personal Property..........................................................................9
2.17 Related Entities...........................................................................9
2.18 Insurance..................................................................................9
2.19 Labor and Employment Matters...............................................................9
2.20 Benefit Plans and Arrangements............................................................10
2.21 Intellectual Property.....................................................................10
2.22 Real Property.............................................................................11
2.23 Material Contracts and Transactions.......................................................11
2.24 Nondistributive Intent....................................................................12
2.25 Access to Information.....................................................................12
2.26 Residence of Stockholders.................................................................12
2.27 No Brokers................................................................................12
2.28 Completeness of Disclosure................................................................12
SECTION 3 REPRESENTATIONS AND WARRANTIES OF BLLE..........................................................13
3.1 Organization and Good Standing............................................................13
3.2 Authority and Validity....................................................................13
3.3 Capitalization of BLLE....................................................................13
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3.4 Noncontravention..........................................................................14
3.5 Actions and Proceedings...................................................................14
3.6 Filings, Consents and Approvals...........................................................14
3.7 Holding Company...........................................................................14
3.8 Financial Statements......................................................................14
3.9 No Brokers................................................................................15
3.9 Completeness of Disclosure................................................................15
SECTION 4 CLOSING CONDITIONS.............................................................................15
4.1 Conditions Precedent to Closing by BLLE...................................................15
4.2 Conditions Precedent to Closing by the Stockholders.......................................18
SECTION 5 ADDITIONAL COVENANTS OF THE PARTIES.............................................................20
5.1 Working Capital...........................................................................20
5.2 Additional Financing......................................................................20
5.3 Assumption of Lease Obligation; Leasehold Improvement Loan................................20
5.4 Transfer and Release of Subsidiary Interest...............................................20
5.5 Registration of BLLE Stock................................................................21
5.6 Access and Investigation..................................................................21
5.7 Confidentiality...........................................................................22
5.8 Public Announcements......................................................................22
5.9 Notification..............................................................................22
5.10 Conduct of Somerset Prior to Closing......................................................22
5.11 Non-Competition...........................................................................23
5.12 Employment Agreements.....................................................................24
5.13 Classified Board of Directors; Composition of Board.......................................24
5.14 Closing Date Resolutions..................................................................24
5.15 Annual Meeting............................................................................25
5.16 Steering Committee........................................................................25
SECTION 6 TERMINATION.....................................................................................25
6.1 Termination...............................................................................25
6.2 Effect of Termination.....................................................................26
SECTION 7 INDEMNIFICATION; REMEDIES; SURVIVAL.............................................................26
7.1 Certain Definitions.......................................................................26
7.2 Agreement of the Stockholders and Somerset to Indemnify BLLE..............................26
7.3 Agreement of BLLE to Indemnify the Stockholders...........................................27
7.4 Procedures for Indemnification............................................................27
7.5 Defense of Third Party Claims.............................................................28
7.6 Settlement of Third Party Claims..........................................................28
7.7 Limitations of Liability..................................................................29
7.9 Survival of Representations and Warranties................................................29
SECTION 8 MISCELLANEOUS PROVISIONS........................................................................29
8.1 Appointment of Stockholders Representative................................................29
8.2 Effectiveness of Representations..........................................................29
</TABLE>
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<TABLE>
<S> <C>
8.3 Acknowledgment of Placement Agent and Deposit Agent.......................................29
8.4 Further Assurances........................................................................30
8.5 Amendment.................................................................................30
8.6 Expenses..................................................................................30
8.7 Entire Agreement..........................................................................30
8.8 Severability..............................................................................30
8.9 Notices...................................................................................30
8.10 Headings..................................................................................32
8.11 Benefits..................................................................................32
8.12 Assignment................................................................................32
8.13 Governing Law.............................................................................32
8.14 Arbitration...............................................................................32
8.15 Construction..............................................................................33
8.16 Counterparts..............................................................................33
8.17 Fax Execution.............................................................................33
8.18 Schedules and Exhibits....................................................................33
</TABLE>
DISCLOSURE SCHEDULES
Disclosure Schedule 1.2 Somerset Stock Ownership
Disclosure Schedule 2.4 Capitalization of Somerset
Disclosure Schedule 2.5 Somerset Subsidiaries and Restrictions
Disclosure Schedule 2.7 Actions and Proceedings
Disclosure Schedule 2.8 Compliance
Disclosure Schedule 2.9 Filings, Consents, and Approvals
Disclosure Schedule 2.11 Somerset Financial Statements
Disclosure Schedule 2.12 Bank Accounts
Disclosure Schedule 2.13 Undisclosed Liabilities
Disclosure Schedule 2.15 Absence of Changes and Events
Disclosure Schedule 2.16 Personal Property
Disclosure Schedule 2.17 Related Entities
Disclosure Schedule 2.18 Insurance
Disclosure Schedule 2.19 Labor and Employment
Disclosure Schedule 2.20 Benefit Plans
Disclosure Schedule 2.21 Intellectual Property
Disclosure Schedule 2.22 Real Property
Disclosure Schedule 2.23 Material Contracts and Transactions
Disclosure Schedule 2.26 Residences of Stockholders
EXHIBITS
Exhibit A Employment Agreement - Form
Exhibit B Stock Restriction Agreement
Exhibit C Opinion of Counsel for Somerset
Exhibit D Opinion of Counsel for BLLE
Exhibit E Registration Rights Agreement
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<PAGE> 5
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (this "Agreement") is entered into on
November 15, 1999, by: Bullet Environmental Technologies, Inc., a Delaware
corporation ("BLLE"); Somerset Financial Partners, Inc., a Connecticut
corporation ("Somerset"); and, Douglas Toth, a resident of New Jersey, William
E. Schloth, a resident of Connecticut, Nicholas Thompson, a resident of New
Jersey and, MFC Bancorp Ltd., a corporation organized under the laws of the
Yukon, Canada ("MFC"), (individually referred to herein as a "Stockholder" and
collectively as the "Stockholders"), being the holders of all the issued and
outstanding capital stock of Somerset.
BACKGROUND:
The Stockholders own all of the issued and outstanding shares of
Somerset common stock ("Somerset Stock").
BLLE is a shell corporation with no active business that desires to
acquire all of the issued and outstanding Somerset Stock.
The Stockholders have agreed to sell to BLLE, and BLLE has agreed to
purchase, the Somerset Stock from the Stockholders in exchange for shares of
BLLE common stock, pursuant to the terms and conditions set forth in this
Agreement.
Somerset joins in the execution of this Agreement in consideration of
the anticipated benefit to be provided by its affiliation with BLLE.
In consideration of the mutual representations, warranties, covenants
and agreements contained in this Agreement, the parties agree as follows:
STATEMENT OF TERMS:
SECTION 1
PURCHASE AND SALE OF STOCK
1.1 PURCHASE AND SALE OF STOCK. The Stockholders agree to sell to
BLLE, and BLLE agrees to purchase from the Stockholders, all of the
Stockholders' right, title and interest in the Somerset Stock, representing
100% of the issued and outstanding stock of Somerset, free and clear of all
mortgages, liens, pledges, security interests, restrictions, encumbrances, or
adverse claims of any nature.
1.2 CONSIDERATION; SHARE EXCHANGE. At the Closing (as defined in
Section 1.3 below), upon surrender of the certificates evidencing the Somerset
Stock duly endorsed for transfer to BLLE, BLLE will cause 500,000 shares of the
common voting stock, par value $0.0001 of BLLE (the "BLLE Stock") to be issued
to the Stockholders, in full satisfaction of any right or interest which each
Stockholder held in the Somerset Stock. The BLLE Stock will be
<PAGE> 6
issued to the Stockholders on a pro rata basis, in the same proportion as the
percentage of their ownership interest in the Somerset Stock, as detailed on
Disclosure Schedule 1.2. As a result of the exchange of the Somerset Stock in
exchange for the BLLE Stock, Somerset will become a wholly-owned subsidiary of
BLLE.
1.3 CLOSING. The parties to this Agreement will hold a closing
(the "Closing") for the purpose of executing all of the documents contemplated
by this Agreement (collectively, the "Transaction Documents") and otherwise
effecting the transactions contemplated by this Agreement, at 12:00 pm on
December 16, 1999, or such other date and time mutually agreed upon by the
parties. The Closing will be held at the offices of Powell, Goldstein, Frazer
& Murphy LLP, located at 1001 Pennsylvania Avenue, N.W., Sixth Floor South,
Washington, D.C. 20004, or at such other place as BLLE and the Stockholders
may reasonably agree. The date on which the Closing actually occurs is referred
to as the "Closing Date."
SECTION 2
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS AND SOMERSET
The Stockholders and Somerset individually, jointly and severally
represent and warrant to BLLE, and acknowledge and agree that BLLE is relying
upon such representations and warranties in connection with the execution,
delivery and performance of this Agreement, notwithstanding any investigation
made by or on behalf of BLLE:
2.1 ORGANIZATION AND GOOD STANDING. Each of Somerset and its
Subsidiaries (as defined below) is an entity duly organized, validly existing
and in good standing under the laws of Connecticut and has all requisite
corporate power and authority to own, lease and to carry on its business as now
being conducted. Each of Somerset and its Subsidiaries is duly qualified to do
business and is in good standing as a foreign corporation in each of the
jurisdictions in which it owns property, leases property, does business, or is
otherwise required to do so, where the failure to be so qualified would have a
material adverse effect on the business of Somerset and its Subsidiaries taken
as a whole. As used in this Agreement, the term "Subsidiaries" means, with
respect to any person or other entity, any corporation or other organization,
whether incorporated or unincorporated, of which at least a majority of the
securities or interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is at that
time directly or indirectly owned or controlled by such person, corporation or
other entity, or by any one or more of its Subsidiaries, or by such person,
corporation or other entity, and one or more of its Subsidiaries.
2.2 AUTHORITY AND VALIDITY. Somerset has all requisite corporate
power and authority to enter into this Agreement and the Transaction Documents
(as defined in Section 1.3) to which it is a party and to perform its
obligations thereunder and to consummate the transactions contemplated thereby.
The execution and delivery of this Agreement and each of the Transaction
Documents to which it is a party by Somerset and the consummation by Somerset
of the transactions contemplated thereby, have been duly authorized by the
board of directors of Somerset and the Stockholders and no other corporate
proceedings on the part of
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<PAGE> 7
Somerset are necessary to authorize such documents or to consummate the
transactions contemplated thereby. This Agreement has been, and all the other
Transaction Documents to which it is a party when executed and delivered by the
Stockholders and Somerset as contemplated by this Agreement will be, duly
executed and delivered by the Stockholders and Somerset and this Agreement is,
and the other Transaction Documents when executed and delivered by the
Stockholders and Somerset as contemplated hereby will be, the valid and binding
obligation of the Stockholders and Somerset enforceable in accordance with
their respective terms, except (1) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, and (2) as limited by
relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
2.3 TITLE TO SOMERSET STOCK. The Stockholders have full right,
power and authority to sell, transfer and deliver the Somerset Stock, and upon
delivery of the certificates therefor as contemplated in this Agreement, the
Stockholders will transfer to BLLE valid and marketable title to the Somerset
Stock, including all voting and other rights to the Somerset Stock, free and
clear of all pledges, liens, security interests, adverse claims, options,
rights of any third party, or other encumbrances.
2.4 CAPITALIZATION OF SOMERSET. The entire authorized capital
stock and other equity securities of Somerset consists of 20,000 shares of
common stock, no par value, all of which are issued and outstanding to the
Stockholders as listed on Disclosure Schedule 2.4. Other than as listed in
Disclosure Schedule 2.4, there are no agreements purporting to restrict the
transfer of the Somerset Stock, nor any voting agreements, voting trusts or
other arrangements restricting or affecting the voting of the Somerset Stock.
The Somerset Stock held by the Stockholders is duly and validly issued, fully
paid and non-assessable, and issued in full compliance with all federal, state,
and local laws, rules and regulations. There are no subscription rights,
options, warrants, convertible securities, or other rights (contingent or
otherwise) presently outstanding, for the purchase, acquisition, or sale of the
capital stock of Somerset, or any securities convertible into or exchangeable
for capital stock of Somerset or other securities of Somerset, from or by
Somerset. There are no stock appreciation rights, phantom stock, or similar
rights in existence with respect to Somerset.
2.5 SOMERSET SUBSIDIARIES. Somerset has three Subsidiaries:
Somerset Financial Group, Inc. ("Somerset Financial"), Somerset Capital, LLC.,
and Somerset Investment Management, LLC. ("Somerset Investment"). All of the
shares of capital stock or membership interests of each Subsidiary of Somerset
are owned directly by Somerset free and clear of all claims, liens, charges,
security interest, encumbrances and other restrictions or limitations of any
kind, and such shares are duly authorized, validly issued, were not issued in
violation of any preemptive rights, are fully paid and nonassessable, and were
issued in full compliance with all federal, state, provincial and local laws,
rules and regulations. Except as set forth on Disclosure Schedule 2.5, there
are no outstanding options, warrants, subscriptions, conversion rights or other
rights, agreements or commitments obligating any Subsidiary to issue any
additional shares of the capital stock of any Subsidiary of Somerset or any
other securities convertible into, exchangeable for, or evidencing the right to
subscribe for or acquire from any Subsidiary any shares of its capital stock.
Somerset and the Subsidiaries do not own, directly or indirectly, any capital
stock or other equity
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<PAGE> 8
securities of any corporation other than the Subsidiaries set forth in
Disclosure Schedule 2.5 or have any direct or indirect equity or ownership
interest in any other business.
2.6 NONCONTRAVENTION. Neither the execution, delivery and
performance of the Transaction Documents, nor the consummation of the
transactions contemplated thereby nor compliance with the provisions thereof,
will:
(1) Conflict with, result in a violation of, cause a
default under (with or without notice, lapse of time or both) or give
rise to a right of termination, amendment, cancellation or
acceleration of any obligation contained in or the loss of any
material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the material
properties or assets of Somerset or its Subsidiaries under any term,
condition or provision of any loan or credit agreement, note,
debenture, bond, mortgage, indenture, lease or other agreement,
instrument, permit, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Somerset or its
Subsidiaries, or their respective properties or assets;
(2) Violate any provision of the articles or certificate
of incorporation or by-laws of Somerset or its Subsidiaries; or
(3) Violate any order, writ, injunction, decree, statute,
rule, or regulation of any court or governmental or regulatory
authority applicable to Somerset or its Subsidiaries or any of their
respective properties or assets.
2.7 ACTIONS AND PROCEEDINGS. There is no claim, charge,
arbitration, grievance, action, suit, investigation or proceeding by or before
any court, arbiter, administrative agency or other governmental authority now
pending or, to the Stockholders' and Somerset's knowledge, threatened against
the Stockholders, Somerset or any of its Subsidiaries, or which involves any of
the business, or the properties or assets of Somerset or its Subsidiaries that,
if adversely resolved or determined, would have a material adverse effect on
the business, operations, assets, properties, prospects, or conditions of
Somerset or its Subsidiaries taken as a whole ("Material Adverse Effect").
There is no reasonable basis for any claim or action that, based upon the
likelihood of its being asserted and its success if asserted, would have such a
Material Adverse Effect. Disclosure Schedule 2.7 lists all pending legal
claims or proceedings, whether or not such claim or proceeding would result in
a Material Adverse Effect if decided against Somerset or its Subsidiaries.
2.8 COMPLIANCE.
(a) Somerset and its Subsidiaries are in compliance with, are
not in default or violation in any material respect under, and have not been
charged with or received any notice at any time of any material violation by it
of, any statute, law, ordinance, regulation, rule, decree or other applicable
regulation to the business or operations of Somerset or its Subsidiaries.
Somerset Financial is registered with the National Association of Securities
Dealers, Inc. ("NASD") as a registered broker/dealer and such registration is
current in all respects. Somerset Investment's application to be registered as
an investment advisor in the State of Connecticut is
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<PAGE> 9
pending. Except as set forth on Disclosure Schedule 2.8, neither Somerset, its
Subsidiaries, nor any of their respective employees, officers, members or
directors (including the Stockholders) is the subject of any disciplinary
proceedings before, or under investigation by, the NASD, the Securities and
Exchange Commission ("SEC"), any securities exchanges or markets, any state
securities division or other regulatory bodies. Except as disclosed on
Disclosure Schedule 2.8, neither Somerset nor any of its Subsidiaries have
received, since their inception to the date hereof, any written complaints or
requests for refunds of commissions or other amounts paid. Annexed hereto as
Disclosure Schedule 2.8 is a true and complete list of the Forms U-4 for all
registered representatives and principals of Somerset or its Subsidiaries; all
Forms BD and amendments thereto filed with the SEC by Somerset or its
Subsidiaries; and Form ADV filed in order for Somerset Investment to become a
registered investment advisor. Somerset has provided a BLLE with a true and
complete copy of each of the forms listed on Disclosure Schedule 2.8. All such
filings were, to the best knowledge of Somerset and the Stockholders, true and
accurate in all material respects when filed and no further amendment thereof
is currently required.
(b) Neither Somerset nor any of its Subsidiaries is subject
to any judgment, order or decree entered in any lawsuit or proceeding
applicable to their respective business and operations that would have a
Material Adverse Effect.
(c) Somerset and its Subsidiaries have duly filed all reports
and returns required to be filed by it with governmental authorities and have
obtained all governmental permits and licenses and other governmental consents,
except as may be required after the execution of this Agreement. All of such
permits, licenses and consents are in full force and effect, and no proceedings
for the suspension or cancellation of any of them, and no investigation
relating to any of them, is pending or, to the best knowledge of Somerset and
the Stockholders, threatened, and none of them will be adversely affected by
the consummation of the transactions contemplated hereby.
(d) Somerset and its Subsidiaries have operated in material
compliance with all laws, rules, statutes, ordinances, orders and regulations
applicable to its business, including, without limitation, those applicable to
Somerset and its Subsidiaries under the Occupational Safety and Health Act of
1970, as amended, or any equivalent state law. Neither Somerset nor any of its
Subsidiaries has received any notice of any violation thereof, nor are Somerset
or the Stockholders aware of any valid basis therefor.
2.9 FILINGS, CONSENTS AND APPROVALS. Except as listed on
Disclosure Schedule 2.9, no filing or registration with, no notice to and no
permit, authorization, consent, or approval of any public or governmental body
or authority or other person or entity is necessary for the consummation by
Somerset of the transactions contemplated by this Agreement or to enable
Somerset and its Subsidiaries to continue to conduct its business after the
Closing Date in a manner which is consistent with that in which it is presently
conducted.
2.10 [Intentionally Deleted.]
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<PAGE> 10
2.11 FINANCIAL REPRESENTATIONS. Attached to this Agreement as
Disclosure Schedule 2.11 are true, correct, and complete copies of (i) an
unaudited consolidated balance sheet for Somerset dated as of December 31,
1998, together with related statements of income, cash flows, and changes in
shareholder's equity for the fiscal year then ended, (ii) an unaudited
consolidated balance sheet of Somerset dated as of August 31, 1999, together
with related consolidated st atements of income, cash flows, and changes in
shareholder's equity, (iii) an audited balance sheet for Somerset Financial
dated as of December 31, 1998, together with related statements of income, cash
flows, and changes in shareholder's equity for the fiscal year then ended, and
(iv) an unaudited balance sheet of Somerset Financial dated as of August 31,
1999, together with related statements of income, cash flows, and changes in
shareholder's equity (collectively, the "Somerset Financial Statements"). The
Somerset Financial Statements (a) are in accordance with the books and records
of Somerset and (b) present fairly the financial condition of Somerset as of
the respective dates indicated and the results of operations for such periods.
Somerset has not received any advice or notification from its independent
certified public accountants that Somerset or any of its Subsidiaries has used
any improper accounting practice that would have the effect of not reflecting
or incorrectly reflecting in the Somerset Financial Statements or the books and
records of Somerset, its Subsidiaries, any properties, assets, liabilities,
revenues, or expenses. The books, records, and accounts of Somerset accurately
and fairly reflect, in reasonable detail, the transactions, assets, and
liabilities of Somerset. Somerset has not engaged in any transaction,
maintained any bank account, or used any funds of Somerset, except for
transactions, bank accounts, and funds which have been and are reflected in the
normally maintained books and records of Somerset.
2.12 ACCOUNTS. Disclosure Schedule 2.12 sets forth and describes
(a) all bank accounts owned or maintained by Somerset or any of its
Subsidiaries and all authorized signatories with respect thereto, and (b) all
safety deposit boxes maintained by Somerset or any of its Subsidiaries and all
persons who have access thereto.
2.13 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
Disclosure Schedule 2.13, Somerset and its Subsidiaries have no liabilities or
obligations either direct or indirect, matured or unmatured, absolute,
contingent or otherwise, which:
(a) are not set forth in the Financial Statements or have
not heretofore been paid or discharged;
(b) did not arise in the regular and ordinary course of
business under any agreement, contract, commitment, lease or plan specifically
disclosed (or are not required to be disclosed in accordance with GAAP); or
(c) have not been incurred in amounts and pursuant to
practices consistent with past business practice, in or as a result of the
regular and ordinary course of its business since the date of the last Financial
Statements.
For purposes of this Agreement, the term "liabilities" includes, any
direct or indirect indebtedness, guaranty, endorsement, claim, loss, damage,
deficiency, cost, expense, obligation
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<PAGE> 11
or responsibility, fixed or unfixed, known or unknown, asserted or unasserted,
choate or inchoate, liquidated or unliquidated, secured or unsecured.
2.14 TAX MATTERS. "Tax" or "Taxes" means any and all taxes,
charges, fees, levies, duties or other assessments whether federal, state,
local or foreign, based upon or measured by income, capital, net worth or gain
and any other tax including, recapture, gross receipts, profits, sales, use,
occupation, use and occupancy, value added, ad valorem, customers, transfer,
franchise, shares, withholding, payroll, employment, excise, or property taxes
with respect to Somerset and any of its Subsidiaries, together with any
interest, fines, penalties and additions to tax imposed with respect thereto.
(a) As of the date hereof, (i) Somerset and its Subsidiaries
have timely filed all Tax returns which are required to be filed on or prior to
the date hereof, taking into account any extensions of the filing deadlines
which have been validly granted to them; and (ii) all such returns are true and
correct in all material respects.
(b) Somerset and its Subsidiaries have paid all Taxes that
have become or are due with respect to any period ended on or prior to the date
hereof, and has established an adequate reserve therefore on its balance sheet
for those Taxes not yet due and payable, except for any Taxes the non-payment of
which will not have a Material Adverse Effect.
(c) Neither Somerset nor any of its Subsidiaries are
presently under, nor have they received notice of, any contemplated
investigation or audit by the Internal Revenue Service or any foreign or state
taxing authority concerning any fiscal year or period ended prior to the date
hereof.
(d) All Taxes required to be withheld on or prior to the
date hereof from employees for income Taxes, social security Taxes, unemployment
Taxes and other similar withholding Taxes have been properly withheld and, if
required on or prior to the date hereof, have been deposited with the
appropriate governmental agency.
(e) Neither Somerset nor any of its Subsidiaries are a party
to any tax-sharing agreements or similar contracts or arrangements.
2.15 ABSENCE OF CHANGES. Except as set forth in Disclosure
Schedule 2.15, since December 31, 1998, neither Somerset nor its Subsidiaries
have:
(a) incurred any liabilities, other than liabilities
incurred in the ordinary course of business consistent with past practice, or
discharged or satisfied any lien or encumbrance, or paid any liabilities, other
than in the ordinary course of business consistent with past practice, or failed
to pay or discharge when due any liabilities of which the failure to pay or
discharge has caused or will cause any material damage or risk of material loss
to it or any of its assets or properties;
(b) sold, encumbered, assigned or transferred any fixed
assets or properties which would have been included in the assets of Somerset or
its Subsidiaries if the closing had
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been held on December 31, 1998 or on any date since then, except for ordinary
course of business transactions consistent with past practice;
(c) created, incurred, assumed or guaranteed any
indebtedness for money borrowed, or mortgaged, pledged or subjected any of the
assets or properties of Somerset or its Subsidiaries to any mortgage, lien,
pledge, security interest, conditional sales contract or other encumbrance of
any nature whatsoever;
(d) made or suffered any amendment or termination of any
material agreement, contract, commitment, lease or plan to which it is a party
or by which it is bound, or cancelled, modified or waived any substantial debts
or claims held by it or waived any rights of substantial value, whether or not
in the ordinary course of business;
(e) declared, set aside or paid any dividend or made or
agreed to make any other distribution or payment in respect of its capital
shares or redeemed, purchased or otherwise acquired or agreed to redeem,
purchase or acquire any of its capital shares or equity securities;
(f) suffered any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting its business,
operations, assets, properties or prospects;
(g) suffered any material adverse change in its business,
operations, assets, properties, prospects or condition (financial or
otherwise);
(h) received notice or had knowledge of any actual or
threatened labor trouble, termination, resignation, strike or other occurrence,
event or condition of any similar character which has had or might have an
adverse effect on its business, operations, assets, properties or prospects;
(i) made commitments or agreements for capital expenditures
or capital additions or betterments exceeding in the aggregate $5,000.00, except
such as may be involved in ordinary repair, maintenance or replacement of its
assets;
(j) other than in the ordinary course of business, increased
the salaries or other compensation of, or made any advance (excluding advances
for ordinary and necessary business expenses) or loan to, any of its employees
or made any increase in, or any addition to, other benefits to which any of its
employees may be entitled;
(k) changed any of the accounting principles followed or
the methods of applying such principles;
(l) entered into any transaction other than in the ordinary
course of business consistent with past practice; or
(m) agreed, whether in writing or orally, to do any of the
foregoing.
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2.16 PERSONAL PROPERTY. Disclosure Schedule 2.16 contains a list of
all material equipment, furniture, fixtures and other tangible personal
property and assets owned or leased by Somerset or its Subsidiaries. Except as
disclosed on Disclosure Schedule 2.16, Somerset and its Subsidiaries possess
all property and items necessary for the continued operation of the business of
Somerset or its Subsidiaries as presently conducted. All of such items are in
good operating condition (normal wear and tear excepted), and are reasonably
fit for the purposes for which the such item is presently used.
2.17 RELATED ENTITIES. Except as set forth on Disclosure Schedule
2.17, neither Somerset, its Subsidiaries, nor any Stockholder, director,
officer or employee of Somerset or its Subsidiaries, or any member of his or
her immediate family or any other of its, his or her affiliates, owns or has an
ownership interest in any corporation or other entity that is or was during the
last three years a party to, or in any property which is or was during the last
three years the subject of, any material contract, agreement or understanding,
business arrangement or relationship with Somerset. Disclosure Schedule 2.17
provides a description of each such related entity and the interest held
therein.
2.18 INSURANCE. The assets, properties and operations of Somerset
and its Subsidiaries are insured under various policies of general liability
and other forms of insurance consistent with prudent business practices. All
such policies are in full force and effect in accordance with their terms, no
notice of cancellation has been received, and there is no existing default by
Somerset or its Subsidiaries or event which, with the giving of notice, the
lapse of time or both, would constitute a default thereunder. All premiums to
date have been paid in full. Disclosure Schedule 2.18 contains a list of all
outstanding bonds and other surety arrangements issued or entered into in
connection with the business, assets and liabilities of Somerset and its
Subsidiaries, a true and complete copy of which have been provided by Somerset
to BLLE.
2.19 LABOR AND EMPLOYMENT MATTERS.
(a) No employee of Somerset or its Subsidiaries is covered
by any collective bargaining agreement.
(b) Somerset and its Subsidiaries have complied, and are
currently in compliance, in all material respects with applicable laws, rules
and regulations relating to the employment of labor, including without
limitation those relating to wages, hours, unfair labor practices,
discrimination and payment of social security and similar taxes.
(c) With respect to the business, neither Somerset nor its
Subsidiaries are liable for any unpaid wages, bonuses, or commissions (other
than those not yet due) or any tax, penalty, assessment, or forfeiture for
failure to comply with any of the foregoing. All officers, employees, and
agents of Somerset and its Subsidiaries are employees at-will, and for
indefinite terms and there is no outstanding agreement or arrangement with
respect to severance payments.
(d) Disclosure Schedule 2.19 contains a complete and
accurate list of the following information for each employee, consultant,
member or director of Somerset or its Subsidiaries that receives annual
compensation is excess of Twenty Thousand Dollars ($20,000.00),
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including each employee on leave of absence or layoff status: employer; name;
job title; hire date; current compensation paid or payable and any change in
compensation since December 31, 1998; vacation accrued; and service credited
for purposes of vesting and eligibility to participate under any of the Benefit
Plans (as defined in Section 2.20 of this Agreement).
2.20 BENEFIT PLANS AND ARRANGEMENTS. Disclosure Schedule 2.20
contains a list of all employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA")), and all other
deferred compensation or fringe benefit plans, arrangements or practices of
Somerset and its Subsidiaries, including without limitation, severance pay,
stock options and similar plans or arrangements and other benefit obligations of
Somerset and its Subsidiaries, whether oral or written, to any of its employees
(the "Benefit Plans"). A true and complete copy of each Benefit Plan has been
provided to BLLE. The Benefit Plans are the only Benefit Plans maintained by or
contributed to by Somerset and its Subsidiaries for the benefit of its
Stockholders, officers, directors, employees or former employees which are
related to the assets of Somerset, its Subsidiaries, or the business of Somerset
and its Subsidiaries. Each such Benefit Plan, which is subject to ERISA and the
Tax Reform Act of 1986, as amended (the "Code"), is and always has been in
substantial compliance with the provisions of ERISA and the Code, and they, and
all other such plans are in compliance with all other laws applicable thereto.
Somerset and its Subsidiaries maintain no plan or program that provides
post-retirement medical or death benefits or other post-retirement health or
welfare benefits. Neither Somerset nor its Subsidiaries has ever contributed to
nor been obligated to contribute to any multiemployer plan as defined in Section
4001(a)(3) of ERISA. The consummation of the transactions contemplated by this
Agreement will not accelerate or increase any liability, or accelerate or
increase any right or benefit to which employees may be entitled to, under any
of the Benefit Plans. Each of the Benefit Plans may be terminated without
resulting in any liability to Somerset or its Subsidiaries. Except as
specifically disclosed in Disclosure Schedule 2.20, there are no actions,
audits, investigations, suits or claims pending, or threatened against Somerset,
its Subsidiaries, or any of the Benefit Plans and they have no liabilities with
respect to any of the Benefit Plans.
2.21 INTELLECTUAL PROPERTY. Listed on Disclosure Schedule 2.21 are
all intellectual property assets used by Somerset and its Subsidiaries in the
operation of its business, including trade names, patents, service marks,
copyrights, and any applications for any of the foregoing (the "Intellectual
Property Assets"). The Intellectual Property Assets include all those
necessary for the operation of the business of Somerset and its Subsidiaries as
they are currently conducted. Unless stated otherwise on Disclosure Schedule
2.21, Somerset or its Subsidiaries are the owner of all right, title, and
interest in and to each of the Intellectual Property Assets, free and clear of
all liens, security interests, charges, encumbrances, equities, and other
adverse claims, and has the right to use without payment to a third party all
of the Intellectual Property Assets. Neither Somerset nor any of its
Subsidiaries infringes upon or unlawfully or wrongfully use any trademarks,
patents, copyrights or trade secrets owned or claimed by another. Disclosure
Schedule 2.21 lists all confidentiality or non-disclosure agreements to which
Somerset, its Subsidiaries or any of their employees is a party. No employee,
director, officer or Stockholder of Somerset or its Subsidiaries owns, directly
or indirectly, in whole or in part, any Intellectual Property Asset used by
Somerset or the Subsidiaries.
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2.22 REAL PROPERTY.
(a) Neither Somerset nor its Subsidiaries own any real
property.
(b) Disclosure Schedule 2.22 contains a true and correct
list of each parcel of real property leased by Somerset and its Subsidiaries,
detailing the expiration date of each lease, and the monthly rent payable
thereunder. All of the leases detailed in Disclosure Schedule 2.22 are in full
force and effect, and no event has occurred which with the passing of time, the
giving of notice, or both, would constitute a default under any of the leases.
(c) Neither Somerset nor its Subsidiaries has received
written notice of any pending or threatened eviction proceedings, condemnations,
planned public improvements, annexation, special assessments, zoning or
subdivision changes, or other adverse claims affecting the leased real property.
There are no material past due ad valorem or other real estate taxes,
assessments, or other charges affecting the leased real property.
2.23 MATERIAL CONTRACTS AND TRANSACTIONS. Disclosure Schedule 2.23
contains a list of all material contracts, agreements, licenses, permits,
arrangements, commitments, instruments, understandings or contracts, whether
written or oral, express or implied, contingent, fixed or otherwise, to which
Somerset or its Subsidiaries is a party (collectively, the "Contracts").
(a) Except as listed on Disclosure Schedule 2.23, neither Somerset
nor its Subsidiaries is a party to any written or oral:
(1) contract for the purchase, sale or lease of any
capital assets, or continuing contracts for the purchase or lease of
any materials, supplies, equipment, real property or services;
(2) agreement regarding sales agency, distributorship, or
the payment of commissions;
(3) agreement for the employment or consultancy of any
person or entity;
(4) note, debenture, bond, trust agreement, letter of
credit agreement, loan agreement, or other contract or commitment for
the borrowing or lending of money, or agreement or arrangement for a
line of credit or guarantee, pledge, or undertaking of the
indebtedness of any other person;
(5) agreement, contract, or commitment for any charitable
or political contribution;
(6) agreement, contract, or commitment limiting or
restraining Somerset or its Subsidiaries, their business or any
successor thereto from engaging or competing in any manner or in any
business or from hiring any employees, nor is any employee of Somerset
or its Subsidiaries subject to any such agreement, contract, or
commitment;
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(7) material agreement, contract, or commitment not made
in the ordinary course of business;
(8) agreement establishing or providing for any joint
venture, partnership, or similar arrangement with any other person or
entity;
(9) agreement, contract or understanding containing a
"change in control," "potential change in control" or similar
provision; or
(10) power of attorney or similar authority to act.
(b) Each Contract is in full force and effect, and there exists no
material breach or violation of or default by Somerset or its Subsidiaries
under any Contract nor by any other party to a Contract, or any event that with
notice or the lapse of time, or both, will create a material breach or
violation thereof or default under any Contract by Somerset, its Subsidiaries,
nor by any other party to a Contract. The continuation, validity, and
effectiveness of each Contract will in no way be affected by the consummation
of the transactions contemplated by this Agreement. Except as listed on
Disclosure Schedule 2.23, there exists no actual or threatened termination,
cancellation, or limitation of, or any amendment, modification, or change to
any Contract. A true, correct and complete copy (and if oral, a description of
material terms) of each Contract, as amended to date, has been furnished to
BLLE.
2.24 NONDISTRIBUTIVE INTENT. The Stockholders are acquiring the BLLE
Stock for their own account (and not for the account of others) for investment
and not with a view to the distribution therefor. The Stockholders will not
sell or otherwise dispose of such BLLE Stock without registration under the
Securities Act of 1933, as amended, or an exemption therefrom, and the
certificate or certificates representing such shares may contain a legend to the
foregoing effect.
2.25 ACCESS TO INFORMATION. The Stockholders and Somerset have had
access to all documents and information about BLLE and have reviewed sufficient
information to allow them to evaluate the merits and risks of the acquisition of
the BLLE Stock.
2.26 RESIDENCE OF STOCKHOLDERS. Disclosure Schedule 2.26 lists the
jurisdictions in which (i) Douglas Toth, Nicholas Thompson, and William E.
Schloth (collectively, the "Individual Stockholders") reside, and (ii) MFC is
incorporated and maintains its principle place of business.
2.27 NO BROKERS. Neither the Stockholders nor Somerset has incurred
any obligation or liability to any party for any brokerage fees, agent's
commissions, or finder's fees in connection with the transactions contemplated
by this Agreement for which BLLE would be responsible.
2.28 COMPLETENESS OF DISCLOSURE. No representation or warranty by
the Stockholders or Somerset in this Agreement nor any certificate, schedule,
statement, document or instrument furnished or to be furnished to BLLE pursuant
hereto contains or will contain any untrue
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statement of a material fact or omits or will omit to state a material fact
required to be stated herein or therein or necessary to make any statement
herein or therein not materially misleading.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF BLLE
BLLE hereby represents and warrants to the Stockholders, and
acknowledges that the Stockholders are relying upon such representations and
warranties, in connection with the execution, delivery and performance of this
Agreement, notwithstanding any investigation made by or on behalf of BLLE:
3.1 ORGANIZATION AND GOOD STANDING. BLLE is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. BLLE has no
Subsidiaries.
3.2 AUTHORITY AND VALIDITY. BLLE has all requisite corporate
power and authority to enter into this Agreement and the Transaction Documents
to which it is a party and to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution and delivery
of this Agreement and each of the Transaction Documents to which it is a party
by BLLE and the consummation by BLLE of the transactions contemplated thereby,
have been duly authorized by the board of directors of BLLE and no other
corporate proceedings on the part of BLLE are necessary to authorize such
documents or to consummate the transactions contemplated thereby. This Agreement
has been, and all the other Transaction Documents to which it is a party when
executed and delivered by BLLE as contemplated by this Agreement will be, duly
executed and delivered by BLLE and this Agreement is, and the other Transaction
Documents when executed and delivered by BLLE as contemplated hereby will be,
the valid and binding obligation of BLLE enforceable in accordance with their
respective terms, except (1) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, and (2) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies.
3.3 CAPITALIZATION OF BLLE. The entire authorized capital stock
and other equity securities of BLLE consists of 5,000,000 shares of preferred
stock, par value $0.0001 per share and 30,000,000 shares of common stock, par
value $0.0001 per share, of which 2,150,422 shares of common stock are issued
and outstanding. BLLE is not aware of any agreements purporting to restrict
the transfer of the BLLE Stock, nor any voting agreements, voting trusts or
other arrangements restricting or affecting the voting of the BLLE Stock. There
are no subscription rights, options, warrants, convertible securities, or other
rights (contingent or otherwise) presently outstanding, for the purchase,
acquisition, or sale of the capital stock of BLLE, or any securities
convertible into or exchangeable for capital stock of BLLE or other securities
of BLLE, from or by BLLE. There are no stock appreciation rights, phantom
stock, or similar rights in existence with respect to BLLE.
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3.4 NONCONTRAVENTION. Neither the execution, delivery and
performance of the Transaction Documents, nor the consummation of the
transactions contemplated thereby nor compliance with the provisions thereof,
will:
(1) Conflict with, result in a violation of, cause a
default under (with or without notice, lapse of time or both) or give
rise to a right of termination, amendment, cancellation or
acceleration of any obligation contained in or the loss of any
material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the material
properties or assets of BLLE under any term, condition or provision of
any loan or credit agreement, note, debenture, bond, mortgage,
indenture, lease or other agreement, instrument, permit, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to BLLE or its properties or assets;
(2) Violate any provision of the articles or certificate
of incorporation or by-laws of BLLE; or
(3) Violate any order, writ, injunction, decree, statute,
rule, or regulation of any court or governmental or regulatory
authority applicable to BLLE or any of its properties or assets.
3.5 ACTIONS AND PROCEEDINGS. There is no claim, charge,
arbitration, grievance, action, suit, investigation or proceeding by or before
any court, arbiter, administrative agency or other governmental authority now
pending or, to BLLE's knowledge, threatened against BLLE, or which involves any
of the business, or the properties or assets of BLLE that, if adversely
resolved or determined, would have a material adverse effect on the business,
operations, assets, properties, prospects, or conditions of BLLE. There is no
reasonable basis for any claim or action that, based upon the likelihood of its
being asserted and its success if asserted, would have a material adverse
effect.
3.6 FILINGS, CONSENTS AND APPROVALS. Except for a Form 8-K to be
filed after Closing pursuant to Rule 13 of the Securities Exchange Act of 1934,
no filing or registration with, no notice to and no permit, authorization,
consent, or approval of any public or governmental body or authority or other
person or entity is necessary for the consummation by BLLE of the transactions
contemplated by this Agreement.
3.7 HOLDING COMPANY. BLLE is a holding company and does not own
any significant or material assets or engage in any business. Other than this
Agreement and the Transaction Documents, BLLE is not a party to any contracts
and has no material liabilities of any kind.
3.8 FINANCIAL STATEMENTS. True, correct, and complete copies of
(i) an audited balance sheet for BLLE (formerly known as Anglo-Sierra Resources
Corp.) dated as of February 28, 1999, together with related statements of
income, cash flows, and changes in shareholder's equity for the fiscal year
then ended and (ii) an unaudited balance sheet of BLLE dated as of May 31,
1999, together with related statements of income, cash flows, and changes in
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shareholder's equity for that period were attached to, and made part of, the
Form 10-SB electronically filed with the SEC by BLLE on July 20, 1999
(collectively, the "10-SB Statements"). An unaudited balance sheet for BLLE
dated as of August 31, 1999, together with related statements of income, cash
flows, and changes in shareholder's equity for the fiscal year then ended were
attached to, and made part of, the Form 10-QSB electronically filed with the
SEC by BLLE on November 3, 1999 (collectively, together with the 10-SB
Statements, the "BLLE Financial Statements"). The BLLE Financial Statements (a)
are in accordance with the books and records of BLLE and (b) present fairly the
financial condition of BLLE as of the respective dates indicated and the results
of operations for such periods. BLLE has not received any advice or notification
from its independent chartered accountants that BLLE has used any improper
accounting practice that would have the effect of not reflecting or incorrectly
reflecting in the BLLE Financial Statements or the books and records of BLLE,
any properties, assets, liabilities, revenues, or expenses. The books, records,
and accounts of BLLE accurately and fairly reflect, in reasonable detail, the
transactions, assets, and liabilities of BLLE. BLLE has not engaged in any
transaction, maintained any bank account, or used any funds of BLLE, except for
transactions, bank accounts, and funds which have been and are reflected in the
normally maintained books and records of BLLE.
3.9 NO BROKERS. BLLE has not incurred any obligation or liability
to any party for any brokerage fees, agent's commissions, or finder's fees in
connection with the transactions contemplated by this Agreement for which
Somerset or the Stockholders would be responsible.
3.10 COMPLETENESS OF DISCLOSURE. No representation or warranty by
BLLE in this Agreement nor any certificate, schedule, statement, document or
instrument furnished or to be furnished to the Stockholders pursuant hereto
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact required to be stated herein or therein or
necessary to make any statement herein or therein not materially misleading.
SECTION 4
CLOSING CONDITIONS
4.1 CONDITIONS PRECEDENT TO CLOSING BY BLLE. BLLE's obligation to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the conditions set forth below and/or the delivery of all of
the documents, items, certificates and instruments described below, all of
which documents, items, certificates and instruments must be in form and
substance satisfactory to BLLE, unless any such condition is waived by BLLE at
the Closing. The Closing of the transactions contemplated by this Agreement
will be deemed to mean a waiver of all conditions to Closing.
(a) Representations and Warranties. The representations
and warranties of the Stockholders and Somerset set forth in this Agreement
will be true, correct and complete in all respects as of the Closing Date, as
though made on and as of the Closing Date. The representations and warranties of
the Stockholders and Somerset in this Agreement, subject to any supplement to
the Disclosure Schedules made pursuant to Section 5.7 of this Agreement, will be
true, correct and complete in all material respects as of the date hereof and as
of the
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Closing Date, as though made on and as of such dates and the Stockholders and
Somerset will each have delivered to BLLE a certificate dated as of the Closing
Date, to the effect that the representations and warranties made by the
Stockholders and Somerset in this Agreement are true and correct, or if they
are not true and correct, including a description of the extent to which they
are no longer true and correct.
(b) Supplement to Disclosure Schedules. Any additional
disclosures made in the supplemental Disclosure Schedules of the Stockholders
and Somerset made pursuant to Section 5.7 of this Agreement will be acceptable
to BLLE in its sole discretion.
(c) Performance. All of the covenants and obligations
that the Stockholders and Somerset are required to perform or to comply with
pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been performed and complied with in all material
respects. The Stockholders and Somerset must have delivered each of the
documents required to be delivered by it pursuant to this Agreement and any
other documents reasonably requested by the Stockholders or Somerset and all
such documents are satisfactory to BLLE.
(d) [Intentionally Omitted].
(e) Secretary's Certificate - Somerset. BLLE will have
received: (i) a certificate of the Secretary or Assistant Secretary of Somerset
attaching (a) a copy of Somerset's certificate of incorporation, as amended
through the Closing Date certified by the Secretary of State of the State of
Connecticut, (b) a true and correct copy of Somerset's bylaws, as amended and
(c) true and correct copies of resolutions of Somerset's board of directors and
stockholders authorizing this Agreement and the transactions contemplated
herein; and (ii) a certificate of the Secretary or Assistant Secretary of
Somerset as to the incumbency and signatures of the officers of Somerset
executing this Agreement and the Transaction Documents executed by Somerset on
the Closing Date as contemplated by this Agreement.
(f) Secretary's Certificate - MFC. BLLE will have
received: (i) a certificate of the Secretary or Assistant Secretary of MFC
attaching true and correct copies of resolutions of MFC's board of directors
authorizing this Agreement and the transactions contemplated herein; and (ii) a
certificate of the Secretary or Assistant Secretary of MFC as to the incumbency
and signatures of the officers of MFC executing this Agreement and the
Transaction Documents executed by MFC on the Closing Date as contemplated by
this Agreement.
(g) Transfer of Certificates; Release of Liens. BLLE
will have received the certificates representing the issued and outstanding
Somerset Stock, duly endorsed in blank (or accompanied by duly executed stock
powers duly endorsed in blank), in each case in proper form for transfer, with
signatures guaranteed, and, if applicable, with all stock transfer and any
other required documentary stamps affixed thereto or appropriate instructions
or agreements from the Stockholders to allow the shares of Somerset Stock to be
legally and beneficially transferred into the name of BLLE. BLLE will receive
evidence to its satisfaction that any liens or encumbrances on the Somerset
Stock have been released as of the Closing Date.
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(h) Financing. BLLE will have received evidence from
BLLE's deposit agent for the Financing (as defined in Section 5.2) that (i) it
is holding signed subscription agreements from offerees for at least 1,000,000
"Units" (as defined in Section 5.2) and at least $5,000,000 in readily
available funds from such offerees, less any commissions, fees, and other costs
incurred by BLLE in connection with the Financing, (ii) any applicable periods
for the offerees' voluntary withdrawal from the Financing have expired, and
(iii) there are appropriate instructions in effect so that, immediately after
the Closing Date, BLLE will receive net proceeds from the Financing of at least
$5,000,000, less all costs and expenses incurred by BLLE in connection with the
Financing, including attorneys' fees, deposit agent fees and placement fees.
(i) Regulatory and Third-Party Consents. Somerset and
its Subsidiaries will have obtained prior written approval of the transfer of
ownership and the other transactions contemplated by this Agreement from all
applicable regulatory and/or compliance agencies or parties, including but not
limited to the NASD and all other third-party consents and approvals required
for Somerset or its Subsidiaries to consummate the transactions contemplated by
this Agreement.
(j) No Action. No suit, action, or proceeding will be
pending or threatened before any governmental or regulatory authority wherein
an unfavorable judgment, order, decree, stipulation, injunction or charge would
(i) prevent consummation of any of the transactions contemplated by this
Agreement as reasonably determined by BLLE; (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation; or (iii)
adversely affect the right of BLLE to own, operate or control the business or
assets of Somerset.
(k) No Material Adverse Change. No material adverse
change in the business, operations, properties, prospects, assets, or condition
of Somerset or its Subsidiaries will have taken place since the date of the
Somerset Financial Statements, and no event will have occurred or circumstance
arise that may result in such a material adverse change.
(l) Employment Agreement. BLLE, Somerset, or one of
Somerset's Subsidiaries will have entered into an employment agreement with
each of Douglas Toth, Nicholas Thompson, William E. Schloth, and Harry Bloch,
in substantially the form of Exhibit A attached to this Agreement (the
"Employment Agreement") and otherwise on terms agreeable to BLLE.
(m) Stock Restriction Agreement. Each of the Individual
Stockholders and BLLE will have executed the Stock Restriction Agreement in
substantially the form of Exhibit B attached to this Agreement.
(n) Opinion of Counsel. Somerset will furnish BLLE with
an opinion of counsel, including local counsel as appropriate, dated as of the
Closing Date, providing in substance the opinions contained in the legal
opinion form attached to this Agreement as Exhibit C.
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(o) Post Closing Directors and Resolutions. The
Post-Closing Directors (as defined in Section 5.13) will have been identified
and/or approved by the relevant parties and duly appointed to BLLE's Board of
Directors as described in Section 5.13. The Post-Closing Directors of BLLE
will execute the Closing Date Resolutions (as defined in Section 5.14).
(p) Due Diligence Review. BLLE will be satisfied in all
respects with its due diligence investigation of Somerset and its Subsidiaries.
(q) Termination of Somerset Shareholders' Agreement;
Shareholder Loans. BLLE will have received documentation to its satisfaction
evidencing (i) the termination of the Amended and Restated Shareholders
Agreement ("Shareholders Agreement") executed by the Stockholders and Somerset
on December 31, 1998, and (ii) that the loans from the Stockholders to Somerset
pursuant to the Shareholders Agreement have been converted to capital of
Somerset in a manner reasonably satisfactory to BLLE, provided that BLLE agrees
that $25,000 of the loan from William Schloth to Somerset is to survive
Closing.
4.2 CONDITIONS PRECEDENT TO CLOSING BY THE STOCKHOLDERS. The
Stockholders' obligation to consummate the transactions contemplated by this
Agreement is subject to the satisfaction of the conditions set forth below
and/or the delivery of all of the documents, items, certificates and
instruments described below, all of which documents, items, certificates and
instruments must be in form and substance satisfactory to the Stockholders,
unless such condition is waived by the Stockholders at the Closing. The Closing
of the transactions contemplated by this Agreement will be deemed to mean a
waiver of all conditions to Closing.
(a) Representations and Warranties. The representations
and warranties of BLLE set forth in this Agreement will be true, correct and
complete in all respects as of the Closing Date, as though made on and as of
the Closing Date. The representations and warranties of BLLE in this Agreement,
subject to any supplement to the Disclosure Schedules made pursuant to Section
5.7 of this Agreement, will be true, correct and complete in all material
respects as of the date hereof and as of the Closing Date, as though made on
and as of such dates and BLLE will have delivered to the Stockholders a
certificate dated the Closing Date, to the effect that the representations and
warranties made by BLLE in this Agreement are true and correct, or if they are
not true and correct, including a description of the extent to which they are
no longer true and correct.
(b) Supplement to Disclosure Schedules. Any additional
disclosures made in the supplemental Disclosure Schedules of BLLE made pursuant
to Section 5.7 of this Agreement will be acceptable to the Stockholders in
their sole discretion.
(c) Performance. All of the covenants and obligations
that BLLE is required to perform or to comply with pursuant to this Agreement
at or prior to the Closing (considered collectively), and each of these
covenants and obligations (considered individually), must have been performed
and complied with in all material respects. BLLE must have delivered each of
the documents required to be delivered by it pursuant to this Agreement.
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(d) Secretary's Certificate. The Stockholders will have
received (i) a certificate of the Secretary or Assistant Secretary of BLLE
attaching (a) a copy of BLLE's certificate of incorporation, as amended through
the Closing Date certified by the Secretary of State of the State of Delaware,
(b) a true and correct copy of BLLE's bylaws, as amended and (c) true and
correct copies of resolutions of BLLE's board of directors authorizing this
Agreement and the transactions contemplated herein; and (ii) a certificate of
the Secretary or Assistant Secretary of BLLE as to the incumbency and signatures
of the officers of BLLE executing this Agreement and any other Transaction
Documents executed by BLLE on the Closing Date as contemplated by this
Agreement.
(e) Certificates for BLLE Stock. The Stockholders will
have received the certificates representing the BLLE Stock, duly executed (or
accompanied by duly executed stock powers) or evidence that BLLE has given
written instructions to BLLE's transfer agent for the delivery of the
certificates to the Stockholders.
(f) Financing. The Stockholders will have received
evidence from BLLE's deposit agent for the Financing (as defined in Section 5.2)
that (i) it is holding signed subscription agreements from offerees for at least
1,000,000 "Units," (as defined in Section 5.2) and at least $5,000,000 in
readily available funds from such offerees, less all costs and expenses incurred
in connection with the Financing, (ii) any applicable periods for the offerees'
voluntary withdrawal from the Financing have expired, and (iii) there are
appropriate instructions in effect so that, immediately after the Closing Date,
BLLE will receive net proceeds from the Financing of at least $5,000,000, less
all costs and expenses incurred by BLLE in connection with the Financing,
including attorneys' fees, deposit agent fees and placement fees.
(g) No Action. No suit, action, or proceeding will be
pending or threatened before any governmental or regulatory authority wherein an
unfavorable judgment, order, decree, stipulation, injunction or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement
as reasonably determined by the Stockholders; (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation; or (iii)
adversely affect the right of BLLE to own, operate or control the business or
assets of BLLE.
(h) Opinion of Counsel. BLLE will furnish the
Stockholders with an opinion of its counsel, dated as of the Closing Date, in
substantially the form of Exhibit D attached to this Agreement.
(i) Post Closing Directors and Resolutions. The
Post-Closing Directors (as defined in Section 5.13) will have been identified
and/or approved by the relevant parties and duly appointed to BLLE's Board of
Directors as described in Section 5.13. The Post-Closing Directors of BLLE
will execute the Closing Date Resolutions (as defined in Section 5.14).
(j) Registration Rights Agreement. The Stockholders and
BLLE, will have executed the Registration Rights Agreement, to be effective as
of the Closing Date, in substantially the form attached as Exhibit E to this
agreement.
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(k) Reporting Company. BLLE will have taken all actions
necessary to become a company filing annual, quarterly, and periodic reports
under the Securities and Exchange Act of 1934, as amended, and to maintain the
reporting of trades in the common stock on the OTC Bulletin Board, a service
maintained by the NASD, including the satisfaction of the requirements and
conditions of NASD Marketplace Rule 6530.
(l) Due Diligence Review. The Stockholders will be
reasonably satisfied in all respects with their due diligence investigation of
BLLE.
SECTION 5
ADDITIONAL COVENANTS OF THE PARTIES
5.1 WORKING CAPITAL. The parties agree that prior to the Closing
Date, Somerset may raise working capital, in the form of fully subordinated
additional borrowings on terms reasonably acceptable to BLLE (collectively,
"Working Capital Loan"), in an aggregate amount of up to Five Hundred Thousand
Dollars ($500,000.00), including those amounts of working capital previously
borrowed from MFC pursuant to the Prime Rate Subordinated Debentures dated June
16, 1999 and July 28, 1999. A majority of the Working Capital Loan proceeds
will be contributed by Somerset as permanent additional paid in capital to
Somerset's wholly owned broker-dealer Subsidiary, Somerset Financial, in a
manner consistent with regulatory treatment of such contribution as regulatory
capital. Upon the completion of Closing, the Working Capital Loan will be
assumed by BLLE, and BLLE agrees that the Working Capital Loan will be
immediately payable after Closing in accordance with its terms. Repayment of
the Working Capital Loan is anticipated to be made from proceeds of the
Financing (defined in Section 5.2) or other sources, and in no event will BLLE
look to Somerset Financial for repayment.
5.2 ADDITIONAL FINANCING. BLLE has engaged MFC Merchant Bank S.A. in
order to raise working capital, upon terms mutually agreeable to the parties
(the "Financing"), for an amount no less than Five Million Dollars
($5,000,000.00), and no more than Ten Million Dollars ($10,000,000.00), less the
reasonable costs and expenses incurred in obtaining such Financing, through the
private placement of no less than 1,000,000 Units (as defined below) and no more
than 2,000,000 Units, at Five Dollars ($5.00) per Unit, which Units are to be
issued upon the completion of Closing. As used in this Agreement, unless
otherwise agreed upon by the Stockholders and BLLE, a "Unit" means one share of
BLLE Stock and one warrant for the purchase of one additional share of BLLE
Stock for the price of Ten Dollars ($10.00) per share, which warrant must be
exercised within one year.
5.3 ASSUMPTION OF LEASE OBLIGATIONS; LEASEHOLD IMPROVEMENT LOAN. The
parties agree that BLLE intends to assume, either by itself or through a
subsidiary, subject to the consent of the applicable landlord or lender, the
obligations of the Stockholders for (i) the commercial office lease for
Somerset's office located in Princeton, New Jersey (the "Princeton Lease"), (ii)
that certain loan for leasehold improvements ("Leasehold Loan") to Somerset's
Princeton, New Jersey office with a remaining balance of approximately
Eighty-Five Thousand Dollars ($85,000.00), and (iii) any other office leases of
Somerset as determined by BLLE. To the extent that the lender does not allow for
the assumption and release of the Stockholders' obligations under the Leasehold
Loan, the Leasehold Loan will be repaid immediately after Closing.
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5.4 TRANSFER AND RELEASE OF SUBSIDIARY INTEREST. Although no
operating agreement has been prepared for Somerset Investment, due to
Connecticut law requiring that each limited liability company have at least two
members, the ownership interests of Somerset Investment were stated on its 1998
federal income tax returns as follows: 96.75% owned by Somerset; 3.25% owned by
William Schloth. Accordingly, William Schloth agrees to transfer his
membership interest in Somerset Investment to BLLE or BLLE's designee at
Closing or as soon as practicable thereafter, and to cooperate with BLLE to
effect such transfer.
5.5 REGISTRATION OF BLLE STOCK. As detailed in the Registration
Rights Agreement, BLLE agrees to use its best efforts to file a registration
statement for the BLLE Stock with the Securities and Exchange Commission within
180 days of Closing, and to diligently pursue the registration of the BLLE
Stock and any other equity securities of BLLE as determined by BLLE's board of
directors.
5.6 ACCESS AND INVESTIGATION.
(a) Between the date of this Agreement and the Closing Date,
the Stockholders and Somerset will, and will cause their respective
representatives to, (i) afford BLLE and its representatives access to their
personnel, properties, contracts, books and records, and other documents and
data, as reasonably requested by BLLE; (ii) furnish BLLE and its
representatives with copies of all such contracts, books and records, and other
existing documents and data as BLLE may reasonably request in connection with
the transaction contemplated by this Agreement; and (iii) furnish BLLE and its
representatives with such additional financial, operating, and other data and
information as the other may reasonably request. With the prior consent of
Somerset, which consent will not be unreasonably withheld, BLLE and its
respective representatives, may communicate in connection with their
examination of Somerset with any person having business dealings with Somerset.
All of such access, investigation and communication by BLLE and its
representatives will be conducted after reasonable advance notice and in a
manner designed not to interfere unduly with the normal business operations of
the Stockholders or Somerset. Somerset will provide BLLE with complete copies
of all material contracts and other relevant information on a timely basis in
order to keep BLLE fully informed of the status of Somerset's business and
operations.
(b) Between the date of this Agreement and the Closing Date,
BLLE will, and will cause its respective representatives to, (i) afford the
Stockholders and Somerset and their representatives access to its personnel,
properties, contracts, books and records, and other documents and data, as
reasonably requested by the Stockholders; (ii) furnish the Stockholders and
Somerset and their representatives with copies of all such contracts, books and
records, and other existing documents and data as the other may reasonably
request in connection with the transaction contemplated by this Agreement; and
(iii) furnish the Stockholders and Somerset and their representatives with such
additional financial, operating, and other data and information as the other
may reasonably request. With the prior consent of BLLE, which consent will not
be unreasonably withheld, the Stockholders, Somerset, and their respective
representatives, may communicate in connection with their examination of BLLE
with any person having business dealings with BLLE. All of such access,
investigation and communication by each party and its
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representatives will be conducted after reasonable advance notice and in a
manner designed not to interfere unduly with the normal business operations of
BLLE.
5.7 CONFIDENTIALITY. Between the date of this Agreement and for a
period of two years following the Closing Date, the Stockholders, Somerset, and
BLLE will maintain in confidence, and will cause the directors, officers,
employees, agents, and advisors of Somerset and BLLE to maintain in confidence,
and not use to the detriment of another party any written, oral, or other
information obtained in confidence ("Confidential Information") from another
party in connection with this Agreement or the transactions contemplated
hereby, unless (a) such information is already known to such party or to others
not bound by a duty of confidentiality or such information becomes publicly
available through no fault of such party, (b) the use of such information is
necessary or appropriate in making any filing or obtaining any consent or
approval required for the consummation of the transaction contemplated by this
Agreement, (c) the furnishing or use of such information is required by legal
proceedings provided that the party making disclosure provides reasonable
advance notice to the other party, or (d) the furnishing of such information is
to professional advisors under a duty of confidentiality, as necessary to
consummate the transactions contemplated by this Agreement. The Stockholders,
Somerset and BLLE agree that the Confidential Information will be used solely
for the purposes of evaluating the other parties hereto in connection with the
transactions contemplated in connection with this Agreement and that such
information will not be used or disclosed other than in furtherance of such
purpose under the terms of this Agreement. In the event that this Agreement is
terminated, then each of the parties agrees to promptly return any Confidential
Information belonging to the other party.
5.8 PUBLIC ANNOUNCEMENTS. The Stockholders and BLLE agree that
they will not make any public announcements relating to this Agreement or the
transactions contemplated herein without the prior written consent of the other
party, except as may be required upon the written advice of counsel to comply
with applicable laws or regulatory requirements after consulting with the other
party hereto and seeking their consent to such announcement.
5.9 NOTIFICATION. Between the date of this Agreement and the
Closing Date, each of the parties to this Agreement will promptly notify the
other parties in writing if it becomes aware of any fact or condition that
causes or constitutes a material breach of any of its representations and
warranties as of the date of this Agreement, if it becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
cause or constitute a material breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in the Disclosure Schedules relating to such party, such party will
promptly deliver to the other parties a supplement to the Disclosure Schedules
specifying such change. During the same period, each party will promptly
notify the other parties of the occurrence of any material breach of any of its
covenant in this Agreement or of the occurrence of any event that may make the
satisfaction of such conditions impossible or unlikely.
5.10 CONDUCT OF SOMERSET PRIOR TO CLOSING. From the date of this
Agreement to the Closing Date or the earlier termination of this Agreement, the
Stockholders and Somerset agree that Somerset and each of its Subsidiaries will
(i) conduct its business only in a normal and
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ordinary course and in substantially the same manner as historically conducted,
(ii) use its best efforts to preserve intact the business organization and
goodwill of Somerset and each of its Subsidiaries and maintain the
relationships of persons having business relationship with Somerset, (iii) make
no change in its Board of Directors or senior management without the approval
of BLLE, (iv) keep BLLE advised of developments in its business and of any
significant decisions concerning the operation of its business, (v) not issue
any additional shares of Somerset Stock or any other class of stock, securities
convertible into common stock or any other class of common stock, or issue or
grant any option, warrants or rights concerning the same, for consideration or
otherwise or issue any other securities however denominated, (vi) not enter
into or make any change to any material agreement or incur any material
liabilities without BLLE's consent, (vii) not pay any bonuses or increases in
compensation to any director, officer or (except in the ordinary course of
business) any employee, and (viii) not incur any liability, obligation or
indebtedness other than trade payables in the ordinary course of business or
encumber or permit the encumbrance of any properties or assets of Somerset
(including the Working Capital Loan), without BLLE's consent; or (ix) not
dispose of or contract to dispose of any property or assets of Somerset except
in the ordinary course of business consistent with past practice.
5.11 NON-COMPETITION. As a material inducement to BLLE's entering
into this Agreement and its acquisition of Somerset, the Stockholders jointly
and severally agree that for a period of eighteen months following the Closing
Date, without the prior written consent of BLLE, none of the Stockholders will,
as a principal, agent, or employee, or through any person, company,
partnership, association or other entity:
(a) Employ, engage or seek to employ or engage any person
who is employed or engaged by Somerset or BLLE; or
(b) Cause or attempt to cause any supplier, customer,
client, employee, consultant, officer, director or person having a business
relationship with Somerset or BLLE to terminate or materially reduce its
relationship with either Somerset or BLLE.
(c) participate or engage in (other than through the
ownership of 5% or less of any class of securities registered under the
Securities Exchange Act of 1934, as amended) or assist, financially or
otherwise any person who participates or who is engaged in, any business,
wherever located, that competes with the business or activities of Somerset or
its Subsidiaries, including but not limited to the activities of investment
advising, investment banking, selling of securities or other equity
instruments, and other usual and customary broker/dealer activities or any
activities actively planned by Somerset.
The parties recognize that the law and public policies of the various states of
the United States may differ as to the validity and enforceability of covenants
similar to those set forth in this Section 5.11. It is the intention of the
parties that the provisions of this Section 5.11 be enforced to the fullest
extent permissible under the law and policies of each jurisdiction in which
enforcement may be sought, and that the unenforceability (or the modification
to conform to such laws or policies) of any provisions of this section will not
render unenforceable, or impair, the remainder of the provisions of this
section. The parties further agree that any remedy at law
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for any violation of the provisions of this section would be inadequate, and
the Stockholders hereby consent to the granting by any court of an injunction
or other equitable relief without the necessity of actual monetary loss being
provided, in order that the breach or threatened breach of such provisions may
be effectively restrained. Notwithstanding the forgoing, in the event that
Douglas Toth, Nicholas Thompson, or William Schloth terminates his respective
Employment Agreement for "Good Reason", or his Employment Agreement is
terminated by BLLE "Without Cause" (as those terms are defined in the
respective Employment Agreement), the restrictions contained in Section
15.11(c) will be deemed void and of no further force or effect for the
Stockholder so terminated. Notwithstanding the forgoing, nothing in this
Section 15.11 will be interpreted to restrict the right of MFC to (i) conduct
its business as currently conducted as of the date of this Agreement, or (ii)
expand its operations outside of the United States within the scope of its
currently conducted business.
5.12 EMPLOYMENT AGREEMENTS. The Stockholders, Somerset, and BLLE
agree to cooperate in the transition of Somerset's employees from their
employment with Somerset to BLLE, and to in good faith cooperate in order to
secure those contracts reasonably necessary for the continuing business
operation of Somerset, which contracts will include, among other things,
employment agreements with those executives and employees reasonably identified
by BLLE at or prior to Closing.
5.13 CLASSIFIED BOARD OF DIRECTORS; COMPOSITION OF BOARD; STOCK
OPTION PLAN. The parties desire to implement a classified board of directors
for BLLE after Closing, and have agreed to effect certain interim steps toward
the approval of a classified board. Prior to the Closing Date, BLLE's Board of
Directors will appoint certain director nominees such that the board will
consist of seven members (the "Post-Closing Directors"). The Post-Closing
Directors will consist of: three persons nominated by the Stockholders; two
persons nominated by the investor in the Financing, ValorInvest Ltd.; and, two
persons nominated pursuant to the mutual agreement of the Stockholders and
ValorInvest Ltd. to serve as independent directors. As of the date of this
Agreement, the Stockholders have nominated Douglas Toth, Nicholas Thompson, and
James M. Carter to serve as Post-Closing Directors. The parties have
identified the independent directors to be Dennis C. Josifovich and John M.
Musacchio.
5.14 CLOSING DATE RESOLUTIONS. BLLE and Somerset mutually agree to
prepare written consent resolutions to be executed and adopted by the
Post-Closing Directors as of the Closing Date (the "Closing Date Resolutions")
in order to, among other things:
(a) subject to shareholder approval at the Post-Closing
Annual Meeting (defined in Section 5.15), adopt a classified board of directors
for BLLE, establishing staggered terms for each class of directors, pursuant to
which the Post-Closing Directors nominated by the Stockholders will serve for a
term of three years each, the Post-Closing Directors nominated by ValorInvest
Ltd. will serve for a term of two years each, and those Post-Closing Directors
nominated as independent directors will serve for a term of one year each;
(b) authorize the issuance of those Units sold by BLLE
pursuant to the Financing;
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(c) implement certain committees of the Post-Closing
Directors, including an audit committee and compensation committee to be made
up of at least one Post-Closing Director nominated by the Stockholders, and one
Post-Closing Director nominated by ValorInvest Ltd.;
(d) appoint officers to serve on behalf of BLLE; and
(e) authorize the establishment of corporate bank accounts and
appoint authorized signatories for such accounts.
Each of the parties agrees to direct those Post-Closing Directors
which it nominated to execute and approve the Closing Date Resolutions.
5.15 ANNUAL MEETING; AMENDED CERTIFICATE OF INCORPORATION. BLLE
agrees to call an annual meeting of its shareholders ("Post-Closing Annual
Meeting") to be held on or before May 31, 2000, subject to adjournment and
subject to any delays imposed by the SEC or otherwise outside the reasonable
control of BLLE. At the Post-Closing Annual Meeting, the BLLE shareholders will
be asked to approve: (i) the classified board of directors structure approved
by the Post-Closing Directors; (ii) the election of the Post-Closing Directors
as appointed by BLLE's Board of Directors; (iii) the stock option plans adopted
by BLLE; (iv) an amended and restated certificate of incorporation of BLLE (the
"Amended Certificate of Incorporation"); and (v) such other matters as the
Post-Closing Directors deem appropriate. The Amended Certificate of
Incorporation will be in a form approved by the Post-Closing Directors and
will: (i) change the name of BLLE to "Somerset Financial International, Inc.",
or some other name mutually agreeable to the parties; (ii) provide for the
classified board of directors structure; (iii) include certain anti-takeover
provisions appropriate for a public company; (iv) provide broader
indemnification protections for the officers and directors of BLLE; and (v)
contain such other provisions adopted by the Post-Closing Directors.
5.16 STEERING COMMITTEE. The Stockholders and BLLE agree to form
an ad hoc steering committee ("Steering Committee") consisting of (i) William
E. Schloth and (ii) James M. Carter or John M. Musacchio, who will serve,
subject to the direction and discretion of the Stockholders and BLLE, in order
to effectuate the transactions contemplated by this Agreement. The Steering
Committee will advise the parties on the Financing, the obtaining of regulatory
approval, and the facilitation of the other transactions contemplated by this
Agreement. Upon the completion of Closing, the Steering Committee will
automatically be dissolved.
SECTION 6
TERMINATION
6.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date by:
(a) mutual agreement of the Stockholders and BLLE;
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(b) the Stockholders, if there has been a breach by BLLE
of any material representation, warranty, covenant or agreement set forth in
this Agreement on the part of BLLE that is not cured, to the reasonable
satisfaction of the Stockholders, within 10 business days after notice of such
breach is given by the Stockholders (except that no cure period will be
provided for a breach by BLLE that by its nature cannot be cured);
(c) BLLE, if there has been a breach by the Stockholders
or Somerset of any material representation, warranty, covenant or agreement set
forth in this Agreement on the part of the Stockholders or Somerset that is not
cured by the breaching party, to the reasonable satisfaction of BLLE, within 10
business days after notice of such breach is given by BLLE (except that no cure
period will be provided for a breach by the Stockholders or Somerset that by
its nature cannot be cured);
(d) the Stockholders or BLLE, upon notice to the other,
if the transactions contemplated by this Agreement have not been consummated
prior to December 18, 1999, unless the parties agree to extend such date; or
(e) the Stockholders or BLLE, upon notice to the other,
if any permanent injunction or other order of a governmental entity of
competent authority preventing the consummation of the transactions
contemplated by this Agreement has become final and non-appealable.
6.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement as provided in Section 6.1, this Agreement will be of no further
force or effect; provided, however, that no termination of this Agreement will
relieve any party of liability for any breach of this Agreement that is based on
a wrongful refusal or failure to perform any obligations or for any covenant
that by its nature survives termination of this Agreement.
SECTION 7
INDEMNIFICATION; REMEDIES; SURVIVAL
7.1 CERTAIN DEFINITIONS. For the purposes of this Section 7, the
terms "Loss" and "Losses" means any and all demands, claims, actions or causes
of action, assessments, losses, damages, liabilities, costs, and expenses,
including without limitation, interest, penalties, fines and reasonable
attorneys', accountants' and other professional fees and expenses, but
excluding any indirect, consequential or punitive damages suffered by BLLE, the
Stockholders, Somerset, or Somerset's Subsidiaries including damages for lost
profits or lost business opportunities.
7.2 AGREEMENT OF THE STOCKHOLDERS AND SOMERSET TO INDEMNIFY BLLE.
Subject to the terms and conditions of this Section 7.2, the Stockholders and
Somerset will jointly and severally indemnify, defend, and hold harmless BLLE,
its officers, directors, shareholders, employees and affiliates from, against,
and in respect of any and all Losses asserted against, relating to, imposed
upon, or incurred by BLLE by reason of, resulting from, based upon or arising
out of:
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(a) the breach by the Stockholders or Somerset of any
representation or warranty of the Stockholders or Somerset contained in or made
pursuant to this Agreement, any Transaction Document or certificate or
instrument delivered pursuant to this Agreement;
(b) the breach or partial breach by the Stockholders or
Somerset of any covenant or agreement of the Stockholders or Somerset made in
or pursuant to this Agreement, or any Transaction Document or other certificate
or instrument delivered pursuant to this Agreement; and
(c) the failure or refusal of the Stockholders or
Somerset to defend any claim for which BLLE is indemnified pursuant to this
Section 7.2.
7.3 AGREEMENT OF BLLE TO INDEMNIFY THE STOCKHOLDERS. Subject to
the terms and conditions of this Section 7.3, BLLE will indemnify, defend, and
hold harmless the Stockholders from, against, for, and in respect of any and
all Losses asserted against, relating to, imposed upon, or incurred by the
Stockholders by reason of, resulting from, based upon or arising out of:
(a) the breach by BLLE of any representation or warranty
of BLLE contained in or made pursuant to this Agreement, any Transaction
Document or certificate or instrument delivered pursuant to this Agreement;
(b) the breach or partial breach by BLLE of any covenant
or agreement of BLLE made in or pursuant to this Agreement, or any Transaction
Document or other certificate or instrument delivered pursuant to this
Agreement; and
(c) the failure or refusal of BLLE to defend any claim for
which the Stockholders are indemnified pursuant to this Section 7.3.
7.4 PROCEDURES FOR INDEMNIFICATION. As used herein, the term
"Indemnitor" means the party against whom indemnity hereunder is sought, and
the term "Indemnitee" means the party seeking indemnification hereunder.
(a) A claim for indemnification hereunder
("Indemnification Claim") must be made by Indemnitee by delivery of a written
notice to Indemnitor requesting indemnification and specifying the basis on
which indemnification is sought and the amount of asserted Losses and, in the
case of a Third Party Claim (as defined in Section 7.5), containing such other
information as Indemnitee has concerning such Third Party Claim.
(b) If the Indemnification Claim involves a Third Party
Claim, the procedures set forth in Section 7.5 hereof must be observed by
Indemnitee and Indemnitor.
(c) If the Indemnification Claim involves a matter other
than a Third Party Claim, Indemnitor will have 30 business days to object to
such Indemnification Claim by delivery of a written notice of such objection to
Indemnitee specifying in reasonable detail the basis for such objection.
Failure to timely so object will constitute acceptance of the Indemnification
Claim by Indemnitor and the Indemnification Claim will be paid in accordance
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with Section 7.4(d). If an objection is timely interposed by Indemnitor and
the dispute is not resolved within 30 business days from the date Indemnitee
receives such objection, such dispute may be resolved by arbitration in
accordance with the rules and procedures of the American Arbitration
Association.
(d) Upon a final determination of the amount of an
Indemnification Claim, whether by agreement between Indemnitor and Indemnitee
or by an arbitration award, Indemnitor will pay the amount of such finally
determined Indemnification Claim within ten days of the date such amount is
determined.
7.5 DEFENSE OF THIRD PARTY CLAIMS. Should any claim be made, or
suit or proceeding (including, without limitation, a binding arbitration or an
audit by any taxing authority) be instituted by a third party against
Indemnitee which, if prosecuted successfully, would be a matter for which
Indemnitee is entitled to indemnification under this Agreement (a "Third Party
Claim"), the obligations and liabilities of the parties hereunder with respect
to such Third Party Claim will be subject to the following terms and
conditions:
(a) Indemnitee must give Indemnitor written notice of any
such claim promptly after receipt by Indemnitee of actual notice thereof, and
Indemnitor will undertake the defense thereof by representatives of its own
choosing reasonably acceptable to Indemnitee. If Indemnitor undertakes the
defense of such claim, Indemnitor will have the exclusive right to defend,
contest and litigate the Third Party Claim, and the exclusive right, subject to
the terms of Section 7.6 below, in its discretion, in good faith, and upon the
advice of counsel, to settle any such matter, either before or after the
initiation of litigation, at such time and upon such terms as its deems fair
and reasonable; provided that at least 10 days prior written notice of the
intended settlement must be provided to Indemnitee. If, however, Indemnitor
fails or refuses to undertake the defense of such claim within 30 business days
after written notice of such claim has been given to Indemnitor by Indemnitee,
Indemnitee will have the right to undertake the defense, compromise and,
subject to Section 7.7, settlement of such claim with counsel of its own
choosing. In the circumstances described in the preceding sentence, Indemnitee
will, promptly upon its assumption of the defense of such claim, make an
Indemnification Claim as specified in Section 7.4(a).
(b) Indemnitee and Indemnitor will cooperate with each
other in all reasonable respects in connection with the defense of any Third
Party Claim, including making available records relating to such claim and
furnishing, without expense to Indemnitor, management employees of Indemnitee as
may be reasonably necessary for the preparation of the defense of any such claim
or for testimony as witness in any proceeding relating to such claim.
7.6 SETTLEMENT OF THIRD PARTY CLAIMS. In connection with any
settlement of a Third Party Claim negotiated by Indemnitor, Indemnitee will not
be required to take any of the following actions:
(a) enter into any settlement that does not include the
delivery by the claimant or plaintiff to Indemnitee of an unconditional release
from all liability with respect to the Third Party Claim.
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(b) enter into any settlement that requires Indemnitee to
take any affirmative action as a condition of the settlement.
(c) consent to the entry of judgment that does not include
a full dismissal of the litigation or proceedings against Indemnitee with
prejudice.
7.7 LIMITATIONS OF LIABILITY
(a) Neither the Stockholders nor Somerset will be deemed
liable under Section 7.2 and BLLE will not be deemed liable under Section 7.3
until the aggregate amount of all indemnification claims under such section
exceeds Twenty Thousand Dollars ($20,000.00).
(b) No claims for indemnification under Sections 7.2 or
7.3 will be made after the third anniversary of the Closing Date; provided,
however, that such time limit will not apply to any Tax claims.
7.8 SURVIVAL OF REPRESENTATIONS AND WARRANTIES The
representations, warranties and covenants made by the parties will survive the
Closing for a period of three years from the Closing Date; provided, however,
that representations and warranties relating to Taxes will survive for a period
of five years after the Closing Date or until the expiration date of the
statute of limitations applicable to such Tax liability or the final
determination of any such tax liability, including the final administrative or
judicial determination thereof, whichever occurs first. Upon the completion of
Closing, the representations and warranties of Somerset will be null and void.
SECTION 8
MISCELLANEOUS PROVISIONS
8.1 APPOINTMENT OF STOCKHOLDERS REPRESENTATIVE. Any action or
remedy of the Stockholders under this Agreement, including without limitation,
a request for arbitration or indemnification, must be exercised jointly by the
Stockholders. For the purposes of this Agreement, the Stockholders appoint
Douglas Toth (or such other person as all of the Stockholders shall notify in
writing) as the designated representative of the Stockholders, authorizing him
to accept any notice for the Stockholders under Section 8.9 of this Agreement,
and, with the exception of executing any of the Transaction Documents, to act
on behalf of the Stockholders for all matters arising after the date of this
Agreement.
8.2 EFFECTIVENESS OF REPRESENTATIONS. Each party is entitled to
rely on the representations, warranties and agreements of each of the other
parties and all such representation, warranties and agreement will be effective
regardless of any investigation that any party has undertaken or failed to
undertake.
8.3 ACKNOWLEDGMENT OF PLACEMENT AGENT AND DEPOSIT AGENT
DESIGNATION. The Stockholders and BLLE acknowledge and agree that MFC Merchant
Bank S.A. will act as the placement agent for the Financing pursuant to the
Placement Agreement executed by BLLE and
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MFC Merchant Bank S.A. on October 17, 1999. The Stockholders and BLLE further
agree that MFC Merchant Bank S.A will act as the Deposit Agent for the
Financing pursuant to the Investor Issuance Deposit Agreement executed on
October 17, 1999.
8.4 FURTHER ASSURANCES. Each of the parties hereto will cooperate
with the others and execute and deliver to the other parties hereto such other
instruments and documents and take such other actions as may be reasonably
requested from time to time by any other party hereto as necessary to carry
out, evidence, and confirm the intended purposes of this Agreement.
8.5 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by each of the parties.
8.6 EXPENSES. Each party to this Agreement will bear its
respective expenses incurred in connection with the preparation, execution, and
performance of this Agreement and the transactions contemplated hereby,
including all fees and expenses of agents, representatives, counsel, and
accountants.
8.7 ENTIRE AGREEMENT. This Agreement, the exhibits, schedules
attached hereto and the other Transaction Documents contain the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior arrangements and understandings, both written and oral,
expressed or implied, with respect thereto. The Letter of Intent between
ValorInvest Ltd, Somerset, and the Stockholders dated June 18, 1999 as well as
any preceding correspondence or offers is expressly superseded and terminated
by this Agreement.
8.8 SEVERABILITY. It is the desire and intent of the parties that
the provisions of the Transaction Documents be enforced to the fullest extent
permissible under the law and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, in the event that any provision of
the Transaction Documents would be held in any jurisdiction to be invalid,
prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, will be ineffective, without invalidating the remaining
provisions of the Transaction Documents or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding
the foregoing, if such provision could be more narrowly construed so as not to
be invalid, prohibited or unenforceable in such jurisdiction, it will, as to
such jurisdiction, be so narrowly construed, without invalidating the remaining
provisions of the Transaction Documents or affecting the validity or
enforceability of such provision in any other jurisdiction.
8.9 NOTICES. All notices and other communications required or
permitted under to this Agreement must be in writing and will be deemed given
if sent by personal delivery, faxed with electronic confirmation of delivery,
nationally-recognized overnight courier or registered or certified mail (return
receipt requested), postage prepaid, to the parties at the following addresses
(or at such other address for a party as will be specified by like notice):
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<TABLE>
<S> <C>
If to the Stockholders: Mr. Douglas Toth
c/o Somerset Financial Partners, Inc.
349 Wall Street
Princeton, New Jersey
Telephone: (609) 430-1078
Fax: (609) 430-1074
With a copy (which will not constitute notice) to:
MFC Bancorp Ltd.
c/o Sangra Moller
1900-700 West George Street
Pacific Centre, PO Box 10345
Vancouver, British Columbia V7Y 1G5
Attention: Harjit Sangra
Telephone: (604) 683-8286
Fax: (604) 683-3205
If to Somerset: Somerset Financial Partners, Inc.
535 Connecticut Avenue, Suite 102
Norwalk, Connecticut 06854
Attention: William E. Schloth Director
Telephone: (203) 838-5141
Fax: (203) 838-5181
With a copy (which will not constitute notice) to:
MFC Bancorp Ltd.
c/o Sangra Moller
1900-700 West George Street
Pacific Centre, PO Box 10345
Vancouver, British Columbia V7Y 1G5
Attention: Harjit Sangra
Telephone: (604) 683-8286
Fax: (604) 683-3205
If to BLLE: Bullet Environmental Technologies, Inc.
c/o Powell, Goldstein, Frazer & Murphy
1001 Pennsylvania Avenue, N.W.
Sixth Floor South
Washington, D.C. 20004
Attention: Susan J. Thomas, Esq.
Telephone: (202) 624-7370
Fax: (202) 624-7222
</TABLE>
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All such notices and other communications will be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery, (b) in the
case of a fax, when the party sending such fax has received electronic
confirmation of its delivery, (c) in the case of delivery by
nationally-recognized overnight courier, on the business day following dispatch
and (d) in the case of mailing, on the third business day following mailing.
8.10 HEADINGS. The headings contained in this Agreement are for
convenience purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
8.11 BENEFITS. This Agreement is and will only be construed as for
the benefit of or enforceable by those persons party to this Agreement.
8.12 ASSIGNMENT. This Agreement may not be assigned (except by
operation of law) by any party without the consent of the other parties.
8.13 GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed therein.
8.14 ARBITRATION. All disputes arising out of or in connection
with this Agreement, or in respect of any defined legal relationship associated
therewith or derived therefrom that are not amicably resolved by the parties
within a reasonable amount of time (each, a "Dispute") will be referred to and
finally resolved by arbitration under the Rules of the American Arbitration
Association ("AAA") under its Commercial Arbitration Rules, except where those
rules are supplemented or modified by the express terms of this section. The
parties agree that binding arbitration is the exclusive remedy for resolving
any Dispute. The Stockholders or BLLE may initiate arbitration by sending
notice of their intention to arbitrate the Dispute to the other party, which
notice must be accompanied by a brief setting forth the nature of the Dispute
and the remedy sought, which brief may not exceed 25 typed pages (the
"Arbitration Notice"). The party initiating arbitration must also file at the
regional office of the AAA three copies of the Arbitration Notice and Brief and
the arbitration provision of this Agreement together with the required filing
fee. The named parties must file a responsive brief within 25 business days of
receipt of the Arbitration Notice and Brief, which responsive brief may not
exceed 25 typed pages. Any arbitration proceedings will be in Washington, D.C.
If the parties are able to agree on one arbitrator within 15 days of the date
the Arbitration Notice is filed with the AAA, the Dispute will be heard by that
arbitrator. If the parties are unable to agree on one arbitrator, then an
arbitrator will be selected from an impartial roster of arbitrators provided by
the AAA in accordance with the AAA rules. There will be no discovery permitted
by the parties in the arbitration proceedings provided that each party will be
permitted to take one oral deposition of the other party or unless otherwise
mutually agreed to by the parties. Each of the parties agrees to be bound by
Rule 30(b)(6) of the Federal Rules of Civil Procedures "Deposition of an
Organization," as amended from time to time or any successor rule. The
arbitrator will issue a decision within 60 days of his or her appointment. The
decision of the arbitrator must set forth in reasonable detail the reasoning
supporting the decision of the arbitrator. The decision rendered by the
arbitrator will be final and binding on the parties and judgment on the decision
rendered by the arbitrator may be
-32-
<PAGE> 37
entered in any court having jurisdiction. Each party will pay its own costs and
expenses related to the arbitration procedures. This agreement to arbitrate is
specifically enforceable under the prevailing arbitration law and survives the
termination of this Agreement.
8.15 CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction will be applied against any party. Any
reference to any federal, state, local, or foreign statute or law will be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. The parties intend that each
representation, warranty, and covenant contained herein will have independent
significance. If any party has breached any representation, warranty, or
covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached will not detract from or mitigate the fact that the party is in breach
of the first representation, warranty, or covenant. Unless otherwise expressly
provided, as used in this Agreement, the word "including" does not limit the
preceding words.
8.16 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.17 FAX EXECUTION. This Agreement may be executed by delivery of
executed signature pages by fax and such fax execution will be effective for
all purposes.
8.18 SCHEDULES AND EXHIBITS. The following schedules and exhibits
are attached to this Agreement and incorporated herein.
<TABLE>
<S> <C>
Disclosure Schedule 1.2 Somerset Stock Ownership
Disclosure Schedule 2.4 Capitalization of Somerset
Disclosure Schedule 2.5 Somerset Subsidiaries and Restrictions
Disclosure Schedule 2.7 Actions and Proceedings
Disclosure Schedule 2.8 Compliance
Disclosure Schedule 2.9 Filings, Consents, and Approvals
Disclosure Schedule 2.11 Somerset Financial Statements
Disclosure Schedule 2.12 Bank Accounts
Disclosure Schedule 2.13 Undisclosed Liabilities
Disclosure Schedule 2.15 Absence of Changes and Events
Disclosure Schedule 2.16 Personal Property
Disclosure Schedule 2.17 Related Entities
Disclosure Schedule 2.18 Insurance
Disclosure Schedule 2.19 Labor and Employment
Disclosure Schedule 2.20 Benefit Plans
Disclosure Schedule 2.21 Intellectual Property
Disclosure Schedule 2.22 Real Property
Disclosure Schedule 2.23 Material Contracts and Transactions
Disclosure Schedule 2.26 Residences of Stockholders
</TABLE>
-33-
<PAGE> 38
Exhibit A Employment Agreement - Form
Exhibit B Stock Restriction Agreement
Exhibit C Opinion of Counsel for Somerset
Exhibit D Opinion of Counsel for BLLE
Exhibit E Registration Rights Agreement
-34-
<PAGE> 39
EXECUTED on November 15, 1999.
BLLE:
BULLET ENVIRONMENTAL TECHNOLOGIES, INC.,
A Delaware Corporation
By:
-------------------------------------
G.W. Norman Wareham
President
SOMERSET:
SOMERSET FINANCIAL PARTNERS, INC.,
A Connecticut Corporation
By:
-------------------------------------
Douglas Toth,
Managing Director
STOCKHOLDERS:
-----------------------------------------
DOUGLAS TOTH
-----------------------------------------
NICHOLAS THOMPSON
-----------------------------------------
WILLIAM E. SCHLOTH
MFC BANCORP LTD
By: -------------------------------------
Name:
Title:
-35-
<PAGE> 1
EXHIBIT 10 (b)
PLACEMENT AGREEMENT
THIS PLACEMENT AGREEMENT (this "Agreement") is made on October 12,
1999, between BULLET ENVIRONMENTAL TECHNOLOGIES, INC., a Delaware corporation
(the "Company"), and MFC MERCHANT BANK S.A., a Swiss Corporation (the "Agent").
BACKGROUND
The Company wishes to privately place with purchasers at least
1,000,000 but no more than 2,000,000 Units (as hereinafter defined), at $5.00
per Unit, the proceeds of which will be used for working capital and general
corporate purposes.
The Company wishes to appoint the Agent as placement agent in
connection with such private placement.
In consideration of the mutual representations, warranties, covenants
and agreements contained in this Agreement, the parties agree as follows:
STATEMENT OF TERMS
1. DEFINITIONS
In this Agreement, the following terms have the following meanings:
(a) "Act" means the Securities Act of 1933 (United States), as
amended, the regulations and rules made thereunder and all
administrative policy statements, blanket orders, notices,
directions and rulings issued by the United States Securities
and Exchange Commission.
(b) "Closing" means the day on which Units are issued to the
Purchasers.
(c) "Company Stock" means the common voting stock, par value
$0.0001, of the Company.
(d) "Private Placement" means the offering of the Units on the
terms and conditions set forth in this Agreement or the
Subscription Agreements.
(e) "Private Placement Memorandum" means any private placement
memorandum, and any amendments made to such private placement
memorandum, which is required by the Act to be prepared, or
which is prepared, by the Company in connection with the sale
of any of the Units.
<PAGE> 2
(f) "Purchasers" means the purchasers of Units pursuant to the
Private Placement.
(g) "Subscription Agreement" means any Subscription Agreement in
connection with the Private Placement substantially in the
form of Attachment I, attached hereto.
(h) "Unit" means one share of the Company Stock and one warrant
for the purchase of one additional share of the Company Stock
for the price of Ten Dollars ($10.00) per share, which
warrant must be exercised within one year.
2. APPOINTMENT OF AGENT
The Company appoints the Agent as its exclusive agent and the Agent
accepts the appointment and agrees to act as the exclusive agent of
the Company to use its commercially reasonable efforts to find and
introduce to the Company potential purchasers to purchase up to
1,000,000, but no more than 2,000,000 Units, at a price of $5.00 per
Unit, by way of private placement prior to November 15, 1999.
3. COOPERATION AND INFORMATION
In connection with the Agent's activities hereunder on the Company's
behalf, the Company agrees to cooperate with the Agent and will
furnish to, or cause to be furnished to, the Agent, any and all
information and data reasonably requested by the Agent concerning the
Company, the Private Placement and the use of the proceeds generated
by the Private Placement.
4. OFFERING RESTRICTIONS
The Agent will only sell the Units to entities who represent
themselves as being:
(a) entities purchasing as principal who are accredited investors
residing outside the United States; and
(b) otherwise qualified to purchase the Units as described in the
Subscription Agreement.
The Agent agrees that at the time any buy order for the Units is
placed by clients of the Agent, the Purchaser will be outside the
United States, or the Agent and all persons acting on its behalf will
reasonably believe that the Purchaser is outside the United States,
and neither the Agent nor any person acting on its behalf will have
knowledge that such transaction has been pre-arranged with a Purchaser
within the United States.
<PAGE> 3
Neither the Company, the Agent, nor any of their respective
affiliates, nor any person acting on behalf of any of them, will offer
or sell any of the Units to persons or entities in the United States,
or undertake any activity for the purpose of, or that could reasonably
be expected to have the effect of, conditioning the market for the
Units in the United States.
5. PRIVATE PLACEMENT MEMORANDUM
The Company will ensure that any Private Placement Memorandum which is
prepared and delivered by the Company will conform with any and all
the requirements of the Act and will be reasonably satisfactory to the
Agent. The Company will deliver to the Agent, as soon as possible
after the date on which the Company gives a "Transaction Notice" (as
described in that Investor Issuance Deposit Agreement between the
Company and Agent of even date hereof (the "Deposit Agreement"))
sufficient commercial copies of any Private Placement Memorandum which
has been prepared and the names and addresses of each person whom the
Company has provided the Private Placement Memorandum. If prior to the
Closing, there is any material adverse change in the Company's
business which has not previously been disclosed to the Agent, the
Company will as soon as possible inform the Agent of the change and
prepare an appropriate amendment to the Private Placement Memorandum.
Delivery by the Company of a Private Placement Memorandum will
constitute the Company's authorization to the Agent to utilize the
Private Placement Memorandum in connection with the Private Placement,
and will constitute a representation and warranty by the Company that
the Private Placement Memorandum does not contain any
misrepresentations (as defined in the Act), other than with respect to
information supplied by and relating solely to the Agent. If the
Company has delivered a Private Placement Memorandum to the Agent
which has been prepared in accordance with this Agreement, then the
Agent will, on behalf of the Company, deliver a copy of such Private
Placement Memorandum to each potential purchaser introduced to the
Company by the Agent.
6. SUBSCRIPTIONS
The Agent will use its best efforts to obtain from each Purchaser
introduced by the Agent on or before November 15, 1999, duly completed
and signed subscriptions in the form of the Subscription Agreement or
in such other form consented to by the Company and the Agent and
executed by the Purchaser.
7. AGENT'S FEE
In consideration for performing the duties of placement agent under
this Agreement and performing the duties of custody agent under the
Deposit Agreement, the Agent will be entitled to a combined total fee
under both this Agreement and the Deposit Agreement equal to (i) eight
percent (8%) of the amount of the proceeds of the Private Placement
(which in no event will be less
<PAGE> 4
than $500,000) (the "Fee Portion") distributable to the Company under
the terms contained herein, and (ii) reimbursement of reasonable
out-of-pocket costs and expenses incurred by the Agent in connection
with the Private Placement (the "Financing Expenses"). The combined
total fee will be paid as set forth in Section 8 of the Deposit
Agreement. The Agent acknowledges and agrees that the above-defined
Fee Portion and Financing Expenses constitute the entire amounts to be
paid by the Company in consideration of the Private Placement. In the
event that the Agent engages any sub-agents for the placement or
syndication of the Units, the Agent agrees to be solely responsible
for paying such sub-agents from the fees otherwise payable hereunder,
and no additional fee amounts will be due or owing from the Company
and the Company will have no obligation or liability to any sub-agent
for any amounts.
It is expressly understood and agreed by the parties to this Agreement
that the aforesaid fee is the same fee, and not an additional one, to
be paid to Agent under the Deposit Agreement, and that Agent is
entitled to a combined fee consisting of the Fee Portion and
reimbursement of the Financing Expenses upon the performance of its
duties under both this Agreement and the Deposit Agreement and the
disbursements set forth in Section 7(a) of the Deposit Agreement. It
is also expressly understood and agreed by the parties that in no
event will any fee or reimbursement of any expenses, whether arising
in connection with or under this Agreement, the Deposit Agreement, or
both, be payable to Agent if the proceeds of the Private Placement are
not disbursed to the Company in accordance with the provisions of
Section 7 and 8 of the Deposit Agreement and that, in any event, no
Fee Portion will be payable to Agent as to any proceeds of the Private
Placement not disbursed to the Company.
8. REPRESENTATIONS AND WARRANTIES
The Company represent and warrants to the Agent that:
(a) it is a valid and subsisting corporation under the law of the
jurisdiction in which it was incorporated;
(b) it is registered to do business in accordance with applicable
law in the jurisdictions required to the extent necessary in
connection with the transaction contemplated by this
Agreement;
(c) this Agreement has been, or will be as of the date of
execution, duly authorized by all necessary corporate action
on the part of the Company, and the Company has full
corporate power and authority to undertake the Private
Placement;
(d) the authorized and issued capital of the Company are as
disclosed in the Private Placement Memorandum and the
outstanding shares of the Company are fully paid and
non-assessable;
<PAGE> 5
(e) the Company will reserve or set aside sufficient shares in
its treasury to issue the Units and all such shares will be
duly and validly issued as fully paid and non-assessable;
(f) the Private Placement Memorandum, subscription form and all
other written or oral representations made by the Company to
a Purchaser or potential Purchaser in connection with the
Private Placement will be accurate in all material respects
and will omit no fact, the omission of which will make such
representations misleading or incorrect;
(g) the Company has complied in all material respects and will so
comply with the requirements of all applicable corporate and
securities laws and administrative policies and directions,
including, without limitation, the Act, in relation to the
issuance and trading of its securities and in all matters
relating to the Private Placement;
(h) there is not presently, and will not be until the Closing,
any material adverse change in the business of the Company
which has not been or will not be fully disclosed to the
Agent;
(i) the issuance and sale of the securities by the Company and
the Agent does not and will not conflict with, and does not
and will not result in a breach of, any of the terms of its
organizational documents or any material agreement or
instrument to which the Company is a party;
(j) neither the Company nor any of its subsidiaries is a party to
any actions, suits or proceedings which could materially
affect its business or financial condition and to the best of
the Company's knowledge no such actions, suits or proceedings
are contemplated or have been threatened which are not
disclosed in the Private Placement Memorandum;
(k) there are no judgments against the Company or any of its
subsidiaries, if any, which are unsatisfied, nor are there
any consent decrees or injunctions to which the Company or
any of its subsidiaries, if any, is subject;
(l) no order halting or suspending trading in securities of the
Company nor prohibiting the sale of such securities has been
issued to and is outstanding against the Company or its
directors, officers or promoters and no investigations or
proceedings for such purposes are pending or threatened;
(m) except as disclosed in the Private Placement Memorandum, no
person has any right, agreement or option, present or future,
contingent or absolute, or any right capable of becoming such
a right, agreement or option, for the issuance or allotment
of any unissued shares in the capital of the Company
<PAGE> 6
or its subsidiaries, if any, or any other security
convertible into or exchangeable for any such shares, or to
require the Company or its subsidiaries, if any, to purchase,
redeem or otherwise acquire any of the issued and outstanding
shares in its capital;
(n) other than the Agent, no person, firm or corporation acting
or purporting to act at the request of the Company is
entitled to any brokerage, agency or finder's fee in
connection with the transactions described herein; and
(o) the representations and warranties in this Section are
materially true and correct and will remain so as of the
Closing.
The Agent represents and warrants to the Company that:
(a) it is a valid and subsisting corporation under the law of the
jurisdiction in which it was incorporated;
(b) it is registered to do business in accordance with applicable
law in the jurisdictions required to the extent necessary in
connection with the transactions contemplated by this
Agreement;
(c) this Agreement has been, or will be as of the date of
execution, duly authorized by all necessary corporate action
on the part of the Agent, and the Agent has full corporate
power and authority to perform its obligations under this
Agreement;
(d) it is not a "U.S. person" as defined under the Act;
(e) it will sell the Units in compliance with the Act;
(f) it will only make representations consistent with the
information in the Private Placement Memorandum, the
Subscription Agreements and any other materials provided by
the Company; and
(g) the representations and warranties in this Section are
materially true and correct and will remain so as of the
Closing.
9. TERMINATION
<PAGE> 7
The Agent may terminate its obligations under this Agreement by notice
in writing to the Company at any time before the Closing if:
(a) a material adverse change in the business of the Company has
occurred;
(b) an inquiry or investigation from or by a governmental
regulatory agency (whether formal or informal) in relation to
the Company, or the Company's directors, officers or
promoters, which may have a material adverse offset on the
proposed offering is commenced or threatened in writing;
(c) any order to cease, halt or suspend trading (including an
order prohibiting communications with persons in order to
obtain expressions of interest) in the securities of the
Company prohibiting or restricting the Private Placement is
made by a competent regulatory authority and that order is
still in effect; or
(d) the Company breaches any material term of this Agreement and
fails to cure such breach within five (5) business days after
written notice thereof from the Agent.
10. CONFIDENTIALITY
Each party to this Agreement agrees that it will not make any public
announcements of any kind and will not release or issue any reports,
statements or releases relating or pertaining to the Private
Placement, this Agreement or the transactions contemplated herein,
without the prior written consent of the other party, except (i) to
professional advisors under a duty of confidentiality as necessary to
consummate the transactions contemplated herein, and (ii) as may be
required upon the written advice of counsel to comply with applicable
laws or regulatory requirements after consulting with the other party
and seeking their consent to such announcement, report, statement or
release. Each party agrees that such information will be used solely
for the purposes of consummating the transactions contemplated herein
and that such information will not be used or disclosed other than in
furtherance of such purposes under the terms of this Agreement.
11. INDEMNIFICATIONS
<PAGE> 8
The Company will indemnify the Agent and each of the Agent's agents,
directors, officers and employees (collectively, the "Indemnified
Parties") and save them harmless against all losses, claims, damages
or liabilities:
(a) existing by reason of a material misstatement contained in
the Private Placement Memorandum, Subscription Agreement or
other written or oral representation made by the Company to a
Purchaser or potential Purchaser in connection with the
Private Placement by reason of the omission to state a
material fact necessary to make such statements or
representations not misleading (except for information and
statements supplied by and relating solely to the Agent);
(b) arising directly or indirectly out of any order made by any
regulatory authority based upon an allegation that any such
material misstatement, misrepresentation or omission exists
(except information and statements supplied by and relating
solely to Agent), that trading in or distribution of any of
the securities is to cease;
(c) resulting from the failure by the Company to obtain any
required regulatory approval to the Private Placement unless
the failure to obtain such approval is the result of a breach
of this Agreement by the Agent;
(d) resulting from a material breach by the Company of any of the
terms of this Agreement; or
(e) if, following the completion of a sale of any of the Units, a
determination is made by any competent authority setting
aside the sale, unless that determination arises out of an
act or omission by the Agent.
If any action or claim is brought against an Indemnified Party in
respect of which indemnity may be sought from the Company pursuant to
this Agreement, the Indemnified Party will promptly notify the Company
in writing. The Company will assume the defense of the action or
claim, including the employment of counsel and the payment of all
expenses. The Indemnified Party will have the right to employ counsel
acceptable to the Company, and the Company will pay the reasonable
documented fees and expenses of such counsel.
The indemnity provided for in this Section will not be limited or
otherwise affected by any other indemnity obtained by the Indemnified
Party from any other person in respect of any matters specified in
this Agreement and will continue in full force and effect until all
possible liability of the Indemnified Parties arising out of the
transactions contemplated by this Agreement has been extinguished by
the operation of law.
<PAGE> 9
If indemnification under this Agreement is found in a final judgment
(not subject to further appeal) by a court of competent jurisdiction
not to be available for reason of public policy, the Company and the
Indemnified Parties will contribute to the losses, claims, damages,
liabilities or expenses (or actions in respect thereof) for which such
indemnification is held unavailable in such proportion as is
appropriate to reflect the relative benefits to and fault of the
Company, on the one hand, and the Indemnified Parties on the other
hand, in connection with the mater giving rise to such losses, claims,
damages, liabilities or expenses (or actions in respect thereof). No
person found liable for a fraudulent misrepresentation (within the
meaning of applicable securities laws) will be entitled to
contribution from any person who is not found liable for such
fraudulent misrepresentation.
To the extent that any Indemnified Party is not a party to this
Agreement, the Agent will obtain and hold the right and benefit of
this Section in trust for and on be half of such Indemnified Party.
The Agent will indemnify the Company and each of the Company's agents,
directors, officers and employees and save them harmless against all
losses, claims, damages or liabilities resulting from the Agent's
material breach of any term of this Agreement.
The indemnities contained in this Section will survive for a period of
one (1) year from the date of the Closing.
12. GOVERNING LAW
This Agreement will be governed and construed in accordance with the
laws of Delaware.
13. ENFORCEMENT
Each party to this Agreement (i) submits to personal jurisdiction in
Delaware for the enforcement of this Agreement or in connection with
this Agreement, and (ii) waives any and all rights under the laws of
any state to object to jurisdiction within Delaware for the purposes
of litigation to enforce this Agreement or in connection with this
Agreement.
14. WAIVER OF JURY TRIAL
Each of the parties hereto knowingly, voluntarily, and irrevocably
waives any right it may have to a trial by jury in respect of any
claim based upon, arising out of or in connection with this Agreement
or the Private Placement.
<PAGE> 10
15. ASSIGNMENT AND SELLING GROUP PARTICIPATION
This Agreement may not be assigned in whole, or in part, by either
party without the prior written consent of the other party.
The Agent may offer selling group participation in compliance with
applicable laws and consistent with the normal course of brokerage
business to selling groups of other licensed dealers, brokers, and
investment dealers, who may or may not be offered part of the Agent's
fee defined in Section 7 of this Agreement.
16. BENEFITS; NO THIRD PARTY BENEFICIARIES
This Agreement is specifically for the benefit of the parties hereto
and the Indemnified Parties as set forth in Section 11 hereof, and is
binding on the aforesaid parties to this Agreement and their
successors and permitted assigns. None of the provisions of this
Agreement is or may be construed as for the benefit of or enforceable
by any other person.
17. NOTICES; DELIVERIES
Any notice required to be given hereunder must be in writing and
delivered by fax, hand delivery or sent by Federal Express, DHL or
other recognized international express courier service that provides
receipt of delivery, to the party to whom it is to be delivered at the
addresses set forth below. Any notice given by fax must be sent to the
fax numbers provided below and the electronic confirmation of the
sender will be evidence of receipt. Any notice given by fax must also
be sent by express courier on the same day as the fax transmission or
the next business day.
<TABLE>
<S> <C>
If to the Company: Bullet Environmental Technologies, Inc.
1177 West Hastings Street
Suite 1818
Vancouver, British Columbia V6E 2K3
Attention: G.W. Norman Wareham, President
Tel: (604) 602-1717
Fax: (604) 683-2370
with a copy to: Powell, Goldstein, Frazer & Murphy LLP
1001 Pennsylvania Avenue, N.W.
Sixth Floor
Washington, D.C. 20004
Attention: Michael H. Chanin, Esq.
Tel: (202) 347-0066
Fax: (202) 624-7222
</TABLE>
[Continued on the following page.]
<PAGE> 11
<TABLE>
<S> <C>
If to Agent: MFC Merchant Bank S.A.
6 Cours De Rive
1211 Geneva, Switzerland
Attention: Mr. Peter Jessop
Tel: 41-22-818-2929
Fax: 41-22-818-2930
</TABLE>
18. TIME
Time is of the essence of this Agreement.
19. ENTIRE AGREEMENT; AMENDMENTS
This Agreement constitutes the entire Agreement and understanding
among the parties hereto relating to the Private Placement described
herein and supersedes any and all prior agreements and understandings
relating to the matters provided for herein. No alteration, waiver,
amendment, change or supplement hereto will be binding or effective
unless the same is set forth in writing, signed by a duly authorized
representative of both parties.
20. COUNTERPARTS
This Agreement may be executed in one or more counterparts each of
which will be deemed to be an original. In order for this Agreement to
be effective, it will not be necessary for all counterparts to be
signed by each party hereto, provided that at least one counterpart of
this Agreement is signed by each of the parties hereto.
21. FAX EXECUTION
This Agreement may be executed by delivery of a signed signature page
by fax and such fax execution will be effective in all respects, but
must be followed by an exchange of copies by one of the methods
provided in the "Notices" section of this Agreement.
[Signatures on following page.]
<PAGE> 12
EXECUTED on , 1999.
-----------------
BULLET ENVIRONMENTAL TECHNOLOGIES, INC.
By: /s/
-----------------------------------
G.W. Norman Wareham
President
MFC MERCHANT BANK S.A.
By: /s/
-----------------------------------
Name:
Title: President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 526
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 526
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 526
<CURRENT-LIABILITIES> 434,446
<BONDS> 0
0
0
<COMMON> 215
<OTHER-SE> (434,135)
<TOTAL-LIABILITY-AND-EQUITY> 526
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 533,635
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (533,635)
<INCOME-TAX> 0
<INCOME-CONTINUING> (533,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (533,635)
<EPS-BASIC> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
