AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON April 25,
2007
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-SB
GENERAL
FORM FOR REGISTRATION OF SECURITIES
OF
SMALL BUSINESS ISSUERS
Under
Section 12(b) or 12(g) of the Securities Exchange Act of
1934
ANCHOR
FUNDING SERVICES, INC.
(Name
of Small Business Issuer in Its Charter)
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Delaware
(State
or Other Jurisdiction of
Incorporation
or Organization)
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20-5456087
(I.R.S.
Employer
Identification
No.)
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2201-E
Crownpoint Executive Drive
Charlotte,
NC
(Address
of Principal Executive Offices)
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28227
(Zip
Code)
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(866)
789-3863
(Issuer’s
Telephone Number)
Securities
to be Registered under Section 12(b) of the Act:
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Title
of Each Class to be
so
Registered
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Name
of Each Exchange on
Which
Each Class is to be Registered
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None.
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Securities
to be Registered under Section 12(g) of the Act:
Common
Stock, par value $0.001 per share
(Title
of Class)
ANCHOR
FUNDING SERVICES, LLC
INDEX
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PART
I
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Item
1.
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Description
of Business
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Item
2.
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Management’s
Discussion and Analysis or Plan of Operation
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Item
3.
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Description
of Property
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Item
4.
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Security
Ownership of Certain Beneficial Owners and Management
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Item
5.
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Directors,
Executive Officers, Promoters and Control Persons
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Item
6.
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Executive
Compensation
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Item
7.
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Certain
Relationships and Related Transactions
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Item
8.
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Description
of Securities
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PART
II
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Item
1.
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Market
Price and Dividends on the Registrant’s Common Equity and Related
Shareholder Matters
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Item
2.
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Legal
Proceedings
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Item
3.
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Changes
in and Disagreements With Accountants
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Item
4.
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Recent
Sales of Unregistered Securities
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Item
5.
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Indemnification
of Directors and Officers
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41
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FINANCIAL
STATEMENTS
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Audited
Financials - Statements of Anchor Funding Services LLC for the
years ended
December 31, 2006 and 2005
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F-1 | |
| Unaudited Condensed Consolidated Pro-Forma Financial Information | P-1 | |||||
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PART
III
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Item
1.
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Index
to Exhibits
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SIGNATURES
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2
FORWARD-LOOKING
STATEMENTS
Some
of
the statements under “Item 1. Description of Business,” “Item 2. Management’s
Discussion and Analysis or Plan of Operation” and included elsewhere in this
Registration Statement contain forward-looking statements. All statements other
than statements of historical facts contained in this Registration Statement,
including statements regarding our plans, objectives, goals, strategies, future
events, capital expenditures, future results, our competitive strengths, our
business strategy and the trends in our industry are forward-looking statements.
The words “believe,” “may,” “could,” “will,” “estimate,” “continue,”
“anticipate,” “intend,” “should,” “plan,” “expect,” “appear,” “forecast,”
“future,” “likely,” “probably,” “suggest” and similar expressions, as they
relate to the Company, are intended to identify forward-looking
statements.
Forward-looking
statements reflect only our current expectations. We may not update these
forward-looking statements, even though our situation may change in the future.
In any forward-looking statement, where we express an expectation or belief
as
to future results or events, such expectation or belief is expressed in good
faith and believed to have a reasonable basis, but there can be no assurance
that the statement of expectation or belief will be achieved or accomplished.
Our actual results, performance or achievements could differ materially from
those expressed in, or implied by, the forward-looking statements due to a
number of uncertainties, many of which are unforeseen, including:
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the
timing and success of our acquisition strategy;
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the
timing and success of our expanding our market presence in our current
locations, successfully entering into new markets, adding new services
and
integrating acquired businesses;
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the
timing, magnitude and terms of a revised credit facility to accommodate
our growth;
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competition
within our industry; and
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the
availability of additional capital on terms acceptable to
us.
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In
addition, you should refer to the “Risk Factors” section of this Registration
Statement commencing in Item 1 for a discussion of other factors that may cause
our actual results to differ materially from those implied by our
forward-looking statements. As a result of these factors, we cannot assure
you
that the forward-looking statements in this Registration Statement will prove
to
be accurate. Furthermore, if our forward-looking statements prove to be
inaccurate, the inaccuracy may be material. In light of the significant
uncertainties in these forward-looking statements, you should not regard these
statements as a representation or warranty by us or any other person that we
will achieve our objectives and plans in any specified time frame, if at all.
Accordingly, you should not place undue reliance on these forward-looking
statements.
We
qualify all the forward-looking statements contained in this Registration
Statement by the foregoing cautionary statements.
3
PART
I
Item
1. Description of Business.
Corporate
Structure
Anchor
Funding Services, Inc. (formerly BTHC XI, Inc.) was originally organized in
the
State of Texas as BTHC XI LLC. On September 29, 2004, BTHC XI LLC and its sister
companies filed an amended petition under Chapter 11 of the United States
Bankruptcy Code. On November 29, 2004, the court approved BTHC XI LLC’s Amended
Plan of Reorganization. On August 16, 2006, and in accordance with its Amended
Plan of Reorganization, BTHC XI LLC changed its state of organization from
Texas
to Delaware by merging with and into BTHC XI, Inc., a Delaware corporation
formed solely for the purpose of effecting the reincorporation.
Anchor
Funding Services LLC, a limited liability company, was originally formed under
the laws of the State of South Carolina in January 2003 and later reorganized
under the laws of the State of North Carolina on August 29, 2005. Anchor Funding
Services, LLC was formed for the purposes of providing factoring and back office
services to businesses located in the United States and Canada. On
January 31, 2007, the former BTHC XI, Inc. and certain principal
stockholders entered into a Securities Exchange Agreement (the “Securities
Agreement”) with Anchor Funding Services, LLC and its members for Anchor Funding
Services, LLC to become a wholly-owned subsidiary of the former BTHC XI, Inc.
in
exchange for 8,000,000 shares of Common Stock of BTHC XI, Inc. (the
“Exchange”).
At
the
time of the Exchange, the former BTHC XI, Inc. had limited operations and
limited assets or liabilities. Because the members of Anchor Funding Services,
LLC exchanged their equity ownership interests for an aggregate 67.7% equity
ownership interest in the former BTHC XI, Inc. (computed immediately after
the
completion of the Exchange and before the consummation of a financing), this
transaction was for accounting purposes, treated as if Anchor Funding Services,
LLC was the surviving entity, as if a merger occurred between the parties.
Accordingly, for the periods prior to the Exchange, our financial statements
are
based upon the financial position, results of operations and cash flows of
Anchor Funding Services LLC. The assets, liabilities, operations and cash flows
of the former BTHC XI, Inc. are included in our consolidated financial
statements from January 31, 2007, the effective date of the Exchange, onward.
On
April
4, 2007, the former BTHC XI, Inc. changed its corporate name to Anchor Funding
Services, Inc. Anchor Funding Services, Inc. is currently a holding corporation
for its wholly-owned subsidiary, Anchor Funding Services, LLC. Except as
otherwise provided in this Registration Statement, unless the context otherwise
requires, references in this Form 10-SB to the “Company,” “Anchor,” “we,” “us”
and “our” refers collectively to the consolidated business and operations of
Anchor Funding Services, Inc. and its wholly-owned operating subsidiary, Anchor
Funding Services LLC.
Business
Overview
Anchor’s
business has grown since its commencement in 2003 with minimal marketing and
limited financing. Our investment objective is to create a well-recognized,
national financial services firm for small businesses providing accounts
receivable funding (factoring), outsourcing of accounts receivable management
including collections and the risk of customer default and other specialty
finance products including, but not limited to domestic and international
purchase order financing, credit card financing, lawsuit financing, trade
finance and government contract funding. For certain service businesses, Anchor
also provides back office support including payroll, payroll tax compliance
and
invoice processing services. We provide our services to clients nationwide
and
may expand our services internationally in the future. We plan to achieve our
growth objectives as described below through a combination of strategic and
add-on acquisitions of other factoring and related specialty finance firms
that
serve small businesses in the United States and Canada and internal growth
through mass media marketing initiatives. Our corporate headquarters and back
office operations are located in Charlotte, North Carolina.
4
Factoring
is the purchase of a company’s accounts receivable, which provide businesses
with critical working capital so they can meet their operational costs and
obligations while waiting to receive payment from their customers. Factoring
services also provide businesses with credit and accounts receivable management
services. Typically, these businesses do not have adequate resources to manage
internally their credit and accounts receivable functions. Factoring services
are typically a non-recourse arrangement whereby the factor take the entire
credit risk if the customer does not pay due to insolvency for any period of
time or on a partial non-recourse basis where the factor takes the credit risk
for a period of time, which could be 30 to 90 days after the factor purchases
an
account receivable such that if a client’s customer becomes insolvent during
this specific period of time, the factor bears the loss. Under partial
non-recourse factoring, after a specific period of time, if the accounts
receivable invoice is not collected, the client is required to purchase the
accounts receivable invoice back from Anchor. We typically advance our clients
75% to 90% of the face value of invoices that we approve in advance on a partial
non-recourse basis and pay them the difference less our fees when the invoice
is
collected. For our year ended December 31, 2006, our fees for services averaged
4.9% of the invoice value and are tiered such that the longer it takes us to
collect on the accounts receivable invoice, the greater our fee. Since our
inception, Anchor has not incurred any credit losses. To increase our service
offerings, we anticipate providing full non-recourse factoring to clients in
the
near future.
A
summary
of some of the advantages of factoring for a small business is as
follows:
| · |
Faster
application process since factoring is focused on credit worthiness
of the
accounts receivable as security and not the financial performance
of the
company;
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Unlimited
funding based on “eligible” and “credit worthy” accounts receivable;
and
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No
financial covenants.
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We
provide our services to any type of business where we can verify and
substantiate an accounts receivable invoice for delivery of a product or
performance of a service. Examples of current clients include a magazine
publisher, commercial baker, transportation company, medical staffing firm,
IT
consulting company and a shipper of luxury autos. Current clients range in
size
from start-up to $5 million in annual sales. We believe that this market is
under served by banks and other funding institutions that find many of these
companies not “bankable” because of their size, limited operating history, thin
capitalization, seasonality patterns or poor/ inconsistent financial
performance. Anchor’s focus is providing funding based on the quality of our
clients’ customers’ ability to pay and the validity of the account receivable
invoice. Anchor utilizes credit and verification processes to assist in assuring
that customers are creditworthy and invoices are valid. We secure our funding
by
having a senior first lien on all clients’ accounts receivable and other
tangible and intangible assets. We also often obtain personal and validity
guarantees from our clients’ owners.
GROWTH
OPPORTUNITIES AND STRATEGIES
Our
strategy is to become a nationally recognized brand for accounts receivable
funding and other related financial services for small businesses. This
expansion is expected to be accomplished with media marketing campaigns
targeting small businesses and through accretive acquisitions of competitive
firms and add-on purchases which broaden our mix of services, brands, customers
and geographic and economic diversity. Our focus is to increase revenues and
profits, through a combination of internal growth and acquisitions, primarily
within our core disciplines and expansion into new service offerings. The key
elements to our acquisition growth strategy include the following:
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Acquire
companies that provide factoring services to small businesses.
Our
primary strategy is to increase revenues and profitability by acquiring
the accounts receivable portfolios and possibly the business development
and management teams of other local and regional factoring firms.
Significant operating leverage and reduced costs are achieved by
consolidating back office support functions. Increased revenues across
a
larger accounts receivable portfolio is anticipated to lead to lower
costs
of capital, which may enhance profitability. We have hired a merger
and
acquisition advisory firm to assist us in our acquisition strategy.
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We
intend
to evaluate acquisitions using numerous criteria including historical financial
performance, management strength, service quality, diversification of customer
base and operating characteristics. Our senior management team has prior
experience in other service industries in identifying and evaluating attractive
acquisition targets and integrating acquired businesses.
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Expand
our service offerings by acquiring related specialty finance firms
that
serve small businesses.
These specialty firms will broaden the services that we provide so
that we
can fulfill additional financial service needs of existing clients
and
target additional small businesses in different industries. For example,
manufacturers have a need for purchase order financing in addition
to
factoring. The following are types of specialty finance firms that
we will
target and is not all-inclusive:
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Purchase
order financing;
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Import/export
financing;
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Credit
card financing;
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Government
contract financing;
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Agricultural
receivable financing; and
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Construction
receivable financing.
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Expand
our discount factoring business by creating a national factoring
brand.
Inform and educate small businesses owners that factoring can increase
cash flow and outsource credit risk and accounts receivable management.
Our
experience has been that many small businesses have limited awareness
that
factoring exists and is a viable financing alternative option for
them. We
are currently searching for a marketing manager to assist us in creating
a
national factoring brand identity. This is expected to be accomplished
through various marketing initiatives and business alliances that
will
create in-bound sales leads. These marketing strategies
include:
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Media
advertising in key metropolitan
markets;
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Increase
our pay-per-click internet advertising which to-date has been a successful
strategy for Anchor; and
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Radio
- test market selective radio spot advertising on talk radio and
sports
oriented programming whose primary demographic are small business
owners.
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Establish
cross-selling alliances with other small business providers
including:
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Small
business accounting and tax preparation service firms;
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Small
business service centers, providing packing and shipping;
and
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Commercial
insurance brokers.
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Develop
a referral network of business brokers, consultants and accountants
and
attorneys;
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Attend
cash flow trade shows and advertise in cash flow trade
publications.
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Expand
into the growing Hispanic business market.
We continue to seek opportunities to expand the reach of our brands
into
new markets, including the Hispanic business market. We plan to create
a
Spanish language version of our website, advertise in Hispanic media
publications and enter into alliances with Hispanic commercial banks
for
small business referral prospects who do not meet the banks’ suitability
requirements.
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INDUSTRY
OVERVIEW
Factoring
as it functions today has been in existence for nearly 200 years. Its historical
focus has been in the textile and apparel industries, which provides products
to
major retailers. The factoring industry has expanded beyond the textile and
apparel industries into other mainstream businesses. Anchor may provide funding
to businesses where the performance of a service or the delivery of a product
can be verified. We have the ability to check a company’s credit and evaluate
its ability to pay across most industries. Hence, Anchor’s target prospects are
most small businesses. According to the U.S. Small Business Administration’s
(SBA) 2004 statistics, there were 19.5 million “nonemployers” (i.e.
self-employed persons) and 5.3 million small businesses with less than 20
employees.
According
to the Commercial Finance Association (CFA), an industry trade association
for
asset based lending and factoring companies, factoring volume (the dollar value
of invoices purchased) in 2005 in the United States achieved its highest
year-to-year growth since 2000. Factoring volume grew to $112.8 billion in
the
U.S. representing a 9.3% increase over 2004. The CFA survey highlights that
the
growth is attributable to a number of factors including a greater acceptance
of
the factoring product.
6
Management
estimates, based on examination of Dun & Bradstreet data and a market
overview provided by a merger and acquisition advisory firm, that there are
approximately 2,900 accounts receivable factoring and financing firms in the
United States with over 2,000 with revenues of less than $1 million. Management
believes that the fragmentation of the market among other factors, make this
industry attractive for consolidation. Driving factors for consolidation
include:
| o |
Limited
growth capital for small factors.
Small factoring firms may have credit availability constraints limiting
the business volume which they can factor. The financial leverage
that
banks typically provide a finance company is a function of the capital
in
the business. The opportunity to combine their businesses with Anchor’s
capital and possible lower cost of funds, back office support and
potentially a larger credit facility are incentives to sell their
business, particularly where they would receive our capital stock
in
return as part or all of the transaction
price.
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| o |
Anchor
would provide an exit strategy for owners of small factoring firms
who may
have much of their personal wealth tied to the business and want
to
retire.
A
cash sale of a factoring firm would provide liquidity to the owner
of a
factoring firm and the opportunity to receive a price over the factoring
firm’s book value.
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OPERATIONS
Our
executive officers, namely Morry F. Rubin, CEO and Brad Bernstein, President,
manage our day to day operations and internal growth and oversee our acquisition
strategy. We have two full-time account executives that provide daily support
for our current clients. These individuals also handle in-bound sales calls
and
underwrite prospective funding transactions for credit committee review. We
have
a bookkeeper that maintains our books and records and wires funds daily to
clients.
We
temporarily utilize a credit manager from an affiliated company to assist in
managing credit and making collection calls. At times in the past, we used
other
accounting personnel from an affiliated company for certain back office
functions. In the past through April 23, 2007, this affiliated company charged
a
fee of .25% of the value of accounts receivable purchased for credit and
collection services only and .5% for credit, collection, invoicing, payroll
and
other bookkeeping services. The fees charged by this affiliated company were
$28,668 and $20,352 for the years ended December 31, 2006 and 2005.
respectively. Since April 23, 2007, Anchor pays a portion of the affiliated
company’s shared employees salaries based upon actual time incurred. This is a
temporary arrangement that is likely to cease within a month or two, as we
expect to expand our support staff and fill key positions including a credit
manager, account executives and collections personnel. In the near future,
we
anticipate performing all of our own back office operations, including, without
limitation, credit and collection services, payroll and other bookkeeping
services. See “Certain Relationships and Related Transactions.”
Underwriting
Process
We
have
developed and utilize standard underwriting procedures, which are controlled
in
a checklist format that is reviewed and approved by the credit committee. The
credit committee is presently comprised of our executive officers, although
these functions may be delegated to other responsible personnel in the future
as
our company expands our operations. The credit committee approves all new
accounts and conducts periodic credit review of the client portfolio.
Underwriting criteria include the following:
7
| o |
Background
and credit checks are performed on the
owners.
|
| o |
Personal
or validity guarantees are sometimes obtained from the
owners.
|
| o |
We
“Notify” all accounts that are purchased. Anchor is a notification factor,
which means that we notify in writing all accounts purchased that
we have
purchased the account and payments are to be made to Anchor’s central
lockbox. Our client’s invoices also provide Anchor’s lockbox as address
for payments. We also have a notification statement on our clients’
invoices that indicate we have purchased the account and payment
is to be
made to Anchor.
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| o |
Initially
we attempt to verify most of a new customer’s accounts. Verification
includes review of third-party documentation and telephone discussions
with the client’s customer so that we may substantiate that invoices are
valid and without dispute.
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| o |
We
typically evaluate the creditworthiness on accounts with more than
a
$2,500 balance.
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| o |
Other
standard diligence testing includes payroll tax payment verification,
company status with state of incorporation, pre and post filing lien
searches and review of prior years’ corporate tax
returns.
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| o |
We
require that our clients enter into a factoring and security agreement
with Anchor and file a first senior lien on purchased accounts, and
on a
case-by-case basis, sometimes on all of our clients’ tangible and
intangible assets.
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Anchor
has not had incurred any credit losses since inception, although we can provide
no assurances that credit losses will not be incurred in the
future.
Credit
Management
To
efficiently and quickly determine the credit worthiness of an account, Anchor
has an instant credit checking system, Creditguard,
whereby
Anchor utilizes a proven credit formula that combines various Dun &
Bradstreet credit data elements. This formula and system provide an initial
credit limit so that accounts can be approved or rejected quickly. If additional
credit is necessary beyond the initial credit limit, we then independently
check
three vendor references and a bank reference to determine if additional credit
can be extended. Collection calls are usually made within 14 days of purchasing
an invoice to secure a commitment or estimated time to receive payment.
In
conjunction with potentially providing full-non-recourse factoring, Anchor
is
examining the cost and benefits of obtaining credit insurance estimated to cost
one-half of one percent of the invoiced amount.
CLIENTS
Our
clients are all small businesses that range in size from start-up to $5 million
in annual sales. We provide our services to any type of business where we can
verify and substantiate an accounts receivable invoice for delivery of a product
or performance of a service. Examples of current clients include a coupon
magazine publisher, commercial baker, transportation company, medical staffing
firm, IT consulting company and a shipper of luxury autos. Anchor targets all
small businesses to educate and convert them to factoring if it will help our
business and their businesses. We believe that this small business market is
under served by banks and other funding institutions that find many of these
companies not “bankable” because of their size, limited operating history, thin
capitalization or poor / inconsistent financial performance. Anchor’s focus is
funding based on the quality of our clients’ customer’s ability to pay and the
validity of the accounts receivable invoice. Anchor has credit and verification
processes to assist in assuring that customers are creditworthy and invoices
are
valid. We secure our funding by having a senior first lien on all clients’
accounts receivable and other tangible and intangible assets. We also often
obtain personal guarantees from our clients’ owners.
In
addition, there are certain specific small business sectors that Anchor believes
also have limited working capital options and are targets for factoring.
Examples of these include:
| o |
Not-for-profit
entities; we recently factored a foster home’s invoice to a local
county.
|
| o |
Companies
with tax liens by providing funding based upon its eligible accounts
receivable; we were successful in paying off the IRS for a client
that had
tax liens by funding its accounts
receivable.
|
| o |
Free
lance consultants and independent contractors that cannot wait to
receive
payment from their client.
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SALES
AND MARKETING
We
plan
to hire a marketing manager to assist Anchor in creating a national brand
identity through various marketing and business alliance strategies that will
create in-bound sales leads. These marketing strategies include, without
limitation, the following:
8
| o |
Media
advertising in key metropolitan
markets;
|
| § |
Increase
our pay-per-click internet advertising which to-date has been a successful
strategy for Anchor; and
|
| § |
Radio
- test market selective radio spot advertising on talk radio and
sports
oriented programming whose primary demographic are small business
owners.
|
| o |
Establish
cross-selling alliances with other small business providers
including:
|
| § |
Small
business accounting and tax preparation service
firms;
|
| § |
Small
business service centers, providing packing and shipping;
and
|
| § |
Commercial
insurance brokers.
|
| o |
Develop
a referral network of business brokers, consultants and accountants
and
attorneys;
|
| § |
Attend
cash flow trade shows and advertise in cash flow trade
publications.
|
In
key
metropolitan areas, we plan on hiring business development officers to follow
up
on in-bound sales leads in person and develop additional business by networking
with other small business providers including traditional bankers, accountants,
lawyers and insurance brokers.
MANAGEMENT
INFORMATION SYSTEMS
We
utilize a factoring industry software program designed to effectively manage
and
operate a factoring company. This system currently manages multiple functions
from purchasing invoices, advancing funds, recording collections and rebating
clients. The system generates, on demand, numerous management reports including
purchase activity, collections activity, return on capital, advances
outstanding, accounts receivable trends, and credit reports which provide us
with the ability to track, monitor and control the collateral (purchased
accounts receivable). In addition, the software integrates with our general
ledger accounting package, which enables us to meet our financial reporting
requirements. Each month we upload key management reports that our clients
can
retrieve on-line.
Our
current software platform can support our growth in the short term. Based upon
anticipated growth we intend to upgrade our factoring software platform, which
will enable additional users access to the system. There are multiple factoring
software vendors who provide products which will support our growth objectives.
Hardware
redundancy, backup strategies and disaster recovery have been planned to reduce
the risk of downtime. We will utilize a portion of the net proceeds allocated
toward capital expenditures for this purpose.
GOVERNMENT
REGULATIONS
In
some
instances, our operations are subject to supervision and regulation by federal,
state, and various foreign governmental authorities. Additionally, our
operations may be subject to various laws and judicial and administrative
decisions imposing various requirements and restrictions. These laws may:
|
•
|
regulate
credit granting activities, including establishing licensing requirements,
if any, in various jurisdictions,
|
|
•
|
establish
maximum interest rates, finance charges and other
charges,
|
|
•
|
require
disclosures to customers,
|
|
•
|
govern
secured transactions,
|
|
•
|
Set
collection, foreclosure, repossession and claims handling procedures
and
other trade practices,
|
|
•
|
prohibit
discrimination in the extension of credit, and
|
|
•
|
regulate
the use and reporting of information related to a seller’s credit
experience and other data
collection.
|
COMPETITION
The
factoring industry is highly fragmented and competitive. Competitive factors
vary depending upon financial services products offered, customer, and
geographic region. Our competitors include national, regional and local
independent and bank owned factoring and finance companies. Some of these
competitors are larger than we are and may have access to capital at a lower
cost than we do. Management estimates, based on examination of Dun &
Bradstreet data and a market overview provided by a merger and acquisition
advisory firm, that there are approximately 2,900 accounts receivable factoring
and/or business financing firms in the United States with over 2,000 with
revenues less than $1 million. To our knowledge, no single firm dominates the
small business segment of the industry.
9
FACILITIES
We
currently lease office space in a small business park from an affiliated company
in Charlotte, North Carolina. We plan to move our current accounting, credit
and
account personnel to a separate office facility in Charlotte, North Carolina.
We
have also entered into a lease in Boca Raton, FL to accommodate our executive
and sales personnel.
EMPLOYEES
As
of the
date hereof, we have four full-time employees and one part-time employee.
History
of former BTHC
XI, LLC
Anchor
Funding Services, Inc., formerly known as BTHC XI, Inc., was organized on August
16, 2006 as a Delaware corporation to effect the reincorporation of BTHC XI,
LLC, a Texas limited liability company, mandated by the plan of reorganization
discussed below.
In
September 1999, Ballantrae Healthcare LLC and its affiliated limited liability
companies including BTHC XI, LLC, or collectively Ballantrae, were organized
for
the purpose of operating nursing homes throughout the United States. Ballantrae
did not own the nursing facilities. Instead, they operated the facilities
pursuant to management agreements and/or real property leases with the owners
of
these facilities. Although Ballantrae continued to increase the number of
nursing homes it operated and in June 2000 had received a substantial equity
investment, it was unable to achieve profitability. During 2001 and 2002,
Ballantrae continued to experience severe liquidity problems and did not
generate enough revenues to cover its overhead costs. Despite obtaining
additional capital and divesting unprofitable nursing homes, by March, 2003,
Ballantrae was out of cash and unable to meet its payroll obligations.
On
March
28, 2003, Ballantrae filed a petition for reorganization under Chapter 11 of
the
United States Bankruptcy Code. On November 29, 2004, the bankruptcy court
approved the First Amended Joint Plan of Reorganization, as presented by
Ballantrae, its affiliates and their creditors (the “Plan”). On August 16,
2006, pursuant to the Plan, BTHC XI, LLC was merged into BTHC XI, Inc., a
Delaware corporation, which later changed its name to Anchor Funding Services,
Inc., effective on April 4, 2007.
On
January 31, 2007, we entered into a Securities Exchange Agreement and acquired
100% of the membership (ownership) interests of Anchor Funding Services LLC
in
exchange for 8,000,000 shares of our Common Stock (the “Anchor Transaction”).
The Securities Exchange Agreement was entered into by and among Anchor Funding
Services, LLC, its members, Anchor funding Services, Inc. (formerly BTHX XI,
Inc.) and certain stockholders (the “Company Stockholders”). The Anchor
Transaction was subject to our receipt in escrow of a private placement of
our
Series 1 Preferred Stock of at least $2,500,000 which was successfully completed
immediately after the Exchange on January 31, 2007. The private placement
offering was terminated on April 5, 2007 after the raise of $6,712,500 in gross
proceeds from the sale of 1,342,500 shares of Series 1 Preferred Stock.
The
Anchor Transaction
As
a
result of the Anchor Transaction, Anchor became a wholly-owned subsidiary of
former BTHC XI. Prior to the completion of the Anchor Transaction, former BTHC
XI had no operations and had no material assets or liabilities.
The
Anchor Transaction was closed on January 31, 2007. The closing of the Anchor
Transaction was conditioned on, among other things: (a) the approval of Anchor’s
members, (b) the various representations and warranties of the parties being
true and correct as provided in the Securities Exchange Agreement, (c) the
parties performing their various covenants and agreements as provided in the
Securities Exchange Agreement, (d) the parties delivering certain agreements,
certificates and other instruments, (e) the Escrow Agent’s receipt of at least
$2,500,000 in cleared funds available for the initial closing of the Offering
immediately upon the effectiveness of the Securities Exchange, and (f) the
entry
into 18 month lock-up agreements by members of Anchor.
10
The
Securities Exchange Agreement contains various representations and warranties
and covenants of the Company and the Company Stockholders. Generally, the
representations and warranties of the Company and the Company Stockholders
survive until the first anniversary of the closing date. The Securities Exchange
Agreement provides for indemnification by Company Stockholders for breaches
or
failure to perform covenants of the Company or the Company Stockholders
contained in the Securities Exchange Agreement and for any claims by brokers
or
finders for fees or commissions alleged to be due in connection with the Anchor
Transaction. Additionally, certain Company Stockholders agreed to indemnify
Anchor for any damages arising from or in connection with the operation or
ownership of the Company from and including November 29, 2004, the date the
Plan
was confirmed by the bankruptcy court through and including December 7, 2006.
Certain other Company Stockholders agreed to indemnify Anchor for any damages
arising from any breach of any representation or warranty of the Company, or
the
Company Stockholders contained in the Securities Exchange Agreement resulting
from the operation or ownership of the Company from and including their
acquisition date of control of the Company (i.e. December 7, 2006) through
and
including the January 31, 2007 closing date of the Securities Exchange.
Annual
Reports to Security Holders
We
intend
to make available to each of our shareholders, copies of our annual report
on
Form 10-KSB, which will include audited financial statements.
Where
You Can Find Additional Information
We
are
filing this Form 10-SB pursuant to Regulation S-B for the purpose of becoming
a
“fully reporting issuer” under Section 12(g) of the Securities Exchange Act of
1934, as amended. Once this Form 10-SB is declared effective by the Securities
and Exchange Commission, or SEC, we will be required to file annual, quarterly,
and current reports, proxy statements and other information with the SEC.
The
public may read and copy any materials we file with the SEC at the SEC’s Public
Reference Room at 100 F Street, N.E. (Washington, D.C. 20549). The public may
obtain information on the operation of the Public Reference Room by calling
the
SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. The address of that site is
http://www.sec.gov.
Risk
Factors
In
addition to the other information included in this Registration Statement,
the
following factors should be carefully considered in evaluating our business,
financial position and future prospects. Any of the following risks, either
alone or taken together, could materially and adversely affect our business,
financial position or future prospects. If one or more of these or other risks
or uncertainties materialize, or if our underlying assumptions prove to be
incorrect, our actual results may vary materially from what we have projected.
There may be additional risks that we do not presently know or that we currently
believe are immaterial which could also materially adversely affect our
business, financial position or future prospects.
Limited
operating history. Anchor
Funding Services, LLC was formed in 2003 and has only a limited operating
history upon which investors may judge our performance. Future operating results
will depend upon many factors, including, without limitation our ability to
keep
credit losses to a minimum, fluctuations in the economy, the degree and nature
of competition, demand for our services, and our ability to integrate the
operations of acquired businesses, to expand into new markets and to maintain
margins in the face of pricing pressures. We can provide no assurances that
our
operations will be profitable.
Our
past operating losses may occur in the future.
Anchor
Funding Services, LLC was formed in 2003 and historically operated at a loss
until 2006 which was our first year of profitable operations. We can provide
no
assurances that our operations and consolidations with any companies that we
acquire will result in us meeting our anticipated level of projected profitable
operations, if at all.
Competition
for customers in our industry is intense, and if we are not able to effectively
compete, our financial results could be harmed and the price of our Shares
could
decline. The
factoring and financial service industry is highly competitive. There are many
large full-service and specialized financing companies, as well as local and
regional companies, which compete with us in the factoring industry. Competition
in our markets is intense. These competitive forces limit our ability to raise
fees to our customers. Pressure on our margins is intense, and we cannot assure
you that we will be able to successfully compete with our competitors, many
of
whom have substantially greater resources than we do. If we are not able to
effectively compete in our targeted markets, our operating margins and other
financial results will be harmed and the market price of our securities could
decline.
11
If
we are not able to obtain expanded lines of credit on commercially reasonable
terms, our financial condition or results of operations could suffer.
We
have a
$1 million line of credit with an institutional asset based lender which
advances funds against “eligible accounts receivable” as defined in Anchor’s
agreement with its institutional lender. This facility, which is secured by
our
assets, contains certain covenants related to tangible net worth and change
in
control. In the event that we do not comply with the covenant(s) and the lender
does not waive such non-compliance, including the change in control resulting
from the Anchor Transactions and this Offering, we will be in default of our
credit agreement, which could subject us to penalty rates of interest and
accelerate the maturity of the outstanding balances. We are in the process
of
seeking to revise and expand our credit facility and we are attempting to obtain
better lending terms. In the event we are not able to obtain a sufficient line
of credit for our factoring needs on commercially reasonable terms, our ability
to operate our business would be significantly impacted and our financial
condition and results of operations could suffer.
We
may acquire companies in the future and these acquisitions could disrupt our
business or adversely affect our earnings. Further, we may complete acquisitions
without first obtaining stockholder approval under applicable Delaware Law.
We
intend
to acquire small and/or medium local and/or regional factoring and financial
service businesses. Our ability to complete acquisitions in the future may
be
impacted by many factors, including, without limitation, companies available
for
acquisition and the ability to achieve favorable terms. Entering into an
acquisition entails many risks, any of which could harm our business, including,
without limitation, failure to successfully integrate the acquired company
with
our existing business, retention of key employees, alienation or impairment
of
relationships with substantial customers or key employees of the acquired
business or our existing business, and assumption of liabilities of the acquired
business. Any acquisition that we consummate also may have an adverse affect
on
our liquidity or earnings and may be dilutive to our earnings. Adverse business
conditions or developments suffered by or associated with any business we
acquire additionally could result in impairment to the goodwill or intangible
assets associated with the acquired businesses, and a related write down of
the
value of these assets, and adversely affect our earnings. Further, we may
complete acquisitions without first obtaining stockholder approval under
applicable Delaware Law.
Risks
Associated with our Growth Strategy. Our plans
for
growth, both internal and through acquisition of other factoring and financial
service companies, are subject to numerous and substantial risks. We can provide
no assurances that we will be able to expand our market presence in our current
locations, successfully enter new markets, add new services and/or integrate
acquired businesses into our operations. Our continued growth is dependent
upon
a number of factors, including the availability of working capital to support
such growth, our response to existing and emerging competition, our ability
to
maintain sufficient profit margins while experiencing pricing pressures, our
efforts to develop and maintain customer and employee relationships, and the
hiring, training and retention of qualified personnel. We can provide no
assurances that we will be able to identify acceptable acquisition candidates
on
terms favorable to us in a timely manner, if at all. A substantial portion
of
our capital resources is anticipated to be used primarily for these
acquisitions. We expect to require additional debt or equity financing for
future acquisitions, which additional financing may not be available on terms
favorable to the Company, if at all. We can provide no assurances that any
acquired business will be profitable.
We
will seek to make acquisitions that may prove unsuccessful or strain or divert
our resources. We
intend
seek to expand our business through the acquisition of competitors’ factoring
and service businesses and assets. We may not be able to complete any
acquisitions on favorable terms, if at all. Acquisitions present risks that
could materially and adversely affect our business and financial performance,
including:
| · |
the
diversion of our management's attention from our everyday business
activities;
|
| · |
the
contingent and latent risks associated with the past operations of,
and
other unanticipated problems arising in, the acquired business;
and
|
| · |
the
need to expand management, administration, and operational
systems.
|
If
we
make, or plan to make, such acquisitions we cannot predict whether:
12
| · |
we
will be able to successfully integrate the operations and personnel
of any
new businesses into our business;
|
| · |
we
will realize any anticipated benefits of completed acquisitions;
|
| · |
there
will be substantial unanticipated costs associated with acquisitions,
including potential costs associated with liabilities undiscovered
at the
time of acquisition; or
|
| · |
stockholder
approval of an acquisition will be
sought.
|
In
addition, future acquisitions by us may result in:
| · |
potentially
dilutive issuances of our equity
shares;
|
| · |
the
incurrence of additional debt;
|
| · |
restructuring
charges; and
|
| · |
the
recognition of significant charges for depreciation and amortization
related to intangible assets.
|
Risks
Related to Our Factoring Activities
In our
history, we have not experienced any material credit losses. If we were to
experience material
losses on our accounts receivable portfolio, they would have a material adverse
effect on (i) our ability to fund our business and, (ii) to the extent the
losses exceed our provision for credit losses, our revenues, net income and
assets.
We
purchase accounts receivable primarily from privately owned small companies,
which present a greater risk of loss than purchasing accounts receivable from
larger companies. Our
portfolio consists primarily of accounts receivable purchased from small,
privately owned businesses with annual revenues ranging from start-up to
$5 million. Compared to larger, publicly owned firms, these companies
generally have more limited access to capital and higher funding costs, may
be
in a weaker financial position and may need more capital to expand or compete.
These financial challenges may make it difficult for our clients to continue
as
a going concern. Accordingly, advances made to these types of clients entail
higher risks than advances made to companies who are able to access traditional
credit sources.
In
part because of their smaller size, our clients may:
• experience
significant variations in operating results;
• have
narrower product lines and market shares than their larger
competitors;
• be
particularly vulnerable to changes in customer preferences and market
conditions;
• be
more
dependent than larger companies on one or more major customers, the loss of
which could materially impair their
business,
financial condition and prospects;
• face
intense competition, including from companies with greater financial, technical,
managerial and marketing resources;
• depend
on
the management talents and efforts of a single individual or a small group
of
persons for their success, the
death,
disability or resignation of whom could materially harm the client’s financial
condition or prospects;
• have
less
skilled or experienced management personnel than larger
companies; or
• do
business in regulated industries, such as the healthcare industry, and could
be
adversely affected by policy or
regulatory
changes.
Accordingly, any of these factors could impair a client’s cash flow or result in
other events, such as bankruptcy, which could limit our ability to collect
on
this client’s purchased accounts receivable, and may lead to losses in our
portfolio and a decrease in our revenues, net income and assets.
We
may be adversely affected by deteriorating economic or business conditions.
Our
business, financial condition and results of operations may be adversely
affected by various economic factors, including the level of economic activity
in the markets in which we operate. Delinquencies and credit losses generally
increase during economic slowdowns or recessions. Because we fund primarily
small businesses, many of our clients may be particularly susceptible to
economic slowdowns or recessions and could impair a client’s cash flow or result
in other events, such as bankruptcy, which could limit our ability to collect
on
this client’s purchased accounts receivable, and may lead to losses in our
portfolio and a decrease in our revenues, net income and assets. Unfavorable
economic conditions may also make it more difficult for us to maintain both
our
new business origination volume and the credit quality of new business at levels
previously attained. Unfavorable economic conditions also could increase our
funding costs, limit our access to the capital markets or result in a decision
by lenders not to extend credit to us. These events could significantly harm
our
operating results.
Our
limited operating history makes it difficult for us to accurately judge the
credit performance of our portfolio and, as a result, increases the risk that
our allowance for credit losses may prove inadequate. Our
business depends on the creditworthiness of our clients’ customers and our
clients. While we conduct due diligence and a review of the creditworthiness
of
most of our clients’ customers and all of our clients, this review requires the
application of significant judgment by our management. Our judgment may not
be
correct. We maintain an allowance for credit losses on our financial statements
in an amount that reflects our judgment concerning the potential for losses
inherent in our portfolio. Management periodically reviews the appropriateness
of our allowance considering economic conditions and trends, collateral values
and credit quality indicators. We cannot assure you that our estimates and
judgment with respect to the appropriateness of our allowance for credit losses
are accurate. Our allowance may not be adequate to cover credit losses in our
portfolio as a result of unanticipated adverse changes in the economy or events
adversely affecting specific clients, industries or markets. If our allowance
for credit losses is not adequate, our net income will suffer, and our financial
performance and condition could be significantly impaired.
13
We
may not have all of the material information relating to a potential client
at
the time that we make a credit decision with respect to that potential client
or
at the time we advance funds to the client. As a result, we may suffer credit
losses or make advances that we would not have made if we had all of the
material information. There
is
generally no publicly available information about the privately owned companies
to which we generally purchase accounts receivable from. Therefore, we must
rely
on our clients and the due diligence efforts of our employees to obtain the
information that we consider when making our credit decisions. To some extent,
our employees depend and rely upon the management of these companies to provide
full and accurate disclosure of material information concerning their business,
financial condition and prospects. If we do not have access to all of the
material information about a particular client’s business, financial condition
and prospects, or if a client’s accounting records are poorly maintained or
organized, we may not make a fully informed credit decision which may lead,
ultimately, to a failure or inability to collect our purchased accounts
receivable in their entirety.
We
may make errors in evaluating accurate information reported by our clients
and,
as a result, we may suffer credit losses. We
underwrite our clients and clients’ customers based on certain financial
information. Even if clients provide us with full and accurate disclosure of
all
material information concerning their businesses, we may misinterpret or
incorrectly analyze this information. Mistakes by our staff and credit committee
may cause us to make advances and purchase accounts receivable that we otherwise
would not have purchased, to fund advances that we otherwise would not have
funded or result in credit losses.
A
client’s fraud could cause us to suffer material losses. A
client
could defraud us by, among other things:
• directing
the proceeds of collections of its accounts receivable to bank accounts other
than our established lockboxes;
• failing
to accurately record accounts receivable aging;
• overstating
or falsifying records showing accounts receivable or
inventory; or
• providing
inaccurate reporting of other financial information.
14
As
of
December 31, 2006, our ten largest clients collectively accounted for
approximately 95% of
the
aggregate outstanding balance of our accounts receivable portfolio and our
largest client accounted for approximately 33% of the aggregate funds employed.
A client’s fraud could cause us to suffer material losses.
We
may be unable to recognize or act upon an operational or financial problem
with
a client in a timely fashion so as to prevent a credit loss of purchased
accounts receivable from that client. Our
clients may experience operational or financial problems that, if not timely
addressed by us, could result in a substantial impairment or loss of the value
of our purchased accounts receivable from the client. We may fail to identify
problems because our client did not report them in a timely manner or, even
if
the client did report the problem, we may fail to address it quickly enough
or
at all. As a result, we could suffer credit losses, which could have a material
adverse effect on our revenues, net income and results of
operations.
The
security interest that we have in the purchased accounts receivable may not
be
sufficient to protect us from a partial or complete loss if we are required
to
foreclose. While
we
are secured by a lien on specified collateral of the client, there is no
assurance that the collateral will protect us from suffering a partial or
complete loss if we move to foreclose on the collateral. The collateral is
primarily the purchased accounts receivable. Factors that could reduce the
value
of accounts receivable that we have a security interest in include among other
things:
| • |
problems
with the client’s underlying product or services which result in greater
than anticipated returns or disputed accounts;
|
| • |
unrecorded
liabilities such as rebates, warranties or
offsets;
|
| • |
the
disruption or bankruptcy of key customers who are responsible for
material
amounts of the accounts receivable;
and
|
|
• the
client misrepresents, or does not keep adequate records of, important
information concerning the accounts
receivable.
|
15
Any
one
or more of the preceding factors could materially impair our ability to collect
all of the accounts receivable we may purchase from a client.
Errors
by or dishonesty of our employees could result in credit losses.
We
rely
heavily on the performance and integrity of our employees in making our initial
credit decision with respect to our clients and on-going credit decisions on
our
clients’ customers. Because there is generally little or no publicly available
information about our clients or clients’ customers, we cannot independently
confirm or verify the information our employees provide us for use in making
our
credit and funding decisions. Errors by our employees in assembling, analyzing
or recording information concerning our clients and clients’ customers could
cause us to engage clients and purchase accounts receivable that we would not
otherwise fund or purchase. This could result in losses. Losses could also
arise
if any of our employees were dishonest. A dishonest employee could collude
with
our clients to misrepresent the creditworthiness of a prospective client or
client customers or to provide inaccurate reports or invoices. If, based on
an
employee’s dishonesty, we may have funded a client and purchased accounts that
were not creditworthy, which could result in our suffering suffer credit
losses.
We
may incur lender liability as a result of our funding activities.
In
recent
years, a number of judicial decisions have upheld the right of borrowers to
sue
lending institutions on the basis of various evolving legal theories,
collectively termed “lender liability.” Generally, lender liability is founded
on the premise that a lender has either violated a duty, whether implied or
contractual, of good faith and fair dealing owed to the borrower or has assumed
a degree of control over the borrower resulting in the creation of a fiduciary
duty owed to the borrower or its other creditors or shareholders. We may be
subject to allegations of lender liability if it were determined that our
advances were in fact loans and the relationship between Anchor and a client
was
that of lender and borrower rather than purchaser and seller. We cannot assure
you that these claims will not arise or that we will not be subject to
significant liability if a claim of this type did arise.
We
may incur liability under state usury laws or other state laws and regulations
if any of our factoring arrangements are deemed to be loans or financing
transactions instead of a true purchase of accounts
receivable. Various
state laws and regulations limit the interest rates, fees and other charges
lenders are allowed to charge their borrowers. If any of the factoring
transactions entered into by us are deemed to be loans or financing transactions
instead of a true purchase of accounts receivable, such laws and regulations
may
become applicable to us and could limit the interest rates, fees and other
charges we are able to charge our customers and may further subject us to any
penalties under such state laws and regulations. This could have a material
adverse effect on our business, financial condition, liquidity and results
of
operations.
We
are in a highly competitive business and may not be able to take advantage
of
attractive funding opportunities. The
factoring industry is highly competitive. We have competitors who offer the
same
types of services to small privately owned businesses that are our target
clients. Our competitors include a variety of:
| • |
specialty
and commercial finance companies;
and
|
| • |
national
and regional banks that have factoring divisions or
subsidiaries.
|
Some
of
our competitors have greater financial, technical, marketing and other resources
than we do. They also have greater access to capital than we do and at a lower
cost than is available to us. Furthermore, we would expect to face increased
price competition if other factors seek to expand within or enter our target
markets. Increased competition could cause us to reduce our pricing and advance
greater amounts as a percentage of a client’s eligible accounts receivable. Even
with these changes, in an increasingly competitive market, we may not be able
to
attract and retain new clients. If we cannot engage new clients, our net income
could suffer, and our financial performance and condition could be significantly
impaired.
Our
information and computer processing systems are critical to the operations
of
our business and any failure could cause significant problems.
Our
information technology systems, located at our headquarters, are essential
for
data exchange and operational communications to service our clients. Any
interruption, impairment or loss of data integrity or malfunction of these
systems could severely hamper our business and could require that we commit
significant additional capital and management resources to rectify the
problem.
The
loss of any of our key personnel could harm our business. Our
future financial performance will depend to a significant extent on our ability
to motivate and retain key management personnel. Competition for qualified
management personnel is intense and in the event we experience turnover in
our
senior management positions, we cannot assure you that we will be able to
recruit suitable replacements. We must also successfully integrate all new
management and other key positions within our organization to achieve our
operating objectives. Even if we are successful, turnover in key management
positions may temporarily harm our financial performance and results of
operations until new management becomes familiar with our business. At present,
we do not maintain key-man life insurance on any of our executive officers,
although we entered into three-year employment contracts with each of Morry
F.
Rubin, Chief Executive Officer, and Brad Bernstein, President, on January 31,
2007. Our Compensation Committee of the Board of Directors will be responsible
for approval of all future employment contracts with our executive officers.
We
can provide no assurances that said future employment contracts and/or their
current compensation is or will be on commercially reasonable terms to us in
order to retain our key personnel. The
loss
of any of our key personnel could harm our business.
16
Risks
associated with intangible assets. A
substantial portion of our future assets may consist of intangible assets
including goodwill (excess of cost over fair value of net assets acquired and
other intangible assets) relating to the potential acquisition of businesses.
In
the event of any sale or liquidation of us, there can be no assurance that
the
value of such intangible assets will be realized. In addition, any significant
decrease in the value of such intangible assets could have a material adverse
effect on us.
We
are continually subject to the risk of new regulation, which could harm our
business and/or operating results. In
recent
years, a number of bills have been introduced in Congress and/or various state
legislatures that would add new regulations governing the financial services
industry. The enactment of any such new laws or regulations may negatively
impact our business, financial condition and/or our financial results.
Control
of the Company. Our
executive officers and directors have a significant block of voting control
of
our capital stock. As a result, such persons will likely have the ability to
affect the election of all of our directors and the outcome of substantially
all
issues submitted to our stockholders. Such concentration of ownership could
limit the price that certain investors might be willing to pay in the future
for
shares of Common Stock, and could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of us. See “Securities Ownership of Principal Stockholders
and Management.”
Risks
associated with the development of the Company’s management information and
internal control systems. Our
data
processing, accounting and analysis capabilities are important components of
our
business. As we make acquisitions, we will convert certain systems of the
acquired companies to our systems. These conversions and the continued
development and installation of such systems involve the risk of unanticipated
complications and expenses. We can provide no assurances that we will be
successful in this regard.
We
have no public market for our Securities. Our
outstanding Common Stock and Series 1 Convertible Preferred Stock (collectively
the “Securities”) are not currently traded in the Over-the-Counter Market and
quoted on the OTC Bulletin Board. In the event that trading does commence in
the
future for our Common Stock, it may be very limited and sporadic. We also may
have a limited public float which could result in a high degree of volatility
in
the market price of our Common Stock. The availability for sale of restricted
securities pursuant to Rule 144 or otherwise could adversely affect the market
for our Common Stock, if any. We can provide no assurances that an established
public market will ever develop or be sustained for our Common Stock in the
future. Further, we do not anticipate a public market will ever develop for
our
Series 1 Convertible Preferred Stock.
The
price of our common stock may fluctuate significantly. The
market price for our common stock, if any, can fluctuate as a result of a
variety of factors, including the factors listed above, many of which are beyond
our control. These factors include: actual or anticipated variations in
quarterly operating results; announcements of new services by our competitors
or
us; announcements relating to strategic relationships or acquisitions; changes
in financial estimates or other statements by securities analysts; and other
changes in general economic conditions. Because of this, we may fail to meet
or
exceed the expectations of our shareholders or others, and the market price
for
our common stock could fluctuate as a result.
Our
Common Stock may be considered to be a “penny stock” and, as such, the market
for our Common Stock may be further limited by certain Commission rules
applicable to penny stocks. To
the
extent the price of our Common Stock remains below $5.00 per share or we have
a
net tangible assets of $2,000,000 or less, our common shares will be subject
to
certain “penny stock” rules promulgated by the Commission. Those rules impose
certain sales practice requirements on brokers who sell penny stock to persons
other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000). For transactions covered by the penny stock rules,
the
broker must make a special suitability determination for the purchaser and
receive the purchaser’s written consent to the transaction prior to the sale.
Furthermore, the penny stock rules generally require, among other things, that
brokers engaged in secondary trading of penny stocks provide customers with
written disclosure documents, monthly statements of the market value of penny
stocks, disclosure of the bid and asked prices and disclosure of the
compensation to the brokerage firm and disclosure of the sales person working
for the brokerage firm. These rules and regulations adversely affect the ability
of brokers to sell our common shares in the public market should one develop
and
they limit the liquidity of our Shares.
17
An
investment in the Company is subject to dilution.
We may
require substantial additional financing in order to achieve our business
objectives. The Company may generate such financing through the sale of
securities (including potentially to the owners of businesses we acquire) that
would dilute the ownership of its existing security holders. In subsequent
rounds of financing, the Company will likely issue securities that will have
rights, preferences or privileges senior to our outstanding securities and
that
will include financial and other covenants that will restrict the Company’s
flexibility.
We
have never declared or paid cash dividends on our capital stock and we do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. We
have
never declared or paid cash dividends on our common stock and we do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. We currently intend to retain future earnings, if any, to fund the
development and growth of our business. Except for the rights of holders of
the
shares of Series 1 Convertible Preferred Stock as described herein, any future
determination to pay dividends will be dependent upon the our financial
condition, operating results, capital requirements, applicable contractual
restrictions and other such factors as our board of directors may deem
relevant.
THE
FOREGOING RISK FACTORS DO NOT PURPORT TO BE A COMPLETE EXPLANATION OF THE RISKS
INHERENT IN AN INVESTMENT IN THE COMPANY. INVESTORS SHOULD READ THIS ENTIRE
FORM
10-SB BEFORE DECIDING TO PURCHASE SHARES OF SERIES 1 PREFERRED
STOCK.
|
Management’s
Discussion and Analysis or Plan of Operation.
|
You
should read the following discussion and analysis of our financial condition
and
plan of operation together with our consolidated financial statements and the
related notes appearing at the end of this Registration Statement. Some of
the
information contained in this discussion and analysis or set forth elsewhere
in
this Registration Statement, including information with respect to our plans
and
strategy for our business and related financing, includes forward-looking
statements that involve risks and uncertainties. You should review the “Risk
Factors” section of this Registration Statement for a discussion of important
factors that could cause actual results to differ materially from the results
described in or implied by the forward-looking statements contained in the
following discussion and analysis.
This
Form
10-SB contains forward-looking statements. These statements relate to our
expectations for future events and future financial performance.
Generally, the words “anticipate,” “expect,” “intend” and similar expressions
identify forward-looking statements. Forward-looking statements involve
risks and uncertainties, and future events and circumstances could differ
significantly from those anticipated in the forward-looking statements.
These statements are only predictions. Actual events or results may differ
materially. Factors which could affect our financial results are described
in the “Risk Factors” included herein. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor
any other person assumes responsibility for the accuracy and completeness of
the
forward-looking statements. We undertake no duty to update any of the
forward-looking statements after the date of this report to conform such
statements to actual results or to changes in our expectations.
Executive
Overview
Anchor
Funding Services, LLC was founded in January 2003. Anchor’s business has grown
with limited marketing and financing. Our objective is to create a
well-recognized, national financial services firm for small businesses providing
accounts receivable funding (factoring), outsourcing of accounts receivable
management including collections and the risk of customer default and other
specialty finance products including, without limitation, purchase order
financing, trade finance, government contract funding and lawsuit financing.
For
certain service businesses, Anchor also provides back office support including
payroll, payroll tax compliance and invoice processing services. We provide
our
services to clients nationwide. We plan to achieve our growth objectives through
a combination of strategic and add-on acquisitions of other factoring and
specialty finance firms that serve small businesses in the United States and
Canada and internal growth through mass media marketing initiatives. Our
corporate headquarters and back office operations are located in Charlotte,
North Carolina.
18
Summary
of Critical Accounting Policies
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
discusses our financial statements, which have been prepared in accordance
with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. On an on-going basis, management evaluates its estimates and
judgments, including those related to credit provisions, intangible assets,
contingencies and litigation and income taxes. Management bases its
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of
which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results
may
differ from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies, among others,
reflect the more significant judgments and estimates used in the preparation
of
our financial statements.
Estimates
-
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates 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.
Revenue
Recognition - Revenue
is recognized when the fee is earned and consists primarily of
non-refundable transaction and time-based fees. Non-refundable transaction
fees are charged when the Company purchases an accounts receivable. Time-based
fees are charged until the Company collects the purchased accounts receivable.
The amount charged as transaction and time-based fees is specified in each
customer’s Factoring and Security Agreement and these amounts can vary between
customers.
Retained
Interest in Purchased Accounts Receivable -
Retained
interest in purchased accounts receivable represents the gross amount of
invoices purchased from factoring customers less amounts maintained in a reserve
account. The Company purchases a customer’s accounts receivable and advances
them a percentage of the invoice total. The difference between the purchase
price and amount advanced is maintained in a reserve account. The reserve
account is used to offset any potential losses the Company may have related
to
the purchased accounts receivable.
The
Company’s factoring and security agreements with their customers include various
recourse provisions requiring the customers to repurchase accounts receivable
if
certain conditions, as defined in the factoring and security agreement, are
met.
Senior
management reviews the status of uncollected purchased accounts receivable
monthly to determine if any are uncollectible. The Company has a security
interest in the accounts receivable purchased and on a case-by-case basis,
may
have additional collateral. The Company files security interests in the property
securing their advances. Access to this collateral is dependent upon the laws
and regulations in each state where the security interest is filed.
Additionally, the Company has varying types of personal guarantees from their
factoring customers relating to the purchased accounts receivable.
Management
did not consider any of the December 31, 2006 and 2005 retained interest in
purchased accounts receivable uncollectible based on their analysis of the
portfolio.
Management
believes the fair value of the retained interest in purchased accounts
receivable approximates its recorded value because the majority of these
invoices have been subsequently collected.
Property
and Equipment -
Property
and equipment consisting primarily of computers and software, are stated at
cost. Depreciation is provided over the estimated useful lives of the
depreciable assets using the straight-line method. Estimated useful lives range
from 2 to 5 years.
Advertising
Costs -
The
Company charges advertising costs to expense as incurred. Total advertising
costs were approximately $68,200 and $68,400 for 2006 and 2005,
respectively.
19
Earnings
per Share -
The
Company computes net income per share in accordance with SFAS No. 128 “Earnings
Per Share.” Basic net income per share is computed by dividing the net income
for the period by the weighted average number of common shares outstanding
during the period. Basic and diluted per share results are the same since the
Company did not have any common stock equivalents outstanding at December 31,
2006 or 2005.
Stock
Based Compensation -
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 123(R), “Accounting for
Stock-Based Compensation.” SFAS No. 123(R) establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. This statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. SFAS No. 123(R) requires that the fair value of such equity
instruments be recognized as an expense in the historical financial statements
as services are performed. Prior to SFAS No. 123(R), only certain pro forma
disclosures of fair value were required. The provisions of this statement were
effective for the first interim reporting period that began after December
15,
2005. We adopted the provisions of SFAS No.123(R) in the first quarter of Fiscal
2006. Reference is made to the Notes to Financial Statements for a description
of certain other recently issued accounting pronouncements.
Fair
Value of Financial Instruments -
The
carrying value of cash equivalents, retained interest in purchased accounts
receivable, due to financial institution, accounts payable, accrued liabilities
and subordinated related party demand notes approximates their fair
value
Cash
and cash equivalents - Cash
and
cash equivalents consist primarily of highly liquid cash investment funds with
original maturities of three months or less when acquired.
Results
of Operations
Year
Ended December 31, 2006 Compared to Year Ended December 31,
2005
The
year
ended December 31, 2006 was highlighted by a 124.1% increase in finance revenue
to $569,285 compared to finance revenue of $253,999 for the year ended December
31, 2005. This revenue growth resulted in increased net income for the
year ended December 31, 2006 of $152,354 compared to a net loss of $17,497
for
the year ended December 31, 2005. The change in revenue was primarily due
to an increase in the number of Anchor’s clients and the addition of a client
that provided Anchor with approximately $228,000 in finance revenues during
the
year ended December 31, 2006. Finance revenues net of interest expense and
credit provisions as a percentage of gross finance revenues improved to 66.0%
for the year ended December 31, 2006 from 62.1% for the year ended December
31,
2005. This increase is primarily the result of Anchor receiving a higher
return for the period on its purchases of accounts receivable. Operating
expenses as a percentage of gross finance revenue were 39.2% for the year ended
December 31, 2006 compared to 69.0% for the year ended December 31, 2005.
This decrease was primarily attributable to the 124.1% increase in revenues
while operating expenses increased by 27.4%.
20
The
following table compares the operating results for the year ended December
31,
2006 and December 31, 2005:
|
|
Year
Ended December 31,
|
|
|
||||||||||
|
|
2006
|
2005
|
$
Change
|
%
Change
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Finance
revenue
|
$
|
569,285
|
$
|
253,999
|
$
|
315,286
|
124.1
|
%
|
|||||
|
Interest
expense
|
(193,595
|
) |
(96,193
|
) |
(97,402
|
) |
101.3
|
%
|
|||||
|
Net
finance revenue
|
375,690
|
157,806
|
217,884
|
138.1
|
%
|
||||||||
|
Provision
for credit losses
|
-
|
-
|
-
|
||||||||||
|
Finance
revenue net of interest expense and credit
provision
|
375,690
|
157,806
|
217,884
|
138.1
|
%
|
||||||||
|
|
|||||||||||||
|
Operating
expenses
|
223,336
|
175,303
|
48,033
|
27.4
|
%
|
||||||||
|
|
|||||||||||||
|
Net
income (loss)
|
$
|
152,354
|
$
|
(17,497
|
)
|
$
|
169,851
|
-
|
|||||
Finance
revenue.
The increase in finance revenue is primarily due to an increase in the number
of
Anchor’s clients and the engagement of a client that provided Anchor with
approximately $228,000 of finance revenues during the year ended December 31,
2006. This client has been inactive and has not presented invoices for factoring
since March 21, 2006. In 2005, Anchor increased its Internet marketing on
various search engines resulting in an increase in clients. This growth through
Internet marketing continued into 2006.
Interest
expense.
Interest expense increased 101.3% due to the increase in borrowings to purchase
accounts receivable from more clients. While Anchor’s cost of funds increased
with increases in the Prime rate, interest expense as a percentage of finance
revenues decreased from 37.9% to 34.0%. This decrease may be attributable to
Anchor earning a higher return on its purchases of accounts receivable and
from
minimizing its borrowings on its line of credit.
Effective
November 30, 2006, $456,000 of loans payable to two of the Company’s members
were contributed to members’ equity. These loans bore interest at 15% per annum.
This conversion of debt to equity will result in savings in interest expense
of
approximately $68,000 per annum.
Provision
for credit losses. Anchor
has reviewed its portfolio of accounts receivable purchased and determined
that
it had no credit losses for the years ended December 31, 2006 and
2005.
Operating
expenses.
Operating expenses are primarily selling, general and administrative
(“SG&A”) expenses. Operating expenses as a percentage of gross finance
revenue were 39.2% for the year ended December 31, 2006 compared to 69.0% for
the year ended December 31, 2005. This decrease was primarily attributable
to the 124.1% increase in revenues while operating expenses increased by 27.4%.
Anchor was able to support the increases in finance revenues without significant
increases in its operating expenses. However, Management did not receive any
cash compensation for the years ended December 31, 2006 and December 31, 2005.
See “Executive Compensation” for a discussion of executive compensation to be
paid to our executive officers who will become full-time employees of our
Company upon the completion of the Anchor Transaction.
Liquidity
and Capital Resources
Cash
Flow Summary
Cash
Flows from Operating Activities
Net
cash
provided by operating activities was $682,558 for the year ended December 31,
2006 and was due primarily to the growth in our net income and a decrease in
purchased accounts receivable. For the year ended December 31, 2005 we used
$893,225 in operating activities primarily due to an increase in purchased
accounts receivable. As of December 31, 2005 we purchased a single invoice
from
a client, which totaled approximately $372,000. This invoice contributed to
the
higher purchased accounts receivable balance as of December 31, 2005 and it
was
subsequently paid in 2006. Our net income for the year ended December 31, 2006
was $152,354 compared to a net loss of $17,497 for the year ended December
31,
2005.
21
Cash
Flows from Investing Activities
For
the
year ended December 31, 2006, net cash provided by investing activities was
$94,126 primarily representing repayment of funds that had been loaned to a
related party.
For
the
year ended December 31, 2005, net cash used in investing activities was $104,603
of which $94,455 was loans made to a related party and $9,148 was for the
purchase of property and equipment.
Cash
Flows from Financing Activities
Net
cash
used in financing activities was $757,423 for the year ended December 31, 2006.
This was the result of a number of items including (a) the reduction in
purchased accounts receivable which requires less borrowing from a financial
institution (b) the reduction of our borrowing from a financial institution
by
using retained profits for the period and (b) short-term funds from a related
party.
Net
cash
provided by financing activities was $955,453 for the year ended December 31,
2005. This was the result of a number of items including (a) the increase in
purchased accounts receivable which requires more borrowing from a financial
institution (b) short-term funds from related parties
Between
January 31, 2007 and April 5, 2007, we raised $6,712,500 in gross proceeds
from
the sale of 1,342,500 shares of our Series 1 Convertible Preferred Stock. We
intend to utilize the net proceeds of this offering to expand our operations
both internally and through acquisitions as more fully described under Item
!.
Capital
Resources
We
have a
line of credit with an institutional asset based lender which advances funds
against the lower of $1,000,000 or “eligible accounts receivable” as defined in
Anchor’s agreement with its institutional lender. The institution receives a fee
of .3% of the receivables financed. The interest on the borrowings is paid
monthly at the institution’s prime plus 1%. The facility agreement, which
currently expires in September 2007, is collateralized by all current and future
Anchor assets and is guaranteed by three shareholders who are also directors.
This facility contains certain covenants related to tangible net worth and
change in control. In the event we are not able to obtain a sufficient line
of
credit for our factoring needs on commercially reasonable terms, our ability
to
operate our business would be significantly impacted and our financial condition
and results of operations could suffer. As of April 12, 2007, we have had no
outstanding debt under our line of credit.
|
Description
of Property.
|
We
currently lease office space in a small business park from an affiliated company
in Charlotte, North Carolina. We plan to move our current accounting, credit
and
account personnel to a separate office facility in Charlotte, North Carolina.
We
have also entered into a lease in Boca Raton, FL to accommodate our executive
and sales personnel.
|
Item
4.
|
Security
Ownership of Certain Beneficial Owners and
Management.
|
| · |
each
of our stockholders who is known by us to beneficially own more than
5% of
our common stock;
|
| · |
each
of our executive officers; and
|
| · |
each
of our directors.
|
22
Beneficial
ownership is determined based on the rules and regulations of the Commission.
A
person has beneficial ownership of shares if the individual has the power to
vote and/or dispose of shares. This power can be sole or shared, and direct
or
indirect. In computing the number of shares beneficially owned by a person
and
the percentage ownership of that person, shares of common stock subject to
options held by that person are counted as outstanding in such cases where
the
option holder may exercise the options within 60 days of the date hereof. These
shares, however, are not counted as outstanding for the purposes of computing
the percentage ownership of any other person. Except as indicated in the
footnotes to the table below, each person named in the table has sole voting
and
dispositive power with respect to the shares set forth opposite that person’s
name.
|
Name
of Beneficial Owner
|
Shares
of Common Stock Beneficially
Owned
|
%
of Shares of Common Stock
Beneficially
Owned
|
||
|
Morry
F. Rubin (1)
|
3,816,667
|
31.7%
|
||
|
George
Rubin (1)
|
2,472,000
|
20.8%
|
||
|
Ilissa
and Brad Bernstein (2)
|
2,316,667
|
19.1%
|
||
|
Frank
DeLape (3)(4)
|
1,360,000
|
11.4%
|
||
|
Kenneth
Smalley (3)(4)
|
60,000
|
.5%
|
||
|
All
officers and directors as a group (five persons) (5)
|
10,025,334
|
80.0%
|
||
|
William
Baquet(6)
|
2,842,500
|
21.6%
|
||
|
Buechel
Family Ltd partnership (7)
|
1,000,000
|
7.2%
|
||
|
Buechel
Patient Care Research & Education Fund (7)
|
1,000,000
|
7.2%
|
||
______________________
|
(1)
|
Morry
Rubin’s beneficial ownership includes options to purchase 216,667 shares
of Common Stock of a total of 650,000 options granted to him
and 72,000
shares in which Morry Rubin’s wife and George Rubin are co-trustees of
certain family trusts. Morry Rubin’s options vested one-third on January
31, 2007 and will vest one-third on February 29, 2008 and one-third
on
February 28, 2009. George Rubin’s beneficial ownership includes 72,000
shares in which Morry Rubin’s wife and George Rubin are co-trustees of
certain family trusts.
|
|
(2)
|
Of
the 2,316,667 shares beneficially owned by them, 2,000,000 common
are
owned by Illissa Bernstein, Brad Bernstein’s wife. The remaining 316,667
shares represent options to purchase a like amount of shares of Common
Stock of a total of 950,000 options granted to Brad
Bernstein.
|
|
(3)
|
Includes
options to purchase 60,000 shares of Common Stock of a total of 180,000
options.
|
|
(4)
|
Includes
700,000 common shares owned by Benchmark Equity Group, and 600,000
shares
held in three family trusts.
|
|
(5)
|
Includes
all options referenced above.
|
|
(6)
|
The
shares held by William Baquet include 1,500,000 shares which are
directly
beneficially owned by him and warrants to purchase 1,342,500 shares
of our
Common Stock, exercisable at a purchase price of $1.10 per share
through
January 31, 2012, which warrants were issued to Fordham Financial
Management, Inc. in connection with the completion of our recent
private
placement of Series 1 Convertible Preferred Stock. William Baquet
is an
executive officer, director and principal of Fordham Financial Management,
Inc.
|
|
(7)
|
Represents
200,000 shares of Series 1 Preferred Stock convertible into 1,000,000
shares of Common Stock. Each beneficial owner has the right to vote
at
each stockholder meeting the equivalent of 1,157,542 shares of Common
Stock. These beneficial owners are under common
control.
|
23
Item
5. Directors, Executive Officers, Promoters and Control
Persons.
The
following sets forth certain information with respect to our executive officers
and directors, each of whom became an officer and/or director of our company
on
January 31, 2007.
|
Name
|
Age
|
Position(s)
|
|
George
Rubin
|
78
|
Co-Chairman
and Co-Founder
|
|
Morry
F. Rubin
|
47
|
Co-Chairman,
CEO, Director, Co-Founder
|
|
Brad
Bernstein
|
41
|
President,
CFO & Co-Founder
|
|
Frank
Delape
|
52
|
Director
|
|
Kenneth
Smalley
|
44
|
Director
|
Executive
Officers and Directors
George
Rubin has served as Co-Chairman of Anchor Funding Services, LLC since its
formation in 2003. Since October , 1998, George Rubin
has
been a director and a principal owner of Preferred Labor LLC, which completed
the sale if its business on April 23, 2007. Mr. Rubin will devote to Anchor
such
time as is necessary for the performance of his duties. George
Rubin was Chairman of the Board of ATC Group Services, Inc., a publicly held
Company, from 1988 to 1998. ATC was sold to a financial investor group for
approximately $160 million. From 1961 to 1987, Mr. Rubin served as President,
Treasurer and Director of Staff Builders, Inc. During that time, Staff Builders,
Inc. was a publicly held corporation engaged in providing temporary personnel
in
the healthcare, light industrial and clerical fields. While he served as
President, Staff Builders, Inc. operated through approximately 100 offices
and
generated revenues in excess of $100 million.
Morry
F.
Rubin has served as Co-Chairman and Chief Executive Officer of Anchor funding
Services, LLC since its formation in 2003. Since 1998, Morry
F.
Rubin also has been Chairman, Chief Executive Officer and principal owner of
Preferred Labor LLC which completed the sale if its business on April 23, 2007.
On January 31, 2007, Mr. Rubin became a full-time employee of our
company.
Prior to
his involvement with Preferred Labor, Mr. Rubin was President, Chief Executive
Officer, Treasurer and a director of ATC Group Services, Inc. (“ATC”), a
publicly held company, from 1988 to 1998. In January 1998, ATC was sold to
a
financial investor group for approximately $160 million. Mr. Rubin was also
President, Chief Executive Officer and Treasurer of Aurora Environmental, Inc.
from May 1985 to June 1995, and was a director of Aurora from September 1983
to
June 1995. In 1995, Morry Rubin was selected as a finalist for the Ernst &
Young Entrepreneur of the Year under 40 Award for the New York City Region.
From
1981 to 1987, Mr. Rubin was employed in sales and as director of acquisitions
for Staff Builders, Inc., a publicly held company engaged in providing temporary
personnel in the healthcare, light industrial and clerical fields.
Brad
Bernstein has served as President and Chief Financial Officer of Anchor Funding
Services, LLC since its formation in 2003. Mr. Bernstein was employed by
Preferred Labor LLC from March 1999 through January, 2007. Mr. Bernstein served
Preferred as its Chief Financial officer and later as its President. On January
31, 2007, Mr. Bernstein became a full-time employee of our company. Before
joining Preferred Labor he was a partner of Miller, Ellin Consulting Group,
LLP.
Mr. Bernstein advised companies in many areas to improve their operations and
increase their profitability. Mr. Bernstein’s clients also included major
commercial and investment banks, asset based lenders and factoring companies.
These institutions relied on his ability to oversee due diligence engagements
and evaluate a Company’s financial performance, its internal control structure
and the quality of its assets before making investments or loans. Mr. Bernstein
has used his banking relationships to raise debt and negotiate and structure
financing for companies. Mr. Bernstein received a Bachelor of Arts degree from
Columbia University.
Frank
DeLape is Chairman and CEO of Benchmark Equity Group, a company he founded
in
1994. Prior to Benchmark, Mr. DeLape spent 11 years in executive
management roles of managing turnarounds for various companies. He has
worked on behalf of the Board of Directors or the sponsoring banks to
recapitalize companies, return them to profitability or maximize cash repayment
through an orderly liquidation. Benchmark provides private equity and debt
financings from various funds as well as a syndicate of investors. Mr.
DeLape was a founder and financier of Think New Ideas, a NASDAQ NMS listed
company, which later sold for over $300 million. At Benchmark, Mr. DeLape
has formed and been instrumental in the growth of eighteen companies. Of
these, seven have become NASDAQ listed, one listed on the American Stock
Exchange, and three were sold, creating in total over $3 billion in market
value. Mr. DeLape is also Founder and Managing General Partner of Trident
Growth Fund, a government licensed Small Business Investment Corporation,
(SBIC). From August 2001 through October 2005, Mr. DeLape was
Chairman of the Board of the biotechnology company Isolagen, Inc. Over his
four
years as Chairman and a major shareholder of Isolagen, Mr. DeLape oversaw the
listing of Isolagen on the American Stock Exchange, and raising over $194
million in debt and equity financings for the company. Mr. DeLape is a Director
of Polymedix, Inc. since November 2005 and President, CEO and a director of
Influmedix, Inc. since November 2004. Mr. DeLape is a member of the National
Association of Corporate Directors.
24
Kenneth
D. Smalley C.F.A. was the director of the High Yield Portfolio Group at The
Dreyfus Corporation from May of 2001 through February of 2005. As Dreyfus’s high
yield portfolio manager, he was responsible for the performance of over $1.5
billion in mutual fund assets. Prior to joining Dreyfus, Mr. Smalley was a
high-yield portfolio manager and analyst with the Alliance Capital Management
Corporation (January 1999 through May 2001). Prior to joining Alliance Capital,
he was a high-yield bond trader and analyst at, the PaineWebber Group Inc.
(July
1996 through December 1998), NatWest Securities from March 1994 through December
1995, and Nomura Securities from April of 1993 to March of 1994. Mr. Smalley
was
a credit analyst at Teacher Insurance and Annuity Association from July of
1989
through April of 1993 and began his career in 1985 as a financial analyst at
General Electric Co.’s Aircraft Engine Business Group. Mr. Smalley received his
M.B.A. from the Stern School in 1989, and is a Chartered Financial Analyst.
Mr.
Smalley has also been involved in the Legal Finance Industry, specially the
Pre-Settlement Legal Financing Sector, as one of the original founders of the
Cambridge Management Group and as a leading consultant (March 2005 through
September 2006) to the industry. Mr. Smalley recently joined the Bridgehead
Group (September 2006) as its Chief Financial Officer.
All
directors of the Company are elected at its annual meeting of stockholders
to
hold office until the next annual meeting of stockholders and until their
successor is elected and qualified, or until such director’s earlier death,
resignation or removal. All officers of the Company serve at the pleasure of
the
Board, subject to their contractual rights, if any.
Limitation
of Directors’ Liability and Indemnification
Our
directors are not personally liable to us or to any of our stockholders for
monetary damages for breach of fiduciary duty as a director except for liability
(i) for any breach of the director’s duty of loyalty to us or our stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from which
the director derived any improper personal benefit. If the General Corporation
Law of the State of Delaware or any other statute of the State of Delaware
is
amended to authorize the further elimination or limitation of the liability
of
our directors, then the liability of our directors will be limited to the
fullest extent permitted by the statutes of the State of Delaware, as so
amended, and such elimination or limitation of liability shall be in addition
to, and not in lieu of, the provided limitation on the liability of a director.
To the maximum extent permitted by law, we fully indemnify any person who was
or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative
or
investigative) by reason of the fact that such person is or was our director
or
officer, or is or was serving at our request as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys’ fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person
in
connection with such action, suit or proceeding. To the extent permitted by
law,
we may fully indemnify any person who was or is a party or is threatened to
be
made a party to any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the
fact
that such person is or was our employee or agent, or is or was serving at our
request as an employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding. We will, if so requested by a director or officer, advance
expenses (including attorneys’ fees) incurred by such director or officer in
advance of the final disposition of such action, suit or proceeding upon the
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that such director or officer
is not entitled to indemnification. We may advance expenses (including
attorneys’ fees) incurred by an employee or agent in advance of the final
disposition of such action, suit or proceeding upon such terms and conditions,
if any, as our Board deems appropriate.
Committees
Currently
the Company has no audit, compensation, corporate governance, nominating or
other committee of the Board of Directors.
25
The
Sarbanes-Oxley Act of 2002, as amended, required each corporation to have an
audit committee consisting solely of independent directors and to identify
the
independent directors who are considered to be a “financial expert.” Under the
National Association of Securities Dealers Automated Quotations definition,
an
“independent director means a person other than an officer or employee of the
Company or its subsidiaries or any other individuals having a relationship
that,
in the opinion of the Company’s board of directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of the
director. The board’s discretion in determining director independence is not
completely unfettered. Further, under the NASDAQ definition, an independent
director is a person who (1) is not currently (or whose immediate family members
are not currently), and has not been over the past three years (or whose
immediate family members have not been over the past three years), employed
by
the company; (2) has not (or whose immediate family members have not) been
paid
more than $60,000 during the current or past three fiscal years; (3) has
not (or whose immediately family has not) been a partner in or controlling
shareholder or executive officer of an organization which the company made,
or
from which the company received, payments in excess of the greater of $200,000
or 5% of that organizations consolidated gross revenues, in any of the most
recent three fiscal years; (4) has not (or whose immediate family members have
not), over the past three years been employed as an executive officer of a
company in which an executive officer of Anchor has served on that company’s
compensation committee; or (5) is not currently (or whose immediate family
members are not currently), and has not been over the past three years (or
whose
immediate family members have not been over the past three years) a partner
of
Anchor’s outside auditor.
The
term
“Financial Expert” is defined as a person who has the following attributes: an
understanding of generally accepted accounting principles and financial
statements; has the ability to assess the general application of such principles
in connection with the accounting for estimates, accruals and reserves;
experience preparing, auditing, analyzing or evaluating financial statements
that present a breadth and level of complexity of accounting issues that are
generally comparable to the breadth and complexity of issues that can reasonably
be expected to be raised by the company’s financial statements, or experience
actively supervising one or more persons engaged in such activities; an
understanding of internal controls and procedures for financial reporting;
and
an understanding of audit committee functions.
|
Executive
Compensation.
|
Compensation
of Directors and Executive Officers.
Summary
Compensation Table
The
following table sets forth the overall compensation earned over the fiscal
year
ended December 31, 2006 by (1) each person who served as the principal executive
officer of Anchor Funding Services, LLC during fiscal year 2006; (2) Anchor
Funding Services, LLC most highly compensated (up to a maximum of two) executive
officers as of December 31, 2006 with compensation during fiscal year 2006
of
$100,000 or more; and (3) those two individuals, if any, who would have
otherwise been in included in section (2) above but for the fact that they
were
not serving as an executive of Anchor Funding Services, LLC as of December
31,
2006.
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Options
Awards
($)(1)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings ($)
|
All Other
Compensation
($) (2)(3)
|
Total ($)
|
||||||||||||||||||||
|
Morry
F. Rubin
|
2006
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
|||||||||||
|
Chief
Executive
|
||||||||||||||||||||||||||||
|
Officer
|
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Brad
Bernstein
|
2006
|
$
|
-0-
|
$
|
-0_
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
|||||||||||
|
President
|
________________
| (1) |
Reflects
dollar amount expensed by Anchor Funding Services, LLC during applicable
fiscal year for financial statement reporting purposes pursuant to
FAS
123R. FAS 123R requires the company to determine the overall value
of the restricted stock awards and options as of the date of grant
based
upon the Black-Scholes method of valuation, and to then expense that
value
over the service period over which the restricted stock awards and
options
become vested. As a general rule, for time-in-service-based
restricted stock awards and options, the company will immediately
expense
any restricted stock awards and option or portion thereof which is
vested
upon grant, while expensing the balance on a pro rata basis over
the
remaining vesting term of the restricted stock awards and options.
For a description FAS 123R and the assumptions used in determining
the
value of the restricted stock awards and options under the Black-Scholes
model of valuation, see the notes to the consolidated financial statements
included with this Form 10-SB.
|
26
| (2) |
Includes
all other compensation not reported in the preceding columns, including
(i) perquisites and other personal benefits, or property, unless
the
aggregate amount of such compensation is less than $10,000; (ii)
any
“gross-ups” or other amounts reimbursed during the fiscal year for the
payment of taxes; (iii) discounts from market price with respect
to
securities purchased from the company except to the extent available
generally to all security holders or to all salaried employees; (iv)
any
amounts paid or accrued in connection with any termination (including
without limitation through retirement, resignation, severance or
constructive termination, including change of responsibilities) or
change
in control; (v) contributions to vested and unvested defined contribution
plans; (vi) any insurance premiums paid by, or on behalf of, the
company
relating to life insurance for the benefit of the named executive
officer;
and (vii) any dividends or other earnings paid on stock or option
awards
that are not factored into the grant date fair value required to
be
reported in a preceding column.
|
| (3) |
Includes
compensation for service as a director described under Director
Compensation, below.
|
For
a
description of the material terms of each named executive officer’s employment
agreement, including, without limitation, the terms of any contract, agreement,
plan or other arrangement that provides for any payment to a named executive
officer in connection with his or her resignation, retirement or other
termination, or a change in control of the company, see “Employment Agreements”
below.
No
outstanding common share purchase option or other equity-based award granted
to
or held by any named executive officer in 2006 were re-priced or otherwise
materially modified, including extension of exercise periods, the change of
vesting or forfeiture conditions, the change or elimination of applicable
performance criteria, or the change of the bases upon which returns are
determined, nor was there any waiver or modification of any specified
performance target, goal or condition to payout.
Executive
Officer Outstanding Equity Awards At Fiscal Year-End
The
following table provides certain information concerning any common share
purchase options, stock awards or equity incentive plan awards held by each
of
our named executive officers that were outstanding as of December 31,
2006.
|
Option Awards
|
Stock Awards
|
||||||||||||||||||||||||||||
| Name |
Number of
Securities
Underlying
Unexercised
Options(#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options(#)
Unexercisable
|
|
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
|
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
|
Equity
Incentive Plan
Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested
|
|||||||||||||||||||
|
Morry
F. Rubin
|
-0-
|
-0-
|
-0-
|
N/A
|
N/A
|
-0-
|
-0-
|
-0-
|
-0-
|
||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
|
Brad
Bernstein
|
-0-
|
-0-
|
-0-
|
N/A
|
N/A
|
-0-
|
-0-
|
-0-
|
-0-
|
||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
______________
N/A
- not
applicable.
27
Employment
Agreements
Each
of
the following executive officers is a party to an employment agreement with
the
Company.
|
Name
|
Position
|
Annual Salary(1)
|
Bonus (2)
|
|
||||
|
Morry
F. Rubin
|
|
Chief
Executive Officer
|
|
$
|
1
(1)
|
|
Annual
bonuses at the discretion of the Board in an amount
determined
by the compensation committee.
|
|
|
Brad
Bernstein
|
|
President
|
|
$
|
205,000
(2)
|
|
Annual
bonuses at the discretion of the Board in an amount
determined
by the compensation committee.
|
|
____________
| (1) |
Effective
commencing on the first day of the first month following such time
as the
Company shall have, within any period beginning on January 1 and
ending
not more than 12 months thereafter, earned pre-tax net income exceeding
$1,000,000, Mr. Rubin’s Base Salary shall be adjusted to an amount, to be
mutually agreed upon between Employee and the Company, reflecting
the fair
value of the services provided, and to be provided, by Employee taking
into account (i) Employee’s position, responsibilities and performance,
(ii) the Company’s industry, size and performance, and (iii) other
relevant factors.
|
| (2) |
The
Company shall pay Mr. Bernstein a fixed base salary of $205,000 during
the
first year of the Employment Term, $220,000 during the second year
of the
Employment Term and $240,000 during the Third Year and any additional
year
of the Employment Term. The Board may periodically review Mr. Bernstein’s
Base Salary and may determine to increase (but not decrease) the
Base
Salary, in accordance with such policies as the Company may hereafter
adopt from time to time, if it deems
appropriate.
|
On
January 31, 2007, we entered into a three-year employment agreement with Morry
F. Rubin (“M. Rubin”) to retain his services as Co-chairman and Chief Executive
Officer. We entered into a three-year employment agreement to retain the
services of Brad Bernstein (“Bernstein”) as President. The following summarizes
the employment agreements of M. Rubin and Bernstein, who are individually
referred to as “Executive” and collectively as “Executives.”
| · |
Each
Executive shall receive a base salary and bonuses as described above.
M.
Rubin and Bernstein shall be entitled to a monthly automobile allowance
of
$1,500 and $1,000, respectively;
|
| · |
M.
Rubin and Bernstein were granted on January 31, 2007 10-year options
to
purchase 650,000 and 950,000 shares, respectively, exercisable at
$1.25
per share, pursuant to the Company’s 2007 Omnibus Equity Compensation
Plan. Vesting of the options is one-third immediately, one-third
on
February 29, 2008 and one-third on February 28, 2009, provided that
in the
event of a change in control or Executive is terminated without cause
or
Executive terminates for good reason, all unvested options shall
accelerate and immediately vest and become exercisable in full on
the
earliest of the date of change in control or date of Executive’s
termination for good reason by Executive or by the Company without
cause;
|
| · |
The
Agreement shall be automatically renewed for additional one year
terms
unless either party notifies the other, in writing, at least 60 days
prior
to the expiration of the term, of such party’s intention not to renew the
Agreement;
|
| · |
Each
Executive shall be required to devote his full business time and
efforts
to the business and affairs of the Company; provided that it is understood
and agreed that until such time as the sale of Preferred Labor, LLC,
a
company partially owned by the Executives, is completed, it is expected
that the Executive shall continue to provide minimal services to
Preferred
Labor, LLC;
|
| · |
Each
Executive shall be entitled to participate in such Executive benefit
and
other compensatory or non-compensatory plans that are available to
similarly situated executives of the Company, which may include
disability, health, dental and life insurance plans, option and bonus
plans and other fringe benefit plans or programs, including a 401(k)
retirement plan, of the Company established from time to time by
the
Board, subject to the rules and regulations applicable thereto, and
which
shall include an executive insurance program under which Executive
shall
be entitled to be reimbursed for up to $25,000 of medical costs not
covered by the Company’s health insurance per year.
|
| · |
Bernstein
shall be entitled to reimbursement for out-of-pocket moving costs
incurred
in connection with the relocation of the Company’s Executive offices to
Boca Raton, FL;
|
| · |
The
Company shall, to the extent such benefits can be obtained at a reasonable
cost, provide the Executive with disability insurance benefits of
at least
60% of his gross Base Salary per month; provided that for purposes
of the
foregoing, prior to the date on which M. Rubin’s Base Salary is adjusted
above $1.00 as described above, M. Rubin’s Base Salary shall be deemed to
be $300,000. In the event of the Executive’s Disability, the Executive and
his family shall continue to be covered by all of the Company’s Executive
welfare benefit plans at the Company’s expense, to the extent such
benefits may, by law, be provided, for the lesser of the term of
such
Disability and 24 months, in accordance with the terms of such
plans;
|
| · |
The
Company shall, to the extent such benefits can be obtained at a reasonable
cost, provide the Executive with life insurance benefits in the amount
of
at least $500,000. In the event of the Executive’s death, the Executive’s
family shall continue to be covered by all of the Company’s Executive
welfare benefit plans, at the Company’s expense, to the extent such
benefits may, by law, be provided, for 12 months following the Executive’s
death in accordance with the terms of such
plans;
|
| · |
The
Executive shall receive four weeks of vacation
annually;
|
| · |
During
the Employment Term and for two years following termination thereof
(other
than any such termination by the Company without Cause or by the
Executive
for Good Reason), the Executive shall not, directly or indirectly
own any
interest in, manage, control, participate in, consult with, render
services for, advise, or in any manner engage in the Company Business
within a 100 mile radius of any office operated by the Company or
any
subsidiary of the Company, whether as an officer, director, stockholder,
consultant, investor, agent or otherwise (unless the Board shall
have
authorized such activity and the Company shall have consented thereto
in
writing). “Company Business” means providing (i) accounts receivable
funding (factoring), outsourcing of accounts receivable management
including collections and the risk of customer default, purchase
order
financing, lawsuit financing, trade finance and government contract
funding and (ii) back office support including payroll, payroll tax
compliance and invoice processing services. Passive investments of
less
than 5% of the outstanding securities of any entity subject to the
reporting requirements of Section 13 or Section 15(d) of the Exchange
Act,
shall not be prohibited;
|
| · |
During
the Employment Term and for three years following termination of
the
Executive’s employment with the Company for any reason, the Executive will
not use, disclose to others, or publish or otherwise make available
to any
other party, any non-public or confidential business information
about the
business and affairs of the Company;
|
| · |
During
the Employment Term and for 18 months following termination of the
Executive’ employment with the Company for any reason, the Executive will
not (i) directly or indirectly, including through an entity or agent,
induce or otherwise attempt to influence any executive of the Company
to
leave the Company's employ, (ii) hire, cause to be hired or induce
a third
party to hire, any such executive (unless the Board shall have authorized
such employment and the Company shall have consented thereto in writing)
or in any way materially interfere with the relationship between
the
Company and any executive thereof, or (iii) induce or attempt to
induce
any customer, supplier, licensee, licensor or other business relation
of
the Company to cease or otherwise limit doing business with the Company
or
in any way materially interfere to the detriment of the Company with
the
relationship between any such customer, supplier, licensee or business
relation of the Company; and
|
| · |
The
Company will indemnify (and advance the costs of defense of) the
Executive
(and his legal representatives) to the fullest extent permitted by
the
laws of the state of Delaware, as in effect at the time of the subject
act
or omission, or by the Certificate of Incorporation and Bylaws of
the
Company, as in effect at such time or on the date of the Agreement,
whichever affords greater protection to the Executive, and both during
and
after termination (for any reason) of the Executive’s employment, the
Company shall cause the Executive to be covered under a directors
and
officers' liability insurance policy for his acts (or non-acts) as
an
officer or director of the Company or any of its affiliates. Such
policy
shall be maintained by the Company, at its expense in an amount of
at
least $5 million and on terms (including the time period of coverage
after
the Executive’s employment terminates) at least as favorable to the
Executive as policies covering the Company’s other members of its Board of
Directors; In the event of any litigation or other proceeding between
the
Company and the Executive with respect to the subject matter of the
Agreement and the enforcement of the rights hereunder and such litigation
or proceeding results in final judgment or order in favor of the
Executive, which judgment or order is substantially inconsistent
with the
positions asserted by the Company in such litigation or proceeding,
the
losing party shall reimburse the prevailing party for all of his/its
reasonable costs and expenses relating to such litigation or other
proceeding, including, without limitation, his/its reasonable attorneys’
fees and expenses.
|
28
Termination
of Employment.
Each
Executive’s employment with the Company may be terminated as set forth
below:
Termination
by Mutual Agreement.
The
Executive’s employment with the Company may be terminated at anytime by, and
upon the terms and conditions of, a mutual written agreement between the
parties.
Termination
for Cause.
The
Executive’s employment with the Company may be terminated by the Company for
Cause. For purposes of the Agreement, “Cause”
shall
mean any one of the following:
| · |
conviction
of the Executive for committing a felony or crime or other crime
involving
moral turpitude;
|
| · |
the
Executive having committed acts or omissions constituting willful
or
wanton misconduct with respect to the Company;
|
| · |
the
Executive having committed any act of fraud or embezzlement involving
the
Company;
|
| · |
the
Executive having committed any willful and material violation of
any
statutory or common law duty of loyalty to the Company;
|
| · |
the
Executive having committed acts or omissions constituting a material
breach of the Agreement that continues for more than 15 days after
notice
from the Company specifically identifying such breach.
|
In
the
event of any termination for cause, the Company shall pay all amounts of Base
Salary then due to the Executive under up to the payroll period worked but
for
which payment had not yet been made up to the date of termination. The Company
shall have no further obligations to the Executive under the Agreement
(including no obligation with respect to bonuses or other incentive
compensation), and any and all stock options granted to the Executive shall
terminate according to their terms of grant with any such vested options being
exercisable for the shorter of (i) 90 days from the date of termination and
(ii)
the exercise term of each relevant option grant.
Termination
for Disability.
The
Executive’s employment with the Company may be terminated by the Company in the
event of the Executive’s Disability. In the event of any termination, on the
date of termination all options that would have otherwise vested within the
12
months following the date of the date of termination shall accelerate and
immediately vest and become exercisable in full. Such options may be exercised
for the longer of (i) 12 months from the date of the date of termination and
(ii) the exercise term of each relevant option grant. For purposes of the
Agreement, “Disability”
shall
mean the inability of the Executive, in the reasonable judgment of a physician
appointed by the Board, to perform his duties of employment because of any
physical or mental disability or incapacity, where such disability shall exist
for an aggregate period of more than 150 days in any 365-day period or for
any
period of 90 consecutive days. In the event of any termination due to
disability, the Company shall (i) pay by the next payroll period all amounts
then due to the Executive for salary and automobile allowances up to the payroll
period worked but for which payment had not yet been made up to the date of
termination (including bonuses then-earned or owing), and (ii) comply with
its
obligations under employee welfare benefit plans.
Termination
upon Death.
The
Executive's employment with the Company automatically terminates on the
Executive's death. In the event of the Executive’s death (i) the Company will
continue to pay the Executive's heirs or beneficiaries his Base Salary for
6
months following the date of termination (on regular payroll dates) and (ii)
on
the date of termination all options that would have otherwise vested within
the
12 months following the date of the Executive's death shall accelerate and
immediately vest and become exercisable in full. Such options may be exercised
for the longer of (i) 12 months from the date of the Executive's death and
(ii)
the exercise term of each relevant option grant. In addition, in the event
of
the Executive's death, the Company shall (i) pay by the next payroll period
all
amounts then due to the Executive for salary and automobile allowances up to
the
payroll period worked but for which payment had not yet been made up to the
date
of termination (including bonuses then-earned or owing), and (ii) comply with
its obligations under employee welfare benefit plans.
Termination
without Cause.
The
Executive's employment with the Company may be terminated by the Company, in
the
absence of Cause, for any reason and in its sole and absolute discretion,
provided that in such event (which
would include the Company’s declining to extend the Employment Term)
the
Company shall continue to pay to the Executive the Base Salary (on regular
payroll dates) for twelve months from the date of termination (the “Termination
Payments”)
plus
any bonuses then-earned or owing on the date of termination and an amount equal
to the Target Bonus for the year in which the termination occurs pro rated
based
on the number of days of service in such year. On
the
date of termination, all
unvested options shall accelerate and immediately vest and become exercisable
in
full.
Such
options may be exercised for the longer of (i) 12 months from the date of
termination and (ii) the exercise term of each relevant option grant. Also,
during any period in which Termination Payments are required to be paid, the
Company shall continue all benefits for the Executive and his family described
herein at no cost to the Executive.
29
Termination
by
the
Executive for
Good Reason.
The
Executive’s employment with the Company may be terminated by the Executive for
Good Reason. “Good
Reason”
shall
be deemed to exist:
| · |
if
the Executive’s duties or responsibilities are materially diminished or
the Executive is assigned any duties materially inconsistent with
the
duties or responsibilities contemplated by this Agreement;
|
| · |
if
the Company shall have continued to fail to comply with any material
provision of the agreement after a 30-day period to cure (if such
failure
is curable) following written notice by the Executive to the Company
of
such non-compliance;
|
| · |
upon
a Change in Control; or
|
| · |
if
the Company requires that the Executive be based at any location
other
than Charlotte, NC or Boca Raton, FL (or the suburban area of either).
|
In
the
event of any termination by the Executive for Good Reason, the Company shall
pay
the Termination Payments plus any bonuses then-earned or owing on the date
of
termination and an amount equal to the Target Bonus for the year in which the
termination occurs pro rated based on the number of days of service in such
year
to the Executive in the same amount and manner as under “Termination Without
Cause.” On
the
date of termination, all
unvested options shall accelerate and immediately vest and become exercisable
in
full.
Such
options may be exercised for the longer of (i) 12 months from the date of
termination and (ii) the exercise term of each relevant option grant. Also,
during any period in which Termination Payments are required to be paid, the
Company shall continue the benefits for the Executive and his family described
herein at no cost to the Executive.
Voluntary
Resignation.
The
Executive’s employment with the Company may be terminated by the Executive
without Good Reason. In such event, the Company shall pay all amounts of Base
Salary then due to the Executive for salary and automobile allowance up to
the
payroll period worked but for which payment had not yet been made up to the
date
of termination. The Company shall have no further obligations to the Executive
under the Agreement (including no obligation with respect to bonuses or other
incentive compensation), and any and all stock options granted to the Executive
shall terminate according to their terms of grant; provided that if such
termination occurs during the first year of the Employment Term any such vested
options would be exercisable for the shorter of (i) 90 days from the date of
termination and (ii) the exercise term of each relevant option grant, and if
the
termination occurs thereafter any such vested options would continue to be
exercisable for the full exercise term of each relevant option
grant.
For
purposes of the agreement, a “Change
in Control”
shall
mean:
| · |
the
acquisition by any individual, entity or group (within the meaning
of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as
amended (the “Exchange
Act”))
(a “Person”)
of “beneficial ownership” (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 50% or more of (I) the then-outstanding
shares
of Common Stock (the “Outstanding
Company Common Stock”),
or (II) the combined voting power of the then-outstanding voting
securities of the Company generally entitled to vote in the election
of
directors (the “Outstanding
Company Voting Securities”)
regardless of whether such acquisition is as a result of the issuance
of
securities by the Company to such Person, by such Person acquiring
such
shares publicly or in private sales (or in any combination of acquisitions
or public or private sales or both), or otherwise; provided,
however,
that the following shall not constitute a Change in Control: (a)
any
issuance or acquisition of securities of the Company whereby the
Executive
(including his affiliates) reaches or exceeds such 50% threshold;
(b) any
acquisition by any Executive benefit plan (or related trust) sponsored
or
maintained by the Company or any entity controlled by the Company;
or (c)
any issuance of shares of Series 1 Preferred Stock issued in the
Company’s
initial offering of such shares or any shares of common stock issued
upon
conversion of such shares of Series 1 Preferred
Stock;
|
| · |
approval
by the stockholders of the Company of a reorganization, merger,
consolidation or other business combination (collectively, a “Business
Combination”),
unless following such Business Combination more than 50% of, respectively,
the then-outstanding shares of common stock of the entity resulting
from
such Business Combination and the combined voting power of the
then-outstanding voting securities of such entity generally entitled
to
vote in the election of directors is then beneficially owned, directly
or
indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding
Company
Common Stock and Outstanding Company Voting Securities immediately
prior
to such Business Combination in substantially the same proportions
as
their ownership, immediately prior to such Business Combination,
of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be;
and
|
30
| · |
approval
by the stockholders of the Company of a complete liquidation or
dissolution of the Company or the first to occur of (a) the sale or
other disposition (in one transaction or a series of related transactions)
of all or substantially all of the assets of the Company, or (b) the
approval by the stockholders of the Company of any such sale or
disposition.
|
CORPORATE
GOVERNANCE
BOARD
OF DIRECTORS
Board
Members Who Are Deemed Independent
Our
board
of directors has determined that Kenneth Smalley is our sole “independent
director” as that term is defined by the National Association of Securities
Dealers Automated Quotations (“NASDAQ”). Kenneth Smalley
is not
a
“financial expert.” See “Committees” for a description of the definition of
“Independent Director” and “Financial Expert.”
DIRECTOR
COMPENSATION
Cash
Fees and Options
The
chairman of each committee will be entitled to an annual fee of $6,500 and
each
non-executive director will receive an annual fee of $6,500 as a member of
the
Board, a fee of $1,000 per Board or Committee meeting (or consent in lieu of
a
meeting), and an activity fee of $1,000 per day for services rendered by the
Board member. George Rubin will receive the same health and dental insurance
benefits as those provided to our executive officers to the extent permitted
by
the rules and regulations applicable thereto and an additional medical
reimbursement of up to $25,000 per annum. Members of the Board of Directors
are
eligible to participate under one or more of our company’s stock option plan(s).
On January 31, 2007, we established a stock option plan covering 2,100,000
shares and granted non-statutory stock options to purchase 950,000, shares
and
650,000 shares to Brad Bernstein and Morry F. Rubin, respectively, exercisable
at $1.25 per share. We also granted non-statutory stock options to purchase
180,000 shares to each of Kenneth Smalley and Frank Delape, exercisable at
$1.25
per share. These options will have a term of ten years and will vest one third
on the date of grant, one-third on February 29, 2008 and one-third on February
28, 2009. Equity incentive awards and cash payments to directors will be
determined in the sole discretion of the Board and/or compensation committee
of
the Board at such times and in such amounts as the Board or a committee thereof
determines to make such awards.
Travel
Expenses
All
directors shall be reimbursed for their reasonable out of pocket expenses
associated with attending the meeting.
2006
Compensation
The
following table shows the overall compensation earned for the 2006 fiscal year
with respect to each non-employee and non-executive directors of the Company
as
of December 31, 2006.
|
DIRECTOR COMPENSATION
|
||||||||||||||||||||||
|
Name and
Principal
Position
|
Fees
Earned
or Paid
in Cash
($)
|
Stock
Awards
($)
(1)
|
Option
Awards ($)
(1)
|
Non-Equity
Incentive Plan
Compensation
($) (2)
|
Nonqualified
Deferred
Compensation
Earnings ($)
|
All Other
Compensation
($)
(3)
|
Total ($)
|
|||||||||||||||
|
Kenneth
Smalley, Director
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$ | -0- | ||||||||
| Frank DeLape, Director (4) |
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
||||||||
| George Rubin, Director (5) |
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
||||||||
______________________
31
| (1) |
Reflects
dollar amount expensed by the company during applicable fiscal year
for
financial statement reporting purposes pursuant to FAS 123R. FAS
123R requires the company to determine the overall value of the restricted
stock awards and the options as of the date of grant based upon the
Black-Scholes method of valuation, and to then expense that value
over the
service period over which the restricted stock awards and the options
become exercisable vested. As a general rule, for
time-in-service-based restricted stock awards and options, the company
will immediately expense any restricted stock award or option or
portion
thereof which is vested upon grant, while expensing the balance on
a pro
rata basis over the remaining vesting term of the restricted stock
award
and option. For a description FAS 123 R and the assumptions used in
determining the value of the restricted stock awards and options
under the
Black-Scholes model of valuation, see the notes to the financial
statements included with this Form
10-SB.
|
| (2) |
Excludes
awards or earnings reported in preceding
columns.
|
| (3) |
Includes
all other compensation not reported in the preceding columns, including
(i) perquisites and other personal benefits, or property, unless
the
aggregate amount of such compensation is less than $10,000; (ii)
any
“gross-ups” or other amounts reimbursed during the fiscal year for the
payment of taxes; (iii) discounts from market price with respect
to
securities purchased from the company except to the extent available
generally to all security holders or to all salaried employees; (iv)
any
amounts paid or accrued in connection with any termination (including
without limitation through retirement, resignation, severance or
constructive termination, including change of responsibilities) or
change
in control; (v) contributions to vested and unvested defined contribution
plans; (vi) any insurance premiums paid by, or on behalf of, the
company
relating to life insurance for the benefit of the director; (vii)
any
consulting fees earned, or paid or payable; (viii) any annual costs
of
payments and promises of payments pursuant to a director legacy program
and similar charitable awards program; and (ix) any dividends or
other
earnings paid on stock or option awards that are not factored into
the
grant date fair value required to be reported in a preceding
column.
|
| (4) |
Does
not include 1,500,000 shares of Common Stock purchased in December
2006 at
a purchase price of $.025 per share (the “Purchase Price”) at a time when
former BTHC XI had no material assets or liabilities. Management
believes
that the Purchase Price paid by Mr. DeLape was made in an arms length
transaction at no less than the fair market value of the former BTHC
XI’s
Common Stock.
|
| (5) |
See
“Item 7 Certain
Relationships and Related Transactions”
for a description of the issuance of 2,400,000 shares to George Rubin
on
January 31, 2007 in connection with the completion of the Anchor
Transaction in which George Rubin, as a member of Anchor Funding
Services,
LLC, exchanged his membership interest for restricted shares of our
company.
|
Indemnification;
Director and Officer Liability Insurance.
The
Company has agreed to indemnify (and advance the costs of defense of) each
director (and his legal representatives) to the fullest extent permitted by
the
laws of the state in which the Company is incorporated, as in effect at the
time
of the subject act or omission, or by the Certificate of Incorporation and
Bylaws of the Company, whichever affords greater protection to each director,
and both during and after termination (for any reason), the Company shall cause
each director to be covered under a directors and officers' liability insurance
policy for his acts (or non-acts) as an officer or director of the Company
or
any of its affiliates. Such policy shall be maintained by the Company at its
expense in an amount of at least $5 million during the term each director serves
the Company (including the time period of coverage after each director’s service
terminates for any reason whatsoever).
In
the
event of any litigation or other proceeding between the Company and a director
with respect to enforcement of a director’s rights to indemnification and
director and officer liability insurance and such litigation or proceeding
results in final judgment or order in favor of the Director, which judgment
or
order is substantially inconsistent with the positions asserted by the Company
in such litigation or proceeding, the losing party shall reimburse the
prevailing party for all of his/its reasonable costs and expenses relating
to
such litigation or other proceeding, including, without limitation, his/its
reasonable attorneys' fees and expenses.
32
2007
Omnibus Equity Incentive Plan
On
January 31, 2007, the Board adopted our 2005 Omnibus Equity Incentive Plan
(the
“Plan”), with 2,100,000 common shares authorized for issuance under the
Plan.
The
following table shows the amounts that have been granted under the
Plan:
|
2007
Omnibus Equity Compensation Plan
|
||
|
Name
and Position
|
Dollar
Value ($)
|
Number
of Options
|
|
Morry
R. Rubin, Chief Executive Officer (2)
|
(1)
|
650,000
|
|
Brad
Bernstein, President (2)
|
(1)
|
950,000
|
|
Executive
Group (2)
|
(1)
|
1,600,000
|
|
Non-Executive
Director Group (two persons) (2)
|
(1)
|
360,000
|
|
Non-Executive
Officer Employee Group (2)
|
$-0-
|
-0-
|
______________
|
(1)
|
No
value of the options is being shown in the table as there is no public
market for our Common Stock.
|
| (2) |
On
January 31, 2007, we established a stock option plan covering 2,100,000
shares and granted non-statutory stock options to purchase 950,000,
shares
and 650,000 shares to Brad Bernstein and Morry F. Rubin, respectively,
exercisable at $1.25 per share and granted non-statutory stock options
to
purchase 180,000 shares to each of Kenneth Smalley and Frank Delape,
exercisable at $1.25 per share. These options will have a term of
ten
years and will vest one third on the date of grant, one-third on
February
29, 2008 and one-third on February 28, 2009.
|
The
following is a summary of the material features of the Plan:
Shares
Subject to the Plan
The
maximum number of shares of common stock with respect to which awards may be
made under the Plan is 2,100,000. In the event of any stock split, reverse
stock
split, stock dividend, recapitalization, reclassification or other similar
event
or transaction, the Compensation Committee will make such equitable adjustments
to the number, kind and price of shares subject to outstanding grants and to
the
number of shares available for issuance under the Plan as it deems necessary
or
appropriate. Shares subject to forfeiture, cancelled or expired awards granted
under the Plan will again become available for issuance under the Plan. In
addition, shares surrendered in payment of any exercise price or in satisfaction
of any withholding obligation arising in connection with an award granted under
the Plan will again become available for issuance under the Plan.
Administration
A
committee of two or more directors appointed by the Board will administer the
Plan (the “Committee”); however, until the Committee is appointed, the Board
administers the Plan. The Committee interprets the Plan, selects award
recipients, determines the number of shares subject to each award and
establishes the price, vesting and other terms of each award. While there are
no
predetermined performance formulas or measures or other specific criteria used
to determine recipients of awards under the Plan, awards are based generally
upon consideration of the grantee's position and responsibilities, the nature
of
services provided, the value of the services to us, the present and potential
contribution of the grantee to our success, the anticipated number of years
of
service remaining and other factors which the Board or the Committee deems
relevant.
33
Eligibility
Employees,
directors, consultants and other service providers of our Company and its
affiliates are eligible to participate in the Plan, provided; however, that
only
employees of our Company are eligible to receive incentive stock options. Other
than consultants and other service providers, the number of currently eligible
employees in the Plan is five. The maximum number of shares that are the subject
of grants made under the Plan to any individual during any calendar year may
not
exceed 1,000,000 shares, subject to certain adjustments. A participant in the
Plan may not accrue dividend equivalents during any calendar year in excess
of
$500,000.
Amendment
and Termination of Plan
The
Board
may amend, alter or discontinue the Plan at any time; provided, however, that
the Board may not amend the Plan without stockholder approval if such approval
is required in order to comply with the Code or applicable laws or to comply
with applicable stock exchange requirements. The Plan will terminate on the
day
immediately preceding the tenth anniversary of the Plan’s effective date, unless
the Plan is terminated earlier by the Board or is extended by the Board with
the
approval of the stockholders.
Grants
Grants
made under the Plan may consist of incentive stock options, non-qualified stock
options, stock appreciation rights or “SARs”, stock awards, stock unit awards,
dividend equivalents and other stock-based awards. Each grant is subject to
the
terms and conditions set forth in the Plan and to those other terms and
conditions specified by the Committee and memorialized in a written grant
agreement between our Company and grant recipient (the “Grant
Instrument”).
Stock
Options
The
Plan
permits the grant of incentive stock options (“ISOs”) to our employees and the
employees of our subsidiaries. The Plan also provides for the grant of
non-qualified stock options (“NQSOs”) to our employees, directors, and
consultants and other individuals who perform services for us (as well as to
employees, directors, consultants and service providers of our subsidiaries).
The exercise price of any stock option granted under the Plan will be equal
to
or greater than the fair market value of such stock on the date the option
is
granted, provided, however, that the exercise price of any incentive stock
options granted under the Plan to an employee who, at the time of grant, owns
stock possessing more than 10% of the total combined voting power of all classes
of our stock or any parent or subsidiary of us, may not be less than 110% of
the
fair market value of our common stock on the date of grant. Generally, payment
of the option price may be made (i) in cash, (ii) with the Committee’s consent,
by approval of the Committee, by delivering shares of Company Stock owned by
the
Optionee (including Company Stock acquired in connection with the exercise
of an
Option, subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the Exercise Price
or by attestation (on a form prescribed by the Committee) to ownership of shares
of Company Stock having a Fair Market Value on the date of exercise equal to
the
Exercise Price, (iii) through a broker in accordance with applicable laws,
or
(iv) with a combination of cash and shares. The participant must pay the option
price and the amount of withholding tax due, if any, at the time of exercise.
Shares of common stock will not be issued or transferred upon exercise of the
option until the option price and the withholding obligation are fully paid.
Under
the Plan, each option is exercisable at such time and to such extent as
specified in the pertinent Grant Instrument between our Company and the option
recipient. However, no option shall be exercisable with respect to any shares
of
common stock more than ten years after the date of grant of such award (except
as otherwise determined by the Committee with respect to non-incentive options)
and no incentive stock option that is granted to an employee, who at the time
of
grant, owns stock possessing more than 10% of the total combined voting power
of
all classes of stock of our Company, or any parent or subsidiary of ours, may
be
exercised more than five years from the date of grant. Notwithstanding the
foregoing, the Committee may provide, in a Grant Instrument, that a Grantee
may
transfer Nonqualified Stock Options to family members, or one or more trusts
or
other entities for the benefit of or owned by family members, consistent with
the applicable securities laws, according to such terms as the Committee may
determine; provided that the Grantee receives no consideration for the transfer
of an Option and the transferred Option shall continue to be subject to the
same
terms and conditions as were applicable to the Option immediately before the
transfer.
34
Effects
of Termination of Service with our Company
Generally,
unless provided otherwise in the Grant Instrument, the right to exercise any
option or SAR (described below) terminates ninety (90) days following
termination of the participant’s relationship with the Company for reasons other
than death, disability or termination for “cause” as defined in the Plan. If the
participant’s relationship with us terminates due to death or disability, unless
provided otherwise in the Grant Instrument, the right to exercise an option
or
SAR will terminate the earlier of one year following such termination or the
original expiration date. If the participant’s relationship with us is
terminated for “cause”, any option or SAR not already exercised will
automatically be forfeited as of the date such termination.
Stock
Awards
We
may issue awards of our common stock pursuant to the terms of the Plan. A stock
award may be issued for consideration or for no consideration and may be subject
to certain restrictions and risk of forfeiture (such as the completion of a
period of service or attainment of a performance goal) as determined by the
Committee and set forth in the Grant Instrument governing the stock award.
If a
participant’s employment terminates before the vesting condition is fulfilled,
the shares will be forfeited. While the shares remain unvested, a participant
may not sell, assign, transfer, pledge or otherwise dispose of the shares.
Unless otherwise determined by the Committee, a stock award entitles the
participant to all of the rights of a stockholder of our Company, including
the
right to vote the shares and the right to receive any dividends thereon.
Stock
Units
The
Plan provides for the grant of stock units to employees, non-employee directors,
or consultants or other individuals who perform services for us, subject to
any
terms and conditions, including the fulfillment of specified performance goals
or other conditions, as may be established by the Committee. Each stock unit
represents one hypothetical share of common stock and the right of the grantee
to receive an amount based on the value of a share of our common stock. Payments
with respect to stock units may be made in cash or in shares of common stock,
or
in combination of the two as determined by the appointed committee.
Stock
Appreciation Rights
The
Plan also provides for the grant of SARs, either alone or in tandem with stock
options. An SAR entitles its holder to a cash payment of the excess of the
fair
market value of our common stock on the date of exercise, over the fair market
value of our common stock on the date of grant. An SAR issued in tandem with
a
stock option will have the same terms as the stock option. The terms of an
SAR
granted alone, without an option, will be established by the Committee, in
the
Grant Instrument governing the SAR.
Other
Stock-Based Award
The
Committee may grant other stock-based awards, other than those described herein,
that are based on, measured by or payable in shares of common stock on such
terms and conditions as the Committee may determine. Such awards may be subject
to the achievement of performance goals or other conditions and may be payable
in cash, shares of common stock or any combination of cash and shares of common
stock as the Committee shall determine.
Dividend
Equivalents
The
Committee may grant dividend equivalents in connection with grants under the
Plan. Dividend equivalents may be paid currently or accrued as contingent cash
obligations and may be payable in cash or shares of common stock, and upon
such
terms as the appointed committee may establish, including the achievement of
specific performance goals.
Change
of
Control of the Company
In
the event of a Change of Control, as that term is defined in the Plan, of our
Company, the Committee has discretion to, among other things, accelerate the
vesting of outstanding grants, cashout outstanding grants or exchange
outstanding grants for similar grants of a successor company. A Change of
Control of our Company will be deemed to have taken place upon the:
35
|
|
•
|
the
acquisition by any person of direct or indirect ownership of securities
representing more than 50% of the voting power of our then outstanding
stock;
|
|
|
|
|
|
|
•
|
a
consolidation or merger of our Company resulting in the stockholders
of
the Company immediately prior to such event not owning at least a
majority
of the voting power of the resulting entity’s securities outstanding
immediately following such event;
|
|
|
|
|
|
|
•
|
the
sale of substantially all of our assets; or
|
|
|
|
|
|
|
•
|
The
liquidation or dissolution of our Company.
|
|
|
|
|
Certain
Relationships and Related Transactions.
|
Anchor
Funding Services, LLC was founded in 2003 by George Rubin, Morry F. Rubin and
Brad Bernstein. Since its formation, Anchor’s operations were funded through
loans from George Rubin and Morry F. Rubin. Effective November 30, 2006, George
Rubin and Morry F. Rubin converted the principal amount of $253,000 and
$203,000, respectively, into membership interests of Anchor. George Rubin,
Morry
F. Rubin and Illissa Bernstein, Brad Bernstein’s wife beneficially owned 30%,
45% and 25%, respectively of the membership interests of Anchor up until the
closing of the Anchor Transaction on January 31, 2007
George
Rubin and Morry F. Rubin Beneficially own approximately 96% and Brad Bernstein
beneficially owns approximately 2% of Preferred Labor,which completed the sale
of its business on April 23, 2007. Preferred Labor temporarily maintains a
limited staff. We utilize a credit manager from Preferred Labor to assist in
managing credit and making collection calls. At times in the past , we used
other accounting personnel from Preferred Labor for certain back office
functions. In the past through April 23, 2007, this affiliated company charged
a
fee of .25% of the value of accounts receivable purchased for credit and
collection services only and .5% for credit, collection, invoicing, payroll
and
other bookkeeping services. The fees charged by this affiliated company were
$28,668 and $20,352 for the years ended December 31, 2006 and 2005.
respectively. Since April 23, 2007, Anchor pays a portion of Preferred Labor‘s
shared employees salaries based upon actual time incurred. This is a temporary
arrangement that is likely to cease within a month or two as we expand our
support staff and fill key positions including a marketing director, credit
manager, account executives and collections personnel and to eventually perform
all of our own back office operations, including, without limitation, credit
and
collection services, invoicing, payroll and other bookkeeping services. Anchor
also reimburses Preferred for its share of the shared office space.
From
time
to time Anchor has borrowed money from Preferred on a short-term basis at a
10%
interest rate for the services mentioned above which are charged to an
intercompany account. As of December 31, 2006, any loans between the companies
were paid and except for services provided by Preferred to Anchor and reimbursed
on an estimated cost basis, it is not anticipated that there will be any further
transactions between the companies.
The
Anchor Transaction
On
January 31, 2007, the former BTHC XI and certain principal stockholders entered
into a Securities Exchange Agreement (“Securities agreement”) with Anchor
funding Services, LLC and its members, namely, George Rubin, Morry F. Rubin
and
Ilissa Bernstein, to become a wholly-owned subsidiary of the former BTHC XI,
Inc. (the “Anchor Transaction”), in exchange for an aggregate of 8,000,000
shares issued to George Rubin (2,400,000 shares), Morry F. Rubin (3,600,000
shares) and Ilissa Bernstein (2,000,000 shares). At closing of the Anchor
Transaction, Morry F. Rubin and Brad Bernstein, the husband of Ilissa Bernstein
and President of the Company, entered into employment contracts with the Company
and George Rubin entered into a Director’s Compensation Agreement with the
Company. See “Item 6” of Part I herein.
36
|
Description
of Securities.
|
Overview
We
have
authorized 40 million shares of Common Stock, $.001 par value and 10 million
shares of Preferred Stock, $.001 par value. As of the filing date of this Form
10-SB, we have 11,820,555 shares of Common Stock and 1,342,500 shares of Series
1 Preferred Stock issued and outstanding. The foregoing does not include
Placement Agent Warrants issued to Fordham Financial Management, Inc. to
purchase 1,342,500 shares of Common Stock. The Placement Agent Warrants are
exercisable for five years through January 31, 2012 at $1.10 per share and
contain weighted average anti-dilution protection, cashless exercise provisions
and demand and “piggy-back” registration rights. In addition to the foregoing,
we have established a stock option plan covering an aggregate of 2,100,000
shares of Common Stock. We have issued ten-year options to purchase an aggregate
of 1,600,000 shares of Common Stock at an exercise price of $1.25 per share
to
the executive officers of our company and we have granted to two other directors
ten-year options to purchase 180,000 shares each of our Common Stock at an
exercise price of $1.25 per share.
Common Stock
We
are
authorized to issue 40,000,000 Shares of Common Stock, $.001 par value. Holders
of our Common Stock are entitled to one vote for each Share held at all meetings
of stockholders (and written actions in lieu of meetings). Dividends may be
declared and paid on our Common Stock from funds lawfully available therefore
as, if and when determined by our Board and subject to any preferential rights
of any then outstanding preferred stock. We do not intend to pay cash dividends
on our Common Stock. Upon the voluntary or involuntary liquidation, sale,
merger, consolidation, dissolution or winding up of the Company, holders of
Shares of Common Stock will be entitled to receive all of our assets available
for distribution to stockholders, subject to any preferential rights of any
then
outstanding preferred stock. Our Common Stock is not redeemable.
Preferred
Stock
Our
Board
is authorized to issue from time to time, subject to any limitation prescribed
by law, without further stockholder approval, up to 10,000,000 Shares of
Preferred Stock, $.001 par value, in one or more series. Preferred Stock will
have such number of Shares, designations, preferences, voting powers,
qualifications and special or relative rights or privileges as determined by
our
Board, which may include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, conversion
rights and preemptive rights.
On
January 31, 2007, we filed a Certificate of Designation with the Secretary
of
State of the State of Delaware and we have designated 2,000,000 shares of our
Preferred Stock as Series 1 Convertible Preferred Stock. The Series 1
Preferred Stock shall rank senior as to the payment of dividends and in
liquidation as to the Common Stock. The following sets forth the rights, terms
and preferences of the Series 1 Preferred Stock.
| Conversion Ratio |
Each
share of Series 1 Preferred Stock will be convertible into five (5)
shares
of the Company’s Common Stock (the “Conversion Ratio”) at any time at the
option of the holder (with each date of conversion being referred
to as
the “Conversion Date”). Upon conversion, all accrued and unpaid
(undeclared) dividends on the Series 1 Preferred Stock through the
Conversion Date shall be paid in additional shares of Common Stock
as if
such dividends had been paid in additional shares of Series 1 Preferred
Stock rounded up to the nearest whole number, and then automatically
converted into additional shares of Common Stock at the then applicable
Conversion Ratio. The Conversion Ratio is subject to adjustment in
the
event of stock splits, stock dividends, combinations, reclassifications
and alike and to weighted average anti-dilution protection for sales
of
Common Stock at a purchase price below $1.00 per
share.
|
| Dividends |
Cumulative
annual dividends shall be paid in shares of Series 1 Preferred Stock
or,
in certain instances in cash, at an annual rate of 8% ($.40 per share
of
Series 1 Preferred Stock), payable on December 31 of each year commencing
December 31, 2007. Dividends payable on outstanding Shares of Series
1
Preferred Stock shall begin to accrue on the date of each closing
and
shall cease to accrue and accumulate on the earlier of December 31,
2009
or the applicable Conversion Date (the “Final Dividend Payment Date”).
Thereafter, the holders of Series 1 Preferred Stock shall have the
same
dividend rights as holders of Common Stock of the Company, as if
the
Series 1 Preferred Stock has been fully converted into Common Stock.
The
dividends payable on December 31, 2007 will be prorated or adjusted
for
the period from the date of issuance through December 31, 2007. Unpaid
dividends will accumulate and be payable prior to the payment of
any
dividends on shares of Common Stock or any other class of Preferred
Stock.
Cash dividends will only be payable from funds legally available
therefor,
when and as declared by the Board of Directors of the Company, and
unpaid
dividends will accumulate until the Company has the legal ability
to pay
the dividends. The Company shall pay a cash dividend in lieu of a
stock
dividend where on the date of declaration of the dividend, it is
the
Board’s determination that the Company’s Common Stock is trading
consistently at a market price below $1.00 per share. Cash dividends
shall
not apply to the payment of accrued and unpaid (undeclared) dividends
which are paid on a Conversion Date. Dividends paid in shares of
Series 1
Preferred Stock shall be based upon an assumed value of $5.00 per
share of
Series 1 Preferred Stock. Notwithstanding anything contained herein
to the
contrary, the Company’s Board of Directors shall timely declare dividends
on its Series 1 Preferred Stock each year unless the payment of such
dividends would be in violation of applicable state law.
|
37
| Registration Rights |
The
holders of the Series 1 Preferred Stock and the Underlying Common
Stock
will have unlimited piggy-back registration rights for a period of
48
months, exercisable commencing 12 months from March 30, 2007, the
final
closing date of our recently completed a private placement offering
of
Series 1 Preferred Stock (the “Offering”). The piggy-back registration
rights are not applicable to a registration statement filed by the
Company
on Form S-4, Form S-8 or any other inappropriate form. Pursuant to
a
Placement Agent Agreement, the Company is prohibited from filing
a
registration statement on Form SB-2, Form S-1 or other similar form
for a
period of 18 months following the final closing date of the Offering
without the prior written consent of the Placement Agent. Further,
before
we file a Form S-8 Registration Statement or grant options under
one or
more stock option plan(s), as the case may be, we must deliver to
the
Placement Agent 18-month lock-up agreements from January 31, 2007.
The
lock-up agreement shall cover any shares of common stock that may
be
issued pursuant to the plan(s).
|
| Voting Rights |
The
holders of shares of Series 1 Preferred Stock shall vote with holders
of
the Common Stock, together as single class, upon all matters submitted
to
a vote of stockholders, including, without limitation, for the election
of
directors. For such purpose, each holder of Series 1 Preferred Stock
shall
be entitled to a number of votes determined as follows. Through
March 30, 2007, the final closing date of the Company’s Series 1
Preferred Stock financing, each share of Series 1 Preferred Stock
shall be
entitled to a number of votes equal to a fraction, the numerator
of which
is 7,770,000, and the denominator of which is the number of shares
of
Series 1 Preferred Stock issued January 31, 2007, from the date of
the
filing of the Certificate of Designation for the Series 1 Preferred
Stock
with the Secretary of state of the state of Delaware through the
record
date fixed for the determination of stockholders entitled to vote
or on
the effective date of any written consent of stockholders, as applicable.
Following March 30, 2007, the final closing date of the Company’s Series 1
Preferred Stock offering, each share of Series 1 Preferred Stock
shall be
entitled to a fixed number of votes equal to a fraction, the numerator
of
which is 7,770,000, and the denominator of which is the number of
shares
of Series 1 Preferred Stock issued in the Company’s Series 1 Preferred
Stock financing, irrespective of any subsequent conversions or stock
dividend issuances which may occur from time to time. Fractional
votes
shall not however, be permitted and any fractional voting rights
resulting
from the above formulas with respect to any holder of Series 1 Preferred
Stock shall be rounded upward to the nearest whole
number.
|
|
Liquidation
Preference
|
Through
the Final Dividend Payment Date, the shares
of Series 1 Preferred Stock will have a liquidation preference over
the
Common Stock of $5.00 per share, plus all accumulated and unpaid
dividends
in arrears. Commencing on the Final Dividend Payment Date, the holders
of
Series 1 Preferred Stock shall have the same liquidation rights as
holders
of Common Stock on a fully converted
basis.
|
|
Information
Rights
|
The
Company will provide holders of shares of Series 1 Preferred Stock
with
all notices, reports and other information provided to the holders
of
Common Stock.
|
38
|
Market
Price and Dividends on the Registrant’s Common Equity and Related
Shareholder Matters.
|
Market
Information
There
is
currently no public market for our Common Stock or any other securities of
our
company. We anticipate a member of the National Association of Securities
Dealers, Inc. filing a Form 15c2-11 application for trading to commence on
the
OTC Electronic Bulletin Board. We can provide no assurances that an established
public market for our Common Stock will develop in the near future.
As
of
April 1, 2007, there were 11,820,555 shares of Common Stock issued and
outstanding. As of April 1, 2007, there were (i) outstanding options to purchase
1,960,000 shares of our Common Stock, (ii) outstanding Placement Agent Warrants
to purchase 1,342,500 shares of our Common Stock, and (iii) outstanding
1,342,500 shares of our Series 1 Preferred Stock which are convertible into
6,712,500 shares of our Common Stock.
Currently,
we have a float of 525,555 shares which were issued as free trading shares
by
the Bankruptcy Court under Section 1145(a)(1) of the Bankruptcy Code. Of the
525,555 shares, 367,500 shares are owned by Halter Financial Group, LLC and
are
subject to a one-year lock-up pursuant to which 50% may be sold on or after
July
31, 2007 and the balance may be sold on January 31, 2008. The remaining
11,295,000 outstanding shares of Common Stock are restricted securities and
are
eligible for sale pursuant to Rule 144 of the Securities Act commencing on
December 7, 2006 with respect to 3,295,000 shares and the remaining balance
of
8,000,000 shares are eligible for sale under Rule 144 beginning on January
31,
2008. However, the holders of the 11,295,000 restricted common shares have
signed 18 month lock-up agreements not to sell or otherwise transfer these
restricted common shares (except in certain limited cases where the transferee
agrees to be bound by the transfer restrictions) until July 31, 2008, with
the
prior written consent of Fordham Financial Management, Inc. Pursuant to Rule
144
of the Securities Act of 1933, as amended, shares of our common stock
beneficially owned by a person for at least one year (as defined in Rule 144)
are eligible for resale under Rule 144 subject to certain volume limitations,
manner of sale provisions, notice requirements and the availability of current
public information about us. Pursuant to Rule 144(k) of the Securities Act,
our
non-affiliates (who have been non-affiliates for at least three months) may
sell
their common stock that they have held for two years (as defined in Rule 144)
without compliance with volume restrictions, manner of sale provisions, notice
provisions or the availability of current information.
We
have
outstanding 1,342,500 shares of Series 1 Preferred Stock which are convertible
into an aggregate of up to 6,712,500 shares of our restricted Common Stock.
These securities are eligible for sale under Rule 144 commencing on
January 31, 2008 through March 30, 2008.
39
Holders
of Record
As
of
April 23, 2007, there were approximately 520 holders of record of shares of
Common Stock and 80 holders of record of our Series A Preferred Stock.
Dividends
The
holders of our Series 1 Preferred Stock are entitled to receive dividends as
more fully described under Item 8 of Part I. We have not paid or declared any
cash dividends on our Common Stock. We currently intend to retain any earnings
for future growth and, therefore, do not expect to pay cash dividends on our
Common Stock in the foreseeable future.
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table provides information about the securities authorized for
issuance under our equity compensation plans as of April 1, 2007.
Equity
Compensation Plan Information
|
(a)
Number
of Common
Shares
to
be
issued upon exercise
of
outstanding options
|
(b)
Weighted
average
exercise
price of
outstanding
options (1)
|
(c)
Number
of Common Shares
remaining
available for future issuance under our equity compensation plan
(excluding securities) reflected in column
(a))
|
|
|
Equity
compensation plans approved by security holders
|
1,960,000
|
$1.25
|
140,000
|
_______________
| (1) |
As
of April 1,, 2007, we have outstanding options to purchase 1,960,000
common shares, exercisable at $1.25 per
share
|
.
|
Item
2.
|
Legal
Proceedings.
|
We
are
not a party to any pending legal proceedings. Our property is not the subject
of
any pending legal proceedings. To our knowledge, no governmental authority
is
contemplating commencing a legal proceeding in which we would be named as a
party.
|
Item
3.
|
Changes
in and Disagreements With Accountants.
|
40
Item
4. Recent Sales of Unregistered Securities.
The
following table provides information about the sales of restricted securities
during the past three years.
|
Date
of Sale
|
|
Title
of Security
|
|
Number
Sold
|
|
Consideration
Received,
Commissions
|
|
Purchasers
|
|
Exemption
from
Registration
Claimed
|
|
|
December
2006
|
|
Common
Stock
|
|
3,295,000
shares
|
|
$0.25
per share; no
commissions
paid
|
|
Sophisticated
Investors
|
|
Section
4(2)
|
|
|
January
31, 2007
|
|
Common
Stock
|
|
8,000,000
shares
|
|
Exchange
of securities; no cash received; no commissions
paid
|
|
Three
sophisticated and accredited
investors
|
|
Section
4(2) and/
Rule
506
|
|
|
January
31, 2007
through
March
31, 2007
|
Series
1
Preferred
Stock
|
1,342,500
shares
|
$1.00
per share; 14% compensation paid to broker/dealer plus
warrants
to purchase
1,342,500
shares of
common
stock
|
Accredited
Investors
|
Rule
506
|
||||||
|
January
31, 2007
|
Common
Stock
|
Options
to
purchase
1,960,000
common shares
|
Securities
granted under Equity Compensation Plan;
no cash received; no commissions paid
|
Accredited
Investors
|
Rule
701, Rule 506,
And/or
Section 4(2)
|
Section
102 of the General Corporation Law of the State of Delaware permits a
corporation to eliminate the personal liability of directors of a corporation
to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved
a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit. The Company’s Amended and Restated Certificate of
Incorporation, as amended, provides that a director of the Company shall not
be
personally liable to it or its stockholders for monetary damages for any breach
of fiduciary duty as a director, except to the extent that such exemption from
liability or limitation thereof is not permitted under the General Corporation
Law of the State of Delaware as currently in effect or as the same may hereafter
be amended.
Section
145 of the General Corporation Law of the State of Delaware provides that a
corporation has the power to indemnify a director, officer, employee, or agent
of the corporation and other persons serving at the request of the corporation
in related capacities against expenses (including attorneys’ fees), judgments,
fines and amounts paid in settlements actually and reasonably incurred by the
person in connection with an action, suit or proceeding to which he is or is
threatened to be made a party by reason of such position, if such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to
the best interests of the corporation, and, in any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful, except
that, in the case of actions brought by or in the right of the corporation,
no
indemnification shall be made with respect to any claim, issue or matter as
to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or other adjudicating
court determines that, despite the adjudication of liability but in view of
all
of the circumstances of the case, such person is fairly and reasonably entitled
to indemnify for such expenses which the Court of Chancery or such other court
shall deem proper.
41
Article
Ninth of the Company’s Certificate of Incorporation states the
following:
“The
Corporation may, to the fullest extent permitted by the Delaware General
Corporation Law, as the same exists or may hereafter be amended, indemnify
any
and all persons it has power to indemnify under such law from and against any
and all of the expenses, liabilities or other matters referred to in or covered
by such law. In addition, the Corporation shall indemnify each of the
Corporation’s directors and officers in each and every situation where, under
Delaware General Corporation Law (specifically section 145) the Corporation
is
not obligated, but is permitted or empowered, to make such indemnification,
except as otherwise set forth in the Bylaws of the Corporation. Such
indemnification may be provided pursuant to any Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
his
director or officer capacity and as to action in another capacity while holding
such office, will continue as to a person who has ceased to be a director,
an
officer, or a person for whom the Corporation has approved indemnification
pursuant to the first sentence hereof, and will inure to the benefit of the
heirs, executors and administrators of such a person.
If
a
claim under the preceding paragraph is not paid in full by the Corporation
within thirty (30) days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant will be entitled to be paid also the expense
of
prosecuting such claim. It will be a defense to any such action (other than
an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Compotation) that the claimant
has
not met the standards of conduct that make it permissible under the laws of
the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense will bon on the Corporation.
Neither the failure of the Corporation (including its board of directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the laws of the State of Delaware nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, will be a defense to the action or create a
presumption that the claimant has not met the applicable standard of
conduct.”
Each
director and officer by contractual right is also entitled as serving as a
director and/or officer and for a period of ____ years thereafter, to
participate in directors and officers liability insurance and to indemnification
of all costs and expenses, including cost of legal counsel, selected and
retained by the director, in connection with any action, suit or proceeding
to
which the director and/or officer may be a party by reason of such person,
acting in such capacity. Effective January 31,2007, the Company has purchased
certain liability insurance for its directors and executive officers covering
$5,000,000, with a $75,000 deductible ($100,000 for securities
claims).
Article
Tenth of the Company’s certificate of incorporation provides that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except: (A)
for
any breach of the director’s duty of loyalty to the Company or its stockholders,
(B) for acts or omissions that are not in good faith or that involve intentional
misconduct or a knowing violation of law, (C) under Section 174 of the General
Corporation Law of the State of Delaware, or (D) for any transaction from which
the director derived any improper personal benefit. If the General Corporation
law of the State of Delaware is amended after the date of filing of this
Certificate to further eliminate or limit the personal liability of directors,
then the liability of a director of the Company shall be eliminated or limited
to the fullest extent permitted by the General Corporation Law of the State
of
Delaware, as so amended. Any repeal or modification of the foregoing paragraph
by the stockholders of the Company shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
42
ANCHOR
FUNDING SERVICES, LLC
FINANCIAL
STATEMENTS
DECEMBER
31, 2006 and 2005
TABLE
OF CONTENTS
|
Page
No.
|
||
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-1
|
|
|
FINANCIAL
STATEMENTS:
|
||
|
Balance
Sheets
|
F-2
|
|
|
Statements
of Operations
|
F-3
|
|
|
Statements
of changes in Members' Equity
|
F-4
|
|
|
Statements
of Cash Flows
|
F-5
|
|
|
Notes
to Financial Statements
|
F-6
- F-13
|
|
|
Unaudited
Condensed Consolidated Pro-Forma Financial Information
|
P-1
-P-3
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
The
Stockholders and Board of
Directors
of Anchor Funding Services, LLC
We
have
audited the accompanying balance sheet of Anchor Funding Services, LLC
(the
Company) as of December 31, 2006 and 2005, and the related statements of
operations, changes in members’ equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements
based
on our audits.
We
conducted our audit of these statements in accordance with the standards
of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about
whether the financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express
no
such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and
evaluating the overall financial statement presentation. We believe that
our
audits provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in
all
material respects, the financial position of Anchor Funding Services, LLC
at
December 31, 2006 and 2005, and the results of its operations and its cash
flows
for the years then end, in conformity with accounting principles generally
accepted in the United States of America.
CHERRY,
BEKAERT & HOLLAND, L.L.P.
Charlotte,
North Carolina
April 24,
2007
F-1
ANCHOR
FUNDING SERVICES, LLC
BALANCE
SHEETS
December
31, 2006 and 2005
|
ASSETS
|
|||||||
|
2006
|
2005
|
||||||
|
CURRENT
ASSETS:
|
|||||||
|
Cash
|
$
|
49,501
|
$
|
30,240
|
|||
|
Retained
interest in purchased accounts receivable
|
473,092
|
1,037,680
|
|||||
|
Prepaid
expenses
|
41,134
|
5,569
|
|||||
|
Total
current assets
|
563,727
|
1,073,489
|
|||||
|
PROPERTY
AND EQUIPMENT, net
|
4,010
|
8,157
|
|||||
|
DUE
FROM RELATED COMPANY
|
-
|
95,455
|
|||||
|
$
|
567,737
|
$
|
1,177,101
|
||||
|
LIABILITIES
AND MEMBERS' EQUITY
|
|||||||
|
CURRENT
LIABILITIES:
|
|||||||
|
Due
to financial institution
|
$
|
44,683
|
$
|
823,578
|
|||
|
Accounts
payable
|
39,218
|
-
|
|||||
|
Due
to related company
|
21,472
|
-
|
|||||
|
Accrued
payroll and related taxes
|
37,796
|
42,828
|
|||||
|
Subordinated
related party demand notes payable and accrued interest
|
-
|
494,481
|
|||||
|
Total
current liabilities
|
143,169
|
1,360,887
|
|||||
|
COMMITMENTS
AND CONTINGENCIES
|
|||||||
|
MEMBERS'
EQUITY
|
424,568
|
(183,786
|
)
|
||||
|
$
|
567,737
|
$
|
1,177,101
|
||||
The
accompanying notes to financial statements are an integral part of these
statements.
F-2
ANCHOR
FUNDING SERVICES, LLC
STATEMENTS
OF OPERATIONS
For
the years ended December 31, 2006 and 2005
|
2006
|
2005
|
||||||
|
FINANCE
REVENUES
|
$
|
569,285
|
$
|
253,999
|
|||
|
INTEREST
EXPENSE, net - financial institution
|
(134,231
|
)
|
(23,403
|
)
|
|||
|
INTEREST
EXPENSE, net - related parties
|
(59,364
|
)
|
(72,790
|
)
|
|||
|
NET
FINANCE REVENUES
|
375,690
|
157,806
|
|||||
|
PROVISION
FOR CREDIT LOSSES
|
-
|
-
|
|||||
|
FINANCE
REVENUES, NET OF INTEREST EXPENSE
|
|||||||
|
AND
CREDIT LOSSES
|
375,690
|
157,806
|
|||||
|
OPERATING
EXPENSES
|
223,336
|
175,303
|
|||||
|
NET
INCOME (LOSS)
|
$
|
152,354
|
($17,497
|
)
|
|||
|
EARNINGS
(LOSS) PER SHARE - BASIC AND DILUTED
|
$
|
1.52
|
($0.17
|
)
|
|||
|
WEIGHTED
AVERAGE NUMBER OF UNITS -
|
|||||||
|
BASIC
AND DILUTED
|
100,000
|
100,000
|
|||||
The
accompanying notes to financial statements are an integral part of these
statements.
F-3
ANCHOR
FUNDING SERVICES, LLC
STATEMENTS
OF CHANGES IN MEMBERS' EQUITY
For
the years ended December 31, 2006 and 2005
|
MEMBERS'
DEFICIT, January 1, 2005
|
($166,289
|
)
|
||
|
NET
LOSS, year ended December 31, 2005
|
(17,497
|
)
|
||
|
MEMBERS'
DEFICIT, December 31, 2005
|
(183,786
|
)
|
||
|
NET
INCOME, year ended December 31, 2006
|
152,354
|
|||
|
CONTRIBUTION
OF RELATED PARTY DEMAND NOTES
|
||||
|
PAYBLE
TO MEMBERS' EQUITY
|
456,000
|
|||
|
MEMBERS'
EQUITY, December 31, 2006
|
$
|
424,568
|
||
The
accompanying notes to financial statements are an integral part of these
statements.
F-4
ANCHOR
FUNDING SERVICES, LLC
STATEMENTS
OF CASH FLOWS
For
the years ended December 31, 2006 and 2005
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
2006
|
2005
|
|||||
|
Net
income (loss):
|
$
|
152,354
|
($17,497
|
)
|
|||
|
Adjustments
to reconcile net income (loss) to net cash provided
|
|||||||
|
by
(used in) operating activities:
|
|||||||
|
Depreciation
and amortization
|
5,476
|
4,502
|
|||||
|
Decrease
(increase) in retained interest in purchased accounts
receivable
|
564,588
|
(907,257
|
)
|
||||
|
Increase
in prepaid expenses
|
(35,565
|
)
|
(12,928
|
)
|
|||
|
Increase
accounts payable
|
39,218
|
-
|
|||||
|
(Decrease)
increase accrued payroll and related taxes
|
(5,032
|
)
|
13,470
|
||||
|
(Decrease)
increase in accrued interest - related party
|
(38,481
|
)
|
26,485
|
||||
|
Net
cash provided by (used in) operating activities
|
682,558
|
(893,225
|
)
|
||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
|
Purchases
of property and equipment
|
(1,329
|
)
|
(9,148
|
)
|
|||
|
Collections
from related company
|
95,455
|
-
|
|||||
|
Loans
to related company
|
-
|
(95,455
|
)
|
||||
|
Net
cash provided by (used in) investing activities
|
94,126
|
(104,603
|
)
|
||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
|
(Payments
to) borrowings from financial institution, net
|
(778,895
|
)
|
823,577
|
||||
|
Borrowings
from subordinated related party demand notes payable
|
-
|
345,000
|
|||||
|
Borrowings
from related company
|
21,472
|
-
|
|||||
|
Principal
payments on loan from related company
|
-
|
(213,124
|
)
|
||||
|
Net
cash (used in) provided by financing activities
|
(757,423
|
)
|
955,453
|
||||
|
INCREASE
(DECREASE) IN CASH
|
19,261
|
(42,375
|
)
|
||||
|
CASH,
beginning of period
|
30,240
|
72,615
|
|||||
|
CASH,
end of period
|
$
|
49,501
|
$
|
30,240
|
|||
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOWS:
|
|||||||
|
Cash
paid during the year for interest
|
$
|
240,000
|
$
|
69,700
|
|||
|
Subordinated
debt converted to equity
|
$
|
456,000
|
$
|
0
|
|||
The
accompanying notes to financial statements are an integral part of these
statements.
F-5
ANCHOR
FUNDING SERVICES, LLC
NOTES
TO FINANCIAL STATEMENTS
December
31, 2006 and 2005
| 1. |
ORGANIZATION:
|
Effective
August 2005, ANCHOR FUNDING SERVICES, LLC (“the Company”) became a North
Carolina limited liability company. From January 2003 to July 2005 the
Company
was a South Carolina limited liability company. The Company will continue
in
existence until terminated in accordance with its operating agreement.
The
Company was formed for the purpose of providing factoring and back office
services to businesses located throughout the United States of
America.
| 2. |
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES:
|
Estimates
-
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates 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.
Revenue
Recognition - Revenue
is recognized when the fee is earned and consists primarily of
non-refundable transaction and time-based fees. Non- refundable
transaction
fees are charged when the Company purchases an accounts receivable. Time-based
fees are charged until the Company collects the purchased accounts receivable.
The amount charged as transaction and time-based fees is specified in each
customer’s factoring and security agreement and these amounts can vary between
customers.
Retained
Interest in Purchased Accounts Receivable - Retained
interest in purchased accounts receivable represents the gross amount of
invoices purchased from factoring customers less amounts maintained in
a reserve
account. The Company purchases a customer’s accounts receivable and advances
them a percentage of the invoice total. The difference between the purchase
price and amount advanced is maintained in a reserve account. The reserve
account is used to offset any potential losses the Company may have related
to
the purchased accounts receivable.
The
Company’s factoring and security agreements with their customers include various
recourse provisions requiring the customers to repurchase accounts receivable
if
certain conditions, as defined in the factoring and security agreement,
are met.
F-6
ANCHOR
FUNDING SERVICES, LLC
NOTES
TO FINANCIAL STATEMENTS
December
31, 2006 and 2005
Senior
management reviews the status of uncollected purchased accounts receivable
monthly to determine if any are uncollectible. The Company has a security
interest in the accounts receivable purchased and on a case-by-case basis,
may
have additional collateral. The Company files security interests in the
property
securing their advances. Access to this collateral is dependent upon the
laws
and regulations in each state where the security interest is filed.
Additionally, the Company has varying types of personal guarantees from
their
factoring customers relating to the purchased accounts receivable.
Management
did not consider any of the December 31, 2006 and 2005 retained interest
in
purchased accounts receivable uncollectible based on their analysis of
the
portfolio.
Management
believes the fair value of the retained interest in purchased accounts
receivable approximates its recorded value because the majority of these
invoices have been subsequently collected.
Property
and Equipment -
Property
and equipment, consisting primarily of computers and software, are stated
at
cost. Depreciation is provided over the estimated useful lives of the
depreciable assets using the straight-line method. Estimated useful lives
range
from 2 to 5 years.
Advertising
Costs -
The
Company charges advertising costs to expense as incurred. Total advertising
costs were approximately $68,200 and $68,400 for 2006 and 2005,
respectively.
Earnings
per Share -
The
Company computes net income per share in accordance with SFAS No. 128 “Earnings
Per Share.” Basic net income per share is computed by dividing the net income
for the period by the weighted average number of common shares outstanding
during the period. Basic and diluted per share results are the same since
the
Company did not have any common stock equivalents outstanding at December
31,
2006 or 2005.
Stock
Based Compensation - In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 123(R), “Accounting for
Stock-Based Compensation.” SFAS No. 123(R) establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. This statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based
payment
transactions. SFAS No. 123(R) requires that the fair value of such equity
instruments be recognized as an expense in the historical financial statements
as services are performed. Prior to SFAS No. 123(R), only certain pro forma
disclosures of fair value were required. The provisions of this statement
were
effective for the first interim reporting period that began after December
15,
2005. We adopted the provisions of SFAS No.123(R) in the first quarter
of Fiscal
2006.
F-7
ANCHOR
FUNDING SERVICES, LLC
NOTES
TO FINANCIAL STATEMENTS
December
31, 2006 and 2005
Recent
Accounting Pronouncements -
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair
Value Measurements.”
SFAS
157 provides enhanced guidance for using fair value to measure assets and
liabilities. It clarifies the principle that fair value should be based
on the
assumptions market participants would use when pricing the asset or liability
and establishes a fair value hierarchy that prioritizes the information
used to
develop those assumptions. SFAS 157 is effective for fiscal years beginning
after November 15, 2007. The Company is currently evaluating the impact
of SFAS
157 on its results of operations and financial condition.
In
September 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 108 (“SAB 108”), Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements
in
Current Year Financial Statements.
SAB 108
provides additional guidance for the quantitative assessment of the materiality
of uncorrected misstatements in current and prior years. The assessment
for
materiality should be based on the amount of the error relative to both
the
current year income statement and balance sheet. For misstatements originating
in prior years that are deemed material to the current year financial
statements, SAB 108 permits recording the effect of adopting this guidance
as a
cumulative effect adjustment to retained earnings. During the fourth quarter
of
2006, the Company adopted SAB 108 and it did not have a significant impact
on
the Company’s financial statements.
In
February 2007, the FASB issued SFAS No. 159, “The
Fair Value Option for Financial Assets and Financial Liabilities - Including
an
amendment of FASB Statement No. 115.
SFAS 159
provides companies with an option to report selected financial assets and
liabilities at estimated fair value. Most of the provisions of SFAS No.
159 are
elective; however, the amendment to SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities,
applies
to all entities that own trading and available-for-sale securities. The
fair
value option created by SFAS No. 159 permits an entity to measure eligible
items
at fair value as of specified election dates. The fair value option (a)
may
generally be applied instrument by instrument, (b) is irrevocable unless
a new
election date occurs, and must be applied to the entire instrument and
not to
only a portion of the instrument.
SFAS
No.
159 is effective as of the beginning of an entity’s first fiscal year beginning
after November 15, 2007. Early adoption is permitted as of the beginning
of the
previous fiscal year provided that the entity makes that choice in the
first 120
days of the fiscal year, has not yet issued financial statements for any
interim
period of such year, and also elects to apply the provisions of SFAS No.
157.
The Company is currently evaluating the impact of SFAS 157 on its results
of
operations and financial condition.
F-8
ANCHOR
FUNDING SERVICES, LLC
NOTES
TO FINANCIAL STATEMENTS
December
31, 2006 and 2005
Fair
Value of Financial Instruments -
The
carrying value of cash equivalents, retained interest in purchased accounts
receivable, due to financial institution, accounts payable, accrued liabilities
and subordinated related party demand notes approximates their fair
value.
Cash
and cash equivalents -
Cash and
cash equivalents consist primarily of highly liquid cash investment funds
with
original maturities of three months or less when acquired.
| 3. |
INCOME
TAXES:
|
The
Company is treated as a partnership for Federal and state income tax purposes.
Its earnings and losses are included in the personal tax returns of its
members;
therefore, no provision or benefit from income taxes has been included
in these
financial statements.
| 4. |
RETAINED
INTEREST IN PURCHASED ACCOUNTS
RECEIVABLE:
|
Retained
interest in purchased accounts receivable consists of the
following:
|
2006
|
2005
|
||||||
|
Purchased
accounts receivable outstanding
|
$
|
614,034
|
$
|
1,300,648
|
|||
|
Reserve
account
|
(172,779
|
)
|
(278,470
|
)
|
|||
|
441,255
|
1,022,178
|
||||||
|
Earned
but uncollected fee income
|
31,837
|
15,502
|
|||||
|
$
|
473,092
|
$
|
1,037,680
|
||||
Total
accounts receivable purchased were approximately $11,469,000 and $6,103,000
for
2006 and 2005, respectively.
Retained
interest in purchased accounts receivable consists of United States companies
in
the following industries:
|
Industry
|
2006
|
2005
|
|||||
|
Staffing
|
$
|
397,061
|
$
|
315,413
|
|||
|
Transportation
|
(52,854
|
)
|
328,106
|
||||
|
Logistics
|
-
|
279,000
|
|||||
|
Publishing
|
45,971
|
55,791
|
|||||
|
Construction
|
26,591
|
-
|
|||||
|
Service
|
14,951
|
37,433
|
|||||
|
Other
|
9,535
|
6,435
|
|||||
|
$
|
441,255
|
$
|
1,022,178
|
||||
F-9
ANCHOR
FUNDING SERVICES, LLC
NOTES
TO FINANCIAL STATEMENTS
December
31, 2006 and 2005
| 5. |
PROPERTY
AND EQUIPMENT:
|
Property
and equipment consist of the following:
|
2006
|
2005
|
||||||
|
Furniture
and fixtures
|
$
|
1,235
|
$
|
1,235
|
|||
|
Computers
and software
|
15,531
|
14,201
|
|||||
|
16,766
|
15,436
|
||||||
|
Less
accumulated depreciation
|
(12,756
|
)
|
(7,279
|
)
|
|||
|
$
|
4,010
|
$
|
8,157
|
||||
| 6. |
DUE
TO FINANCIAL INSTITUTION:
|
The
Company has an agreement with a financial institution under which the
institution finances their purchased accounts receivable. The institution
receives a fee of .3 percent of the receivables financed plus interest
as
described below. This agreement expires September 2007 and will automatically
renew for one year unless either party provides a written termination notice
sixty days in advance of the termination date.
Borrowings
are made at the request of the Company. The amount eligible to be borrowed
is
the lower of $1,000,000 or a borrowing base formula as defined in the agreement.
The interest on borrowings is paid monthly at a rate ranging from the
institution’s prime rate plus 1% to 12.75%.
The
agreement is collateralized by all current and future Company assets and
is
guaranteed by its members. The related party demand notes payable were
subordinated to this agreement (Note 8).
The
agreement requires the Company to maintain a specified level of tangible
net
worth, tangible net worth as defined in the agreement included subordinated
related party demand notes payable. The agreement also has a change of
control covenant. As of December 31, 2006 and 2005, the Company was in
compliance with all terms of this agreement.
| 7. |
CAPITAL
STRUCTURE:
|
The
Company’s operating agreement specifies only one class of units. All units
issued and outstanding have voting rights. Distributions are made as authorized
by the members.
The
operating agreement restricts the transfer of any member’s interest. The
agreement requires any member to obtain approval from the Company’s manager
before any transfer is permitted.
| 8. |
RELATED
PARTY TRANSACTIONS:
|
Due
from/to Related Company -
The
Company has borrowing and loan transactions with a limited liability company
(LLC) related through common ownership. These amounts are unsecured, interest
bearing (at 10 percent), and payable on demand. During 2006 the Company
recorded
approximately $12,000 in net interest income related to this activity.
During
2005 the Company recorded approximately $23,500 in net interest expense
related
to this activity.
F-10
ANCHOR
FUNDING SERVICES, LLC
NOTES
TO FINANCIAL STATEMENTS
December
31, 2006 and 2005
Administrative
Charges -
The
Company uses the administrative staff and facilities of the LLC referred
to
above. The services provided by the LLC consist primarily of rent, credit,
collection, invoicing, payroll and bookkeeping. The Company pays the LLC
a fee
for these services. The fee is computed as a percentage of accounts receivable
purchased by the Company. The administrative fees paid to the LLC were
$28,668
in 2006 and $20,352 in 2005.
Subordinated
Demand Loans Payable -
These
loans were payable to two of the Company’s members. During 2006 the members
contributed the principal amounts to members’ equity and the Company paid all
interest due on these loans. These loans were unsecured, subordinated to
the
financial institution (Note 6), payable on demand and bore interest at
15
percent. These loans consisted of the following:
|
2006
|
2005
|
||||||
|
Principal
|
$
|
-
|
$
|
456,000
|
|||
|
Accrued
interest
|
-
|
38,481
|
|||||
|
|
$ |
-
|
$
|
494,481
|
|||
| 9. |
SUBSEQUENT
EVENT:
|
On
January 31, 2007, the Company and its members entered into a Securities
Exchange
Agreement with BTHC XI, Inc. The members namely, George Rubin, Morry F.
Rubin
(“M. Rubin”) and Ilissa Bernstein exchanged their units in the Company in
exchange for an aggregate of 8,000,000 common shares of BTHC XI, Inc. issued
to
George Rubin (2,400,000 shares), M. Rubin (3,600,000 shares) and Ilissa
Bernstein (2,000,000 shares). Upon the closing of this transaction the
Company
became a wholly-owned subsidiary of BTHC XI, Inc.
At
the
time of this transaction, BTHC XI, Inc. had no operations and no assets
or
liabilities. After this transaction the former members of Anchor Funding
Services, LLC owned approximately 67.7% of the outstanding common stock
of BTHC
XI, Inc.
At
closing of this transaction, M. Rubin and Brad Bernstein (“B. Bernstein”), the
husband of Ilissa Bernstein and President of the Company, entered into
employment contracts and stock option agreements with the BTHC XI, Inc.
.
The
following summarizes M. Rubin’s employment agreement and stock
options:
| · |
The
employment agreement with M. Rubin retains his services as Co-chairman
and
Chief Executive Officer for a three-year
period.
|
| · |
An
annual salary of $1 until, the first day of the first month following
such
time as BTHC XI, Inc. shall have, within any period beginning on
January 1
and ending not more than 12 months thereafter, earned pre-tax net
income
exceeding $1,000,000, M. Rubin’s base salary shall be adjusted to an
amount, to be mutually agreed upon between M. Rubin and BTHC XI,
Inc.,
reflecting the fair value of the services provided, and to be provided,
by
M. Rubin taking into account (i) his position, responsibilities
and
performance, (ii) BTHC XI, Inc.’s industry, size and performance, and
(iii) other relevant factors. M. Rubin is eligible to receive annual
bonuses as determined by BTHC XI, Inc.’s compensation committee. M. Rubin
shall be entitled to a monthly automobile allowance of
$1,500.
|
F-11
ANCHOR
FUNDING SERVICES, LLC
NOTES
TO FINANCIAL STATEMENTS
December
31, 2006 and 2005
| · |
10-year
options to purchase 650,000 shares exercisable at $1.25 per share,
pursuant to BTHC XI, Inc.’s 2007 Omnibus Equity Compensation Plan. Vesting
of the options is one-third immediately, one-third on February
29, 2008
and one-third on February 28, 2009, provided that in the event
of a change
in control or M. Rubin is terminated without cause or M. Rubin
terminates
for good reason, all unvested options shall accelerate and immediately
vest and become exercisable in full on the earliest of the date
of change
in control or date of M. Rubin’s voluntary termination or by BTHC XI, Inc.
without cause.
|
The
following summarizes B. Bernstein’s employment agreement and stock
options:
| · |
The
employment agreement with B. Bernstein retains his services as
President
for a three-year period.
|
| · |
An
annual salary of $205,000 during the first year, $220,000 during
the
second year and
$240,000
during the third year and any additional year of employment. The
Board may
periodically review B. Bernstein’s base salary and may determine to
increase (but not decrease) the base salary in accordance with
such
policies as BTHC XI, Inc. may hereafter adopt from time to time,
if it
deems appropriate. B. Bernstein is eligible to receive annual bonuses
as
determined by BTHC XI, Inc.’s compensation committee. B. Bernstein shall
be entitled to a monthly automobile allowance of
$1,000.
|
| · |
10-year
options to purchase 950,000 shares exercisable at $1.25 per share,
pursuant to BTHC XI, Inc.’s 2007 Omnibus Equity Compensation Plan. Vesting
of the options is one-third immediately, one-third on February
29, 2008
and one-third on February 28, 2009, provided that in the event
of a change
in control or B. Bernstein is terminated without cause or B. Bernstein
terminates for good reason, all unvested options shall accelerate
and
immediately vest and become exercisable in full on the earliest
of the
date of change in control or date of B. Bernstein’s voluntary termination
or by BTHC XI, Inc. without cause.
|
F-12
ANCHOR
FUNDING SERVICES, LLC
NOTES
TO FINANCIAL STATEMENTS
December
31, 2006 and 2005
| 10. |
CONCENTRATIONS:
|
Revenues
-
Revenues
consist of the following amounts from United States companies in the following
industries:
|
Industry
|
2006
|
2005
|
|||||
|
Staffing
|
$
|
189,395
|
$
|
127,882
|
|||
|
Transportation
|
93,956
|
83,757
|
|||||
|
Logistics
|
224,214
|
10,916
|
|||||
|
Publishing
|
26,481
|
9,650
|
|||||
|
Construction
|
2,017
|
-
|
|||||
|
Service
|
9,970
|
9,128
|
|||||
|
Other
|
23,252
|
12,666
|
|||||
|
$
|
569,285
|
$
|
253,999
|
Major
Customers -
The
Company had the following transactions and balances with three unrelated
customers which represent 10 percent or more of its revenues as
follows:
|
For
the year ended December 31, 2006
|
||||||||||
|
Revenues
|
$
|
228,079
|
$
|
95,495
|
$
|
87,458
|
||||
|
As
of December
31,2006
|
||||||||||
|
Purchased
accounts receivable
outstanding
|
-
|
$
|
14,957
|
$
|
146,392
|
|||||
|
For
the year ended December 31, 2005
|
||||||||||
|
Revenues
|
$
|
85,627
|
$
|
62,340
|
$
|
36,264
|
||||
|
December
31,2005
|
||||||||||
|
Purchased
accounts
receivable
outstanding
|
$
|
277,679
|
$
|
163,843
|
$
|
55,791
|
||||
Cash
-
The
Company maintains cash deposits with a bank. At various times throughout
the
year, these balances exceeded the federally insured limit of
$100,000.
F-13
UNAUDITED
CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL
INFORMATION
The
following unaudited condensed pro forma balance sheet as of December
31, 2006
and the unaudited condensed pro forma statement of operations for the
year then
ended gives effect to the January 31, 2007 acquisition of Anchor Funding
Services, LLC (“Anchor”) by BHTC XI, Inc., (“BTHC”) as if the acquisition
occurred on December 31, 2006. BTHC issued 8,000,000 common shares
to the
members of Anchor in exchange for 100,000 (100%) of the membership
units of
Anchor. At the date of this exchange Anchor Funding Services, LLC became
a
wholly owned subsidiary of BTHC.
The
pro
forma adjustments are based upon available information and certain
assumptions
that the merged Company believes are reasonable under the circumstances.
The pro
forma statements also reflect various transactions in connection with
the merger
of Anchor and BTHC including the issuance of 1,342,500 shares of preferred
stock
and the related proceeds and cost, issuance of stock options and stock
warrants
and compensation agreements. Anchor was charged an administrative fee
from a
related party for administrative services provided by the related party.
The
cost to replace these services can not be reasonably estimated, therefore;
they
are not reflected in this statement. The actual amounts could differ
from these
estimates.
The
unaudited condensed pro forma financial information is for informational
purposes only and is not necessarily indicative of the operating results
of
financial position that would be achieved had the acquisition been
consummated
on the dates indicated and should not construed as representative of
future
results of operations or financial position. The pro forma results
should be
read in conjunction with the financial statements and notes thereto
in the
Company’s Form 10-SB for the year ended December 31, 2006.
P-1
ANCHOR
FUNDING SERVICES, INC.
PRO-FORMA
UNAUDITED
CONDENSED BALANCE SHEET
December
31, 2006
|
Historicals
|
||||||||||||||||
|
|
Anchor
Funding
|
Pro-Forma
|
Pro-Forma
|
|||||||||||||
|
|
Services,
LLC
|
BTHC
XI, INC.
|
Adjustments
|
Balance
Sheet
|
||||||||||||
|
ASSETS
|
||||||||||||||||
|
CURRENT
ASSETS:
|
||||||||||||||||
|
Cash
|
$
|
49,501
|
$
|
6,270
|
(2)
|
|
$
|
5,546,249
|
$
|
5,602,020
|
||||||
|
Retained
interest in purchased accounts receivable
|
473,092
|
0
|
0
|
473,092
|
||||||||||||
|
Prepaid
expenses
|
(2)
|
|
(35,187
|
)
|
||||||||||||
|
|
41,134
|
2,925,000
|
(4)
|
|
(2,925,000
|
)
|
5,947
|
|||||||||
|
Total
current assets
|
563,727
|
2,931,270
|
2,586,062
|
6,081,059
|
||||||||||||
|
PROPERTY
AND EQUIPMENT, net
|
4,010
|
0
|
0
|
4,010
|
||||||||||||
|
$
|
567,737
|
$
|
2,931,270
|
$
|
2,586,062
|
$
|
6,085,069
|
|||||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||||||||
|
CURRENT
LIABILITIES:
|
||||||||||||||||
|
Due
to financial institution
|
$
|
44,683
|
$
|
0
|
$
|
0
|
$
|
44,683
|
||||||||
|
Deferred
income taxes
|
0
|
0
|
(5)
|
|
18,000
|
0
|
||||||||||
|
(5)
|
|
(18,000
|
)
|
|||||||||||||
|
Accounts
payable
|
39,218
|
0
|
(2)
|
|
(35,187
|
)
|
4,031
|
|||||||||
|
Due
to related company
|
21,472
|
0
|
0
|
21,472
|
||||||||||||
|
Accrued
payroll and related taxes
|
37,796
|
0
|
0
|
37,796
|
||||||||||||
|
Accrued
expenses
|
0
|
0
|
(1)
|
|
50,000
|
50,000
|
||||||||||
|
Total
current liabilities
|
143,169
|
0
|
14,813
|
157,982
|
||||||||||||
|
MEMBERS'
EQUITY
|
424,568
|
0
|
(1)
|
|
(424,568
|
)
|
0
|
|||||||||
|
PREFERRED
STOCK
|
0
|
0
|
(2)
|
|
6,712,500
|
6,712,500
|
||||||||||
|
COMMON
STOCK
|
0
|
3,795
|
(1)
|
8,000
|
11,795
|
|||||||||||
|
ADDITIONAL
PAID IN CAPITAL - Equity Issuance Fees
|
0
|
2,850,000
|
(1)
|
(50,000
|
)
|
(1,353,946
|
)
|
|||||||||
|
(2)
|
(1,228,946
|
)
|
||||||||||||||
|
(4)
|
(2,925,000
|
)
|
||||||||||||||
|
ADDITIONAL
PAID IN CAPITAL - Common Stock
|
0
|
79,580
|
(1)
|
416,568
|
496,148
|
|||||||||||
|
ADDITIONAL
PAID IN CAPITAL - Stock Warrants
|
0
|
0
|
(2)
|
62,695
|
62,695
|
|||||||||||
|
ADDITIONAL
PAID IN CAPITAL - Stock Options, net of tax benefit of
$14,000
|
0
|
0
|
(3)
|
42,101
|
28,101
|
|||||||||||
|
(5)
|
(14,000
|
)
|
||||||||||||||
|
ACCUMULATED
DEFICIT
|
0
|
(2,105
|
)
|
(3)
|
(42,101
|
)
|
(30,206
|
)
|
||||||||
|
(5)
|
14,000
|
|||||||||||||||
|
Total
stockholders' equity
|
424,568
|
2,931,270
|
2,571,249
|
5,927,087
|
||||||||||||
|
$
|
567,737
|
$
|
2,931,270
|
$
|
2,586,062
|
$
|
6,085,069
|
|||||||||
| (1) |
To
record the exchange of 8,000,000 common shares of BTHC
XI, Inc.
stock
for 100,000 membership units of Anchor Funding Services,
LLC
and
to accrue the estimated costs ($50,000) of registering
the
shares of Anchor Funding Services, Inc.
|
| (2) |
To
record the sale of 1,342,500 shares of Preferred Stock
(gross proceeds
$6,712,500) and related placement agent fees ($949,050
cash), warrants
to purchase 1,342,500 shares of common stock at fair
value issued to placement agent ($62,695), legal fees ($177,853),
blue sky fees ($39,348) and to remove accrued/prepaid legal
fees
($35,187) related to this issuance that were recorded as
December 31, 2006
and paid on January 31, 2007.
|
| (3) |
To
record the stock options issued to the Chief Executive
Officer
(650,000),
President (950,000) and two directors (360,000). The fair value
of
these options ($.0468 each) was computed using the Black
Scholes
option
pricing model. The vested number of these options (893,333)
has
been recorded.
|
| (4) |
To
reclass nominal priced issuance of common stock to BTHC XI, Inc.
directors to
additional paid in capital. In their capacity as fund raisers
for BTHC
XI,
Inc., two directors acquired 3,000,000 shares of BTHC
XI, Inc. common stock in December 2006 for $.025 per
share. On
the issuance date, the common stock was considered to have
a fair market
value of $1 per share
based on the sale of convertible preferred stock on January
31,
2007.
The difference between the fair market value and the purchase
price
multiplied by the shares sold is $2,925,000.
|
| (5) |
To
record the current tax benefit ($14,000) on the stock options
issued to
executive
employees and two outside directors. The taxable loss of
approximately $54,000 for 2006 is being carried forward
to offset
future
taxable. The amount of this deferred tax asset ($18,000)
is reduced
by a valuation allowance of the same amount because management
is uncertain if this net operating loss will be used before
its expiration.
|
P-2
ANCHOR
FUNDING SERVICES, INC.
PRO-FORMA
UNAUDITED
CONDENSED STATEMENT OF OPERATIONS
For
the year ended December 31, 2006
|
Historicals
|
Pro-Forma
|
|||||||||||||||
|
Anchor
Funding
|
Pro-Forma
|
Statement
of
|
||||||||||||||
|
Services,
LLC
|
BTHC
XI, INC.
|
Adjustments
|
Operations
|
|||||||||||||
|
FINANCE
REVENUES
|
$
|
569,285
|
$
|
0
|
$
|
0
|
$
|
569,285
|
||||||||
|
INTEREST
EXPENSE, net - financial institution
|
(134,231
|
)
|
0
|
0
|
(134,231
|
)
|
||||||||||
|
INTEREST
EXPENSE, net - related parties
|
(59,364
|
)
|
0
|
0
|
(59,364
|
)
|
||||||||||
|
NET
FINANCE REVENUES
|
375,690
|
0
|
0
|
375,690
|
||||||||||||
|
PROVISION
FOR CREDIT LOSSES
|
0
|
0
|
0
|
0
|
||||||||||||
|
FINANCE
REVENUES, NET OF INTEREST EXPENSE
|
||||||||||||||||
|
AND
CREDIT LOSSES
|
375,690
|
0
|
0
|
375,690
|
||||||||||||
|
OPERATING
EXPENSES
|
223,336
|
2,105
|
(1)
|
|
42,101
|
|||||||||||
|
|
|
|
(2)
|
|
205,000
|
472,542
|
||||||||||
|
NET
INCOME (LOSS) BEFORE INCOME TAXES
|
152,354
|
(2,105
|
)
|
(247,101
|
)
|
(96,852
|
)
|
|||||||||
|
INCOME
TAX (PROVISION) BENEFIT
|
||||||||||||||||
|
Current
|
0
|
0
|
0
|
0
|
||||||||||||
|
Deferred
|
0
|
0
|
(3)
|
|
32,000
|
32,000
|
||||||||||
|
(3)
|
|
(18,000
|
)
|
(18,000
|
)
|
|||||||||||
|
Total
|
0
|
0
|
14,000
|
14,000
|
||||||||||||
|
NET
INCOME (LOSS)
|
$
|
152,354
|
($2,105
|
)
|
($233,101
|
)
|
($82,852
|
)
|
||||||||
|
Deemed
dividend on convertible preferred stock
|
- | - |
(6)
|
(537,000 | ) | (537,000 | ) | |||||||||
|
NET
INCOME (LOSS) attributed to common stockholder
|
$ | 152,354 |
($2,105
|
) |
($770,101
|
) | $ | (619,852 | ) | |||||||
|
NET
EARNING (LOSS) attributed to common stockholders, per
share
|
||||||||||||||||
|
Basic
|
$
|
1.52
|
($0.00
|
)
|
-
|
($0.17
|
)
|
|||||||||
|
Dilutive
|
$
|
1.52
|
($0.00
|
)
|
-
|
($0.17
|
)
|
|||||||||
|
WEIGHTED
AVERAGE SHARES OUTSTANDING-
|
||||||||||||||||
|
Basic
|
100,000
|
3,540,911
|
-
|
3,562,829
|
||||||||||||
|
Dilutive
|
100,000
|
3,540,911
|
-
|
10,275,329
|
||||||||||||
| (1) |
To
record the stock options issued to the Chief Executive Officer
(650,000),
President (950,000) and two directors (360,000). The value of
these options ($.0468 each) was computed using the Black Scholes
option
pricing model. The vested number of these options (893,333) has
been recorded.
|
| (2) |
To
record compensation for 2006 to the President ($205,000). No amount
was
recorded for this in the historical financial statements. The amount
recorded
agrees with the first year compensation in the President's employment
agreement executed on January 31, 2007.
|
| (3) |
To
record the current tax benefit ($14,000) on the stock options issued
to
executive
employees and two outside directors. The taxable loss of
approximately $54,000 for 2006 is being carried forward to offset
future
taxable. The amount of this deferred tax asset ($18,000) is reduced
by a valuation allowance of the same amount because management
believes it is more likely than not the net operating loss will
not be used before
its expiration
|
| (6) | To reflect dividends on the 8% convertibly preferred stock. (8% times $6,712,500) |
.
P-3
The
following exhibits are all filed herewith, unless otherwise noted.
| 2.1 |
Exchange
Agreement
|
| 3.1 |
Certificate of
Incorporation-BTHC,INC.
|
| 3.2 |
Certificate
of Merger of BTHC XI, LLC into BTHC XI,
Inc.
|
| 3.3 |
Certificate
of Amendment
|
| 3.4 |
Designation
of Rights and Preferences-Series 1 Convertible Preferred
Stock
|
| 3.5 |
Amended
and Restated By-laws
|
| 4.1 |
Form
of Placement Agent Warrant issued to Fordham Financial
Management
|
| 10.1 |
Directors’
Compensation Agreement-George Rubin
|
| 10.2 |
Employment
Contract-Morry F. Rubin
|
| 10.3 |
Employment
Contract-Brad Bernstein
|
| 10.4 |
Agreement-Line
of Credit
|
| 10.5 |
Fordham
Financial Management-Consulting
Agreement
|
| 99.1 |
2007
Omnibus Equity Compensation
Plan
|
| 99.2 |
Form
of Non-Qualified Option under 2007 Omnibus Equity Compensation Plan
|
43
SIGNATURES
In
accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the
undersigned, thereunto duly authorized.
|
ANCHOR
FUNDING SERVICES, INC.
|
||
| |
|
|
| Date: April 25, 2007 | By: | /s/ Brad Bernstein |
|
Name: Brad Bernstein |
||
| Title: President & Chief Financial Officer | ||
44
EXHIBIT
2.1
SECURITIES
EXCHANGE AGREEMENT
THIS
SECURITIES EXCHANGE AGREEMENT (this “Agreement”)
is
entered into as of January
31, 2007
by and
among BTHC XI, Inc., a Delaware corporation (the “Company”),
Anchor Funding Services, LLC, a North Carolina limited liability company
(“Anchor”),
the
members of Anchor listed on Exhibit
A-1 hereto
(the “Anchor
Members”)
and
the stockholders of the Company listed on Exhibit
A-2
hereto
(the “Company
Stockholders”).
The
Company, Anchor, the Anchor Members and the Company Stockholders are each a
“Party”
and
together are “Parties”
to
this
Agreement.
STATEMENT
OF PURPOSE
The
Company Stockholders collectively own substantially all of the outstanding
capital stock of the Company. The Anchor Members collectively own substantially
all of the outstanding Units of Anchor. The Anchor Members have agreed to
exchange their Units for shares of Company common stock, and the Company has
agreed to issue to the Anchor Members shares of Company common stock in exchange
for Units, on the terms and subject to the conditions set forth in this
Agreement (the “Exchange”
and,
together with the other transactions contemplated by this Agreement, the
“Transactions”).
For
Federal income tax purposes, it is intended that the Exchange, together with
the
Private Placement Transaction, qualify as an exchange under Section 351(a)
of
the Internal Revenue Code of 1986, as amended (the “Code”).
NOW,
THEREFORE,
in
consideration of the premises and the representations, warranties and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties, intending to be
legally bound, do hereby agree as follows:
ARTICLE
I
SECURITIES
EXCHANGE
1.1 The
Exchange. Subject
to the terms and conditions of this Agreement, at the Closing each Anchor Member
will sell, convey, assign, transfer and deliver to the Company all their Units
(with the ownership of such Units as reflected on Schedule 1 Anchor’s operating
agreement, a copy of which is set forth in Schedule
2.1(a)
hereto),
and in exchange for the acquisition of such Units, the Company will issue to
each Anchor Member 80 shares of the Company’s common stock per Unit exchanged
(the “Exchange
Shares”).
1.2 Closing.
The
closing of the Transactions (the “Closing”)
shall
take place at the offices of Kennedy Covington Lobdell & Hickman, L.L.P.
legal counsel for Anchor located in Charlotte, North Carolina, at 10:00 a.m.,
local time, on the second business day following the satisfaction of the
conditions in Article
V
and
Article
VI
hereof
to be satisfied prior to the Closing or at such other date and time as the
Parties shall otherwise agree (the “Closing
Date”).
1.3 Tax
Treatment. It
is
intended by the Parties that the Exchange, together with the Private Placement
Transaction, qualify as an exchange under Section 351(a) of the
Code.
1
1.4 Certain
Definitions
(a) “Knowledge”
For
purposes of this Agreement, whenever the phrase “to a Party’s knowledge,” “the
Party is not aware” or a similar expression appears in any representation or
warranty in this Agreement, it means either to the actual knowledge of the
Party’s executive officers, or that a prudent individual in the position of such
executive officers should be expected to discover or otherwise become aware
of
such fact, condition or other matter in the course of conducting a reasonable
investigation concerning the existence of such fact, condition or other matter.
Whenever the phrase “the Party has received no notice” or like expression
appears in any representation or warranty in this Agreement, it means that
none
of the Party’s executive officers has received actual electronic or written
notice of the matter to which such phrase is applied.
(b) “GAAP”
shall
mean United States generally accepted accounting principals, consistently
applied.
(c) “Material
Adverse Effect”
or
“Material
Adverse Change”
shall
mean any event, change or effect that, when taken individually or together
with
all other adverse events, changes and effects, is or is reasonably likely to
be
materially adverse to the financial condition, results of operations or business
and operations, as currently conducted, of the Party, taken as a whole, to
which
the phrase refers; provided, however, that the following shall not be taken
into
account in determining whether there has been a Material Adverse Effect on
or
with respect to such Party: any change, effect or circumstance (i) relating
to
conditions affecting the economy of the United States generally or (ii) relating
to conditions generally affecting the industry (or industries) in which such
Party participates, and not affecting such Party in a materially
disproportionate manner. For the avoidance of doubt, the Parties agree that
the
terms “material”, “materially”, or “materiality” as used in this Agreement with
an initial lower case “m” shall have their respective customary and ordinary
meanings, without regard to the meaning ascribed to Material Adverse
Effect.
(d) “Legal
Proceedings”
shall
mean any legal, administrative, arbitral or other proceedings, claims, actions
or governmental (or otherwise) investigations of any nature.
(e) “Legal
Requirement”
shall
mean any federal, state, local, municipal, foreign, international,
multinational, or other administrative order, constitution, law, ordinance,
principle of common law, regulation, statute or treaty.
(f) “Person”
shall
mean an individual, a corporation, a limited liability company, a partnership,
an association, a trust or any other entity or organization, including any
governmental or regulatory authority or agency.
(g) “Pink
Sheets”
shall
mean an electronic quotation system that displays quotes from broker-dealers
for
certain over-the-counter securities.
(h) “Subsidiaries”
when
used in this Agreement with respect to any Party, means any corporation, joint
venture, association, partnership, trust or other entity in which such Party
has, directly or indirectly, at least a fifty percent (50%) interest or acts
as
a general partner.
2
(i) “Taxes”
shall
mean all federal, territorial, state, local or foreign income or profits taxes
(including but not limited to, federal income taxes and state income taxes),
payroll and employee withholding taxes, unemployment insurance, social security
taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise taxes,
gross receipts taxes, business license taxes, occupation taxes, real and
personal property taxes, stamp taxes, environmental taxes, transfer taxes,
workers’ compensation, Pension Benefit Guaranty Corporation premiums and other
taxes, assessments, customs, duties, fees, levies or other governmental charges,
and other obligations of the same or of a similar nature to any of the
foregoing, whether disputed or not, together with any interest penalties,
additions to tax or additional amounts with respect thereto.
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES
OF
ANCHOR
Anchor
hereby represents and warrants to the Company that each of the following are
true and correct, except as set forth in the disclosure schedule delivered
by
Anchor on or before the date of this Agreement (the “Anchor
Disclosure Schedule”).
Disclosure in any paragraph of the Anchor Disclosure Schedule shall constitute
disclosure for all other sections of this Article
II
and this
Agreement.
2.1 Organization
and Good Standing
(a) Anchor
is
a limited liability company duly organized, validly existing and in good
standing under the laws of the State of North Carolina. Anchor has the requisite
company power and authority to own or lease all of its properties and assets
and
to carry on its business as it is now being conducted and is duly licensed
or
qualified to do business and is in good standing in each jurisdiction in which
the nature of the business conducted by it or the character or location of
the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have a Material Adverse Effect on Anchor.
Schedule
2.1(a)
of the
Anchor Disclosure Schedule sets forth true and complete copies of the articles
of organization of Anchor and the operating agreement of Anchor, each as amended
and in effect on the date hereof (the “Anchor
Governing Documents”).
(b) Anchor
does not have any Subsidiaries. Anchor does not own or control, directly or
indirectly, any equity interest in any corporation, company, association,
partnership, joint venture or other entity and owns no real estate.
2.2 Capitalization.
The
number and type of outstanding Units of Anchor are as set forth on Schedule
1
Anchor’s operating agreement, a copy of which is set forth in Schedule
2.1(a)
hereto.
Except as set forth on such Schedule A, there are no Units, limited liability
company interests, other equity interests of Anchor and there are no outstanding
securities convertible or exchangeable into Units of Anchor or any options,
warrants, purchase rights, subscription rights, preemptive rights, conversion
rights, exchange rights, calls, puts, rights of first refusal or other Contracts
that could require Anchor to issue, sell or otherwise cause to become
outstanding or to acquire, repurchase or redeem Units or any other equity
interests of Anchor.
3
2.3 Authority;
No Violation.
Anchor
has full company power and authority to execute and deliver this Agreement
and
to consummate the Transactions in accordance with the terms hereof. The
execution and delivery of this Agreement and the consummation of the
Transactions have been duly and validly approved by the members of Anchor.
This
Agreement has been duly and validly executed and delivered by Anchor and
constitutes the valid and binding obligation of Anchor, enforceable against
Anchor in accordance with its terms.
2.4 Financial
Statements
(a) Schedule 2.4(a)
of the
Anchor Disclosure Schedule sets forth copies of (i) the unaudited financial
statements of Anchor as of December 31, 2005; and (ii) unaudited financial
statements of Anchor for the ten months ended October 31, 2006 (the
“Anchor
Financial Statements”).
The
Anchor Financial Statements fairly present the financial condition and the
results of operations, changes in stockholders’ equity and cash flow of Anchor
as at the respective dates of and for the periods referred to in such Anchor
Financial Statements, all in accordance with GAAP, and are consistent with
the
books and records of Anchor; provided, however, that the Anchor Financial
Statements referred to in clause (ii) above are subject to normal recurring
year-end adjustments (which are not expected to be material) and do not include
footnotes.
(b) As
of the
date of this Agreement, all of the liabilities of Anchor for legal and
consulting fees and expenses are set forth on Schedule 2.4(b)
of the
Anchor Disclosure Schedule.
2.5 Absence
of Certain Changes or Events.
There
has been no Material Adverse Change to Anchor since October 31, 2006 or the
occurrence of a default as described in Section 2.10(c),
and to
Anchor’s knowledge, there has occurred no event or development which is
reasonably likely to cause such a Material Adverse Change to Anchor in the
future.
2.6 Legal
Proceedings.
There
is no Legal Proceeding which is pending and Anchor has received no notice that
any Legal Proceeding is threatened against Anchor or against any Anchor officer
or director in their capacity as a Anchor officer or director which is material
to Anchor. Anchor is not a party to any material order, judgment or decree
entered against Anchor in any lawsuit or proceeding.
2.7 Taxes
and Tax Returns.
All
material Tax returns (including information returns), reports, declarations
and
statements relating to Taxes (collectively “Returns”)
required to be filed to date by Anchor have been accurately prepared in all
material respects and duly filed, or an extension therefrom has been duly
obtained, and all material Taxes due and payable by Anchor have been paid when
due. There is no examination or audit for Taxes of Anchor currently in progress,
no written claim, asserted deficiency or assessment for Taxes of Anchor has
been
made, and, to the Knowledge of Anchor, no such claim, deficiency or assessment
has been threatened. No liens or similar encumbrances have been asserted against
Anchor with respect to the failure to pay any Taxes (other than with respect
to
Taxes not yet due and payable). Anchor has not waived any statute of limitations
in respect of Taxes or executed or filed with any taxing authority any
agreements extending the period for assessment or collection of any Taxes.
The
unpaid Taxes of Anchor for tax periods through October 31, 2006 do not exceed
the accruals and reserves for Taxes set forth on Anchor’s balance sheet as of
October 31, 2006. Proper amounts have been withheld by Anchor in accordance
with
Tax withholding provisions of applicable laws and, to the extent required,
have
been paid to the proper authority. Anchor is not and has never been a member
of
a group of corporations with which it has filed (or been required to file)
consolidated, combined or unitary Returns. Anchor is not a party to any
tax-sharing or tax-allocation agreement, nor does Anchor owe any amounts under
any tax-sharing or tax-allocation agreement. Anchor has never been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code.
4
2.8 Employee
Benefit Plans
(a) Schedule
2.8(a)
of the
Anchor Disclosure Schedule contains a complete list of “Anchor
Plans”
consisting of each arrangement or policy (written or oral) and each plan or
arrangement (written or oral) providing for insurance coverage, workers’
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, retirement benefits or deferred compensation, profit sharing, bonuses,
stock options, stock appreciation rights, stock purchases or other forms of
incentive compensation or post-retirement insurance, compensation or benefits
which is maintained or administered by Anchor, or to which Anchor contributes,
and which covers any employee or former employee of Anchor or under which Anchor
has any liability, including “employee welfare benefit plan,” “employee benefit
plan” and “employee pension benefit plan” as defined under the Employee
Retirement Income Security Act (“ERISA”);
(b) With
respect to the Anchor Plans, Anchor has delivered, or made available, to the
Company prior to the Closing, a copy of each Anchor Plan and any amendment(s)
thereto, together with (i) any written descriptions or summaries thereof, (ii)
all trust agreements, insurance contracts, annuity contracts or other funding
instruments, and (iii) the last two annual reports (IRS Form 5500 Series,
together with all required schedules) prepared in connection with any such
Plan.
The Anchor Plans comply, to the extent applicable, with the requirements of
ERISA and the Code, and any Anchor Plan intended to be qualified under Section
401(a) of the Code has been determined by the Internal Revenue Service (the
“IRS”)
to be
so qualified;
(c) Anchor
is
not a party to any collective bargaining agreements. There are no strikes or
labor disputes or lawsuits, unfair labor or unlawful employment practice
charges, contract grievances or similar charges or actions pending, and Anchor
has received no notice that any strikes or labor disputes or lawsuits, unfair
labor or unlawful employment practice charges, contract grievances or similar
charges or actions is threatened, by any of the employees, former employees
or
employment applicants of Anchor that would have a Material Adverse Effect on
Anchor.
(d) To
Anchor’s knowledge, no employee of Anchor is obligated under any agreement or
judgment that would conflict with such employee’s obligation to use his best
efforts to promote the interests of Anchor or would conflict with Anchor’s
business as conducted. To Anchor’s knowledge, no employee of Anchor is in
violation of the terms of any employment agreement or any other agreement
relating to such employee’s relationship with any previous employer and no
litigation is pending and Anchor has received no notice that any such litigation
is threatened with regard thereto.
5
2.9 Compliance
with Applicable Law.
Anchor
has substantially complied with all applicable laws, regulations, judgments,
decrees or orders of any court or governmental agency or entity except where
the
failure to so comply would not have a Material Adverse Effect on Anchor.
2.10 Certain
Contracts
(a) Schedule 2.10(a)
of the
Anchor Disclosure Schedule sets forth true and correct copies of all written
employment agreements or termination agreements with current officers,
directors, employees or consultants of Anchor, to which Anchor is a party as
of
the date of this Agreement.
(b) Except
as
set forth on Schedule
2.10(b),
As of
the date of this Agreement, (i) Anchor is not a party to or bound by any
commitment, agreement or other instrument (excluding commitments and agreements
in connection with extensions of credit by Anchor) which contemplates the
payment of amounts in excess of $100,000, or which otherwise is material to
the
operations, assets or financial condition of Anchor, including but not limited
to any royalty, franchising fees, or any other fee based on a percentage of
revenues or income and (ii) no commitment, agreement or other instrument to
which Anchor is a party or by which it is bound limits the freedom of Anchor
to
compete in any line of business or with any person.
(c) As
of the
date of this Agreement, Anchor is not in default in any material respect under
any material lease, contract, mortgage, promissory note, deed of trust, loan
agreement, license agreement (as to royalty payments) or other commitment or
arrangement.
(d) As
of the
date of this Agreement, to the knowledge of Anchor, any other party thereto
is
not in default in any material respect under any material lease, contract,
mortgage, promissory note, deed of trust, loan agreement, license agreement
or
other commitment or arrangement, except for any such default that is not
expected to have a Material Adverse Effect on Anchor.
(e) As
of the
date of this Agreement, to the knowledge of Anchor, all royalty payments,
franchising fees, or any other payments based on a percentage of revenues or
income have been fully paid by Anchor to any other party.
6
2.11 Properties
and Insurance
(a) Anchor
has good and, as to owned real property, if any, legal title to all material
assets and properties, whether real or personal, tangible or intangible,
reflected in Anchor’s balance sheet as of October 31, 2006, or owned and
acquired subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value in the ordinary course of
business since October 31, 2006), subject to no encumbrances, liens, mortgages,
security interests or pledges, except (i) those items that secure
liabilities that are reflected in such balance sheet or incurred in the ordinary
course of business after the date of such balance sheet, (ii) statutory
liens for amounts not yet delinquent or which are being contested in good faith,
and statutory and contractual landlord’s liens in connection with any leases,
(iii) such encumbrances, liens, mortgages, security interests, pledges and
title imperfections that are not in the aggregate material to the business,
operations, assets, and financial condition of Anchor and (iv) with respect
to owned real property, if any, title imperfections noted in title reports
delivered to the Company prior to the date hereof. Anchor, as lessee, has the
right under written leases to occupy, use, possess and control, in all material
respects, all real property leased by it, subject to the terms and provisions
of
such leases.
(b) Except
for software licenses associated with stand-alone computers, leases of vehicles
and miscellaneous office equipment and all sale-leaseback transactions and
subject to the Intellectual Property rights of third parties, all of the assets
(tangible and intangible) purported to be owned by Anchor that exceed $5,000
in
value are the lawful property of Anchor and as such are freely and fully
assignable or transferable except as otherwise provided herein.
(c) Schedule
2.11(c)
of the
Anchor Disclosure Schedule lists all policies of insurance and bonds covering
business operations and insurable properties and assets of Anchor, all risks
insured against, and the amount thereof and deductibles relating thereto. Anchor
has not, since January 1, 2005, received any notice of cancellation or
notice of a material amendment of any such insurance policy or bond and it
is
not in default in any material respect under such policy or bond, and, to
Anchor’s knowledge, no coverage thereunder is being disputed and all material
claims thereunder have been filed in a timely fashion.
2.12 Minute
Books
.
The
minute books of Anchor contain records which, in all material respects,
accurately record all meetings of its members.
2.13 Environmental
Matters
(a) Anchor
has not received any written notice, citation, claim, assessment, proposed
assessment or demand for abatement alleging that Anchor is responsible for
the
correction or cleanup of any condition resulting from the violation of any
law,
ordinance or other governmental regulation regarding environmental matters,
which correction or cleanup would be material to the business, operations,
assets or financial condition of Anchor. Anchor has no knowledge that any toxic
or hazardous substances or materials have been emitted, generated, disposed
of
or stored on any real property owned or leased by Anchor, or owned or controlled
by Anchor as a trustee or fiduciary (collectively, “Anchor
Properties”),
in
any manner that violates or, after the lapse of time may violate, any presently
existing federal, regional, state or local law or regulation governing or
pertaining to such substances and materials, the violation of which would have
a
Material Adverse Effect on Anchor.
7
(b) Anchor
has no knowledge that, during Anchor’s ownership or lease of such Anchor
Properties, any of the Anchor Properties has been operated in any manner that
violated any applicable national, state or local law or regulation governing
or
pertaining to toxic or hazardous substances and materials, the violation of
which would have a Material Adverse Effect on Anchor.
2.14 Agreements
with Governmental Entity.
Anchor
is not a party to any agreement or memorandum of understanding with, or a party
to any commitment letter, or board resolution submitted to a regulatory
authority or similar undertaking to, and is not a recipient of, nor a party
to
any order or directive by, any court, governmental authority or other regulatory
or administrative agency or commission, domestic or foreign.
2.15 Labor
Disputes.
Anchor
is not directly or indirectly involved in and Anchor has received no notice
threatening any labor dispute or trouble or organizational effort, including,
without limitation, matters regarding actual or alleged discrimination by reason
of race, creed, sex, disability or national origin, which would have a Material
Adverse Effect on Anchor.
2.16 Loans,
Etc.
No
member of Anchor has any liabilities, obligations or indebtedness of any kind
whatsoever chargeable to the Anchor member and payable to Anchor by the Anchor
member.
2.17 Intellectual
Property
(a) The
term
“Intellectual
Property”
includes the following:
(i) all
United States, international and foreign patents, patent applications and
statutory invention registrations, together with all reissues, divisions,
continuations, continuations-in-part, extensions and reexaminations thereof,
all
inventions therein, all rights therein provided by international treaties or
conventions and all improvements thereto, and all other rights of any kind
whatsoever accruing thereunder or pertaining thereto;
(ii) all
trademarks (including, without limitation, service marks), certification marks,
collective marks, trade dress, logos, domain names, product configurations,
trade names, business names, corporate names and other source identifiers,
whether or not registered, whether currently in use or not, including, without
limitation, all common law rights and registrations and applications for
registration thereof, and all other marks registered in the U.S. Patent and
Trademark Office or in any office or agency of any State or Territory of the
United States or any foreign country (but excluding any United States
intent-to-use trademark application prior to the filing and acceptance of a
Statement of Use or an Amendment to allege use in connection therewith to the
extent that a valid security interest may not be taken in such an intent-to-use
trademark application under applicable law), and all rights therein provided
by
international treaties or conventions, all reissues, extensions and renewals
of
any of the foregoing, together in each case with the goodwill of the business
connected therewith and symbolized thereby, and all rights corresponding thereto
throughout the world and all other rights of any kind whatsoever accruing
thereunder or pertaining thereto;
8
(iii) all
copyrights, copyright applications, copyright registrations and like protections
in each work of authorship, whether statutory or common law, whether published
or unpublished, any renewals or extensions thereof, all copyrights of works
based on, incorporated in, derived from, or relating to works covered by such
copyrights, together with all rights corresponding thereto throughout the world
and all other rights of any kind whatsoever accruing thereunder or pertaining
thereto;
(iv) all
confidential and proprietary information, including, without limitation,
know-how, trade secrets, manufacturing and production processes and techniques,
inventions, research and development information, technical data, financial,
marketing and business data, pricing and cost information, business and
marketing plans and customer and supplier lists and information;
(v) all
computer software programs and databases (including, without limitation, source
code, object code and all related applications and data files), firmware, and
documentation and materials relating thereto, and all rights with respect to
the
foregoing, together with any and all options, warranties, service contracts,
program services, test rights, maintenance rights, improvement rights, renewal
rights and indemnifications and any substitutions, replacements, additions
or
model conversions of any of the foregoing;
(vi) all
license agreements, permits, authorizations and franchises, whether with respect
to the Patents, Trademarks, Copyrights, URLs, Trade Secrets or Computer
Software, or with respect to the patents, trademarks, copyrights, trade secrets,
computer software or other proprietary right of any other Person, and all
income, royalties and other payments now or hereafter due and/or payable with
respect thereto, subject, in each case, to the terms of such license agreements,
permits, authorizations and franchises;
(vii) all
URLs,
domain names or other names or addresses with respect to the Internet
(including, without limitation, registrations and applications for registration
thereof with private or public URL registries, domestic and foreign), together
with all intellectual property and all other rights of any kind whatsoever
of
accruing thereunder, pertaining thereto or associated therewith, including,
without limitation, all registrations, applications, renewals, reissues,
extensions, links (including, without limitation, metal tags), and
connections.
(b) Agreements.
Schedule 2.17(b)
of the
Anchor Disclosure Schedule contains a complete and accurate list and summary
description, including any royalties paid or received by Anchor, of each written
or oral lease, agreement, contract, commitment or license by which Anchor
(a) has or may acquire any rights, (b) has or may become subject to
any obligation or liability, or (c) or any of the assets owned or used by
it is or may become bound (“Arrangements”)
relating to Intellectual Property to which Anchor is a party or by which Anchor
is bound, except for any license implied by the sale of a product and perpetual,
paid-up licenses for commonly available software programs with a value of less
than $5,000 under which Anchor is the licensee. There are no outstanding and,
to
the knowledge of Anchor, no threatened disputes or disagreements with respect
to
any such Arrangements. To the knowledge of Anchor, no party to an Arrangement
relating to the use by Anchor of any Intellectual Property owned by another
Person is or has at any time been in breach of such Arrangements. Anchor has
not
granted or is not obligated to grant a license, assignment or other right with
respect to any Intellectual Property.
9
(c) Know-How.
(i) The
Intellectual Property includes all such assets which are reasonably necessary
for the operation of Anchor’s businesses as it is currently conducted. Anchor
owns or possesses sufficient legal rights to all Intellectual Property necessary
for the operation of its business as it is currently conducted except where
the
failure to have such rights would not have a Material Adverse Effect on the
operations or financial condition of Anchor. To the knowledge of Anchor, it
has
not violated or, by conducting its business as presently proposed, would violate
any of the Intellectual Property Rights of any other Person.
(ii) All
former and current employees of Anchor have executed written Arrangements with
Anchor that assign to Anchor all rights to any inventions, improvements,
discoveries, or information relating to the business of Anchor. To the knowledge
of Anchor, no employee of Anchor has entered into any Arrangement that restricts
or limits in any way the scope or type of work in which the employee may be
engaged or requires the employee to transfer, assign, or disclose information
concerning his or her work to anyone other than Anchor. No past or present
stockholder, employee, director, officer, contractor, agent or representative
of
Anchor has any ownership interest or any other rights in or to any Intellectual
Property. No Arrangement or understanding exists between Anchor and any third
party which would impede or prevent the continued use of such right, title
and
interest of Anchor in and to the Intellectual Property as Anchor had prior
to
the Closing and used in the conduct of its business, subject to the rights
of
licensors and licensees pursuant to existing Arrangements listed on Schedule 2.17(b)
to the
Anchor Disclosure Schedule.
2.18 No
Brokers.
Anchor
has not employed or authorized anyone to represent it as a broker, finder or
financial consultant in connection with the Transactions, and no broker, finder,
financial consultant or other person is entitled to any commission, finder’s fee
or consulting fee, or any similar fee, from Anchor in connection with the
Transactions. Anchor will indemnify and hold harmless the Company from and
against any and all losses, claims, demands, damages, costs and expenses,
including, without limitation, reasonable attorneys’ fees and expenses the
Company may sustain or incur as a result of any claim for a commission, finder’s
fee or consulting fee by a broker, finder or financial consultant acting on
behalf of Anchor.
10
2.19 Bankruptcy;
Criminal Proceedings.
To the
knowledge of Anchor, Anchor, its officers, directors, affiliates, promoters
or
any predecessor thereof have not been subject to or suffered any of the
following:
(a) Any
bankruptcy petition filed by or against any business of which such Person was
a
general partner or executive officer either at the time of the bankruptcy or
within two (2) years prior to that time;
(b) Any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other misdemeanor offenses) within
ten (10) years from the date hereof;
(c) Any
order, judgment or decree, not subsequently reversed, suspended or vacated,
of
any court of competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting such Person’s involvement in any type
of business, securities or banking activities; or
(d) Being
found guilty by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission (“SEC”)
or the
Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed, suspended
or vacated.
2.20 Disclosure.
No
representation or warranty contained in Article
II
of this
Agreement contains any untrue statement of a material fact or omits to state
a
material fact necessary to make the statements herein not misleading in the
context of such representations and warranties.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
OF
COMPANY AND COMPANY STOCKHOLDERS
The
Company and the Company Stockholders hereby represent and warrant to Anchor
that
the statements contained in this Article
III
are true
and correct, except as set forth in the disclosure schedule delivered by the
Company and the Company Stockholders to Anchor on or before the date of this
Agreement (the “Company
Disclosure Schedule”).
Notwithstanding the foregoing, with respect to the representations and
warranties of the Company Stockholders (i) Halter Financial Investments, L.P.
represents and warrants to Anchor that the statements contained in this
Article
III
are true
and correct, except as set forth in the Company Disclosure Schedule, solely
as
to the Operating Period (as such term is defined in Section 7.1(a))
and
(ii) Benchmark Equity Group, Inc., William Baquet and Frank DeLape, jointly
and
severally, represent and warrant to Anchor that the statements contained in
this
Article
III
are true
and correct, except as set forth in the Company Disclosure Schedule, solely
as
to the Ownership Period (as such term is defined in Section 7.1(b)).
3.1 Organization
and Good Standing
.
(a) The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Company has the requisite corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted and is duly licensed or
qualified to do business and in good standing in each jurisdiction in which
the
nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have a Material Adverse Effect on the Company.
Schedule
3.1(a)
of the
Company Disclosure Schedule sets forth true and complete copies of the
Certificate of Incorporation and bylaws of the Company each as amended and
in
effect on the date hereof (the “Company
Governing Documents”
and
together with the Anchor Governing Documents, “Governing
Documents”).
11
(b) The
Company does not own or control, directly or indirectly, any equity interest
in
any corporation, company, association, partnership, joint venture or other
entity or own real estate.
3.2 Capitalization
(a) The
authorized capital stock of the Company consists of an aggregate of 40,000,000
shares of Company Common Stock and 10,000,000 shares of preferred stock, par
value $0.001 per share (“Company
Preferred Stock”
and
together with Company Common Stock, “Company
Stock”).
As of
the date hereof there are and immediately prior to Closing and the completion
of
the Private Placement Transaction there will be, 3,820,555 shares of Company
Common Stock issued and outstanding, no shares of Company Preferred Stock issued
and outstanding and no shares of Company Stock held in the treasury of the
Company. The issued and outstanding shares of Company Stock are owned by the
Persons and in the numbers specified in Schedule
3.2
of the
Company Disclosure Schedule. Except as set forth on Schedule
3.2,
there
are no outstanding options, warrants or other rights to acquire shares of
Company Stock. All issued and outstanding shares of Company Common Stock are
duly authorized and validly issued, and fully paid and nonassessable and have
voting rights. The authorized but unissued shares of Company Stock are not
subject to any preemptive rights. The Company does not have, nor is it bound
by,
any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the transfer, purchase or issuance
of
any shares of capital stock of the Company or any securities representing the
right to purchase or otherwise receive any shares of such capital stock or
any
securities convertible into or representing the right to subscribe for any
such
shares, and there are no agreements or understandings with respect to voting
of
any such shares. None of the outstanding equity securities or other securities
of the Company was issued in violation of the Securities Act of 1933, as amended
(the “Securities
Act”),
or
any other state of federal law. There are no outstanding obligations of the
Company to register under the Securities Act any shares of its capital stock
or
to include in any registration of its capital stock shares held by others.
12
(b) All
of
the Exchange Shares will be, when issued on the terms and conditions of this
Agreement, duly authorized, validly issued, fully paid and nonassessable and
not
subject to or issued in violation of any purchase option, call option, right
of
first refusal, preemptive right, subscription right or any similar right under
any provision of the Company’s certificate of incorporation or bylaws or any
agreement to which the Company is a party or is otherwise bound.
(c) Immediately
following the issuance of the Exchange Shares, the issued and outstanding shares
of Company Common Stock will be owned by the Persons and in the numbers
specified in Schedule
3.2
of the
Company Disclosure Schedule. Except for the equity securities to be sold
pursuant to the Private Placement Transaction and any Common Stock to be issued
upon the exercise of any warrants or options set forth on Schedule
3.2
or on
Schedule 5.4(c),
the
Company has no plan or intention or any obligation to issue any additional
capital stock.
3.3 Authority;
No Violation
(a) The
Company has full corporate power and authority to execute and deliver this
Agreement and to consummate the Transactions in accordance with the terms
hereof. The execution and delivery of this Agreement and the consummation of
the
Transactions have been duly and validly approved by the board of directors
of
the Company. No corporate proceedings on the part of the Company are necessary
to consummate the Transactions.
(b) Neither
the execution and delivery of this Agreement by the Company, nor the
consummation by the Company of the Transactions in accordance with the terms
hereof, or compliance by the Company with any of the terms or provisions hereof,
will (i) violate any provision of the Company’s Certificate of Incorporation or
bylaws, each as amended and in effect as of the date hereof, (ii) violate any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to the Company or any of its properties or assets, or
(iii) violate, conflict with, result in a breach of any provisions of,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of, accelerate
the
performance required by, or result in the creation of any lien, security
interest, charge or other encumbrance upon any of the properties or assets
of
the Company under any of the terms, conditions or provisions of, any note,
bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which the Company is a party, or by which the
Company or any of its properties or assets may be bound or affected except,
with
respect to (ii) and (iii) above, such as individually and in the aggregate
would
not have a Material Adverse Effect on the Company, or the ability of the Company
to consummate the Transactions. Except as set forth in Section 3.3(b) of the
Company Disclosure Schedule, no consents or approvals of or filings or
registrations with or notices to any public body or authority are necessary
on
behalf of the Company in connection with (x) the execution and delivery by
the
Company of this Agreement and (y) the consummation by the Company of the
Transactions.
13
3.4 Interim
Operations of the Company
.
Since
November 29, 2004 the Company has engaged in no business activities other than
in connection with and as contemplated by this Agreement.
3.5 Financial
Statements
(a) Schedule 3.5(a)
of the
Company Disclosure Schedule sets forth copies of the audited financial
statements of the Company as of June 30, 2006 and for the six month period
ended
June 30, 2006, for the year ended December 31, 2005 and for the period from
November 29, 2004 to December 31, 2004, together with the report thereon of
S.W.
Hatfield, CPA, independent certified public accountants (the “Company
Financial Statements”).
The
Company Financial Statements fairly present the financial condition and the
results of operations, changes in stockholders’ equity and cash flow of the
Company as at the respective dates of and for the periods referred to in such
Company Financial Statements, all in accordance with GAAP, and are consistent
with the books and records of the Company. The Company Financial Statements
do
not now and did not at the time they were prepared contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of
the circumstances under which they were made, not misleading.
(b) As
of the
date of this Agreement, the Company has no liabilities for legal or consulting
fees or expenses.
3.6 Absence
of Certain Changes or Events.
There
has been no Material Adverse Change to the Company since June 30, 2006 or the
occurrence of a default as described in Section 3.11(c),
and to
the Company’s knowledge, there has occurred no event or development which is
reasonably likely to cause such a Material Adverse Change to the Company in
the
future.
3.7 Legal
Proceedings.
There
is no Legal Proceeding which is pending, and the Company has not received notice
threatening a Legal Proceeding, against the Company or against any present
or
former Company officer or director in their capacity as an officer or director
which is material to the Company. the Company is not a party to any material
order, judgment or decree entered against the Company in any lawsuit or
proceeding.
3.8 Taxes
and Tax Returns.
All
material Returns required to be filed to date by the Company (and any
predecessor) have been accurately prepared in all material respects and duly
filed, or an extension therefrom has been duly obtained, and all material Taxes
due and payable by the Company (and any predecessor) have been paid when due.
There is no examination or audit for Taxes of the Company (or any predecessor)
currently in progress, no written claim, asserted deficiency or assessment
for
Taxes of the Company (or any predecessor) has been made, and, to the Knowledge
of Company, no such claim, deficiency or assessment has been threatened. No
liens or similar encumbrances have been asserted against the Company (or any
predecessor) with respect to the failure to pay any Taxes. The Company has
not
waived any statute of limitations in respect of Taxes or executed or filed
with
any taxing authority any agreements extending the period for assessment or
collection of any Taxes. The unpaid Taxes of the Company for tax periods through
June 30, 2006 do not exceed the accruals and reserves for Taxes set forth on
the
Company’s balance sheet as of June 30, 2006. Proper amounts have been withheld
by the Company (and any predecessor) in accordance with Tax withholding
provisions of applicable laws and, to the extent required, have been paid to
the
proper authority. Neither the Company nor any predecessor is or has ever been
a
member of a group of corporations with which it has filed (or been required
to
file) affiliated, consolidated, combined, unitary or similar Returns. Neither
the Company nor any predecessor is a party to any tax-sharing or tax-allocation
agreement, nor does the Company (or any predecessor) owe any amounts under
any
tax-sharing or tax-allocation agreement, or as transferee or successor or by
contract. The Company has never been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code.
14
3.9 Employee
Benefit Plans
(a) The
Company does not have any arrangement or policy (written or oral) or other
plan
or arrangement (written or oral) providing for insurance coverage, workers’
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, retirement benefits or deferred compensation, profit sharing, bonuses,
stock options, stock appreciation rights, stock purchases or other forms of
incentive compensation or post-retirement insurance, compensation or benefits,
nor does the Company contribute to or have liability under any such plan or
arrangement, with respect to any employee or former employee of the Company,
including “employee welfare benefit plan,” “employee benefit plan” and “employee
pension benefit plan” as defined under ERISA;
(b) The
Company is not a party to any collective bargaining agreements. There are no
strikes or labor disputes or lawsuits, unfair labor or unlawful employment
practice charges, contract grievances or similar charges or actions pending,
and
the Company has received no notice that any strikes or labor disputes or
lawsuits, unfair labor or unlawful employment practice charges, contract
grievances or similar charges or actions is threatened, by any of the employees,
former employees or employment applicants of the Company that would have a
Material Adverse Effect on the Company.
(c) To
the
Company’s knowledge, no employee of the Company is obligated under any agreement
or judgment that would conflict with such employee’s obligation to use his best
efforts to promote the interests of the Company or would conflict with the
Company’s business as conducted. To the Company’s knowledge, no employee of the
Company is in violation of the terms of any employment agreement or any other
agreement relating to such employee’s relationship with any previous employer
and no litigation is pending and the Company has received no notice that any
such litigation is threatened with regard thereto.
3.10 Compliance
with Applicable Law
.
The
Company has substantially complied with all applicable laws, regulations,
judgments, decrees or orders of any court or governmental agency or entity
except where the failure to so comply would not have a Material Adverse Effect
on the Company.
15
3.11 Certain
Contracts
(a) The
Company has no written employment agreements or termination agreements with
current officers, directors or consultants.
(b) The
Company is not a party to or bound by any commitment, agreement or other
instrument (excluding commitments and agreements in connection with extensions
of credit by the Company) which contemplates the payment of amounts in excess
of
$10,000, or which otherwise is material to the operations, assets or financial
condition of the Company, including but not limited to any royalty, franchising
fees, or any other fee based on a percentage of revenues or income. No
commitment, agreement or other instrument to which the Company is a party or
by
which it is bound limits the freedom of the Company to compete in any line
of
business or with any Person.
(c) The
Company is not in default in any material respect under any material lease,
contract, mortgage, promissory note, deed of trust, loan agreement, license
agreement (as to royalty payments) or other commitment or
arrangement.
(d) As
of the
date of this Agreement, to the knowledge of the Company, any other party thereto
is not in default in any material respect under any material lease, contract,
mortgage, promissory note, deed of trust, loan agreement, license agreement
or
other commitment or arrangement that is material to the Company.
(e) To
the
knowledge of the Company, all royalty payments, franchising fees, or any other
payments based on a percentage of revenues or income have been fully paid by
the
Company to any other party.
3.12 Properties
and Insurance
(a) The
Company has good and, as to owned real property, if any, legal title to all
material assets and properties, whether real or personal, tangible or
intangible, reflected in the Company’s balance sheet as of June 30, 2006, or
owned and acquired subsequent thereto (except to the extent that such assets
and
properties have been disposed of for fair value in the ordinary course of
business since June 30, 2006), subject to no encumbrances, liens, mortgages,
security interests or pledges, except (i) those items that secure
liabilities that are reflected in such balance sheet or the notes thereto or
incurred in the ordinary course of business after the date of such balance
sheet, (ii) statutory liens for amounts not yet delinquent or which are
being contested in good faith and statutory and contractual landlord’s liens in
connection with any leases, (iii) such encumbrances, liens, mortgages,
security interests, pledges and title imperfections that are not in the
aggregate material to the business, operations, assets, and financial condition
of the Company and (iv) with respect to owned real property, if any, title
imperfections noted in title reports delivered to Anchor prior to the date
hereof. The Company, as lessee, has the right under written leases to occupy,
use, possess and control, in all material respects, all real property leased
by
it, as presently occupied, used, possessed and controlled by it, subject to
the
terms and provisions of such leases.
16
(b) Except
for software licenses associated with stand-alone computers, leases of vehicles
and miscellaneous office equipment, all sale-leaseback transactions and subject
to Intellectual Property rights of third parties, all of the assets (tangible
and intangible) purported to be owned by the Company that exceed $5,000 in
value
are the lawful property of the Company and as such are freely and fully
assignable or transferable except as otherwise provided herein.
(c) The
Company has no policies of insurance and bonds covering business operations
or
insurable properties or assets of the Company. The Company has not, since
November 29, 2004, received any notice of cancellation or notice of a material
amendment of any such insurance policy or bond and it is not in default in
any
material respect under such policy or bond, and, to the Company’s knowledge, no
coverage thereunder is being disputed and all material claims thereunder have
been filed in a timely fashion.
3.13 Minute
Books.
The
minute books of the Company contain records which, in all material respects,
accurately record all meetings of their stockholders and Boards of Directors
(including committees of the Board of Directors).
3.14 Environmental
Matters
(a) The
Company has not received any written notice, citation, claim, assessment,
proposed assessment or demand for abatement alleging that the Company is
responsible for the correction or cleanup of any condition resulting from the
violation of any law, ordinance or other governmental regulation regarding
environmental matters, which correction or cleanup would be material to the
business, operations, assets or financial condition of the Company. The Company
has no knowledge that any toxic or hazardous substances or materials have been
emitted, generated, disposed of or stored on any real property owned or leased
by the Company, or owned or controlled by the Company as a trustee or fiduciary
(collectively, “Company Properties”),
in
any manner that violates or, after the lapse of time may violate, any presently
existing federal, regional, state or local law or regulation governing or
pertaining to such substances and materials, the violation of which would have
a
Material Adverse Effect on the Company.
(b) The
Company has no knowledge that, during the Company’s ownership or lease of such
Company Properties, any of such Company Properties has been operated in any
manner that violated any applicable national, state or local law or regulation
governing or pertaining to toxic or hazardous substances and materials, the
violation of which would have a Material Adverse Effect on the
Company.
3.15 Agreements
with Governmental Entity.
The
Company is not a party to any agreement or memorandum of understanding with,
or
a party to any commitment letter, or board resolution submitted to a regulatory
authority or similar undertaking to, and is not a recipient of, nor a party
to
any order or directive by, any court, governmental authority or other regulatory
or administrative agency or commission, domestic or foreign.
17
3.16 Labor
Disputes.
The
Company is not directly or indirectly involved in and the Company has received
no notice threatening any labor dispute or trouble or organizational effort,
including, without limitation, matters regarding actual or alleged
discrimination by reason of race, creed, sex, disability or national origin,
which would have a Material Adverse Effect on the Company.
3.17 Loans,
Etc.
No
Company stockholder has any liabilities, obligations or indebtedness of any
kind
whatsoever chargeable to the Company stockholder and payable to the Company
by
the Company stockholder.
3.18 Absence
of Liabilities
.
The
Company has no obligations or liabilities of any nature whether known or
unknown, whether absolute or contingent, whether liquidated or unliquidated,
whether due or to become due, or otherwise.
3.19 Intellectual
Property
(a) Agreements.
The
Company is not a party to or bound by any Arrangements relating to Intellectual
Property, except for any license implied by the sale of a product and perpetual,
paid-up licenses for commonly available software programs with a value of less
than $5,000 under which the Company is the licensee. There are no outstanding
and, to the knowledge of the Company, no threatened disputes or disagreements
with respect to any such Arrangements. To the knowledge of the Company, no
party
to an Arrangement relating to the use by the Company of any Intellectual
Property owned by another person is or has at any time been in breach of such
Arrangements. The Company has not granted or is not obligated to grant a
license, assignment or other right with respect to any Intellectual
Property.
(b) Know-How.
(i) The
Company owns or possesses sufficient legal rights to all Intellectual Property
necessary for the operation of its business as it is currently conducted except
where the failure to have such rights would not have a Material Adverse Effect
on the operations or financial condition of the Company. To the knowledge of
the
Company, it has not violated or, by conducting its business as presently
proposed, would violate any of the Intellectual Property Rights of any other
Person.
(ii) All
former and current employees of the Company have executed written Arrangements
with the Company that assign to the Company all rights to any inventions,
improvements, discoveries, or information relating to the business of Company.
To the knowledge of the Company, no employee of the Company has entered into
any
Arrangement that restricts or limits in any way the scope or type of work in
which the employee may be engaged or requires the employee to transfer, assign,
or disclose information concerning his or her work to anyone other than the
Company. No past or present shareholder, employee, director, officer,
contractor, agent or representative of the Company has any ownership interest
or
any other rights in or to any Intellectual Property. No Arrangement or
understanding exists between the Company and any third party which would impede
or prevent the continued use of such right, title and interest of Company in
and
to the Intellectual Property as the Company had prior to the Closing and used
in
the conduct of its business.
18
3.20 No
Brokers.
The
Company has not employed or authorized anyone to represent them as a broker,
finder or financial consultant in connection with the Transactions, and no
broker, finder, financial consultant or other person is entitled to any
commission, finder’s fee or consulting fee from the Company in connection with
the Transactions.
3.21 Bankruptcy.
Other
than the voluntary petition for relief under chapter 11 of title 11 of the
United States Code filed on March 28, 2003 (in which a plan of reorganization
was confirmed on November 29, 2004), the Company has neither filed a voluntary
bankruptcy petition nor been the subject of an involuntary bankruptcy petition
nor is the Company the subject of an action under state insolvency laws or
any
other relevant laws.
3.22 Criminal
Proceedings.
To the
knowledge of the Company, the Company and its officers, directors, affiliates,
promoters or any predecessor thereof have not been subject to or suffered any
of
the following:
(a) Any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other misdemeanor offenses) within
ten (10) years from the date hereof;
(b) Any
order, judgment or decree, not subsequently reversed, suspended or vacated,
of
any court of competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting such Person’s involvement in any type
of business, securities or banking activities; or
(c) Being
found guilty by a court of competent jurisdiction (in a civil action), the
SEC
or the Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed, suspended
or vacated.
3.23 Consents
and Approvals.
All
actions required to be taken by the Company’s board of directors to authorize
the consummation of this Agreement and the Transactions have been duly and
validly taken by such boards of directors and no other consents or approvals
of
this Agreement or the Transactions shall be necessary.
3.24 State
Takeover Statutes.
The
Company’s board of directors has taken all action to ensure that any
restrictions on business combination do not apply to the
Transactions.
3.25 Disclosure.
No
representation or warranty contained in Article
III
of this
Agreement contains any untrue statement of a material fact or omits to state
a
material fact necessary to make the statements herein not misleading in the
context of such representations and warranties. There are no facts, conditions,
trends, claims, rights obligations or liabilities not specifically disclosed
in
this Article
III
which
have, or with the passage of time could have, a Material Adverse Effect on
the
operations, conditions, earnings, liabilities and prospects, whether financial
or otherwise, of the Company.
19
ARTICLE
IV
COVENANTS
OF THE PARTIES
4.1 Conduct
of Business
(a) During
the period from the date of this Agreement to the Closing Date, Anchor shall
conduct its businesses and engage in transactions permitted hereunder only
in
the ordinary course and consistent with prudent business practice, and shall
take no action that is inconsistent with the Agreement, except with the prior
consent of the Company, which consent may not be unreasonably withheld. Anchor
shall use all commercially reasonable efforts to (i) preserve its business
organization intact, (ii) keep available to itself the present services of
its employees and (iii) preserve for itself and the Company the goodwill of
its customers and others with whom business relationships exist.
(b) During
the period from the date of this Agreement to the Closing Date, the Company
shall conduct its business and engage in transactions permitted hereunder only
in the ordinary course and consistent with prudent business practice, and shall
take no action that is inconsistent with this Agreement, except with the prior
written consent of Anchor, which consent may not be unreasonably withheld.
The
Company shall conduct its operations in compliance with all applicable laws
and
regulations and shall each use all commercially reasonable efforts to preserve
its business organization intact.
(c) The
Parties hereto agree to treat the Exchange, together with the Private Placement
Transaction, as an exchange qualifying under Section 351(a) of the Internal
Revenue Code of 1986, as amended, and agree to file all tax returns, reports,
and attachments thereto in a manner consistent therewith.
4.2 Negative
Covenants
(a) During
the period from the date of this Agreement to the Closing Date, the Company
shall not engage in any transaction or take any action other than those
contemplated by this Agreement without the prior written consent of Anchor,
which consent may not be unreasonable withheld.
(b) The
Company, without limiting the generality of Section
4.2(a)
above,
further agrees, and Anchor agrees, that from the date hereof to the Closing
Date, except as otherwise approved by the Parties in writing, or as permitted
or
required by this Agreement, or as contemplated by the Company’s planned private
placement offering of its Series 1 Convertible Preferred Stock, they will
not:
(i) issue
or
sell any stock or other securities or any options, warrants or rights to acquire
any stock or other securities;
20
(ii) split,
combine or reclassify or change the terms of any shares of its capital stock;
or
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital
stock;
(iii) change
any provisions of their Governing Documents;
(iv) grant
any
severance or termination pay other than in the ordinary course of business
consistent with past practices and policies to, or enter into or amend any
employment agreement with, any of their directors, officers or employees; adopt
any new employee benefit plan or arrangement of any type or amend any such
existing benefit plan or arrangement; or award any increase in compensation
or
benefits to their directors, officers or employees except with respect to salary
increases and bonuses for employees in the ordinary course of business and
consistent with past practices and policies;
(v) sell
or
dispose of any substantial amount of assets or incur any significant liabilities
other than in the ordinary course of business consistent with past practices
and
policies;
(vi) make
any
capital expenditures outside of the ordinary course of business other than
pursuant to binding commitments existing on the date hereof and other than
expenditures necessary to maintain existing assets in good repair;
(vii) agree
to
acquire in any manner whatsoever (other than to realize upon collateral for
a
defaulted loan) any business or entity;
(viii) make
any
material change in its accounting methods or practices, other than changes
required in accordance with generally accepted accounting
principles;
(ix) make
any
loan or loan commitment to any of their stockholders;
(x) take,
cause to be taken or omit to take any action which would reasonably be expected
to prevent the Exchange, together with the Private Placement Transaction, from
qualifying as an exchange under Section 351(a) of the Code; or
(xi) agree
to
do any of the foregoing.
4.3 No
Solicitation
(a) Other
than the Placement Agent Agreement, Anchor and the Company shall not authorize
or permit any of their respective directors, officers or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by them to: (i) solicit or initiate or take any other
action to facilitate or cause any inquiries or the making of any proposal from
any Person (other than the Parties hereto) relating to any transaction involving
the sale of the business or assets (other than in the ordinary course of
business) of such entity, or any of the capital stock of such entity, or any
merger, consolidation, business combination, recapitalization, sale or exchange
of all or a material amount of assets or any similar transaction or series
of
transactions involving such entity (a “Competing
Transaction”),
or
(ii) participate in any discussions or negotiations regarding any Competing
Transaction; provided, however, that if, at any time, the board of directors
of
such entity thereof determines in good faith, after consultation with such
legal, financial and other advisors as it deems appropriate, that it is
necessary to do so in order to act in a manner consistent with its fiduciary
duties under its applicable state laws, such entity or any affiliates thereof
may, prior to its having obtained the necessary written consents or approvals
to
the Exchange and the Transactions, and in response to a Competing Transaction
that was not solicited by it or that did not otherwise result from a breach
of
this Section
4.3(a),
(x)
furnish non-public information with respect to such entity to any Person making
a Competing Transaction pursuant to a confidentiality agreement and (y)
participate in discussions or negotiations regarding, and enter into and
consummate a Competing Transaction.
21
(b) The
Parties shall keep each other reasonably informed of the status and details
(including amendments and proposed amendments) of any such request or Competing
Transaction. A Party may not accept a Competing Transaction from any Person,
nor
may it terminate this Agreement, unless it has provided the other Parties at
least four (4) calendar days notice of the exact terms of the Competing
Transaction, including a copy of the proposed agreement.
4.4 Current
Information.
During
the period from the date of this Agreement to the Closing Date, each Party
to
this Agreement agrees to confer with each other Party to this Agreement on
a
reasonable basis as requested by each other Party, regarding their business,
operations, properties, assets and financial condition and matters relating
to
the completion of the Transactions.
4.5 Access
to Properties and Records; Confidentiality
(a) During
the period from the date of this Agreement to the Closing Date, each Party
hereto agrees to permit each other Party and its agents and representatives,
including, without limitation, officers, directors, employees, attorneys,
accountants and financial advisors (collectively, “Representatives”)
reasonable access to their respective properties, and to disclose and make
available to each other Party and its Representatives, as the case may be,
all
books, papers and records relating to their respective assets, stock ownership,
properties, operations, obligations and liabilities, including, but not limited
to, all books of account (including the general ledger), tax records, minute
books of directors’ and stockholders’ meetings, organizational documents,
bylaws, material contracts and agreements, filings with any regulatory
authority, independent auditors’ work papers (subject to the receipt by such
auditors of a standard access representation letter), litigation files, plans
affecting employees, and any other business activities or prospects in which
each Party and its Representatives may have a reasonable interest.
(b) All
information previously furnished by the Parties hereto in connection with the
Transactions, shall be kept confidential and shall be treated as the sole
property of the Party delivering the information until consummation of the
Transactions contemplated hereby and, if the Transactions shall not occur,
each
Party and each Party’s Representatives shall return to the other Party all
documents or other materials containing, reflecting or referring to such
information, will not retain any copies of such information, shall keep
confidential all such information, and shall not directly or indirectly use
such
information for any competitive or commercial purposes or any other purpose
not
expressly permitted hereby. The obligation to keep such information confidential
shall continue for sixty (60) months from the date this Agreement is terminated
or abandoned.
22
(c) In
addition to all other remedies that may be available to any Party hereto in
connection with a breach by any other Party hereto of its or its
Representative’s obligations under this Section
4.4,
each
Party hereto shall be entitled to specific performance and injunctive and other
equitable relief with respect to this Section
4.4.
Each
Party hereto waives, and agrees to use all reasonable efforts to cause its
Representatives to waive, any requirement to secure or post a bond in connection
with any such relief.
4.6 Regulatory
Matters
(a) The
Parties hereto will cooperate with each other and use all reasonable efforts
to
prepare all necessary documentation, to effect all necessary filings and to
obtain all necessary permits, consents, approvals and authorizations of all
third parties and governmental bodies necessary to consummate the Transactions
as soon as possible. The Parties shall each have the right to review in advance
and comment on all information relating to the other, as the case may be, which
appears in any filing made with, or written material submitted to, any third
party or governmental body in connection with the Transactions.
(b) Each
of
the Parties will promptly furnish each other with copies of written
communications received by them from, or delivered by any of the foregoing
to,
any governmental body in respect of the Transactions.
4.7 Further
Assurances.
Subject
to the terms and conditions herein provided, each of the Parties hereto agrees
to use all reasonable efforts to take, or cause to be taken, all actions and
to
do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws and regulations to satisfy the conditions to Closing
and
to consummate and make effective the Transactions, including, without
limitation, using reasonable efforts to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the Parties
to consummate the Transactions and using all reasonable efforts to prevent
the
breach of any representation, warranty, covenant or agreement of such Party
contained or referred to in this Agreement and to promptly remedy the same.
Nothing in this Section
4.7
shall be
construed to require any Party to participate in any threatened or actual Legal
Proceedings (other than Legal Proceedings to which it is otherwise a party
or
subject or threatened to be made a party or subject) in connection with
consummation of the Transactions unless such Party shall consent in advance
and
in writing to such participation and the other Party agrees to reimburse and
indemnify such Party for and against any and all costs and damages related
thereto.
23
4.8 Public
Announcemen.
The
Parties hereto shall cooperate with each other in the development and
distribution of all news releases and other public disclosures with respect
to
this Agreement or any of the Transactions, except as may be otherwise required
by law or regulation or as to which the Party releasing such information has
used all reasonable efforts to discuss with the other Party in
advance.
4.9 Failure
to Fulfill Conditions.
The
Parties agree to take all commercially reasonable efforts to cause the Closing
to occur on or before midnight, eastern time, on March 31, 2007 (the
“Termination
Date”).
In
the event that Anchor or the Company reasonably determines that a material
condition to its obligation to consummate the Transactions cannot be fulfilled
on or prior to the Termination Date, and that it will not waive that condition,
it will promptly notify the other Parties. Anchor and the Company will promptly
inform the other Parties of any facts applicable to Anchor or the Company,
respectively, or their respective directors or officers, that would be likely
to
prevent or materially delay approval of the Exchange by any governmental
authority or which would otherwise prevent or materially delay completion of
the
Exchange or the Closing.
4.10 Disclosure
Supplements.
Each
Party hereto will promptly supplement or amend (by written notice to the other
Parties hereto) its respective Disclosure Schedules delivered pursuant hereto
with respect to any matter hereafter arising which, if existing, occurring
or
known at the date of this Agreement, would have been required to be set forth
or
described in such Disclosure Schedules or which is necessary to correct any
information in such Disclosure Schedules which has been rendered materially
inaccurate thereby. For the purpose of determining satisfaction of the
conditions set forth in Article
V
and
Article
VI,
no
supplement or amendment to such Disclosure Schedules shall correct or cure
any
warranty which was untrue when made, but supplements or amendments may be used
to disclose subsequent facts or events to maintain the truthfulness of any
warranty.
ARTICLE
V
CONDITIONS
PRECEDENT TO OBLIGATIONS
OF
ANCHOR
The
obligations of Anchor to consummate the Exchange and the Transactions are
subject to the fulfillment or satisfaction, on and as of the Closing, of each
of
the following conditions (any one or more of which may be waived by Anchor
in
its sole discretion, but only in a writing signed by Anchor):
5.1 Accuracy
of Representations and Warranties.
The
representations and warranties of the Company and the Company Stockholders
contained in this Agreement that are qualified as to materiality shall be true
and correct in all respects, and all other representations and warranties of
the
Company and the Company Stockholders contained in this Agreement shall be true
and correct in all material respects, in each case as of the date of this
Agreement and as of the Closing as though made on and as of the Closing Date,
except to the extent such representations and warranties are expressly stated
to
be made as of a particular date (in which case such representations and
warranties shall be true and correct as of such date).
24
5.2 Government
Consents.
There
shall have been obtained at or prior to the Closing Date such permits and/or
authorizations, and there shall have been taken such other action by any
regulatory authority having jurisdiction over the Parties and the actions herein
proposed to be taken, as may be required to lawfully consummate the Exchange
and
the Transactions and for Anchor to continue to conduct its business as presently
conducted, including but not limited to requirements under applicable U.S.
securities, corporations, and investment laws.
5.3 Documents.
The
Company and the Company Stockholders must have caused the following documents
to
be delivered to Anchor:
(a) a
certificate of the Secretary of State and the taxing authorities of the State
of
Delaware, dated not more than five (5) days prior to the Closing Date, attesting
to the legal existence and good standing of the Company in Delaware and to
the
payment of all state taxes due and owing thereby;
(b) certificates
of the relevant Secretary of State and taxing authorities, dated as of the
most
recent date practicable, attesting to the legal existence and good standing
of
the Company and to the payment of all state taxes due and owing thereby in
each
jurisdiction in which the Company has registered with the Secretary of State
thereof to do business as a foreign corporation; and
(c) a
certificate signed by the Company Stockholders certifying as to (i) the
incumbency of officers of the Company, (ii) the authenticity of the resolutions
of the board of directors of the Company approving and authorizing the
execution, delivery and performance of this Agreement, the Transactions and
the
Exchange; and (iii) the authenticity and continuing validity of the certificate
of incorporation and bylaws of the Company.
5.4 Private
Placement
(a) Prior
to
the Closing Date, Anchor (i) shall have received copies of executed subscription
agreements for the purchase and sale of equity securities of the Company in
private placement transactions resulting in gross proceeds to the Company of
at
least (US) $2,500,000.00 (“Private
Placement”
and
together with any subsequent issuances of Company equity securities offered
under the Private Placement Memorandum used by Company in connection with the
Private Placement, the “Private
Placement Transaction”)
and
(ii) shall have been notified by American Stock Transfer & Trust Company,
the escrow agent for the Private Placement, that there is at least (US)
$2,500,000.00 in cleared funds available for closing the Private Placement;
provided, however, that the Private Placement shall not close prior to the
Closing hereunder.
(b) The
terms
and conditions of the equity securities to be offered and sold pursuant to
the
Private Placement shall not be materially different than as set forth in the
attached Schedule 5.4(b).
Any
changes, amendments or modifications to the purchase price, the per share
conversion price, the voting rights, the anti-dilution and liquidity events,
or
the rights and preferences of the equity securities, as set forth in the
attached Schedule 5.4(b),
shall
be conclusively deemed to be materially different.
25
(c) The
terms
and conditions of the warrants exercisable for Common Stock to be issued to
the
Placement Agent in connection with Private Placement Transaction and the
1,960,000 options exercisable for Common Stock to be issued to Company
management in connection with the Private Placement Transaction, in each case
as
more fully described in the Private Placement Memorandum used by Company in
connection with the Private Placement, shall not be materially different than
the terms and conditions set forth on the attached Schedule 5.4(c).
Any
changes, amendments or modifications to the exercise price, the term of the
option, the anti-dilution, or the rights and preferences of the equity
securities for which the warrant or option is exercisable for, as set forth
on
the attached Schedule 5.4(c),
shall
be conclusively deemed to be materially different.
5.5 Corporate
Approvals.
All
member and other proceedings required to be taken to authorize Anchor to carry
out this Agreement and the Transactions shall have been taken.
5.6 Employment
Agreements and Director Compensation Agreement.
The
Company shall have entered into employment agreements with Morry Rubin and
Brad
Bernstein in the form of Exhibit
B-1
and
B-2,
respectively, and a director compensation agreement with George Rubin in the
form of Exhibit
B-3,
and
such agreements shall be in full force and effect.
5.7 No
Proceedings.
Since
the date of this Agreement, there must not have been commenced, and the Company
shall not have received notice threatening, any Legal Proceeding against the
Company, or against any Person affiliated with the Company, that (a) seeks
damages or other relief in connection with any of the Transactions which is
material to the Company, or (b) may have the effect of preventing,
delaying, making illegal, or otherwise interfering with any of the Transactions.
5.8 No
Injunctions or Restraints.
No
judgment, order, decree, statute, law, ordinance, rule or regulation, entered,
enacted, promulgated, enforced or issued by any court or other governmental
entity of competent jurisdiction or other legal restraint or prohibition
(collectively, “Restraints”)
affecting the Closing or seeking to prohibit the Transactions shall be in
effect; provided, however, that each of the Parties shall have used its
commercially reasonable efforts to prevent the entry of any such Restraints
and
to appeal as promptly as possible any such Restraints that may be entered.
5.9 No
Stop Order.
No
judicial, legal or administrative hearing or investigation shall have been
initiated or threatened against any of the Parties relating the Exchange, the
Private Placement or any of the other actions or Transactions described herein,
and no stop order suspending the Private Placement shall have been issued by
the
SEC or any state securities administrator, and no proceeding for that or any
other purpose shall have been initiated or threatened by the SEC or any state
securities administrator against any of the Parties to this Agreement or which
could otherwise affect the Company.
5.10 Placement
Agent Agreement.
Anchor
shall, in its sole and absolute discretion, have approved the provisions of
the
placement agent agreement entered into between Fordham Financial Management,
Inc. and the Company (the “Placement
Agent Agreement”)
and
all other agreements entered into by the Company regarding the sale of shares
of
the Company’s equity securities in the Private Placement.
26
5.11 Directors
and Officers.
Each
director and officer of the Company immediately prior to the Closing shall
have
resigned from such position(s) in writing to the Company, such resignations
to
be effective as of the Closing. The Company shall have taken such corporate
action as is necessary to elect George Rubin, Morry Rubin, Brad Bernstein,
Frank
DeLape and Kenneth Smalley as the directors of the Company effective as of
the
Closing.
5.12 Filings
and Notifications Mandated By Plan of Reorganization.
Promptly after the Closing, the Company shall make all necessary filings with
the bankruptcy court to indicate that the Exchange has been completed and cause
to be delivered all notifications required pursuant to the terms of that certain
plan of reorganization, confirmed on November 29, 2004, applicable to the
Company.
ARTICLE
VI
CONDITIONS
PRECEDENT TO OBLIGATIONS
OF
THE COMPANY
The
obligations of the Company to consummate the Exchange and the Transactions
are
subject to the fulfillment or satisfaction, on and as of the Closing, of each
of
the following conditions (any one or more of which may be waived by the Company
in its sole discretion, but only in a writing signed the Company):
6.1 Government
Consents.
There
shall have been obtained at or prior to the Closing Date such permits and/or
authorizations, and there shall have been taken such other action by any
regulatory authority having jurisdiction over the Parties and the actions herein
proposed to be taken, as may be required to lawfully consummate the
Transactions, including but not limited to requirements under applicable U.S.
securities, corporations, and investment laws.
6.2 Documents.
Anchor
must have caused the following documents to be delivered to the
Company:
(a) a
certificate of the Secretary of State of the State of North Carolina, dated
not
more than five (5) days prior to the Closing Date, attesting to the legal
existence and good standing of Anchor in North Carolina;
(b) a
certificate signed by a duly authorized officer of Anchor certifying as to
(i)
the incumbency of officers of Anchor, (ii) the authenticity of the resolutions
of the members of Anchor approving and authorizing the execution, delivery
and
performance of this Agreement, the Transactions and the Exchange, as applicable
(and approving a new Schedule
1
to
Anchor’s operating agreement reflecting the Exchange); and (iii) the
authenticity and continuing validity of the articles of organization and
operating agreement of Anchor; and
(c) an
Assignment of Membership Interest executed by each Anchor Member and dated
as of
the Closing Date evidencing the sale of the Units being sold by such Anchor
Member in the Exchange pursuant to Section 1.1.
6.3 No
Proceedings.
Since
the date of this Agreement, there must not have been commenced, and the Company
shall not have received notice threatening, any Legal Proceeding against Anchor,
or against any Person affiliated with Anchor that (a) seeks damages or other
relief in connection with any of the Transactions which is material to Anchor,
or (b) may have the effect of preventing, delaying, making illegal, or
otherwise interfering with any of the Transactions.
27
6.4 No
Injunctions or Restraints.
No
Restraints affecting the Closing or seeking to prohibit the Transactions shall
be in effect; provided, however, that each of the Parties shall have used its
commercially reasonable efforts to prevent the entry of any such Restraints
and
to appeal as promptly as possible any such Restraints that may be entered.
6.5 Lock-Up
Agreements.
The
members of Anchor listed shall have executed and delivered Lock-Up Agreements
in
the form attached hereto as Exhibit
C,
pursuant to which such Persons will agree not to offer, sell, assign, transfer,
pledge, contract to sell or otherwise dispose of any shares of Company Common
Stock or securities convertible into or exercisable or exchangeable for Company
Common Stock, which such Persons acquired as consideration pursuant to this
Agreement for a period of 18 months following the Closing Date.
ARTICLE
VII
INDEMNIFICATION
AND REMEDIES
7.1 Indemnification
by the Company Stockholders
(a) Halter
Financial Investments, L.P. shall indemnify, defend and hold harmless the Anchor
Indemnitees from, against and in respect of any Damages arising, directly or
indirectly, from or in connection with (i) the operation or ownership of the
Company from and including November 29, 2004 through and including December
7,
2006 (the “Operating
Period”),
including, without limitation, any liability for any Tax imposed on or related
to the Company with respect to the Operating Period, (ii) any breach of any
representation or warranty of the Company or Halter Financial Investments,
L.P.
contained in this Agreement or any certificate or instrument furnished by the
Company or the Company Stockholders to Anchor pursuant to this Agreement
resulting from the operation or ownership of the Company during the Operating
Period, (iii) any failure to perform any covenant of Halter Financial
Investments, L.P., as a Company Stockholder, contained in this Agreement or
any
certificate or instrument furnished by the Company or the Company Stockholders
to Anchor pursuant to this Agreement, or (iv) any claim by any Person for
brokerage or finder’s fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by such Person with Halter
Financial Group, Inc. (or any Person acting on behalf of Halter Financial Group,
Inc.) in connection with the transactions contemplated by this
Agreement.
(b) Benchmark
Equity Group, Inc., William Baquet and Frank DeLpae shall, jointly and
severally, indemnify, defend and hold harmless the Anchor Indemnitees from,
against and in respect of any Damages arising, directly or indirectly, from
or
in connection with (i) the operation or ownership of the Company from December
8, 2006 through and including the Closing Date (the “Ownership
Period”),
including, without limitation, any liability for any Tax imposed on or related
to the Company with respect to the Ownership Period, (ii) any breach of any
representation or warranty of the Company, Benchmark Equity Group, Inc., William
Baquet or Frank DeLape contained in this Agreement or any certificate or
instrument furnished by the Company or the Company Stockholders to Anchor
pursuant to this Agreement resulting from the operation or ownership of the
Company during the Ownership Period, (iii) any failure to perform any covenant
of the Company or Benchmark Equity Group, Inc., William Baquet or Frank DeLape,
as Company Stockholders, contained in this Agreement or any certificate or
instrument furnished by the Company or the Company Stockholders to Anchor
pursuant to this Agreement, or (iv) any claim by any Person for brokerage or
finder’s fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by such Person with the Company,
Benchmark Equity Group, Inc., William Baquet or Frank DeLape (or any Person
acting on behalf of the Company, Benchmark Equity Group, Inc., William Baquet
or
Frank DeLape) in connection with the transactions contemplated by this
Agreement.
28
7.2 Indemnification
Claims
(a) In
order
to seek indemnification under this Article
VII,
the
Anchor Indemnitee shall deliver a written notification Claim Notice to one
or
more of the applicable Company Stockholders (the “Indemnifying
Party”).
(b) Within
20
days after delivery of a Claim Notice, the Indemnifying Party shall deliver
to
the Anchor Indemnitee a Response, in which the Indemnifying Party shall:
(i) agree that the Anchor Indemnitee is entitled to receive all of the
Claimed Amount (in which case the Response shall be accompanied by a payment
by
the Indemnifying Party to the Anchor Indemnitee of the Claimed Amount, by check
or by wire transfer); (ii) agree that the Anchor Indemnitee is entitled to
receive the Agreed Amount (in which case the Response shall be accompanied
by a
payment by the Indemnifying Party to the Anchor Indemnitee of the Agreed Amount,
by check or by wire transfer); or (iii) dispute that the Anchor Indemnitee
is entitled to receive any of the Claimed Amount.
(c) During
the 30-day period following the delivery of a Response that reflects a Dispute,
the Indemnifying Party and the Anchor Indemnitee shall use good faith efforts
to
resolve the Dispute. If the Dispute is not resolved within such 30-day period,
such Dispute shall be resolved in accordance with Section
9.3.
7.3 Survival
of Representations and Warranties
(a) All
representations and warranties of the Company and the Company Stockholders
that
are covered by the indemnification agreements in Sections
7.1(a)
and
(b)
shall
(i) survive the Closing and (ii) shall expire on the date one (1) year
following the Closing Date. If the Anchor Indemnitee delivers to the Company
Stockholders, before expiration of a representation or warranty, either a Claim
Notice based upon a breach of such representation or warranty, or an Expected
Claim Notice based upon a breach of such representation or warranty, then the
applicable representation or warranty shall survive until, but only for purposes
of, the resolution of the matter covered by such notice. If the Legal Proceeding
or written claim with respect to which an Expected Claim Notice has been given
is definitively withdrawn or resolved in favor of the Anchor Indemnitee, the
Anchor Indemnitee shall promptly so notify the Company Stockholders.
(b) The
rights to indemnification set forth in this Article
VII
shall
not be affected by (i) any investigation conducted by or on behalf of Anchor
or
any knowledge acquired (or capable of being acquired) by Anchor, whether before
or after the date of this Agreement or the Closing Date (including through
supplements to the Disclosure Schedule permitted by Section
4.10),
with
respect to the inaccuracy or noncompliance with any representation, warranty,
covenant or obligation which is the subject of indemnification hereunder or
(ii)
any waiver by Anchor of any closing condition relating to the accuracy of
representations and warranties or the performance of or compliance with
agreements and covenants.
29
7.4 Limitations
(a) For
purposes solely of this Article
VII,
all
representations and warranties of the Company and the Company Stockholders
in
Article
III
(other
than Sections
3.6
and
3.25
shall be
construed as if the term “material” and any reference to “Material Adverse
Effect” (and variations thereof) were omitted from such representations and
warranties.
(b) No
Company Stockholder shall have any right of contribution against the Company
with respect to any breach by the Company of any of its representations,
warranties, covenants or agreements.
7.5 Certain
Definitions.
As used
herein, the following terms shall have the respective meanings set forth
below:
(a) “Agreed
Amount”
shall
mean part, but not all, of the Claim Amount.
(b) “Anchor
Indemnitees”
shall
mean Anchor and, after the Closing, the Company and Anchor, the former members
of Anchor, and their respective officers, directors, employees, attorneys,
representatives, stockholders, controlling persons, and affiliates.
(c) “Claim
Notice”
shall
mean written notification which contains (i) a description of the Damages
incurred or reasonably expected to be incurred by the Anchor Indemnitee and
the
Claimed Amount of such Damages, to the extent then known, (ii) a statement
that
the Anchor Indemnitee is entitled to indemnification under Article
VII
of the
Agreement for such Damages and a reasonable explanation of the basis therefor,
and (iii) a demand for payment in the amount of such Damages.
(d) “Claimed
Amount”
shall
mean the amount of any Damages incurred or reasonably expected to be incurred
by
the Anchor Indemnitee.
(e) “Damages”
shall
mean any demand, loss, liability (whether absolute, accrued, contingent, fixed
or otherwise, or whether known or unknown, or due or to become due or
otherwise), claim, damage (including incidental and consequential), fine, tax,
action, suit, judgment, expense (including amounts paid in settlement, interest,
court costs, fees and expenses of attorneys, accountants, investigators, experts
and other expenses of litigation, including in connection with the assertion
of
rights under, or the enforcement of, this Agreement) or diminution of value,
whether or not involving a third-party claim, whether disputed or
not.
30
(f) “Dispute”
shall
mean the dispute resulting if the Company Stockholders in a Response disputes
their liability for all or part of the Claimed Amount.
(g) “Response”
shall
mean a written response by the Company Stockholders in reply to a Claim Notice,
in which the Company Stockholders: (i) agree that the Anchor Indemnitee is
entitled to receive all of the Claimed Amount; (ii) agree that the Anchor
Indemnitee is entitled to receive the Agreed Amount; or (iii) dispute that
the Anchor Indemnitee is entitled to receive any of the Claimed Amount. Such
written response shall include a reasonable explanation of the basis for any
Dispute.
ARTICLE
VIII
TERMINATION
OF AGREEMENT
8.1 Termination.
This
Agreement may be terminated at any time prior to or at the Closing:
(a) By
the
mutual written consent of the Company and Anchor;
(b) By
the
Company, if the conditions precedent set forth in Article
VI
shall
not have been complied with, waived or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its nature cannot
be cured or eliminated) on or before the Termination Date;
(c) By
Anchor, if the conditions precedent set forth in Article
V
shall
not have been complied with, waived or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its nature cannot
be cured or eliminated) on or before the Termination Date;
(d) By
Anchor, if any material item of disclosure or information obtained during
Anchor’s ongoing due diligence investigation of the Company shall warrant
termination of this Agreement and the Transactions, as determined in Anchor’s
reasonable discretion using any relevant information;
(e) By
the
Company or Anchor if the Closing Date shall not have occurred on or prior to
the
Termination Date unless the failure of such occurrence shall be due to the
failure of the Party seeking to terminate this Agreement to perform or observe
its agreements set forth herein to be performed or observed by such Party at
or
before the Closing Date;
(f) By
any
Party, upon written notice to the other Parties if any application for
regulatory or governmental approval necessary to consummate the Transactions
shall have been denied or withdrawn at the request or recommendation of the
applicable regulatory agency or governmental authority or such application
is
approved with conditions which materially impair the value of Anchor, taken
as a
whole, to the Company;
(g) By
the
Company, if (i) there shall have occurred a Material Adverse Change in Anchor
following the date of this Agreement, or (ii) there was a material breach in
any
representation, warranty, covenant, agreement or obligation of Anchor hereunder
and such breach shall not have been remedied within thirty (30) days after
receipt by Anchor of notice in writing from the Company specifying the nature
of
such breach and requesting that it be remedied; or
31
(h) By
Anchor, if (i) there shall have occurred a Material Adverse Change in the
Company following the date of this Agreement, or (ii) there was a material
breach in any representation, warranty, covenant, agreement or obligation of
the
Company or Company Stockholders hereunder and such breach shall not have been
remedied within thirty (30) days after receipt by such breaching Party of notice
in writing from Anchor specifying the nature of such breach and requesting
that
it be remedied.
Except
as
otherwise specifically set forth herein, any termination of this Agreement
under
this Section
8.1
will be
effective by the delivery of notice of the terminating Party to the other
Parties hereto.
8.2 No
Liability for Proper Termination.
Any
termination of this Agreement in accordance with this Article
VIII
will be
without further obligation or liability upon any Party in favor of the other
Party hereto or to its stockholders, directors or officers; provided, however,
that nothing herein will limit the obligation of any Party for any willful
breach hereof or failure to use their reasonable best efforts to cause the
Transactions to be consummated. In the event of the termination of this
Agreement pursuant to this Article
VIII,
this
Agreement shall thereafter become void and have no effect and each Party shall
be responsible for its own expenses incurred in connection
herewith.
ARTICLE
IX
MISCELLANEOUS
9.1 Nonsurvival
of Representations, Warranties and Agreements of Anchor.
None of
the representations, warranties and agreements of Anchor contained in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Closing, except for the agreements contained in Article
I,
Article
VII
and
Article
IX
of this
Agreement.
9.2 Governing
Law.
This
Agreement and the legal relations among the Parties hereto shall be governed
by
and construed in accordance with the laws of the State of Delaware without
regard to any choice of conflicts of law doctrine (whether of the State of
Delaware or any other jurisdiction).
9.3 Submission
to Jurisdiction.
Each of
the Parties (a) consents to submit itself to the personal jurisdiction of
any court sitting in Mecklenburg County or in the United States District Court
for the Western District of North Carolina, in any action or proceeding arising
out of or relating to this Agreement or any Transaction, (b) agrees that
all claims in respect of such action or proceeding may be heard and determined
in any such court, (c) agrees that it shall not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
and (d) agrees not to bring any action or proceeding arising out of or
relating to this Agreement or any Transaction in any other court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety or other security
that might be required of any other party with respect thereto. Any Party may
make service on another Party by sending or delivering a copy of the process
to
the Party to be served at the address and in the manner provided for the giving
of notices in Section 9.9.
Nothing
in this Section
9.3,
however, shall affect the right of any Party to serve legal process in any
other
manner permitted by law.
32
9.4 Waiver
of Jury Trial.
EACH OF
THE COMPANY, ANCHOR AND THE COMPANY STOCKHOLDERS HEREBY IRREVOCABLY WAIVES
ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR
THE TRANSACTIONS OR THE ACTIONS OF THE COMPANY, ANCHOR OR THE COMPANY
STOCKHOLDERS IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT
OF
THIS AGREEMENT.
9.5 Assignment;
Binding Upon Successors and Assigns.
No
Party hereto may assign any of its rights or obligations hereunder without
the
prior written consent of the other Parties hereto. This Agreement will be
binding upon and inure to the benefit of the Parties hereto and their respective
successors and permitted assigns.
9.6 Severability.
If any
provision of this Agreement, or the application thereof, will for any reason
and
to any extent be invalid or unenforceable, the remainder of this Agreement
and
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the Parties hereto so
long
as the economic or legal substance of the Transactions is not affected in any
manner materially adverse to any Party. The Parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
9.7 Expenses.
Each
Party will bear its respective expenses and legal fees incurred with respect
to
this Agreement, and the transactions contemplated hereby.
9.8 Attorneys’
Fees.
Should
a suit be brought to enforce or interpret any part of this Agreement, the
prevailing Party will be entitled to recover, as an element of the costs of
suit
and not as damages, reasonable attorneys’ fees to be fixed by the court
rendering the judgment (including without limitation, costs, expenses and fees
on any appeal). The prevailing Party will be entitled to recover its costs
of
the suit, regardless of whether such suit proceeds to final
judgment.
9.9 Notices.
All
notices and other communications required or permitted under this Agreement
will
be in writing and will be either hand delivered in person, sent by telecopier,
sent by certified or registered first class mail, postage pre-paid, or sent
by
nationally recognized express courier service. Such notices and other
communications will be effective upon receipt if hand delivered or sent by
telecopier, five (5) days after mailing if sent by mail, and one (1) day after
dispatch if sent by express overnight courier, to the following addresses,
or to
such other addresses or fax number as any Party may notify the other Parties
in
accordance with this Section
11.9:
33
If
to the
Company or a Company Stockholder other than William Baquet:
c/o
Benchmark Equity Group
700
Gemini, Suite 100,
Houston,
TX 77058
If
to
William Baquet:
Fordham
Financial Management, Inc.
14
Wall
Street
New
York,
NY 10005
With
copy
to:
Morse
& Morse, PLC
1400
Old
Country Road
Westbury,
NY 11590
Attention:
Steven Morse
If
to
Anchor:
Anchor
Funding Services, LLC
2201
Crownpoint Executive Drive
Charlotte,
NC 28227
Attention:
Chief Executive Officer
With
copy
to:
Kennedy
Covington Lobdell & Hickman, L.L.P.
Hearst
Tower, 47th Floor
214
North
Tryon Street
Charlotte,
NC 28202
Attention:
Mark R. Busch
9.10 Entire
Agreement.
This
Agreement (including the documents referred to herein) and the exhibits and
schedules hereto constitute the entire understanding and agreement of the
Parties hereto with respect to the subject matter hereof and supersede all
prior
and contemporaneous agreements or understandings, inducements or conditions,
express or implied, written or oral, between the Parties with respect hereto.
The express terms hereof control and supersede any course of performance or
usage of the trade inconsistent with any of the terms hereof. Neither this
Agreement nor any uncertainty or ambiguity herein will be construed or resolved
against any Party, whether under any rule of construction or otherwise. None
of
the Parties hereto shall be considered the draftsman. The Parties acknowledge
and agree that this Agreement has been reviewed, negotiated and accepted by
all
Parties and their attorneys, and will be construed and interpreted according
to
the ordinary meaning of the words used so to fairly accomplish the purposes
and
intentions of the Parties.
34
9.11 Amendment.
The
Parties may mutually amend any provision of this Agreement at any time prior
to
Closing. No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by all of the Parties.
9.12 Extension;
Waiver.
The
Parties may, at any time prior to the Closing Date, (i) extend the time for
the performance of any of the obligations or other acts of the other Parties
hereto; (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant thereto; or (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any Party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
Party against which the waiver is sought to be enforced. No waiver by any Party
with respect to any default, misrepresentation or breach of warranty or covenant
hereunder shall be deemed to extend to any prior or subsequent default,
misrepresentation or breach of warranty or covenant hereunder or affect in
any
way any rights arising by virtue of any prior or subsequent such occurrence.
9.13 Counterparts
and Facsimile Signature.
This
Agreement may be executed in one or more counterparts, all of which shall be
considered one and the same agreement and each of which shall be deemed an
original. This Agreement may be executed by facsimile signature.
9.14 Descriptive
Headings.
The
descriptive headings of this Agreement are for convenience only and shall not
control or affect the meaning or construction of any provision of this
Agreement.
9.15 No
Third Party Beneficiaries.
Nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the Parties hereto or their respective successors and permitted
assigns, any rights, remedies, obligations or liabilities under or by reason
of
this Agreement; provided, however, the provisions of Article
VII
concerning indemnification are intended are intended for the benefit of the
individuals specified therein.
9.16 Specific
Performance.
The
Parties acknowledge that if any of the Parties refuse to perform under the
provisions of this Agreement, monetary damages alone will not be adequate to
compensate the other Parties to this Agreement. Each Party shall therefore
be
entitled, in addition to any other remedies that may be available, to obtain
specific performance of the terms of this Agreement. If any action is brought
by
a Party to enforce this Agreement, each other Party shall waive the defense
that
there is an adequate remedy at law. In the event of a default by any Party
to
this Agreement which results in the filing of a lawsuit for damages, specific
performance, or other remedies, each non-defaulting Party shall be entitled
to
joint and several reimbursement from the defaulting Parties of all reasonable
legal fees and expenses incurred by the non-defaulting Parties.
9.17 Joint
Preparation.
This
Agreement has been prepared and extensively negotiated by all Parties hereto
with the assistance and input of their respective attorneys, and therefore
no
ambiguity herein shall be construed for or against any Party based upon the
identity of the author of this Agreement or any portion hereof.
35
9.18 Drafting
Ambiguities.
When a
reference is made in this Agreement to an Article, Section, Exhibit, Schedule
or
Appendix, such reference shall be to an Article or Section of, or an Exhibit,
Schedule or Appendix to, this Agreement unless otherwise indicated. The table
of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words “include”, “includes” or “including” are used in
this Agreement, they shall be deemed to be followed by the words “without
limitation”. The words “hereof”, “herein” and “hereunder” and words of similar
import when used in this Agreement shall refer to this Agreement as a whole
and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein.
The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession
of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a Person are also to its
permitted successors and assigns.
[SIGNATURE
PAGE FOLLOWS]
36
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered, all as of the day and year first above
written.
|
BTHC
XI , INC.
|
||
| |
|
|
| By: | /s/ Brad Bernstein | |
|
Name: Brad Bernstein |
||
| Title: President | ||
| ANCHOR FUNDING SERVICES, LLC | ||
| |
|
|
| By: | /s/ Morry Rubin | |
|
Name: Morry Rubin |
||
| Title: Member | ||
37
COMPANY
STOCKHOLDERS:
|
BENCHMARK
EQUITY GROUP, INC.
|
||
| |
|
|
| By: | /s/ Frank Delape | |
|
Frank Delape |
||
| Title | ||
| |
|
|
| By: | /s/ William Baquet | |
|
WILLIAM BAQUET |
||
|
HALTER
FINANCIAL INVESTMENTS, L.P.
|
||
| |
|
|
| By: | /s/ Timothy P. Halter | |
|
Name: Timothy P. Halter |
||
|
Title: Chairman
|
||
| |
|
|
| By: | /s/ Frank Delape | |
|
FRANK DELAPE |
||
38
EXHIBIT
A-1
Anchor
Members
Ilissa
Bernstein
George
Rubin
Morry
Rubin
39
EXHIBIT
A-2
Company
Stockholders
Benchmark
Equity Group, Inc.
William
Baquet
Halter
Financial Investments, L.P.
Frank
DeLape
40
EXHIBIT
B-1
Morry
Rubin Employment Agreement
41
EXHIBIT
B-2
Brad
Bernstein Employment Agreement
42
EXHIBIT
B-3
George
Rubin Director Compensation Agreement
43
EXHIBIT
C
Form
of
Lock-up Agreement
44
SECURITIES
EXCHANGE AGREEMENT
among
BTHC
XI ,
Inc.,
ANCHOR
FUNDING SERVICES, LLC,
THOSE
MEMBERS OF ANCHOR FUNDING SERVICES, LLC
IDENTIFIED
ON EXHIBIT A-1 HERETO
and
THOSE
STOCKHOLDERS OF BTHC
XI,
INC.
IDENTIFIED
ON EXHIBIT A-2 HERETO
Dated
January
31, 2007
45
|
ARTICLE
I SECURITIES EXCHANGE
|
1
|
|
|
1.1
|
The
Exchange
|
1
|
|
1.2
|
Closing
|
1
|
|
1.3
|
Tax
Treatment
|
1
|
|
1.4
|
Certain
Definitions
|
2
|
|
ARTICLE
II REPRESENTATIONS AND WARRANTIES OF ANCHOR
|
3 | |
|
2.1
|
Organization
and Good Standing
|
3
|
|
2.2
|
Capitalization
|
3
|
|
2.3
|
Authority;
No Violation
|
3
|
|
2.4
|
Financial
Statements
|
3
|
|
2.5
|
Absence
of Certain Changes or Events
|
3
|
|
2.6
|
Legal
Proceedings
|
3
|
|
2.7
|
Taxes
and Tax Returns
|
3
|
|
2.8
|
Employee
Benefit Plans
|
3
|
|
2.9
|
Compliance
with Applicable Law
|
3
|
|
2.10
|
Certain
Contracts
|
3
|
|
2.11
|
Properties
and Insurance
|
3
|
|
2.12
|
Minute
Books
|
3
|
|
2.13
|
Environmental
Matters
|
3
|
|
2.14
|
Agreements
with Governmental Entity
|
3
|
|
2.15
|
Labor
Disputes
|
3
|
|
2.16
|
Loans,
Etc
|
3
|
|
2.17
|
Intellectual
Property
|
3
|
|
2.18
|
No
Brokers
|
3
|
|
2.19
|
Bankruptcy;
Criminal Proceedings
|
3
|
|
2.20
|
Disclosure
|
3
|
|
ARTICLE
III REPRESENTATIONS AND WARRANTIES OF COMPANY AND COMPANY
STOCKHOLDERS
|
3 | |
|
3.1
|
Organization
and Good Standing
|
3
|
|
3.2
|
Capitalization
|
3
|
|
3.3
|
Authority;
No Violation
|
3
|
|
3.4
|
Interim
Operations of the Company
|
3
|
|
3.5
|
Financial
Statements
|
3
|
|
3.6
|
Absence
of Certain Changes or Events
|
3
|
|
3.7
|
Legal
Proceedings
|
3
|
|
3.8
|
Taxes
and Tax Returns
|
3
|
|
3.9
|
Employee
Benefit Plans
|
3
|
46
|
3.10
|
Compliance
with Applicable Law
|
3
|
|
3.11
|
Certain
Contracts
|
3
|
|
3.12
|
Properties
and Insurance
|
3
|
|
3.13
|
Minute
Books
|
3
|
|
3.14
|
Environmental
Matters
|
3
|
|
3.15
|
Agreements
with Governmental Entity
|
3
|
|
3.16
|
Labor
Disputes
|
3
|
|
3.17
|
Loans,
Etc
|
3
|
|
3.18
|
Absence
of Liabilities
|
3
|
|
3.19
|
Intellectual
Property
|
3
|
|
3.20
|
No
Brokers
|
3
|
|
3.21
|
Bankruptcy
|
3
|
|
3.22
|
Criminal
Proceedings
|
3
|
|
3.23
|
Consents
and Approvals
|
3
|
|
3.24
|
State
Takeover Statutes
|
3
|
|
3.25
|
Disclosure
|
3
|
|
ARTICLE
IV COVENANTS OF THE PARTIES
|
3 | |
|
4.1
|
Conduct
of Business
|
3
|
|
4.2
|
Negative
Covenants
|
3
|
|
4.3
|
No
Solicitation
|
3
|
|
4.4
|
Current
Information
|
3
|
|
4.5
|
Access
to Properties and Records; Confidentiality
|
3
|
|
4.6
|
Regulatory
Matters
|
3
|
|
4.7
|
Further
Assurances
|
3
|
|
4.8
|
Public
Announcements
|
3
|
|
4.9
|
Failure
to Fulfill Conditions
|
3
|
|
4.10
|
Disclosure
Supplements
|
3
|
|
ARTICLE
V CONDITIONS PRECEDENT TO OBLIGATIONS OF ANCHOR
|
3 | |
|
5.1
|
Accuracy
of Representations and Warranties
|
3
|
|
5.2
|
Government
Consents
|
3
|
|
5.3
|
Documents
|
3
|
|
5.4
|
Private
Placement
|
3
|
|
5.5
|
Corporate
Approvals
|
3
|
|
5.6
|
Employment
Agreements and Director Compensation Agreement
|
3
|
|
5.7
|
No
Proceedings
|
3
|
|
5.8
|
No
Injunctions or Restraints
|
3
|
|
5.9
|
No
Stop Order
|
3
|
|
5.10
|
Placement
Agent Agreement
|
3
|
|
5.11
|
Directors
and Officers
|
3
|
|
5.12
|
Filings
and Notifications Mandated By Plan of Reorganization
|
3
|
|
ARTICLE
VI CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
|
3 | |
47
|
6.1
|
Government
Consents
|
3
|
|
6.2
|
Documents
|
3
|
|
6.3
|
No
Proceedings
|
3
|
|
6.4
|
No
Injunctions or Restraints
|
3
|
|
6.5
|
Lock-Up
Agreements
|
3
|
|
ARTICLE
VII INDEMNIFICATION AND REMEDIES
|
3 | |
|
7.1
|
Indemnification
by the Company Stockholders
|
3
|
|
7.2
|
Indemnification
Claims
|
3
|
|
7.3
|
Survival
of Representations and Warranties
|
3
|
|
7.4
|
Limitations
|
3
|
|
7.5
|
Certain
Definitions
|
3
|
|
ARTICLE
VIII TERMINATION OF AGREEMENT
|
3 | |
|
8.1
|
Termination
|
3
|
|
8.2
|
No
Liability for Proper Termination
|
3
|
|
ARTICLE
IX MISCELLANEOUS
|
3 | |
|
9.1
|
Nonsurvival
of Representations, Warranties and Agreements of Anchor
|
3
|
|
9.2
|
Governing
Law
|
3
|
|
9.3
|
Submission
to Jurisdiction
|
3
|
|
9.4
|
Waiver
of Jury Trial
|
3
|
|
9.5
|
Assignment;
Binding Upon Successors and Assigns
|
3
|
|
9.6
|
Severability
|
3
|
|
9.7
|
Expenses
|
3
|
|
9.8
|
Attorneys’
Fees
|
3
|
|
9.9
|
Notices
|
3
|
|
9.10
|
Entire
Agreement
|
3
|
|
9.11
|
Amendment
|
3
|
|
9.12
|
Extension;
Waiver
|
3
|
|
9.13
|
Counterparts
and Facsimile Signature
|
3
|
|
9.14
|
Descriptive
Headings
|
3
|
|
9.15
|
No
Third Party Beneficiaries
|
3
|
|
9.16
|
Specific
Performance
|
3
|
|
9.17
|
Joint
Preparation
|
3
|
|
9.18
|
Drafting
Ambiguities
|
3
|
|
EXHIBIT
A-1
|
-
Anchor Members
|
|
|
EXHIBIT
A-2
|
-
Company Stockholders
|
|
|
EXHIBIT
B-1
|
-
Morry Rubin Employment Agreement
|
|
|
EXHIBIT
B-2
|
-
Brad Bernstein Employment Agreement
|
|
|
EXHIBIT
B-3
|
-
George Rubin Director Compensation Agreement
|
|
|
EXHIBIT
C
|
-
Form of Lock-up Agreement
|
48
Exhibit
3.3
CERTIFICATE
OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
BTHC XI, INC.
It
is
hereby certified that:
1. The
name
of the corporation (hereinafter called the “Corporation”) is BTHC XI,
Inc.
2. The
Board
of Directors of BTHC XI, Inc. by
unanimous written consent duly adopted a resolution setting forth a proposed
amendment of the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and proposing, recommending and submitting said
amendment to the stockholders of said corporation for consideration thereof.
The
resolution setting forth the proposed amendment is as follows:
FURTHER
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended so as to change the name of the Corporation from “BTHC XI, Inc.” to
“Anchor Funding Services, Inc.” and that, to that end, the Article numbered
“FIRST” of the Certificate of Incorporation of the Corporation be stricken out
and deleted in its entirety and the following new Article numbered “FIRST” be
substituted in lieu thereof:
|
“FIRST:
The name of the Corporation is Anchor Funding Services,
Inc.”
|
3. Thereafter
the stockholders of said corporation by written consent approved and adopted
said amendment.
4. The
amendment of the certificate of incorporation herein certified has been duly
adopted and written consent has been given in accordance with the provisions
of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
5. The
capital of said corporation shall not be reduced under or by reason of said
amendment.
In
Witness Whereof,
said
BTHC XI, Inc. has caused this certificate to be signed this 20th
day of
February, 2007.
|
BTHC
XI, INC.
|
||
| |
|
|
| By: | /s/ | |
|
|
||
| Title | ||
EXHIBIT
3.4
CERTIFICATE
OF DESIGNATIONS
OF
BTHC
XI, INC.
SERIES
1 PREFERRED STOCK
THE
UNDERSIGNED, the President and Chief Executive Officer of BTHC XI, Inc., a
Delaware corporation (hereinafter called the “Corporation”),
DOES
HEREBY CERTIFY that the following resolution has been duly adopted by the Board
of Directors of the Corporation on January
30, 2007:
RESOLVED,
that
pursuant to the authority expressly granted to and vested in the Board of
Directors of the Corporation (the “Board
of Directors”)
by the
provisions of Article FOURTH of
the
Certificate of Incorporation of the Corporation, the Board of Directors hereby
creates and designates the initial series of preferred stock, par value $.001
per share, of the Corporation and authorizes the issuance thereof, and hereby
fixes the designation and amount thereof and the powers, preferences, and
relative rights thereof as follows:
| 1. |
Designation;
Number of Shares.
|
The
designation of said series of the Preferred Stock shall be “Series 1 Preferred
Stock” (the “Series
1 Preferred Stock”).
The
number of shares of Series 1 Preferred Stock shall be limited to
2,000,000.
| 2. |
Dividend
Rights.
|
The
holders of Series 1 Preferred Stock shall be entitled to receive cumulative
annual dividends, payable in shares of Series 1 Preferred Stock or in certain
instances in cash, at an annual rate of 8% ($0.40 per share), payable on
December 31 of each year commencing December 31, 2007. Dividends, which shall
accrue on a daily basis, shall begin to accrue on the Original Issue Date and
shall cease to accrue and accumulate on the earlier of December 31, 2009 (the
“Final
Dividend Payment Date”)
or the
applicable Conversion Date. After
the
Final Dividend Payment Date, the holders of Series 1 Preferred Stock shall
have
the same dividend rights as holders of Common Stock of the Corporation, as
if
the Series 1 Preferred Stock has been fully converted into Common Stock.
The
dividends payable on December 31, 2007 will be prorated from the date of each
closing in the Offering. Unpaid dividends accrued as aforesaid will accumulate
and be payable prior to the payment of any dividends on shares of the
Corporation’s common stock, par value $0.001 per share (“Common
Stock”)
or any
other class of Preferred Stock. The
Corporation shall pay a cash dividend in lieu of a stock dividend where on
the
date of declaration of the dividend, it is the Board of Directors’ determination
that the Corporation’s common stock is trading consistently at a market price
below $1.00 per share. Notwithstanding the foregoing, cash
dividends will only be payable from funds legally available therefor, when
and
as declared by the Board of Directors, and unpaid dividends will accumulate
until the Corporation has capital to legally pay the dividends. Except
as
specified above, the
Board
of Directors shall declare and pay dividends in shares of Series 1 Preferred
Stock. The Series 1 Preferred Stock shall have an assumed and stated value
of
$5.00 per share, which shall be the sole basis for determining the number of
shares issuable as a dividend in lieu of a cash payment. No fractional shares
of
Series 1 Preferred Stock shall be issued upon payment of any dividend, with
any
stockholders that would be entitled to receive any fractional shares as a result
of any such dividend being rounded upward to the nearest whole share.
Notwithstanding anything contained herein to the contrary, the Board of
Directors shall timely declare dividends on its Series 1 Preferred Stock each
year unless the payment of such dividends would be in violation of the Delaware
General Corporation Law, as amended, or other applicable law or court
order.
1
| 3. |
Liquidation
Rights.
|
(a) In
the
event of any liquidation, dissolution, or winding up of the Corporation, either
voluntary or involuntary, occurring prior to or on the date of payment of all
accrued and unpaid dividends that relate to the Final Dividend Payment Date,
the
holders of Series 1 Preferred Stock shall be entitled to receive, prior and
in
preference to any distribution of any of the assets of the Corporation to the
holders of Common Stock or by reason of their ownership thereof, an amount
per
share equal to $5.00 for each outstanding share of Series 1 Preferred Stock
(the
“Original
Series 1 Issue Price”)
as
adjusted for changes in the Series 1 Preferred Stock by stock split, stock
dividend, or the like occurring after the Original Issue Date, plus all accrued
but unpaid dividends thereon. If upon the occurrence of such event, the assets
and funds thus distributed among the holders of the Series 1 Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series 1 Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to
receive.
(b) Upon
the
completion of the distribution required by subparagraph (a)
of this
Section 3
and any
other distribution that may be required with respect to any other series of
preferred stock that may from time to time come into existence, the remaining
assets of the Corporation available for distribution to shareholders shall
be
distributed among the holders of Common Stock.
(c) In
the
event of any liquidation, dissolution, or winding up of the Corporation, either
voluntary or involuntary, occurring after the payment of all accrued and unpaid
dividends that relate to the Final Dividend Payment Date, the holders of Series
1 Preferred Stock shall have the same liquidation rights as holders of Common
Stock as
if the
outstanding shares of Series 1 Preferred Stock had been fully converted into
Common Stock.
(d) (i)For
purposes of this Subsection 3(d)(i),
a
liquidation, dissolution or winding up of the Corporation shall be deemed to
be
occasioned by, or to include, any of the following:
(A) The
sale,
transfer or lease (but not including a transfer or lease by pledge or mortgage
to a bona fide lender), whether in a single transaction or pursuant to a series
of related transactions or plan, of fifty percent (50%) or more of the assets
of
the Corporation, based on the fair market value of the Corporation’s assets as
mutually determined by the Corporation and the holders of at least a majority
of
the voting power of all then outstanding shares of Series 1 Preferred Stock,
which assets shall include for these purposes fifty percent (50%) or more of
the
outstanding voting capital stock of any subsidiaries of the Corporation, the
assets of which constitute all or substantially all of the assets of the
Corporation and its subsidiaries taken as a whole; or
2
(B) The
sale,
transfer, or lease (but not including a transfer or lease by pledge or mortgage
to a bona fide lender), whether in a single transaction or pursuant to a series
of related transactions, of all or substantially all of the assets of the
subsidiaries of the Corporation, the assets of which constitute all or
substantially all of the assets of the Corporation and such subsidiaries taken
as a whole.
(ii) In
any of
such events, if the consideration received by the Corporation is other than
cash, its value will be deemed its fair market value, as mutually determined
by
the Corporation and the holders of at least a majority of the voting power
of
all then outstanding shares of Series 1 Preferred Stock.
| 4. |
Voting
Rights.
|
The
holders of shares of Series 1 Preferred Stock shall vote with holders of the
Common Stock, together as single class, upon all matters submitted to a vote
of
stockholders, including, without limitation, for the election of directors.
For
such purpose, each holder of Series 1 Preferred Stock shall be entitled to
a
number of votes determined as follows. Through the final closing date of the
Corporation’s sale of Series 1 Preferred Stock in the Offering, each share of
Series 1 Preferred Stock shall be entitled to a number of votes equal to a
fraction, the numerator of which is 7,770,000, and the denominator of which
is
the number of shares of Series 1 Preferred Stock issued from the date of the
filing of this Certificate of Designations with the Secretary of state of the
state of Delaware through the record date fixed for the determination of
stockholders entitled to vote or on the effective date of any written consent
of
stockholders, as applicable. Following the final closing date of the Offering,
each share of Series 1 Preferred Stock shall be entitled to a fixed number
of
votes equal to a fraction, the numerator of which is 7,770,000, and the
denominator of which is the number of shares of Series 1 Preferred Stock issued
pursuant to the Offering, irrespective of any subsequent conversions or stock
dividend issuances which may occur from time to time. Fractional votes shall
not
however, be permitted and any fractional voting rights resulting from the above
formulas with respect to any holder of Series 1 Preferred Stock shall be rounded
upward to the nearest whole number.
| 5. |
Conversion
Rights.
|
The
holders of the Series 1 Preferred Stock shall have conversion rights as follows
(the “Conversion
Rights”):
(a) Optional.
Each
share of Series 1 Preferred Stock shall be convertible, at the option of the
holder thereof, at any time after the Original Issue Date of such share at
the
office of the Corporation or any transfer agent for the Series 1 Preferred
Stock, into Common Stock. The number of shares of Common Stock to which a holder
of Series 1 Preferred Stock shall be entitled upon conversion shall be the
product obtained by multiplying the Conversion Rate of the Series 1 Preferred
Stock (determined as provided in Subsection 5(b)
below)
by the number of shares of Series 1 Preferred Stock being converted. Upon
conversion, all accrued and unpaid (undeclared) dividends through the Conversion
Date on the shares of Series 1 Preferred Stock being converted shall be paid
in
additional shares of Common Stock as if such dividends had been paid in
additional shares of Series 1 Preferred Stock, and then automatically converted
into additional shares of Common Stock at the then applicable Conversion Rate
rounded up to the nearest whole number. Such
conversion shall be deemed to have been made immediately prior to the close
of
business on the date of the surrender of the shares of Series 1 Preferred Stock
to be converted in accordance with the procedures described in Subsection
5(c)
below
(the “Conversion
Date”).
3
(b) Conversion
Rate.
Subject
to the provisions of this Section 5,
the
conversion rate in effect at any time with respect to the Series 1 Preferred
Stock (the “Conversion
Rate”)
shall
be the quotient obtained by dividing $5.00 by the Conversion Price. Except
as
otherwise provided in this Section 5,
the
“Conversion
Price”
shall
initially be $1.00.
(c) Mechanics
of Conversion.
Before
any holder of Series 1 Preferred Stock shall be entitled to receive certificates
representing the shares of Common Stock into which shares of Series 1 Preferred
Stock are converted in accordance with Subsection 5(a)
above,
such holder shall surrender the certificate or certificates for such shares
of
Series 1 Preferred Stock duly endorsed at (or in the case of any lost, mislaid,
stolen or destroyed certificate(s) for such shares, deliver an affidavit as
to
the loss of such certificate(s), in such form as the Corporation may reasonably
require) the office of the Corporation or of any transfer agent for the Series
1
Preferred Stock, and shall give written notice to the Corporation at such office
of the name or names in which such holder wishes the certificate or certificates
for shares of Common Stock to be issued, if different from the name shown on
the
books and records of the Corporation. Said conversion notice shall also contain
such representations as may reasonably be required by the Corporation to the
effect that the shares to be received upon conversion are not being acquired
and
will not be transferred in any way that might violate the then applicable
securities laws. The Corporation shall, as soon as practicable thereafter and
in
no event later than thirty (30) days after the delivery of said certificates,
issue and deliver at such office to such holder of Series 1 Preferred Stock,
or
to the nominee or nominees of such holder as provided in such notice, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. The person or persons entitled
to
receive the shares of Common Stock issuable upon a conversion pursuant to
Subsection 5(a)
shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of the Conversion Date. All certificates issued upon the
exercise or occurrence of the conversion shall contain a legend governing
restrictions upon such shares imposed by law or agreement of the holder or
his
or its predecessors.
(d) Conversion
Price Adjustments of Preferred Stock for Certain Dilutive Issuances, Splits
and
Combinations.
The
Conversion Price of the Series 1 Preferred Stock shall be subject to adjustment
from time to time as follows:
4
(i) (A)If
the
Corporation shall issue, after the Original Issue Date, any Additional Stock
(as
defined below) without consideration or for a consideration per share less
than
the Conversion Price for such series in effect immediately prior to the issuance
of such Additional Stock, the Conversion Price for such series in effect
immediately prior to each such issuance shall forthwith (except as otherwise
provided in this clause (i))
be
adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (including shares of Common
Stock
deemed to be issued pursuant to subsection 5(d)(i)(E)(1)
or
(2))
(but
not including shares excluded from the definition of Additional Stock by Section
5(d)(ii)(B))
plus
the number of shares of Common Stock that the aggregate consideration received
by the Corporation for such issuance would purchase at such Conversion Price;
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (including shares of Common
Stock
deemed to be issued pursuant to subsection 5(d)(i)(E)(1)
or
(2))
(but
not including shares excluded from the definition of Additional Stock by
subsection 5(d)(ii)(B))
plus
the number of shares of such Additional Stock. However, the foregoing
calculation shall not take into account shares deemed issued pursuant to Section
5(d)(i)(E)
on
account of options or rights except to the extent (i) such options or rights
have been exercised or (ii) the consideration to be paid upon such exercise
per
share of underlying Common Stock is less than the per share consideration for
the Additional Stock that has given rise to the Conversion Price adjustment
being calculated.
(B) No
adjustment of the Conversion Price for the Series 1 Preferred Stock shall be
made in an amount less than one cent per share, provided that any adjustments
that are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment
made
prior to three (3) years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the end of three (3)
years
from the date of the event giving rise to the adjustment being carried forward.
Except to the limited extent provided for in subsections (E)(3)
and
(E)(4),
no
adjustment of such Conversion Price pursuant to this subsection 5(d)(i)
shall
have the effect of increasing the Conversion Price above the Conversion Price
in
effect immediately prior to such adjustment.
(C) In
the
case of the issuance of Common Stock for cash, the consideration shall be deemed
to be the amount of cash paid therefor before deducting any reasonable
discounts, commissions or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the issuance
and sale thereof.
(D) In
the
case of the issuance of the Common Stock for a consideration in whole or in
part
other than cash, the consideration other than cash shall be deemed to be the
fair value thereof as determined by the Board of Directors irrespective of
any
accounting treatment.
5
(E) In
the
case of the issuance (whether before, on or after the applicable Original Issue
Date) of options to purchase or rights to subscribe for Common Stock, securities
by their terms convertible into or exchangeable for Common Stock or options
to
purchase or rights to subscribe for such convertible or exchangeable securities,
the following provisions shall apply for all purposes of this subsection
5(d)(i)
and
subsection 5(d)(ii):
(1) The
aggregate maximum number of shares of Common Stock deliverable upon exercise
(assuming the satisfaction of any conditions to exercisability, including
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time
such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections 5(d)(i)(C)
and
5(d)(i)(D)),
if
any, received by the Corporation upon the issuance of such options or rights
plus the minimum exercise price provided in such options or rights (without
taking into account potential antidilution adjustments) for the Common Stock
covered thereby.
(2) The
aggregate maximum number of shares of Common Stock deliverable upon conversion
of, or in exchange (assuming the satisfaction of any conditions to
convertibility or exchangeability, including, without limitation, the passage
of
time, but without taking into account potential antidilution adjustments) for,
any such convertible or exchangeable securities or upon the exercise of options
to purchase or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be deemed to
have
been issued at the time such securities were issued or such options or rights
were issued and for a consideration equal to the consideration, if any, received
by the Corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any, to be received
by
the Corporation (without taking into account potential antidilution adjustments)
upon the conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be determined
in
the manner provided in subsections 5(d)(i)(C)
and
5(d)(i)(D)).
(3) In
the
event of any change in the number of shares of Common Stock deliverable or
in
the consideration payable to the Corporation upon exercise of such options
or
rights or upon conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
antidilution provisions thereof (unless such options or rights or convertible
or
exchangeable securities were merely deemed to be included in the numerator
and
denominator for purposes of determining the number of shares of Common Stock
outstanding for purposes of subsection 5(d)(i)(A)),
the
Conversion Price of the Series 1 Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made
for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of
such
securities.
6
(4) Upon
the
expiration of any such options or rights, the termination of any such rights
to
convert or exchange or the expiration of any options or rights related to such
convertible or exchangeable securities, the Conversion Price of the Series
1
Preferred Stock, to the extent in any way affected by or computed using such
options, rights or securities or options or rights related to such securities
(unless such options or rights were merely deemed to be included in the
numerator and denominator for purposes of determining the number of shares
of
Common Stock outstanding for purposes of subsection 5(d)(i)(A)),
shall
be recomputed to reflect the issuance of only the number of shares of Common
Stock (and convertible or exchangeable securities that remain in effect)
actually issued upon the exercise of such options or rights, upon the conversion
or exchange of such securities or upon the exercise of the options or rights
related to such securities.
(5) The
number of shares of Common Stock deemed issued and the consideration deemed
paid
therefor pursuant to subsections 5(d)(i)(E)(1)
and
(2)
shall be
appropriately adjusted to reflect any change, termination or expiration of
the
type described in either subsection 5(d)(i)(E)(3)
or
(4).
(ii) “Additional
Stock”
shall
mean any shares of Common Stock issued (or deemed to have been issued pursuant
to subsection 5(d)(i)(E))
by the
Corporation after the Purchase Date other than:
(A) Common
Stock issued pursuant to a transaction described in subsection 5(d)(iii)
hereof;
or
(B) Shares
of
Common Stock issuable or issued to employees, consultants, directors or vendors
(if in transactions with primarily non-financing purposes) of the Corporation
directly or pursuant to a stock option plan or restricted stock plan approved
by
the Board of Directors of the Corporation and ratified by
stockholders.
(iii) In
the
event the Corporation should at any time or from time to time after the Original
Issue Date fix a record date for the effectuation of a split or subdivision
of
the outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as “Common
Stock Equivalents”)
without payment of any consideration by such holder for the additional shares
of
Common Stock or the Common Stock Equivalents (including the additional shares
of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision
if
no record date is fixed), the Conversion Price of the Series 1 Preferred Stock
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be increased in
proportion to such increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents
with the number of shares issuable with respect to Common Stock Equivalents
determined from time to time in the manner provided for deemed issuances in
subsection 5(d)(i)(E).
7
(iv) If
the
number of shares of Common Stock outstanding at any time after the Original
Issue Date is decreased by a combination of the outstanding shares of Common
Stock, then, following the record date of such combination, the Conversion
Price
for the Series 1 Preferred Stock shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of such
series shall be decreased in proportion to such decrease in outstanding
shares.
(e) Other
Distributions.
In the
event the Corporation shall declare a distribution payable in securities of
other persons, evidences of indebtedness issued by the Corporation or other
persons, assets (excluding cash dividends) or options or rights not referred
to
in subsection 5(d)(iii),
then,
in each such case for the purpose of this subsection 5(e),
the
holders of the Series 1 Preferred Stock shall be entitled to a proportionate
share of any such distribution as though they were the holders of the number
of
shares of Common Stock of the Corporation into which their shares of Series
1
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(f) Recapitalizations
and Mergers.
If at
any time or from time to time there shall be a recapitalization of the Common
Stock (other than a subdivision, common stock dividend, combination or sale
of
assets transaction provided for elsewhere in this Section 5
or
Section 3)
or
merger in which the Corporation is not the surviving corporation (a
“Transaction”), provision shall be made so that the holders of the Series 1
Preferred Stock or the other shares into which such shares are converted shall
thereafter be entitled to receive upon conversion of the Series 1 Preferred
Stock or the other shares into which such shares are converted the number of
shares of stock or other securities or property of the Corporation or otherwise,
to which a holder of Common Stock deliverable upon conversion would have been
entitled in connection with such Transaction. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
5
with
respect to the rights of the holders of the Series 1 Preferred Stock after
the
Transaction to the end that the provisions of this Section 5
(including adjustment of the Conversion Price then in effect and the number
of
shares purchasable upon conversion of the Series 1 Preferred Stock) shall be
applicable after that event as nearly equivalent as may be
practicable.
8
(g) No
Impairment.
The
Corporation shall not, by amendment of its Certificate of Incorporation or
Bylaws or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but shall at all times
in
good faith assist in the carrying out of all the provisions of this Section
5
and in
the taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of the Series 1 Preferred Stock
against impairment.
(h) Certificate
Regarding Adjustments.
Upon
the occurrence of each adjustment or readjustment of the Conversion Price
pursuant to this Section 5,
the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and cause the Corporation’s
independent public accountants to verify such computation and prepare and
furnish to each holder of Series 1 Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which
such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series 1 Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price and the Conversion
Rate
at that time in effect, and (iii) the number of shares of Common Stock and
the
amount, if any, of other property that at that time would be received upon
the
conversion of Series 1 Preferred Stock.
(i) Notices
of Record Date.
In the
event of any taking by the Corporation of a record of the holders of any class
of securities other than Series 1 Preferred Stock for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, any Common Stock Equivalents or any right to subscribe for,
purchase, or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Corporation shall
mail to each holder of Series 1 Preferred Stock, at least twenty (20) days
before to the date specified therein, a notice specifying the date on which
any
such record is to be taken for the purpose of such dividend, distribution,
or
rights, and the amount and character of such dividend, distribution, or
rights.
(j) Reservation
of Stock Issuable Upon Conversion.
The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series 1 Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series 1 Preferred Stock; and if
at
any time the number of authorized but unissued shares of Common Stock shall
be
insufficient to effect the conversion of all then outstanding shares of the
Series 1 Preferred Stock, the Corporation shall take such corporate action
as
may, in the opinion of its counsel, be necessary to increase its authorized
but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
| 6. |
Notices.
|
Any
notice required by the provisions hereof to be given to the holders of shares
of
Series 1 Preferred Stock shall be deemed given on the third business day
following (and not including) the date on which such notice is deposited in
the
United States Mail first-class, postage prepaid, and addressed to each holder
of
record at his address appearing on the books of the Corporation. Notice by
any
other means shall not be deemed effective until actually received.
9
| 7. |
Definitions.
|
For
the
purposes of this Section 7, the following terms shall have the meanings
specified below. Other capitalized terms, used in this Section 7 and not defined
below shall have the meanings otherwise assigned to such terms in this
Certificate of Designations:
“Board
of Directors”
shall
mean the board of directors of the Corporation;
“Common
Stock”
shall
mean the Corporation’s common stock, par value $0.001 per share.
“Offering”
shall
mean the offer by the Corporation of shares of Series 1 Preferred Stock to
accredited investors pursuant to a private placement memorandum dated January
2,
2007;
“Original
Issue Date”
shall
mean each respective closing date of the Offering applicable to each holder
of
Series 1 Preferred Stock, whether the initial closing date, the final closing
date, or some closing date in between;
[Remainder
of page intentionally left blank]
10
IN
WITNESS WHEREOF, the Corporation has caused this Certificate of Designations
to
be made under the seal of the Corporation and signed and attested by its duly
authorized officer on January
30, 2007.
|
BTHC
XI, INC.
|
||
| |
|
|
| By: | /s/ Joseph Rozelle | |
|
Joseph Rozelle |
||
| President & CEO | ||
Exhibit
3.5
AMENDED
AND RESTATED BYLAWS
OF
BTHC
XI, INC.
As
amended January 30, 2007
ARTICLE 1
OFFICES
SECTION
1.01 .
Registered Office.
The
registered office of BTHC XI, Inc. (the “Corporation”) shall be in such place
within the State of Delaware as the Board of Directors (the “Board”) may from
time to time determine.
SECTION
1.02 .
Principal Office.
The
Corporation may have offices also at such other places within and without the
State of Delaware as the Board may from time to time determine or as the
business of the Corporation may require.
SECTION
1.03 .
Other Offices.
The
Corporation may establish any additional offices, at any place or places, as
the
Board may designate or as the business of the Corporation shall
require.
ARTICLE
2
MEETINGS
OF STOCKHOLDERS
SECTION
2.01 .
Place.
Meetings of the stockholders of the Corporation (the “Stockholders”) shall be
held at such place either within or without the State of Delaware as shall
be
designated from time to time by a resolution of a majority of the
Board.
SECTION
2.02 .
Annual Meetings.
The
annual meeting of the Stockholders shall, unless otherwise provided by the
Board, be held on the third Tuesday in May each year. At each annual meeting
of
the Stockholders, the Stockholders shall elect directors, vote upon the
ratification of the selection of the independent auditors selected for the
Corporation for the then current fiscal year of the Corporation, and transact
such other business as may properly be brought before the meeting.
SECTION
2.03 .
Notice of Meetings.
Notice
of the place, if any, date, and time of all meetings of the Stockholders, and
the means of remote communications, if any, by which Stockholders and
proxyholders may be deemed to be present in person and vote at such meeting,
shall be given, not less than 10 nor more than 60 days before the date on which
the meeting is to be held, to each holder of Voting Stock entitled to vote
at
such meeting, except as otherwise provided herein or required by law. When
a
meeting is adjourned to another time or place, notice need not be given of
the
adjourned meeting if the time and place, if any, thereof, and the means of
remote communications, if any, by which Stockholders and proxyholders may be
deemed to be present in person and vote at such adjourned meeting are announced
at the meeting at which the adjournment is taken; provided,
however,
that if
the date of any adjourned meeting is more than 30 days after the date for which
the meeting was originally noticed, or if a new record date is fixed for the
adjourned meeting, notice of the place, if any, date, and time of the adjourned
meeting and the means of remote communications, if any, by which Stockholders
and proxyholders may be deemed to be present in person and vote at such
adjourned meeting, shall be given in conformity herewith. At any adjourned
meeting, any business may be transacted which might have been transacted at
the
original meeting.
1
SECTION
2.04 .
Special Meetings.
Special
meetings of the Stockholders may be called by the chief executive officer or
the
president or by resolution of the Board and, subject to any contrary provision
in the Certificate of Incorporation and to the procedures set forth in this
section, shall be called by the chief executive officer or the secretary at
the
request in writing of Stockholders owning a majority of the voting power of
the
then outstanding Voting Stock. Any such resolution or request shall state the
purpose or purposes of the proposed meeting. Such meeting shall be held at
such
time and date as may be fixed by a resolution of a majority of the Board. The
Board may postpone fixing the time and date of a special meeting to be held
at
the request of Stockholders in order to allow the secretary to determine the
validity of such request, provided,
that if
such request is determined to be valid, then the Board shall fix the date of
such special meeting to be no later than 90 days after such determination.
For
the purposes of these Bylaws, the term “Voting Stock” shall have the meaning of
such term set forth in the Certificate of Incorporation or, if not defined
therein, “Voting Stock” shall mean the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of
directors.
SECTION
2.05 .
Business Transacted.
Business transacted at any special meeting of Stockholders shall be limited
to
the purposes stated in the notice.
SECTION
2.06 .
List of Stockholders.
The
officer who has charge of the stock ledger of the Corporation shall prepare
and
make or cause to be prepared and made, at least ten days before every meeting
of
Stockholders, a complete list of the holders of Voting Stock entitled to vote
at
said meeting, arranged in alphabetical order with the address of and the number
of voting shares registered in the name of each. Such list shall be open for
ten
days prior to the meeting to the examination of any Stockholders, for any
purpose germane to the meeting, during ordinary business hours, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of meeting, or, if not so specified, at the place where
the meeting is to be held, and shall be produced and kept at the time and place
of said meeting during the whole time thereof, and may be inspected by any
Stockholder who is present.
SECTION
2.07 .
Quorum.
Except
as otherwise provided by these Bylaws, the presence of the holders of a majority
of the outstanding Voting Stock entitled to vote at any meeting of the
Stockholders, in person or by proxy, shall constitute a quorum for the
transaction of business. On all questions, the Stockholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough Stockholders to
result in less than a quorum, if any action taken (other than adjournment)
is
approved by at least a majority of the shares required to constitute a quorum.
In the absence of a quorum, the holders of Voting Stock present in person or
by
proxy and entitled to vote at the meeting may, by majority vote, or, in the
absence of all Stockholders, any officer entitled to preside at the meeting,
shall have the power to adjourn the meeting from time to time until holders
of
the requisite amount of Voting Stock shall be present in person or by proxy.
When specified business is to be voted on by a class or series of stock voting
as a class, the holders of a majority of the voting power of the shares of
such
class or series shall constitute a quorum of such class or series for the
transaction of such business.
2
SECTION
2.08 .
Vote Required.
When a
quorum is present at any meeting, the vote of the holders of a majority of
the
voting power of the Voting Stock present in person or represented by proxy
shall
decide any questions brought before such meeting, except as otherwise provided
by statute or the Certificate of Incorporation.
SECTION
2.09 .
Proxies.
Each
holder of Voting Stock entitled to vote at a meeting of Stockholders or to
express consent or dissent to corporate action in writing without a meeting
may
authorize another person or persons to act for him by proxy, but no such proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. Any such proxy shall be delivered to the secretary
of such meeting, at or prior to the time designated in the order of business
for
so delivering such proxies. A duly executed proxy shall be irrevocable if it
states that it is irrevocable and if, and only so long as, it is coupled with
an
interest sufficient in law to support an irrevocable power. A proxy may be
made
irrevocable regardless of whether the interest with which it is coupled is
an
interest in the stock itself or an interest in the Corporation
generally.
SECTION
2.10 .
Inspectors of Election.
In
advance of any meeting of the stockholders, the Board or the presiding officer
of such meeting may appoint one or more inspectors of election to act at such
meeting or at any adjournments thereof and make a written report thereof. One
or
more persons may also be designated by the Board or such presiding officer
as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the
presiding officer of such meeting shall appoint one or more inspectors to act
at
such meeting. No director or nominee for the office of director at such meeting
shall be appointed an inspector of election. Each inspector, before entering
on
the discharge of the inspector’s duties, shall first take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of such person’s ability. The inspectors
of election shall, in accordance with the requirements of the Delaware General
Corporation Law, (a)
ascertain the number of shares outstanding and the voting power of each,
(b)
determine the shares represented at the meeting and the validity of proxies
and
ballots, (c) count
all votes and ballots, (d) determine
and retain for a reasonable period and file with the secretary of the meeting
a
record of the disposition of any challenges made to any determination by the
inspectors, and (e) make
and file with the secretary of the meeting a certificate of their determination
of the number of shares represented at the meeting and their count of all votes
and ballots. The inspectors may appoint or retain other persons or entities
to assist the inspectors in the performance of the duties of the
inspectors.
SECTION
2.11 .
Procedures for Meetings.
Meetings of Stockholders shall be presided over by the chief executive officer
or in his or her absence by a presiding officer designated by the Board, or
in
the absence of such designation by a presiding officer chosen at the meeting.
The secretary shall act as secretary of the meeting, but in his or her absence
the presiding officer of the meeting may appoint any person to act as secretary
of the meeting. The date and time of the opening and the closing of the polls
for each matter upon which the Stockholders will vote at a meeting shall be
announced at such meeting by the presiding officer. The Board may adopt by
resolution such rules or regulations for the conduct of meetings of Stockholders
as it shall deem appropriate. Except to the extent inconsistent with such rules
and regulations as adopted by the Board, the presiding officer of any meeting
of
Stockholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chair, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board or prescribed by the
presiding officer, may include, without limitation, the following: (a)
the
establishment of an agenda or order of business for the meeting; (b)
rules
and procedures for maintaining order at the meeting and the safety of those
present; (c)
limitations on attendance at or participation in the meeting to Stockholders
of
record, their duly authorized and constituted proxies or such other persons
as
the presiding officer shall permit; (d)
restrictions on entry to the meeting after the time fixed for the commencement
thereof, and (e)
limitations on the time allotted to questions or comments by
participants.
3
SECTION
2.12 .
Action Without Meeting.
Unless
otherwise provided in the Certificate of Incorporation, any action required
or
permitted to be taken at any annual or special meeting of Stockholders may
be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders
of
outstanding Voting Stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those holders of Voting Stock who have not consented
in writing.
SECTION
2.13 .
Notice of Stockholder Nomination and Stockholder
Business.
At an
annual meeting of the Stockholders, only such persons who are nominated in
accordance with the procedures set forth in this section shall be eligible
to
stand for election as directors and only such business shall be conducted as
shall have been brought before the meeting in accordance with the procedures
set
forth in these Bylaws. Nominations of persons for election to the Board of
the
Corporation and the proposal of business to be considered by the Stockholders
at
an annual meeting of Stockholders may be made (a)
pursuant
to the Corporation’s notice of meeting, including matters covered by Rule 14a-8
under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”),
(b)
by or at
the direction of the Board or (c)
by any
Stockholder of the Corporation who was a holder of Voting Stock of record at
the
time of giving of notice by the Stockholder as provided in this section, who
is
entitled to vote at the meeting, and who complies with the notice provision
set
forth in this section. A notice of the intent of a Stockholder to make a
nomination or to bring any other matter before an annual meeting must be made
in
writing and received by the secretary of the Corporation no earlier than the
75th day and not later than the close of business on the 45th day prior to
the
first anniversary of the date of mailing of the Corporation’s proxy statement
for the prior year’s annual meeting. However, if the date of the annual meeting
has changed by more than 30 days from the date it was held in the prior year
or
if the Corporation did not hold an annual meeting in the prior year, then such
notice must be received a reasonable time before the Corporation mails its
proxy
statement for the annual meeting. Every such notice by a Stockholder shall
set
forth (i)
the name
and address of such Stockholder as they appear on the Corporation’s books and
the class and number of shares of the Corporation’s Voting Stock that are owned
beneficially and of record by such Stockholder, (ii)
a
representation that the Stockholder is a holder of the Corporation’s Voting
Stock and intends to appear in person or by proxy at the meeting to make the
nomination or bring up the matter specified in the notice; (iii)
with
respect to notice of an intent to make a nomination, a description of all
arrangements or understandings among the Stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the Stockholder, and such other
information regarding each nominee proposed by such Stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had each nominee been nominated
by the Board; and (iv)
with
respect to notice of an intent to bring up any other matter, a description
of
the matter, the reasons for conducting such business at the meeting and any
material interest of the Stockholder in the matter. Notice of intent to make
a
nomination shall be accompanied by the written consent of each nominee to be
named in a proxy statement as a nominee and to serve as director of the
Corporation if so elected. Except as otherwise provided by law or by the
Certificate of Incorporation, the presiding officer of the meeting shall have
the power and authority to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case
may
be, in accordance with the procedures set forth in this Bylaw and whether such
matter is an appropriate subject for Stockholder action under applicable law,
and, if it was not, to declare that such proposal or nomination shall be
disregarded. Notwithstanding the foregoing provisions of this section, a
Stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this section. Nothing in this section shall be deemed to affect any
rights of Stockholders to request inclusion of proposals in the Corporation’s
proxy statement in accordance with Rule 14a-8 under the Exchange Act or the
holders of any series of preferred stock to elect directors under circumstances
specified in the Certificate of Incorporation.
4
SECTION
2.14 .
Notice by Electronic Transmission.
Without
limiting the manner by which notice otherwise may be given effectively to
Stockholders, any notice to Stockholders given by the Corporation under any
law,
the Certificate of Incorporation or these Bylaws shall be effective if given
by
a form of electronic transmission then consented to by the Stockholder to whom
the notice is given.
ARTICLE
3
DIRECTORS
SECTION
3.01 .
Number.
The
number of directors of the Corporation shall be such number as fixed from time
to time by resolution of the Board; provided,
however,
no
decrease in the number of directors shall shorten the term of any incumbent
directors. The directors shall be elected at the annual meeting of the
Stockholders, except as otherwise provided by statute, the Certificate of
Incorporation or Section
3.02
of these
Bylaws, and each director shall hold office until a successor is elected and
qualified or until such director’s earlier resignation or removal.
SECTION
3.02 .
Vacancies.
Vacancies and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors
then
in office, though less than a quorum, or by a sole remaining director, and,
except as otherwise provided by statute or the Certificate of Incorporation,
each of the directors so chosen shall hold office until the next annual election
and until a successor is elected and qualified or until such director’s earlier
resignation or removal.
SECTION
3.03 .
Authority.
The
business of the Corporation shall be managed by or under the direction of the
Board, which shall exercise such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or these Bylaws directed or required to be exercised or done
by
Stockholders.
SECTION
3.04 .
Place of Meeting.
The
Board or any committee thereof may hold meetings, both regular and special,
either within or without the State of Delaware.
5
SECTION
3.05 .
Annual Meeting.
A
regular meeting of the Board shall be held immediately following the adjournment
of the annual meeting of Stockholders. No notice of such meeting shall be
necessary to the directors in order legally to constitute the meeting, provided
a quorum is present. In the event such meeting is not so held, the meeting
may
be held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board.
SECTION
3.06 .
Regular Meetings.
Except
as provided in Section
3.05,
regular
meetings of the Board may be held without notice at such time and at such place
as shall from time to time be determined by the Board.
SECTION
3.07 .
Special Meetings.
Special
meetings of the Board may be called by the chief executive officer, secretary,
or the president and shall be called by the chief executive officer or the
secretary on the written request of at least three directors. Notice of special
meetings of the Board shall be given to each director at least three calendar
days before the meeting if by mail or at least the calendar day before the
meeting if given in person or by telephone, facsimile, telegraph, telex or
similar means of electronic transmission. The notice need not specify the
business to be transacted.
SECTION
3.08 .
Emergency Meetings.
In the
event of an emergency which in the judgment of the chief executive officer
or
the president requires immediate action, a special meeting may be convened
without notice, consisting of those directors who are immediately available
in
person or by telephone and can be joined in the meeting in person or by
conference telephone. The actions taken at such a meeting shall be valid if
at
least a quorum of the directors participates either personally or by conference
telephone.
SECTION
3.09 .
Quorum; Vote Required.
At
meetings of the Board, a majority of the directors at the time in office shall
constitute a quorum for the transaction of business and the act of a majority
of
the directors present at any meeting at which there is a quorum shall be the
act
of the Board. If a quorum shall not be present at any meeting of the Board,
the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present.
SECTION
3.10 .
Chairman of the Board.
The
Board may elect one of its members to be chairman of the board or may elect
two
of its members each to have the title co-chairman of the board, and may fill
any
vacancy in the position of chairman of the board or co-chairman of the board
at
such time and in such manner as the Board shall determine. The chairman of
the
board or co-chairmen of the board, as applicable, may but need not be an officer
of or employed by the Corporation. Unless the resolutions appointing the
chairman of the board or co-chairmen of the board, as applicable, specify that
the chairman of the board or co-chairmen of the board shall be officers, the
chairman of the board or co-chairmen of the board, as applicable, shall not
be
officers. The chairman of the board, if such be elected, shall, if present,
preside at all meetings of the Board and exercise and perform such other powers
and duties as be from time to time assigned to him by the Board. If there shall
be two persons serving as co-chairmen of the board, one of them, as agreed
upon
by both, shall preside at all meetings of the Board and each and shall perform
such other powers and duties as be from time to time assigned to him by the
Board.
6
SECTION
3.11 .
Committees.
The
Board may, by resolution adopted by a majority of the whole Board, designate
one
or more committees, each committee to consist of one or more of the directors
of
the Corporation. All committees may authorize the seal of the Corporation to
be
affixed to all papers which may require it. To the extent provided in any
resolution or by these Bylaws, subject to any limitations set forth under the
laws of the State of Delaware and the Certificate of Incorporation, any such
committee shall have and may exercise any of the powers and authority of the
Board in the management of the business and affairs of the Corporation. Such
committee or committees shall have such name or names as may be determined
from
time to time by resolution adopted by the Board. Unless the Board designates
one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee, the members
of
any such committee present at any meeting and not disqualified from voting
may,
whether or not they constitute a quorum, unanimously appoint another member
of
the Board to act at the meeting in the place of any absent or disqualified
member of such committee. At meetings of any such committee, a majority of
the
members or alternate members of such committee shall constitute a quorum for
the
transaction of business, and the act of a majority of members or alternate
members present at any meeting at which there is a quorum shall be the act
of
the committee.
SECTION
3.12 .
Minutes of Committee Meetings.
The
committees shall keep regular minutes of their proceedings and, when requested
to do so by the Board, shall report the same to the Board.
SECTION
3.13 .
Action by Written Consent.
Any
action required or permitted to be taken at any meeting of the Board or of
any
committee thereof may be taken without a meeting if all the members of the
Board
or of such committee, as the case may be, consent thereto in writing or by
electronic transmission and the writing or electronic transmission or
transmissions are filed with the minutes of proceedings of the Board or
committee.
SECTION
3.14 .
Participation by Conference Telephone.
The
members of the Board or any committee thereof may participate in a meeting
of
the Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence
in
person at such meeting.
SECTION
3.15 .
Compensation of Directors.
The
directors may be paid their expenses of attendance at each meeting of the Board
or of any special or standing committee thereof. The Board may establish by
resolution from time to time the fees to be paid to each director who is not
an
officer or employee of the Corporation or any of its subsidiaries for serving
as
a director of the Corporation, for serving on any special or standing committee
of the Board, and for attending meetings of the Board or of any special or
standing committee thereof. No such payment shall preclude any such director
from serving the Corporation in any other capacity and receiving compensation
therefor.
7
SECTION
3.16 .
Removal.
Subject
to any limitations imposed by applicable law or by the Certificate of
Incorporation, the Board or any director may be removed from office at any
time,
with or without cause, by the affirmative vote of the holders of a majority
of
the then outstanding Voting Stock.
ARTICLE 4
NOTICES
SECTION
4.01 .
Giving of Notice.
Notice
to directors and Stockholders shall be deemed given: (a)
if
mailed, when deposited in the United States mail, postage prepaid, directed
to
the Stockholder or director at such Stockholder’s or director’s address as it
appears on the records of the corporation; (b)
if by
facsimile telecommunication, when directed to a number at which the Stockholder
or director has consented to receive notice; (c)
if by
electronic mail, when directed to an electronic mail address at which the
Stockholder or director has consented to receive notice; (d)
if by a
posting on an electronic network together with separate notice to the
Stockholder or director of such specific posting, upon the later of (1) such
posting and (2) the giving of such separate notice; and (e)
if by
any other form of electronic transmission, when directed to the Stockholder
or
director.
SECTION
4.02 .
Waiver of Notice.
Whenever any notice is required to be given under the provisions of the statutes
or of the Certificate of Incorporation or of these Bylaws, a waiver thereof
in
writing, signed by the person or persons entitled to said notice, or a waiver
by
electronic transmission by the person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice. Attendance
of a person at a meeting shall constitute a waiver of notice of such meeting
except when the person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because
the
meeting is not lawfully called or convened.
ARTICLE 5
OFFICERS
SECTION
5.01 .
Selection of Officers.
The
officers of the Corporation shall be chosen by the Board at its first meeting
after each annual meeting of Stockholders and shall be a chief executive
officer, a president, one or more vice presidents, a secretary, a treasurer
or
chief financial officer, and such other officers as may from time to time be
appointed by the Board. Any number of offices may be held by the same person.
The salaries of officers appointed by the Board shall be fixed from time to
time
by the Board or by such officers as may be designated by resolution of the
Board.
8
SECTION
5.02 .
Powers and Duties in General.
The
officers, assistant officers and agents shall each have such powers and perform
such duties in the management of the affairs, property and business of the
Corporation, subject to the control and limitation by the Board, as is
designated by these Bylaws and as generally pertain to their respective offices,
as well as such powers and duties as may be authorized from time to time by
the
Board.
SECTION
5.03 .
Term of Office; Resignation; Removal Vacancies.
The
officers of the Corporation shall hold office at the pleasure of the Board.
Each
officer shall hold office until a successor is elected and qualified or until
such officer’s earlier death, resignation or removal. Any officer may resign at
any time upon written notice to the Corporation. Any officer elected or
appointed by the Board may be removed at any time, with or without cause, by
the
Board. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise shall be filled by the Board.
SECTION
5.04 .
Chief Executive Officer.
The
chief executive officer of the Corporation shall have the responsibility for
the
general and active management and control of the affairs and business of the
Corporation, shall perform all duties and have all powers which are commonly
incident to the office of chief executive or which are delegated to the chief
executive officer by the Board, and shall see that all orders and resolutions
of
the Board are carried into effect. The chief executive officer shall have the
authority to sign all certificates of stock, bonds, deeds, contracts and other
instruments of the Corporation that are authorized and shall have general
supervision and direction of all of the other officers and agents of the
Corporation.
SECTION
5.05 .
President.
The
president will be the chief operating officer and shall perform all duties
and
have all powers which are commonly incident to the office of president or chief
operating officer or which are delegated to the president by the Board or the
chief executive officer, and shall see that all orders and resolutions of the
Board are carried into effect. In the absence or disability of the chief
executive officer, the president shall perform the duties and exercise the
powers of the chief executive officer. The president shall have the authority
to
sign all certificates of stock, bonds, deeds, contracts and other instruments
of
the Corporation that are authorized.
SECTION
5.06 .
Vice Presidents.
The
vice presidents shall act under the direction of the chief executive officer
and
in the absence or disability of both the chief executive officer and the
president shall perform the duties and exercise the powers of the chief
executive officer. They shall perform such other duties and have such other
powers as the chief executive officer or the Board may from time to time
prescribe. A vice president may be designated as general counsel who shall
serve
as the chief legal officer and have general supervision over the Corporation’s
legal affairs. The Board may designate one or more executive or senior vice
presidents or may otherwise specify the order of seniority of the vice
presidents, and in that event the duties and powers of the chief executive
officer shall descend to the vice presidents in such specified order of
seniority.
SECTION
5.07 .
Secretary.
The
secretary shall act under the direction of the chief executive officer. Subject
to the direction of the chief executive officer, the secretary shall attend
all
meetings of the Board and all meetings of the Stockholders and record the
proceedings in a book to be kept for that purpose, and the secretary shall
perform like duties for the standing committees of the Board when requested
to
do so. The secretary shall give, or cause to be given, notice of all meetings
of
the Stockholders and special meetings of the Board, shall have charge of the
original stock books, stock transfer books and stock ledgers of the Corporation,
and shall perform such other duties as may be prescribed by the chief executive
officer or the Board. The secretary shall have custody of the seal of the
Corporation and cause it to be affixed to any instrument requiring it, and
when
so affixed, it may be attested by the secretary’s signature. The Board may give
general authority to any other officer to affix the seal of the Corporation
and
to attest the affixing by such officer’s signature.
9
SECTION
5.08 .
Chief Financial Officer or Treasurer.
The
chief financial officer or treasurer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of
the
properties and business transactions of the Corporation, including accounts
of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares, and shall send or cause to be sent to the
Stockholders such financial statements and reports as are by law or these Bylaws
required to be sent to them. The books of account shall at all reasonable times
be open for inspection by any director. The chief financial officer or treasurer
shall also perform such other duties as the Board may from time to time
prescribe.
SECTION
5.09 .
Action with Respect to Securities of Other
Corporations.
Unless
otherwise directed by the Board, the chief executive officer or any other
officer of the Corporation authorized by the chief executive officer shall
have
the power to vote and otherwise act on behalf of the Corporation, in person
or
by proxy, at any meeting of Stockholders or with respect to any action of
stockholders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
corporation.
ARTICLE
6
CERTIFICATES
OF STOCK
SECTION
6.01 .
Issuance.
The
stock of the Corporation shall be represented by certificates, provided
that the
Board may provide by resolution for any or all of the stock to be uncertificated
shares.
SECTION
6.02 .
Facsimile Signatures.
If a
certificate is countersigned (a)
by a
transfer agent other than the Corporation or its employee, or (b)
by a
registrar other than the Corporation or its employee, the signatures of the
officers of the Corporation may be facsimiles. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall cease to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued with the same effect as
if
he were such officer, transfer agent or registrar at the date of issue. The
seal
of the Corporation or a facsimile thereof may, but need not, be affixed to
certificates of stock.
SECTION
6.03 .
Lost Certificates, Etc.
The
Corporation may establish procedures for the issuance of a new certificate
of
stock in place of any certificate theretofore issued by the Corporation alleged
to have been lost, stolen or destroyed and may in connection therewith require,
among other things, the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed and the giving
by such person to the Corporation of a bond in such sum as may be specified
pursuant to such procedures as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
10
SECTION
6.04 .
Transfer.
Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation, if it shall be satisfied that all provisions of the Certificate
of
Incorporation, the Bylaws and the laws regarding the transfer of shares have
been duly complied with, to issue a new certificate to the person entitled
thereto or provide other evidence of the transfer, cancel the old certificate
and record the transaction upon its books.
SECTION
6.05 .
Registered Stockholders.
The
Corporation shall be entitled to recognize the person registered on its books
as
the owner of shares to be the exclusive owner for all purposes including voting
and dividends, and the Corporation shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except
as
otherwise provided by the laws of Delaware.
SECTION
6.06 .
Record Date for Consents.
In
order that the Corporation may determine the Stockholders entitled to consent
to
corporate action in writing without a meeting, the Board may fix, in advance,
a
record date, which record date shall not be more than ten days after the date
upon which the resolution fixing the record date is adopted by the Board. Any
record holder of Voting Stock seeking to have the Stockholders authorize or
take
corporate action by written consent shall, by written notice to the secretary,
request the Board to fix a record date. The Board shall promptly, but in all
events within ten days after the date on which such request is received, adopt
a
resolution fixing the record date. If no record date has been fixed by the
Board
within ten days after the receipt of such request and no prior action by the
Board is required by applicable law, then the record date shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
headquarters office to the attention of the secretary. Delivery shall be by
hand
or certified or registered mail, return receipt requested. If no record date
has
been fixed by the Board and prior action by the Board is required by applicable
law, the record date for determining Stockholders entitled to consent shall
be
at the close of business on the date on which the Board adopts the resolution
taking such prior action. The Board may postpone action by written consent
in
order to allow the secretary to conduct a reasonable and prompt investigation
to
ascertain the legal sufficiency of the consents. The secretary may designate
an
independent inspector of election to conduct such investigation.
SECTION
6.07 .
Record Dates.
In
order that the Corporation may determine the Stockholders entitled to notice
of
or to vote at any meeting of Stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than
sixty
or less than ten days before the date of such meeting, and not more than sixty
days prior to any other action. A determination of Stockholders of record
entitled to notice of or to vote at a meeting of Stockholders shall apply to
any
adjournment of the meeting; provided,
however,
that
the Board may fix a new record date for the adjourned meeting.
11
ARTICLE
7
MISCELLANEOUS
SECTION
7.01 .
Declaration of Dividends.
Dividends upon the shares of the capital stock of the Corporation may be
declared and paid by the Board from the funds legally available therefor.
Dividends may be paid in cash, in property, or in shares of the capital stock
of
the Corporation.
SECTION
7.02 .
Reserves.
The
directors of the Corporation may set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves for such purposes
as
the directors shall think conducive to the interest of the Corporation, and
the
directors may modify or abolish any such reserve.
SECTION
7.03 .
Fiscal Year.
The
fiscal year of the Corporation shall be the calendar year.
SECTION
7.04 .
Seal.
The
corporate seal shall be in such form as the Board shall prescribe. Said seal
may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
SECTION
7.05 .
Inspection of Books and Records by Directors.
Any
director shall have the right to examine the Corporation’s stock ledger, a list
of its Stockholders and its other books and records for a purpose reasonably
related to his position as a director. Such right to examine the records and
books of the Corporation shall include the right to make copies and extract
therefrom.
ARTICLE
8
INDEMNIFICATION
SECTION
8.01 .
Indemnification.
The
Corporation shall indemnify and hold harmless, to the fullest extent permitted
by applicable law as it presently exists or may hereafter be amended, any person
who was or is made or is threatened to be made a party or is otherwise involved
in any pending or threatened action, suit or proceeding, whether civil,
criminal, administrative or investigative (a “proceeding”) by reason of the fact
that he or she, or a person for whom he or she is the legal representative,
is
or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another corporation
or of
a partnership, joint venture, trust, nonprofit entity, or other enterprise,
including service with respect to employee benefit plans, against all liability
and loss suffered and expenses (including attorneys' fees) reasonably incurred
by such person. The Corporation shall be required to indemnify a person and/or
advance expenses under Section
8.02
below in
connection with a proceeding (or part thereof) initiated by such person against
the Corporation only if the proceeding (or part thereof), other than a
proceeding in accordance with Section
8.03
below,
was authorized by the Board of Directors of the Corporation.
12
SECTION
8.02 .
Advance of Expenses.
The
Corporation shall pay the expenses (including attorneys' fees) incurred by
any
present or former officer or director of the Corporation in defending any
proceeding in advance of its final disposition, provided, however, that such
advance of expenses shall be made only upon receipt of an undertaking by the
officer or director to repay all amounts advanced if it shall ultimately be
determined that he or she is not entitled to be indemnified.
SECTION
8.03 .
Claims.
If a
claim
for indemnification or payment of expenses (including attorneys' fees) under
this Article
8
is not
paid in full within sixty days after a written claim therefor has been received
by the Corporation the claimant may file suit to recover the unpaid amount
of
such claim and, if successful in whole or in part, shall be entitled to be
paid
the expense of prosecuting
such claim. In any such action the Corporation shall have the burden of proving
that the claimant was not entitled to the requested indemnification or payment
of expenses under applicable law.
SECTION
8.04 .
Insurance.
The
Board of Directors of the Corporation may, in its discretion, authorize the
Corporation to purchase and maintain insurance on behalf of any person who
is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee
or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her or incurred by
him
or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of Section
8.01.
SECTION
8.05 .
Non-exclusivity of Rights.
The
right conferred on any person by this Article
8
shall
not be exclusive of any other rights which such person may have or hereafter
acquire under any statute, provision of the Certificate of Incorporation, these
Bylaws, agreement, vote of stockholders or disinterested directors or
otherwise.
ARTICLE 9
AMENDMENTS
SECTION
9.01 .
By the Stockholders.
Except
as otherwise provided by statute or the Certificate of Incorporation, these
Bylaws may be amended by the affirmative vote of the holders of at least a
majority of the voting power of the then outstanding Voting Stock, voting
together as a single class at any annual or special meeting of the Stockholders,
provided
that
notice of intention to amend shall have been contained in the notice of the
meeting.
SECTION
9.02 .
By the Board.
The
Board by a resolution of a majority of the Board at any meeting may amend these
Bylaws, including bylaws adopted by the Stockholders, but the Stockholders
may,
except as otherwise provided by statute or the Certificate of Incorporation,
from time to time specify particular provisions of the Bylaws which shall not
be
amended by the Board.
13
Exihibit
4.1
NO
SALE,
OFFER TO SELL OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS WARRANT OR
ANY
INTEREST THEREIN SHALL BE MADE UNLESS A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, WITH RESPECT TO SUCH TRANSACTION IS THEN
IN
EFFECT, OR THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT
THAT
SUCH TRANSFER DOES NOT REQUIRE REGISTRATION UNDER THAT ACT.
This
Warrant will be void after 5:00 p.m. New York Time on January
31, 2012.
COMMON
STOCK PURCHASE WARRANT
WARRANT
NO. W-1
To
Subscribe for and Purchase Shares of
BTHC
XI, INC.
(Transferability
Restricted as Provided in Paragraph 2 Below)
THIS
CERTIFIES THAT,
for
value received, FORDHAM
FINANCIAL MANAGEMENT, INC.,
or
registered assigns, is entitled to subscribe for and purchase from BTHC
XI, Inc.,
a
corporation incorporated under the laws of the State of Delaware (the
“Company”), ________fully paid and non-assessable shares of Common Stock of the
Company at the Warrant Price during the period hereinafter set forth, subject,
however, to the provisions and upon the terms and conditions hereinafter set
forth. This Warrant is one of an issue of the Company’s Common Stock purchase
warrants (herein called the “Warrants”), identical in all respects except as to
the number of Common Shares purchasable thereunder, and issued pursuant to
the
Placement Agent Agreement.
1. As
used
herein:
(a) “Common
Stock” or “Common Shares” shall initially refer to the Company’s Common Stock,
$.001 par value per share, as more fully set forth in Section 5
hereof.
(b) “Warrant
Price” shall be $1.10 which is subject to adjustment pursuant to Section 4
hereof.
(c) “Placement
Agent” shall refer to FORDHAM FINANCIAL MANAGEMENT, INC.
(d) “Placement
Agent Agreement” shall refer to the Placement Agent Agreement dated January 2,
2007 between the Company and the Placement Agent.
1
(e) “Warrants”
shall refer to Warrants to purchase Common Shares issued to the Placement Agent
or its designees by the Company pursuant to the Placement Agent Agreement,
as
such may be adjusted from time to time pursuant to the terms of Section 4
and including any Warrants represented by any certificate issued from time
to
time in connection with the transfer, partial exercise, exchange of any Warrants
or in connection with a lost, stolen, mutilated or destroyed Warrant
certificate, if any, or to reflect an adjusted number of Common
Shares.
(f) “Underlying
Securities” or “Warrant Shares” shall refer to and include the Common Stock
issuable or issued upon exercise of the Warrants.
(g) “Holders”
shall mean the registered holder of such Warrants or any issued Underlying
Securities.
(h) “Memorandum”
shall mean the Company’s Confidential Private Placement Memorandum dated January
2, 2007, which is being used (or was used) in connection with the private
offering of Series 1 Preferred Stock pursuant to the Placement Agent Agreement.
(i) “Placement
Agent Securities” shall refer and mean the warrants and shares of Common Stock
issued and/or issuable upon exercise of the Warrants.
(j) “Offering”
means the private offering of Series 1 Preferred Stock in accordance with the
Memorandum.
(k) “Series
1
Preferred Stock” means the Company’s Series 1 Convertible Preferred Stock, par
value $.001 per share.
2. Exercise
and Payment.
The
purchase rights represented by this Warrant may be exercised by the holder
hereof, in whole or in part at any time, and from time to time, during the
period commencing the date hereof (the “Commencement Date”) until January
31, 2012
(the
“Warrant Exercise Term”), by the presentation of this Warrant, with the purchase
form attached duly executed, at the Company's office (or such office or agency
of the Company as it may designate in writing to the Holder hereof by notice
pursuant to Section 14 hereof), and upon payment by the Holder to the Company
in
cash, or by certified check or bank draft of the Warrant Price for the Common
Shares. At the option of the Holder of this Warrant, the Warrant Price may
be
paid through a cashless exercise of this Warrant. The
purchase price of the Common Shares issuable pursuant to the Warrants, shall
be
payable in cash, by certified bank check and/or in lieu of cash, a warrant
holder may exercise its Warrants through a cashless exercise. In this respect,
at any time during the Warrant Exercise Term, the Holder may, at its option,
exchange the Warrants, in whole or in part (a “Warrant Exchange”), into the
number of fully paid and non-assessable Warrant Shares determined in accordance
with this Section 2, by surrendering the placement agent warrants which shall
represent the right to subscribe for and acquire the number of Warrant Shares
(rounded to the next highest integer) equal to (A) the number of Warrant Shares
specified by the Holder in its Notice of Exchange (the “Total Share Number”)
less (B) the number of Warrant Shares equal to the quotient obtained by dividing
(i) the product of the Total Share Number and the existing Exercise Price (i.e.
$1.10 per share) per Share by (ii) the Market Price (as hereafter defined)
of a
share of Common Stock. All documentation and procedures to be followed in
connection with such “cashless exercise” shall be approved in advance by the
Company, which approval shall be expeditiously provided and not unreasonably
withheld.
2
The
Market Price of any shares of Common Stock to purchase shares so surrendered
shall be based upon the value of the Common Stock at the close of business
on
the day before exercise based upon the following: (i) if the shares of Common
Stock are not listed and traded upon a recognized securities exchange and there
is no report of stock prices with respect to the shares of Common Stock
published by a recognized stock quotation service, by the Board of Directors
of
the Company in its reasonable discretion, it being understood that the Market
Price per share shall not be less than the most recent sale of Common Stock
by
the Company in an arms-length transaction occurring no more than six (6) months
prior to the exercise in question; or (ii) if the shares of Common Stock are
not
then listed and traded upon a recognized securities exchange or quoted on the
NASDAQ Stock Market, and there are reports of stock prices by a recognized
quotation service, upon the basis of the last reported sale or transaction
price
of such stock as reported by a recognized quotation service, or, if there is
no
last reported sale or transaction price on the day before exercise, then upon
the basis of the mean of the last reported closing bid and closing asked prices
for such stock on the date nearest preceding that day; or (iii) if the shares
of
Common Stock shall be then listed and traded upon a recognized securities
exchange or quoted on the NASDAQ Stock Market, upon the basis of the last
reported sale or transaction price at which shares of Common Stock were traded
on such recognized securities exchange or NASDAQ Stock Market or, if the shares
of Common Stock were not traded on the day before exercise, upon the basis
of
the last reported sale or transaction price on the date nearest preceding that
date. In the event the Company is acquired for either stock, notes, securities,
cash or any combination thereof, the holders of the Warrants shall have the
option to use the per share buyout price as the Market Price of the Common
Stock. The
Company agrees that the Holder of the Warrants shall be deemed the record owner
of such Common Shares as of the close of business on the date on which the
Warrants shall have been presented and payment made for such Common Shares
as
aforesaid. Certificates for the Common Shares so purchased shall be delivered
to
the Holder of the Warrants within a reasonable time, not exceeding five (5)
days, after the rights represented by the Warrants shall have been so exercised.
If the Warrants shall be exercised in part only, the Company shall, upon
surrender of the Warrants for cancellation, deliver a new Warrant evidencing
the
rights of the Holder hereof to purchase the balance of the Common Shares which
such Holder is entitled to purchase hereunder. Exercise in full of the rights
represented by the Warrants shall not extinguish the registration rights under
Section 9 hereof and Section 2 of the Placement Agent Agreement.
3. Subject
to the provisions of Section 8 hereof, (i) this Warrant is exchangeable at
the
option of the Holder at the aforesaid office of the Company for other Warrants
of different denominations entitling the Holder thereof to purchase in the
aggregate the same number of Common Shares as are purchasable hereunder; and
(ii) this Warrant may, at the reasonable request of the Holder, be reasonably
divided or combined with other Warrants which carry the same rights, in either
case, upon presentation hereof at the aforesaid office of the Company together
with a written notice, signed by the Holder hereof, specifying the names and
denominations in which new Warrants are to be issued, and the payment of any
transfer tax due in connection therewith.
3
4. Subject
and pursuant to the provisions of this Section 4, the Warrant Price and number
of Common Shares subject to this Warrant shall be subject to adjustment from
time to time as set forth hereinafter in this Section 4.
(a) In
case
the Company shall sell or issue either any of its Common Shares or any rights,
options, warrants or obligations or securities containing the right to subscribe
for or purchase any Common Shares (“Options”) or exchangeable for or convertible
into Common Shares (“Convertible Securities”), at a price per share, as
determined pursuant to Section 4(b), less than the Warrant Price then in effect
on the date of such sale or issuance, then the number of Common Shares
purchasable upon exercise of this Warrant shall be determined by multiplying
the
number of Common Shares theretofore purchasable upon exercise of this Warrant
by
a fraction, (a) the numerator of which shall be the number of Common Shares
outstanding on the date of issuance of such Common Shares, Options or
Convertible Securities and (b) the denominator of which shall be the number
of
Common Shares outstanding on the date prior to the date of issuance of such
Common Shares or Convertible Securities plus the number of Common Shares which
the aggregate consideration received by the Company upon such issuance would
purchase on such date at the Warrant Price then in effect.
(b) The
following provisions, in addition to other provisions of this Section 4, shall
be applicable in determining any adjustment under Section 4(a):
(1) In
case
of the issuance or sale of Common Shares part or all of which shall be for
cash,
the cash consideration received by the Company therefor shall be deemed to
be
the amount of cash proceeds of such sale of shares less any compensation paid
or
discount allowed in the sale, underwriting or purchase thereof by underwriters
or dealers or others performing similar services or any expenses incurred in
connection therewith, plus the amounts, if any, determined as provided in
Section 4(b)(2).
(2) In
case
of the issuance or sale of Common Shares wholly or partly for a consideration
other than cash, the amount of the consideration other than cash received by
the
Company for such shares shall be deemed to be the fair value of such
consideration as determined by a resolution adopted by the Board of Directors
of
the Company acting in good faith, less any compensation paid or incurred by
the
Company for any underwriting of, or otherwise in connection with such issuance,
provided, however, the amount of such consideration other than cash shall in
no
event exceed the cost thereof as recorded on the books of the Company. In case
of the issuance or sale of Common Shares (otherwise than upon conversion or
exchange) together with other stock or securities or other assets of the Company
for a consideration which is received for both such Common Shares and other
securities or assets, the Board of Directors of the Company acting in good
faith
shall determine what part of the consideration so received is to be deemed
to be
the consideration for the issuance of such Common Shares, less any compensation
paid or incurred by the Company for any underwriting of, or otherwise in
connection with such issuance, provided, however, the amount of such
consideration other than cash shall in no event exceed the cost thereof as
recorded on the books of the Company. In case at any time the Company shall
declare a dividend or make any other distribution upon any stock of the Company
payable in Common Stock, then such common stock issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold without
consideration.
4
(3) The
price
per share of any Common Shares sold or issued by the Company (other than
pursuant to Options or Convertible Securities) shall be equal to a price
calculated by dividing (A) the amount of the consideration received by the
Company, as determined pursuant to Sections 4(b)(1) and 4(b)(2), upon such
sale
of issuance by (B) the number of Common Shares sold or issued.
(4) In
case
the Company shall at any time after the date hereof issue any Options or
Convertible Securities the following provisions shall apply in making any
adjustment pursuant to this Section 4:
(i)
The
price per share for which Common Stock is issuable upon the exercise of the
Options or upon conversion or exchange of the Convertible Securities shall
be
determined by dividing (A) the total amount, if any, received or receivable
by
the Company as consideration for the issuance of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration,
if
any, payable to the Company upon the exercise of such Options or the conversion
or exchange of such Convertible Securities, by (B) the aggregate maximum number
of shares of Common Stock issuable upon the exercise of such Option or upon
the
conversion or exchange of such Convertible Securities.
(ii)
In
determining the price per share for which Common Stock is issuable upon exercise
of the Options or conversion or exchange of the Convertible Securities as set
forth in Section 4(b)(4)(i) and in computing any adjustment pursuant to Section
4(a): (A) the aggregate maximum number of shares of Common Stock issuable upon
the exercise of such Convertible Securities shall be considered to be
outstanding at the time such Options or Convertible Securities were issued
and
to have been issued for such price per share as determined pursuant to Section
4(b)(4)(i) and (B) the consideration for the issuance of such Options or
Convertible Securities and the amount of additional consideration payable to
the
Company upon exercise of such Options or upon the conversion or exchange of
such
Convertible Securities shall be determined in the same manner as the
consideration received upon the issuance or sale of Common Shares as provided
in
Sections 4(b)(1) and 4(b)(2).
(iii)
On
the expiration of such Options or the termination of any right to convert or
exchange any Convertible Securities, the number of Common Shares subject to
this
Warrant shall forthwith be readjusted to such number of Common Shares as would
have obtained had the adjustments made upon the issuance of such Options or
Convertible Securities been made upon the basis of the delivery of only the
number of shares of Common Stock actually delivered upon the exercise of such
Options or upon conversion or exchange of such Convertible
Securities.
5
(iv) If
the
minimum purchase price per share of Common Stock provided for in any Option
or
the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock shall change or a different purchase price or
rate
shall become effective at any time or from time to time (other than pursuant
to
any anti-dilution provisions of such Options or Convertible Securities) then,
upon such change becoming effective, the number of Common Shares subject to
this
Warrant shall forthwith be increased or decreased to such number of shares
as
would have been obtained had the adjustments made upon the granting or issuance
of such Options or Convertible Securities been made upon the basis of (l) the
issuance of the number of shares of Common Stock theretofore actually delivered
upon the exercise of such Options or upon the conversion or exchange of such
Convertible Securities, and the total consideration received therefor, and
(2)
the granting or issuance at the time of such change of any such Options or
Convertible Securities then still outstanding for the consideration, if any,
received by the Company therefor and to be received on the basis of such changed
price or rate of exchange or conversion.
(5) Except
as
otherwise specifically provided herein the date of issuance or sale of Common
Stock shall be deemed to be the date the Company is legally obligated to issue
such Common Shares, or pursuant to paragraph 4(b)(4), the date the Company
is
legally obligated to issue any Option or Convertible Security. In case at any
time the Company shall take a record date for the purpose of determining the
Holders of Common Stock entitled (i) to receive a dividend or other distribution
payable in Common Stock or in Options or Convertible Securities or (ii) to
subscribe for or purchase Common Stock, Options or Convertible Securities then
such record date shall be deemed to be the date of issue or sale of the Common
Shares, Options or Convertible Securities deemed to have been issued or sold
upon the declaration of such dividend or the making of such distribution or
the
granting of such right of subscription or purchase, as the case may
be.
(6) The
number of shares of Common Stock outstanding at any given time shall not include
treasury shares and the disposition of any such treasury shares shall be
considered an issue or sale of Common Stock for the purposes of this Section
4.
(7) Anything
hereinabove to the contrary notwithstanding, no adjustment shall be made
pursuant to Section 4(a) to the Warrant Price, or to the number of Underlying
Securities upon:
(i) The
issuance or sale by the Company of any Common Shares, shares of Series 1
Preferred Stock (or Common Shares issuable upon conversion of such Series 1
Preferred Stock), Options or Convertible Securities pursuant to (A) the
Warrants, (B) the Offering, (C) the Placement Agent Agreement, (D) dividends
on
shares of Series 1 Preferred Stock payable in shares of Series 1 Preferred
Stock
(including the issuance of shares of Common Stock issuable upon the conversion
of such Series 1 Preferred Stock), (E) the conversion or exchange of any
security which is outstanding on any closing date of the Offering which is
convertible or exchangable into shares of Common Stock, or (F) the exercise
of
any right, warrant or option which is outstanding on or about any closing date
of the Offering or otherwise as described in the Memorandum.
6
(ii) The
issuance or sale of Common Shares pursuant to the exercise of Options or
conversion or exchange of Convertible Securities hereinafter issued for which
an
adjustment has been made (or was not required to be made) pursuant to the
provisions of Section 4 hereof.
(iii)
The
increase in the number of Common Shares subject to any Option or Convertible
Security referred to in subsections (i) and (ii) hereof pursuant to the
provisions of such Option or Convertible Securities designed to protect against
dilution.
(c) If
the
Company shall at any time subdivide its outstanding Common Shares by
recapitalization, reclassification or split-up thereof, the number of Common
Shares subject to this Warrant immediately prior to such subdivision shall
be
proportionately increased, and if the Company shall at any time combine the
outstanding Common Shares by recapitalization, reclassification or combination
thereof, the number of Common Shares subject to this Warrant immediately prior
to such combination shall be proportionately decreased. Any such adjustment
to
the Warrant Price pursuant to this Section shall become effective at the close
of business on the record date for such recapitalization, reclassification,
subdivision or combination.
(d) If
the
Company after the date hereof shall distribute to all of the holders of its
Common Shares any securities or other assets (other than a distribution of
Common Shares or a cash distribution made as a dividend payable out of earnings
or out of any earned surplus legally available for dividends under the laws
of
the State of Delaware), the Board of Directors of the Company shall be required
to make such equitable adjustment in the Warrant Price in effect immediately
prior to the record date of such distribution as may be necessary to preserve
to
the Holder of this Warrant rights substantially proportionate to those enjoyed
hereunder by such Holder immediately prior to the happening of such
distribution. Any such adjustment made in good faith by the Board of Directors
shall be final and binding upon the Holders and shall become effective as of
the
record date for such distribution.
(e) No
adjustment in the number of Common Shares subject to this Warrant shall be
required under this Section 4 hereof unless such adjustment would require an
increase or decrease in such number of shares of at least 1% of the then
adjusted number of Common Shares issuable upon exercise of this Warrant,
provided, however, that any adjustments which by reason of the foregoing are
not
required at the time to be made shall be carried forward and taken into account
and included in determining the amount of any subsequent adjustment; and
provided further, however, that in case the Company shall at any time subdivide
or combine the outstanding Common Shares or issue any additional Common Shares
as a dividend, said percentage shall forthwith be proportionately increased
in
the case of a combination or decreased in the case of a subdivision or dividend
of Common Shares so as to appropriately reflect the same. If the Company shall
make a record of the Holders of its Common Shares for the purpose of entitling
them to receive any dividend or distribution and legally abandon its plan to
pay
or deliver such dividend or distribution then no adjustment in the number of
Common Shares subject to the Warrant shall be required by reason of the making
of such record.
7
(f)
Whenever the number of Common Shares purchasable upon the exercise of this
Warrant is adjusted, as provided in Section 4, the Warrant Price shall be
adjusted (to the nearest one tenth of a cent by multiplying such Warrant Price
immediately prior to such adjustment by a fraction, the numerator of which
shall
be the number of Common Shares purchasable upon the exercise of this Warrant
immediately prior to such adjustment, and the denominator of which shall be
the
number of Common Shares so purchasable immediately thereafter.
(g) In
case
of any reclassification of the outstanding Common Shares (other than a change
covered by Section 4(c) hereof or which solely affects the par value of such
Common Shares) or in the case of any merger or consolidation of the Company
with
or into another corporation (other than a consolidation or merger in which
the
Company is the continuing corporation and which does not result in any
reclassification or capital reorganization of the outstanding Common Shares),
or
in the case of any sale or conveyance to another corporation of the property
of
the Company as an entirety or substantially as an entirety in connection with
which the Company is dissolved, the Holder of this Warrant shall have the right
thereafter (until the expiration of the right of exercise of this Warrant)
to
receive upon the exercise hereof, for the same aggregate Warrant Price payable
hereunder immediately prior to such event, the kind and amount of shares of
stock or other securities or property receivable upon such reclassification,
capital reorganization, merger or consolidation, or upon the dissolution
following any sale or other transfer, by a Holder of the number of Common Shares
of the Company obtainable upon the exercise of this Warrant immediately prior
to
such event; and if any reclassification also results in a change in Common
Shares covered by Section 4(c), the such adjustment shall be made pursuant
to
both this Section 4(g) and Section 4(c). The provisions of this Section 4(g)
shall similarly apply to successive re-classifications, or capital
reorganizations, mergers or consolidations, sales or other
transfers.
(h) (1) Upon
occurrence of each event requiring an adjustment of the Warrant Price and of
the
number of Common Shares obtainable upon exercise of this Warrant in accordance
with, and as required by, the terms of this Section 4, the Company shall
forthwith employ a firm of certified public accountants (who may be the regular
accountants for the Company) who shall compute the adjusted Warrant Price and
the adjusted number of Common Shares purchasable at such adjusted Warrant Price
by reason of such event in accordance with the provisions of this Section 4.
The
Company shall mail forthwith to the Holder of this Warrant a copy of such
computation which shall be conclusive and shall be binding upon such Holder
unless contested by such Holder by written notice to the Company within thirty
(30) days after receipt thereof by such Holder.
(2) In
case
the Company after the date hereof shall propose (i) to pay any dividend payable
in stock to the Holders of its Common Shares or to make any other distribution
(other than cash dividends) to the Holders of its Common Shares, (ii) grant
rights to subscribe to or purchase any additional shares of any class or any
other rights or options, or (iii) to effect any reclassification of Common
Shares (other than a reclassification involving merely the subdivision or
combination of outstanding Common Shares) or (iv) any capital reorganization
or
any consolidation or merger, or any sale, transfer or other disposition of
its
property, assets and business substantially as an entirety, or the liquidation,
dissolution or winding up of the Company, then in each such case, the Company
shall obtain the computation described in Section 4(h)(1) hereof and if an
adjustment to the Warrant Price is required under this Section 4, the Company
shall notify the registered Holder of this Warrant of such proposed action,
which shall specify the record date for any such action or if no record date
is
established with respect thereto, the date on which such action shall occur
or
commence, or the date of participation therein by the Holders of Common Shares
if any such date is to be fixed, and shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the effect of
such
action on the Warrant Price and the number, or kind, or class of shares or
other
securities or property obtainable upon exercise of this Warrant after giving
affect to any adjustment which will be required as a result of such action.
Such
notice shall be given at least ten (10) days prior to the record date for
determining Holders of the Common Shares for purposes of any such action, and
in
the case of any action for which a record date is not established then such
notice shall be mailed at least ten (10) days prior to the taking of such
proposed action.
8
(3) Failure
to file any certificate or notice or to mail any notice, or any defect in any
certificate or notice, or any defect in any certificate or notice, pursuant
to
this Section 4(h), shall not effect the legality or validity of the adjustment
in the Warrant Price or in the number, or kind, or class or shares or other
securities or property obtainable upon exercise of this Warrant or of any
transaction giving rise thereto.
(i) The
Company shall not be required to issue fractional Common Shares upon any
exercise of this Warrant. As to any final fraction of a Common Share which
the
Holder of this Warrant would otherwise be entitled to purchase upon such
exercise, the Company shall pay the Holder the cash equivalent of such fraction
of a Common Share.
(j) Irrespective
of any adjustments pursuant to this Section 4 in the Warrant Price or in the
number, or kind, or class of shares or other securities or other property
obtainable upon exercise of this Warrant, this Warrant may continue to express
the Warrant Price and the number of Common Shares obtainable upon exercise
at
the same price and number of Common Shares as are stated herein.
5. For
the
purposes of this Warrant, the terms “Common Shares” or “Common Stock” or
“Warrant Shares” shall mean (i) the class of stock designated as the common
stock, $.001 par value, of the Company on the date set forth on the first page
hereof or (ii) any other class of stock resulting from successive changes or
re-classifications of such Common Stock consisting solely of changes in par
value, or from no par value to par value, or from par value to no par value.
If
at any time, as a result of an adjustment made pursuant to Section 4, the
securities or other property obtainable upon exercise of this Warrant shall
include shares or other securities of the Company other than Common Shares
or
securities of another corporation or other property, thereafter, the number
of
such other shares or other securities or property so obtainable shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent
as
practicable to the provisions with respect to the Common Shares contained in
Section 4 and all other provisions of this Warrant with respect to Common Shares
shall apply on like terms to any such other shares or other securities or
property. Subject to the foregoing, and unless the context requires otherwise,
all references herein to Common Shares shall, in the event of an adjustment
pursuant to Section 4, be deemed to refer also to any other securities or
property then obtainable as a result of such adjustments.
9
6. The
Company covenants and agrees that:
(a)
During the period within which the rights represented by the Warrant may be
exercised, the Company shall, at all times, reserve and keep available out
of
its authorized capital stock, solely for the purposes of issuance upon exercise
of this Warrant, such number of its Common Shares as shall be issuable upon
the
exercise of this Warrant; and if at any time the number of authorized Common
Shares shall not be sufficient to effect the exercise of this Warrant, the
Company will take such corporate action as may be necessary to increase its
authorized but unissued Common Shares to such number of shares as shall be
sufficient for such purpose; the Company shall have analogous obligations with
respect to any other securities or property issuable upon exercise of this
Warrant;
(b) All
Common Shares which may be issued upon exercise of the rights represented by
this Warrant will, upon issuance be validly issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issuance thereof;
and
(c) All
original issue taxes payable in respect of the issuance of Common Shares upon
the exercise of the rights represented by this Warrant shall be borne by the
Company but in no event shall the Company be responsible or liable for income
taxes or transfer taxes upon the transfer of any Warrants.
7. Until
exercised, this Warrant shall not entitle the Holder hereof to any voting rights
or other rights as a stockholder of the Company.
8. In
no
event shall this Warrant be sold, transferred, assigned or hypothecated except
in conformity with the applicable provisions of the Securities Act of 1933,
as
amended and as then in force (the “Act”), or any similar Federal statute then in
force, and all applicable “Blue Sky” laws.
9. The
Holder of this Warrant, by acceptance hereof, agrees that, prior to the
disposition of this Warrant or of any Common Shares theretofore purchased upon
the exercise hereof, under circumstances that might require registration of
such
securities under the Act, or any similar Federal statute then in force, such
Holder will give written notice to the Company expressing such Holder's
intention of effecting such disposition, and describing briefly such Holder's
intention as to the disposition to be made of this Warrant and/or the securities
theretofore issued upon exercise hereof. Such notice shall be given at least
ten
(10) days prior to the date of such disposition. Promptly upon receiving such
notice, the Company shall present copies thereof to its counsel and the
provisions of the following subdivisions shall apply:
10
(a) If,
in
the opinion of such counsel, the proposed disposition does not require
registration under the Act or qualification pursuant to Regulation A promulgated
under the Act, or any similar Federal statute then in force, of this Warrant
and/or the securities issuable or issued upon the exercise of this Warrant,
the
Company shall, as promptly as practicable, notify the Holder hereof of such
opinion, whereupon such Holder shall be entitled to dispose of this Warrant
and/or such Common Shares theretofore issued upon the exercise hereof, all
in
accordance with the terms of the notice delivered by such Holder to the
Company.
(b)
If,
in
the opinion of such counsel, such proposed disposition requires such
registration or qualification under the Act, or similar Federal statute then
in
effect, of this Warrant and/or the Common Shares issuable or issued upon the
exercise of this Warrant, the Company shall promptly give written notice to
the
Holder of the Warrant, at the address thereof shown on the books of the Company.
It
should
be noted that Section 2 of the Placement Agent Agreement provides for the
following registration rights:
“The
Placement Agent Warrants shall also contain one demand registration right and
unlimited piggy-back registration rights with respect to the Warrant Shares,
which right shall become effective after the expiration of 12 months after
the
completion of the Minimum Offering, and which right shall terminate 48 months
thereafter. The demand registration right of the Warrant Shares, may be
exercised by either the Placement Agent or a majority of the then holders of
the
Placement Agent Warrants and/or Warrant Shares. Any exercise of the demand
and/or piggyback registration rights shall be at the sole expense of the Company
except that the Company shall not be responsible for the sales or underwriters
fees or commissions relating to the sale of the Warrant Shares.”
10. The
Company agrees to indemnify, defend and hold harmless the holder of this
Warrant, or of Underlying Securities issuable or issued upon the exercise
hereof, from and against any claims and liabilities caused by any untrue
statement of a material fact, or omission to state a material fact required
to
be stated, in any such registration statement, prospectus, notification or
offering circular under Regulation A, except insofar as such claims or
liabilities are caused by any such untrue statement or omission based on
information furnished in writing to the Company by such holder, or by any other
such holder affiliated with the holder who seeks indemnification, as to which
the holder hereof, by acceptance hereof, agrees to indemnify, defend and hold
harmless the Company.
11.
If
this Warrant, or any of the Underlying Securities issuable pursuant hereto,
require qualification or registration with, or approval of, any governmental
official or authority (other than registration under the Act, or any similar
Federal statute at the time in force), before such shares may be issued on
the
exercise hereof, the Company, at its expense, will take all requisite action
in
connection with such qualification, and will use its best efforts to cause
such
securities to be duly registered or approved, as may be required.
11
12.
This
Warrant is exchangeable, upon its surrender by the registered holder at such
office or agency of the Company as may be designated by the Company, for new
Warrants of like tenor, representing, in the aggregate, the right to subscribe
for and purchase the number of Common Shares that may be subscribed for and
purchased hereunder, each of such new Warrants to represent the right to
subscribe for and purchase such number of Common Shares as shall be designated
by the registered holder at the time of such surrender. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of any such loss, theft or destruction, upon
delivery of a bond of indemnity satisfactory to the Company, or in the case
of
such mutilation, upon surrender or cancellation of this Warrant, the Company
will issue to the registered holder a new Warrant of like tenor, in lieu of
this
Warrant, representing the right to subscribe for and purchase the number of
Common Shares that may be subscribed for and purchased hereunder. Nothing herein
is intended to authorize the transfer of this Warrant except as permitted by
applicable law.
13. Every
Holder hereof, by accepting the same, agrees with any subsequent Holder hereof
and with the Company that this Warrant and all rights hereunder are issued
and
shall be held subject to all of the terms, conditions, limitations and
provisions set forth in this Warrant, and further agrees that the Company and
its transfer agent may deem and treat the registered Holder of this Warrant
as
the absolute owner hereof for all purposes and shall not be affected by any
notice to the contrary.
14. All
notices required hereunder shall be given by first-class mail, postage prepaid;
if given by the holder hereof, addressed to the Company at 2201-E. Crown Point,
Executive Drive, Charlotte, NC 28227, with a copy to Morse & Morse PLLC,
1400 Old Country Road, Westbury, New York 11590, or such other address as the
Company may designate in writing to the holder hereof; and if given by the
Company, addressed to the holder at the address of the holder shown on the
books
of the Company.
15. The
Company will not merge or consolidate with or into any other corporation, or
sell or otherwise transfer its property assets and business substantially as
an
entirety to another corporation, unless the corporation resulting from such
merger or consolidation (if not the Company), or such transferee corporation,
as
the case may be, shall expressly assume, by supplemental agreement satisfactory
in form to the Placement Agent, the due and punctual performance and observance
of each and even covenant and condition of this Warrant to be performed and
observed by the Company.
16. (a) The
Placement Agent is an accredited investor as such term is defined in the
Securities Act of 1933, as amended (the "Securities Act"), or Regulation D
promulgated by the Securities and Exchange Commission thereunder, and under
applicable state securities laws. The Placement Agent is an accredited investor
because it meets one or more of the following criteria:
(1) It
is a
bank as defined in Section 3(a)(2) of the Securities Act, whether acting in
its
individual or fiduciary capacity.
12
(2) It
is a
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary
capacity.
(3) It
is a
broker or dealer registered under Section 15 of the Securities Exchange Act
of
1934, as amended.
(4) It
is an
insurance company as defined in Section 2(13) of the Securities
Act.
(5) It
is an
investment company registered under the Investment Company Act of 1940, as
amended, or a business development company as defined in section 2(a)(48) of
that Act.
(6) It
is a
Small Business Investment Company licensed by the U.S. Small Business
Administration under section 301(c) or (d) of the Small Business Investment
Act
of 1958.
(7) It
is a
plan established by a state, its political subdivisions or any agency or
instrumentality of a state or its political subdivisions, for the benefit of
its
employees, and that such plan has total assets in excess of
$5,000,000.
(8) (i)
It is
an employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, with the investment decisions being
made
by a plan fiduciary, as defined in section 3(21) of such Act, and the plan
fiduciary is either a bank, insurance company, or registered investment adviser,
or (ii) it is an employee benefit plan that has total assets in excess of
$5,000,000, or (iii) it is a self-directed employee benefit plan and the
investment decisions are made solely by persons that are accredited
investors.
(9) It
is a
private business development company as defined in section 202(a)(22) of the
Investment Advisors Act of 1940, as amended.
(10) It
is an
organization described in Section 501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or
partnership
p,
not
formed for the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000.
(11) It
is a
trust, with total assets in excess of $5,000,000, not formed for the specific
purpose of acquiring the securities offered, whose purchase is directed by
a
sophisticated person as described in Rule 506(b)(2)(ii) of Regulation
D.
(12) It
is an
entity in which all the equity owners are accredited investors.
(a) The
Placement Agent has no present intention to sell the Warrant that it received
as
compensation in the Offering, nor a present arrangement (whether or not legally
binding) or intention to effect any distribution of any part of the Warrant,
or
the Underlying Securities, to or through any person or entity; provided,
however,
that by
making the representations herein, the Placement Agent does not agree to hold
the Warrant or the Underlying Securities for any minimum or other specific
term
and reserves the right to dispose of the Warrant or the Underlying Securities
at
any time in accordance with Federal and state securities laws applicable to
such
disposition. The Placement Agent acknowledges that it (i) has such knowledge
and
experience in financial and business matters such that the Placement Agent
is
capable of evaluating the merits and risks of its investment in the Company,
(ii) is able to bear the financial risks associated with an investment in the
Warrant and the Underlying Securities and (iii) has been given full access
to
such records of the Company and to the officers of the Company and the
Subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation.
13
(b) The
Placement Agent understands that the Warrants and the Underlying Securities
must
be held indefinitely unless such securities are registered under the Act or
an
exemption from registration is available. The Placement Agent acknowledges
that
it is familiar with Rule 144 under the Act ("Rule
144"),
and
that the Placement Agent has been advised that Rule 144 permits resales only
under certain circumstances. The Placement Agent understands that to the extent
that Rule 144 is not available, the Placement Agent will be unable to sell
any
Warrants or Underlying Securities without either registration under the Act
or
the existence of another exemption from such registration
requirement.
(c) The
Placement Agent understands that the Warrants and the Underlying Securities
are
being offered and sold in reliance on a transactional exemption from the
registration requirements of federal and state securities laws and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Placement Agent set forth
herein in order to determine the applicability of such exemptions and the
suitability of the Placement Agent to acquire the Warrants and the Underlying
Securities. The Placement Agent understands that no United States federal or
state agency or any government or governmental agency has passed upon or made
any recommendation or endorsement of the Warrants or the Underlying
Securities.
(d) The
Placement Agent acknowledges that the Warrants and the Underlying Securities
were not offered to the Placement Agent by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting
to
which the Placement Agent was invited by any of the foregoing means of
communications. The Placement Agent, in making the decision to purchase the
Warrants and the Underlying Securities, has relied upon independent
investigation made by it and has not relied on any information or
representations made by third parties.
17. The
validity, construction and enforcement of this Warrant shall be governed by
the
laws of the State of New York and jurisdiction is hereby vested in the Courts
of
said State in the event of the institution of any legal action under this
Warrant.
14
IN
WITNESS WHEREOF, BTHC
XI,
INC.
has
caused this Warrant to be signed by its duly authorized officers under its
corporate seal, on , 2007.
|
BTHC
XI, INC.
|
||
| |
|
|
| By: | /s/ | |
|
Brad Bernstein |
||
|
President
|
||
15
PURCHASE
FORM
To
Be
Executed
Upon
Exercise of Warrant, except for Cashless Exercise
The
undersigned hereby exercises the right to purchase _______ Common Shares
evidenced by the within Warrant No. ___, according to the terms and conditions
thereof, and herewith makes payment of the purchase price in full. The
undersigned requests that certificates for such shares shall be issued in the
name set forth below.
Dated: ,
200__
Signature
_________________________
Print
Name of Signatory
Name
to
whom certificates are to
be
issued
if different from above
Address:
__________________________
__________________________
___________________________
___________________________
Social
Security No.
or
other
identifying number
If
said
number of shares shall not be all the shares purchasable under the within
Warrant, the undersigned requests that a new Warrant for the unexercised portion
shall be registered in the name of :
___________________________
(Please
Print)
Address:
__________________________
__________________________
______________________
Social
Security No.
or
other
identifying number
_________________________
Signature
16
PURCHASE
FORM
To
Be
Executed Upon
Cashless
Exercise of this Warrant
The
undersigned hereby exercises the right to purchase _______ Common Shares
evidenced by the within Warrant No. __ according to the terms and conditions
thereof and the undersigned hereby submits warrants to purchase ________ Common
Shares as evidenced by the within Warrant No. ___ to be in full payment of
the
_______ Common Shares exercised and purchased herein. The undersigned represents
that certificates for such purchased shares shall be issued in the name set
forth below:
Dated:
,
200__
Signature
_________________________
Print
Name of Signatory
Name
to
whom certificates are to
be
issued
if different from above
Address:
__________________________
__________________________
___________________________
___________________________
Social
Security No.
or
other
identifying number
If
said
number of shares shall not be all the shares purchasable under the within
Warrant, the undersigned requests that a new Warrant for the unexercised portion
shall be registered in the name of :
___________________________
(Please
Print)
Address:
__________________________
__________________________
______________________
Social
Security No.
or
other
identifying number
_________________________
Signature
17
FORM
OF
ASSIGNMENT
| FOR VALUE RECEIVED , | hereby | ||
| sells assigns and transfers to , Soc. | Sec. No. |
[
] the
within Warrant, together with all rights, title and interest therein, and does
hereby irrevocably constitute and appoint attorney to transfer such Warrant
on
the register of the within named Company, with full power of
substitution.
_______________________
Signature
Dated: ,
200__
Signature
Guaranteed:
_______________________
18
Exhibit
10.1
DIRECTOR
COMPENSATION AGREEMENT
THIS
DIRECTOR COMPENSATION AGREEMENT (this “Agreement”),
dated
as of January 31, 2007, is entered into by and between BTHC XI, Inc., a Delaware
corporation (together with its subsidiaries, the “Company”),
and
George Rubin (the “Director”).
W
I T N E S S E T H:
WHEREAS,
the Director desires to serve the Company as a director and the Company desires
to have Director serve as a director.
NOW
THEREFORE in consideration of the mutual benefits to be derived from this
Agreement, the Company and the Director hereby agree as follows:
1. Director.
Director has agreed to serve as a director of the Company and has been elected
as a director of the Company.
2. Compensation
and Benefits.
In
exchange for his agreeing to serve as a director, the Director shall be
compensated as follows:
(a) Standard
Director Compensation.
So long
as he serves as a director, the Director shall be entitled to receive standard
director fees as set by the Board of Directors which, at a minimum, shall
include an annual fee of $6500 for serving as a director, an annual fee of
$6500
for serving as a committee chair, a fee of $1000 per committee or board meeting
attended in person or via telephonic conference call (or consent in lieu of
a
meeting) and an activity fee of $1000 per day for services rendered by the
Director.
(b) Fringe
Benefits.
So long
as he serves as a director, the Director shall be entitled to participate in
the
Company’s health and dental insurance plans and an executive insurance program
under which Director shall be entitled to be reimbursed for up to $25,000 of
medical costs not covered by the Company’s health insurance per year; provided
if for any reason the Company is unable to obtain coverage for the Director
under its health and dental plans he shall be entitled to be reimbursed for
the
cost of obtaining equivalent coverage to the extent the cost of such
reimbursement does not exceed the amount it would cost the Company to cover
the
Director under its health and dental plans.
(c) No
Withholding.
In
serving as a director pursuant to this Agreement, the Director shall not be
an
employee of the Company. The Company shall report compensation paid hereunder
consistent with the foregoing and the Director shall
be
liable for all withholding, Social Security and other taxes associated
therewith.
3. Business
Expenses.
The
Company shall pay or reimburse the Director for all reasonable travel, business
and entertainment expenses incurred by or necessary for the Director to perform
his duties under this Agreement in accordance with such policies and procedures
as the Company may from time to time establish for senior officers and directors
and subject to the Company's normal requirements with respect to reporting
and
documentation of such expenses.
1
4. Indemnification;
Director and Officer Liability Insurance.
The
Company will indemnify (and advance the costs of defense of) the Director (and
his legal representatives) to the fullest extent permitted by the laws of the
state in which the Company is incorporated, as in effect at the time of the
subject act or omission, or by the Certificate of Incorporation and Bylaws
of
the Company, as in effect at such time or on the date of this Agreement,
whichever affords greater protection to the Director, and both
during and after termination (for any reason) of the Director's employment,
the
Company shall cause the Director to be covered under a directors and officers'
liability insurance policy for his acts (or non-acts) as an officer or director
of the Company or any of its affiliates. Such policy shall be maintained by
the
Company, at its expense in an amount of at least $5 million and on terms
(including the time period of coverage after the Director's service terminates)
at least as favorable to the Director as policies covering the Company's other
members of its Board of Directors. In the event the Company breaches this
Section 4 and the Director resigns as a director as a result, benefits under
Section 2(b) shall continue notwithstanding such resignation.
5. Litigation
Expenses.
In the
event of any litigation or other proceeding between the Company and the Director
with respect to the subject matter of this Agreement and the enforcement of
the
rights hereunder and such litigation or proceeding results in final judgment
or
order in favor of the Director, which judgment or order is substantially
inconsistent with the positions asserted by the Company in such litigation
or
proceeding, the losing party shall reimburse the prevailing party for all of
his/its reasonable costs and expenses relating to such litigation or other
proceeding, including, without limitation, his/its reasonable attorneys' fees
and expenses.
6. Consolidation;
Merger; Sale of Assets; Change of Control.
Nothing
in this Agreement shall preclude the Company from combining, consolidating
or
merging with or into, transferring all or substantially all of its assets to,
or
entering into a partnership or joint venture with, another corporation or other
entity, or effecting any other kind of corporate combination provided that
the
corporation resulting from or surviving such combination, consolidation or
merger, or to which such assets are transferred, or such partnership or joint
venture expressly assumes in writing this Agreement and all obligations and
undertakings of the Company hereunder. Upon such a consolidation, merger,
transfer of assets or formation of such partnership or joint venture, this
Agreement shall inure to the benefit of, be assumed by, and be binding upon
such
resulting or surviving transferee corporation or such partnership or joint
venture, and the term “Company,” as used in this Agreement, shall mean such
corporation, partnership or joint venture or other entity, and this Agreement
shall continue in full force and effect and shall entitle the Director and
his
heirs, beneficiaries and representatives to exactly the same compensation,
benefits, perquisites, payments and other rights as would have been their
entitlement had such combination, consolidation, merger, transfer of assets
or
formation of such partnership or joint venture not occurred.
2
7. Entire
Agreement; Amendment.
This
Agreement contains the entire agreement between the Company and the Director
with respect to the subject matter hereof. This Agreement may not be amended,
waived, changed, modified or discharged except by an instrument in writing
executed by or on behalf of the party against whom enforcement of any amendment,
waiver, change, modification or discharge is sought. No course of conduct or
dealing shall be construed to modify, amend or otherwise affect any of the
provisions hereof.
8. Notices.
All
notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if physically delivered,
delivered by express mail or other expedited service or upon receipt if mailed,
postage prepaid, via registered mail, return receipt requested, addressed as
follows:
| (a) To the Company: | (b) To the Director: |
|
BTHC
XI, Inc.
|
George
Rubin
|
|
c/o
Anchor Funding Services, LLC
2201
Crownpoint Executive Drive
Charlotte,
NC 28227
|
200
Central Park South, Apt # 30A
New
York, NY 10019
|
and/or
to
such other persons and addresses as any party shall have specified in writing
to
the other.
9. Assignability.
This
Agreement shall not be assignable by either party and shall be binding upon,
and
shall inure to the benefit of, the heirs, executors, administrators, legal
representatives, successors and assigns of the parties. In the event that all
or
substantially all of the business of the Company is sold or transferred, then
this Agreement shall be binding on the transferee of the business of the Company
whether or not this Agreement is expressly assigned to the
transferee.
10. Governing
Law.
This
Agreement shall be governed by and construed under the laws of the State of
Delaware without regard to conflict of laws principles.
11. Waiver
and Further Agreement.
Any
waiver of any breach of any terms or conditions of this Agreement shall not
operate as a waiver of any other breach of such terms or conditions or any
other
term or condition, nor shall any failure to enforce any provision hereof operate
as a waiver of such provision or of any other provision hereof. Each of the
parties hereto agrees to execute all such further instruments and documents
and
to take all such further action as the other party may reasonably require in
order to effectuate the terms and purposes of this Agreement.
12. Headings
of No Effect.
The
Section headings contained in this Agreement are for reference purposes only
and
shall not in any way affect the meaning or interpretation of this
Agreement.
(Remainder
of page intentionally left blank)
3
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement effective
as of
the date first above written.
| COMPANY: | ||
|
BTHC
XI, INC.
|
||
| |
|
|
| By: | /s/ | |
|
Name: Brad Bernstein |
||
| Title: President | ||
|
DIRECTOR:
|
||
| |
|
|
| By: | /s/ George Rubin | |
|
|
||
4
Exhibit
10.2
EMPLOYMENT
AGREEMENT
THIS
EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”),
dated
as of January
31,
2007,
is entered into by and between BTHC
XI,
Inc.,
a
Delaware corporation (together with its subsidiaries, the “Company”),
and
Morry
Rubin
(the
“Employee”).
W
I T N E S S E T H:
WHEREAS,
the Employee desires to serve the Company as Co-Chairman and Chief Executive
Officer; and
WHEREAS,
the Company desires to employ the Employee as Co-Chairman and Chief Executive
Officer.
NOW
THEREFORE in consideration of the mutual benefits to be derived from this
Agreement, the Company and the Employee hereby agree as follows:
1. Term
of Employment; Office and Duties.
(a) Commencing
on the date hereof, and for an initial term ending January
31,
2010,
the Company shall employ the Employee as Co-Chairman and Chief Executive
Officer, with such duties and responsibilities consistent with such position
as
may from time to time be assigned to the Employee by the Company’s Board of
Directors. The Employee agrees to perform such duties and discharge such
responsibilities in accordance with the terms of this Agreement. This Agreement
shall be automatically renewed for additional one year terms unless either
party
notifies the other, in writing, at least 60 days prior to the expiration of
the
term, of such party’s intention not to renew this Agreement. The period that the
Employee serves as an employee of the Company pursuant to this Agreement,
including as a result of any extension of the initial term, shall be referred
to
as the “Employment
Term.”
(b) The
Employee shall be required to devote his full business time and efforts to
the
business and affairs of the Company other than during vacations and periods
of
illness or incapacity; provided that it is understood and agreed that until
such
time as the sale of Preferred Labor, LLC is completed it is expected that the
Employee shall continue to provide minimal services to Preferred Labor, LLC,
including in connection with completing such sale, and that the provision of
such services will not be deemed to violate this Section 1(b)
provided
such services do not interfere with the performance of his duties and
responsibilities under this Agreement.
Notwithstanding the foregoing, the Employee shall be permitted to: (i) serve
as
a director of any organization or entity that does not result in a violation
of
Section
5;
(ii)
deliver lectures or fulfill speaking engagements; or (iii) make and manage
passive investments and engage in charitable and community
activities
but only
if such services and activities do not interfere with the performance of his
duties and responsibilities under this Agreement.
2. Compensation
and Benefits.
For all
services rendered by the Employee during the Employment Term, including, without
limitation, any services as a director generally or member of the any committee
of the Board or any subsidiary or division thereof, the Employee shall be
compensated as follows:
1
(a) Base
Salary.
The
Company shall pay the Employee a fixed base salary (“Base
Salary”).
Initially the Base Salary shall be $1 per year. Effective commencing on the
first day of the first month following such time as the Company shall have,
within any period beginning on January 1 and ending not more than 12 months
thereafter, earned pre-tax net income exceeding $1,000,000, the Base Salary
shall be adjusted to an amount, to be mutually agreed upon between Employee
and
the Company, reflecting the fair value of the services provided, and to be
provided, by Employee taking into account (i) Employee’s position,
responsibilities and performance, (ii) the Company’s industry, size and
performance, and (iii) other relevant factors. Base Salary will be payable
in
accordance with the customary payroll practices of the Company. As part of
the
Employees compensation program the Company extends a $1500 per month automobile
allowance;
it being
understood the company shall not be responsible for any insurance, repairs,
tires gas or other expenses related to Employee’s automobile except as provided
in Section 3.
(b) Bonus.
The
Employee may be entitled to receive an annual bonus (“Annual
Bonus”)
for
each fiscal year payable subsequent to the issuance of final audited financial
statements for such fiscal year in the sole discretion of the Board in an amount
as determined by the Compensation Committee of the Board. The targeted amount
of
any Annual Bonus (the “Target Bonus”) shall be determined by the Compensation
Committee of the Board in its discretion.
(c) Fringe
Benefits.
(i) The
Employee shall be entitled to participate in such employee benefit and other
compensatory or non-compensatory plans that are available to similarly situated
executives of the Company, which may include disability, health, dental and
life
insurance plans, option and bonus plans and other fringe benefit plans or
programs, including a 401(k) retirement plan, of the Company established from
time to time by the Board, subject to the rules and regulations applicable
thereto, and which shall include an executive insurance program under which
Employee shall be entitled to be reimbursed for up to $25,000 of medical costs
not covered by the Company’s health insurance per year.
(ii) Notwithstanding
anything in Section
2(c)(i)
to the
contrary, contemporaneous with the execution of this Agreement, the Employee
will be granted a non-qualified stock option (the “Employment
Option”)
to
purchase a total of 650,000 shares of the Company’s common stock, par value
$.001 per share (the “Common
Stock”),
with
an exercise price of $1.25 per share, pursuant to the Company’s 2007 Omnibus
Equity Compensation Plan and the Employee will execute any award agreement
or
other documents required by the Company to evidence such grant. 33.33% of the
options shall vest immediately on grant; an additional 33.33% of such options
shall vest on February 29, 2008 and an additional 33.33% of such options shall
vest on February 28, 2009; provided,
however,
that in
the event (A) of a Change in Control or (B) the Employee's employment is
terminated by (I) the Company without Cause pursuant to Section
4(d)
or (II)
the Employee for Good Reason pursuant to Section
4(e),
all
unvested options shall accelerate and immediately vest and become exercisable
in
full on the earliest of the date of the Change in Control or the date of the
Employee's termination pursuant to Sections
4(d)
and
(e),
as
applicable. The term of the Employment Option will be 10 years from the date
of
grant.
2
(iii) For
purposes of this Agreement, a “Change
in Control”
shall
mean:
(A) the
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
“Exchange
Act”))
(a
“Person”)
of
“beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more of (I) the then-outstanding shares of Common Stock
(the “Outstanding
Company Common Stock”),
or
(II) the combined voting power of the then-outstanding voting securities of
the
Company generally entitled to vote in the election of directors (the
“Outstanding
Company Voting Securities”)
regardless of whether such acquisition is as a result of the issuance of
securities by the Company to such Person, by such Person acquiring such shares
publicly or in private sales (or in any combination of acquisitions or public
or
private sales or both), or otherwise; provided,
however,
that
the following shall not constitute a Change in Control: (a) any issuance or
acquisition of securities of the Company whereby the Employee (including his
affiliates) reaches or exceeds such 50% threshold; (b) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any entity controlled by the Company; or (c) any issuance of shares of Series
1 Preferred Stock issued in the Company’s initial offering of such shares or any
shares of common stock issued upon conversion of such shares of Series 1
Preferred Stock;
(B) approval
by the stockholders of the Company of a reorganization, merger, consolidation
or
other business combination (collectively, a “Business
Combination”),
unless following such Business Combination more than 50% of, respectively,
the
then-outstanding shares of common stock of the entity resulting from such
Business Combination and the combined voting power of the then-outstanding
voting securities of such entity generally entitled to vote in the election
of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination in
substantially the same proportions as their ownership, immediately prior to
such
Business Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be;
and
(C) (I) approval
by the stockholders of the Company of a complete liquidation or dissolution
of
the Company or (II) the first to occur of (a) the sale or other
disposition (in one transaction or a series of related transactions) of all
or
substantially all of the assets of the Company, or (b) the approval by the
stockholders of the Company of any such sale or disposition.
(d) Withholding
and Employment Tax.
Payment
of all compensation hereunder shall be subject to customary withholding tax
and
other employment taxes as may be required with respect to compensation paid
by
an employer to an employee.
3
(e) Disability.
The
Company shall, to the extent such benefits can be obtained at a reasonable
cost,
provide the Employee with disability insurance benefits of at least 60% of
his
gross Base Salary per month; provided that for purposes of the foregoing, prior
to the date on which Employee’s Base Salary is adjusted in accordance with
Section 2(a) Employee’s Base Salary shall be deemed to be $300,000. In the event
of the Employee's Disability (as hereinafter defined), the Employee and his
family shall continue to be covered by all of the Company's employee welfare
benefit plans described under Section
2(c),
at the
Company's expense, to the extent such benefits may, by law, be provided, for
the
lesser of the term of such Disability and 24 months, in accordance with the
terms of such plans.
(f) Death.
The
Company shall, to the extent such benefits can be obtained at a reasonable
cost,
provide the Employee with life insurance benefits in the amount of at least
$500,000. In the event of the Employee's death, the Employee's family shall
continue to be covered by all of the Company's employee welfare benefit plans
described under Section
2(c),
at the
Company's expense, to the extent such benefits may, by law, be provided, for
12
months following the Employee's death in accordance with the terms of such
plans.
(g) Vacation.
The
Employee shall receive four weeks of vacation annually, administered in
accordance with the Company's existing vacation policy.
3. Business
Expenses.
The
Company shall pay or reimburse the Employee for all reasonable travel (including
travel by automobile), business and entertainment expenses incurred by or
necessary for the Employee to perform his duties under this Agreement in
accordance with such policies and procedures as the Company may from time to
time establish for senior officers and subject to the Company's normal
requirements with respect to reporting and documentation of such expenses.
4. Termination
of Employment.
Notwithstanding any other provision of this Agreement, the Employee's employment
with the Company may be terminated as set forth below:
(a) Termination
by Mutual Agreement.
The
Employee's employment with the Company may be terminated at anytime by, and
upon
the terms and conditions of, a mutual written agreement between the
parties.
(b) Termination
for Cause.
The
Employee's employment with the Company may be terminated by the Company for
Cause. Provided Cause actually exists, the
date
of termination for Cause shall be the date the Company sends the Employee a
written notice to such effect specifying the reason(s) for the termination
for
Cause.
For
purposes of this Agreement, “Cause”
shall
mean any one of the following: (i) conviction of the Employee for committing
a
felony or crime or other crime involving moral turpitude; (ii) the Employee
having committed acts or omissions constituting willful or wanton misconduct
with respect to the Company; (iii) the Employee having committed any act of
fraud or embezzlement involving the Company; (iv) the Employee having committed
any willful and material violation of any statutory or common law duty of
loyalty to the Company; (v) the Employee having committed acts or omissions
constituting a material breach of this Agreement that continues for more than
15
days after notice from the Company specifically identifying such
breach.
In the
event of any termination under this Section
4(b),
the
Company shall pay all amounts of Base Salary then due to the Employee under
Section
2(a)
up to
the payroll period worked but for which payment had not yet been made up to
the
date of termination (but expressly excluding any bonuses or other incentive
compensation). The Company shall have no further obligations to the Employee
under this Agreement (including no obligation with respect to bonuses or other
incentive compensation), and any and all stock options granted to the Employee
shall terminate according to their terms of grant with any such vested options
being exercisable for the shorter of (i) 90 days from the date of termination
and (ii) the exercise term of each relevant option grant.
4
(b) Termination
for Disability.
The
Employee's employment with the Company may be terminated by the Company in
the
event of the Employee's Disability. The
date
of termination for Disability shall be the date the Company sends the Employee
a
written notice to such effect. In
the
event of any termination under this Section
4(b),
on the
date of termination all options that would have otherwise vested within the
12
months following the date of the date of termination shall accelerate and
immediately vest and become exercisable in full. Such options may be exercised
for the longer of (i) 12 months from the date of the date of termination and
(ii) the exercise term of each relevant option grant. For purposes of this
Agreement, “Disability”
shall
mean the inability of the Employee, in the reasonable judgment of a physician
appointed by the Board, to perform his duties of employment because of any
physical or mental disability or incapacity, where such disability shall exist
for an aggregate period of more than 150 days in any 365-day period or for
any
period of 90 consecutive days. In the event of any termination under this
Section
4(b),
the
Company shall (i) pay by the next payroll period all amounts then due to the
Employee under Section
2(a)
up to
the payroll period worked but for which payment had not yet been made up to
the
date of termination (including bonuses then-earned or owing), and (ii) comply
with its obligations under Section
2(e).
(c) Termination
upon Death.
The
Employee's employment with the Company automatically terminates on the
Employee's death. In the event of the Employee's death (i) the Company will
continue to pay the Employee's heirs or beneficiaries his Base Salary for 6
months following the date of termination (on regular payroll dates) and (ii)
on
the date of termination all options that would have otherwise vested within
the
12 months following the date of the Employee's death shall accelerate and
immediately vest and become exercisable in full. Such options may be exercised
for the longer of (i) 12 months from the date of the Employee's death and (ii)
the exercise term of each relevant option grant. In addition, in the event
of
the Employee's death, the Company shall (i) pay by the next payroll period
all
amounts then due to the Employee under Section
2(a)
up to
the payroll period worked but for which payment had not yet been made up to
the
date of termination (including bonuses then-earned or owing), and (ii) comply
with its obligations under Section
2(f).
(d) Termination
without Cause.
The
Employee's employment with the Company may be terminated by the Company, in
the
absence of Cause, for any reason and in its sole and absolute discretion,
provided that in such event (which
would include the Company's declining to extend the Employment Term in
accordance with Section 1(a))
the
Company shall continue to pay to the Employee the Base Salary (on regular
payroll dates) for twelve months from the date of termination (the “Termination
Payments”)
plus
any bonuses then-earned or owing on the date of termination and an amount equal
to the Target Bonus for the year in which the termination occurs pro rated
based
on the number of days of service in such year. On
the
date of termination, all
unvested options shall accelerate and immediately vest and become exercisable
in
full.
Such
options may be exercised for the longer of (i) 12 months from the date of
termination and (ii) the exercise term of each relevant option grant. Finally,
during any period in which Termination Payments are required to be paid, the
Company shall continue the benefits for the Employee and his family provided
for
under Section
2
at no
cost to the Employee.
5
(e) Termination
by
the
Employee for
Good Reason.
The
Employee's employment with the Company may be terminated by the Employee for
Good Reason. “Good
Reason”
shall
be deemed to exist: (i) if the Employee’s duties or responsibilities are
materially diminished or the Employee is assigned any duties materially
inconsistent with the duties or responsibilities contemplated by this Agreement;
(ii) if the Company shall have continued to fail to comply with any material
provision of this Agreement after a 30-day period to cure (if such failure
is
curable) following written notice by the Employee to the Company of such
non-compliance; (iii) upon a Change in Control; or (iv) if the Company requires
that the Employee be based at any location other than Charlotte, NC or Boca
Raton, FL (or the suburban area of either). In the event of any termination
under this Section
4(e),
the
Company shall pay the Termination Payments plus any bonuses then-earned or
owing
on the date of termination and an amount equal to the Target Bonus for the
year
in which the termination occurs pro rated based on the number of days of service
in such year to the Employee in the same amount and manner as under Section
4(d).
On
the
date of termination, all
unvested options shall accelerate and immediately vest and become exercisable
in
full.
Such
options may be exercised for the longer of (i) 12 months from the date of
termination and (ii) the exercise term of each relevant option grant. Finally,
during any period in which Termination Payments are required to be paid, the
Company shall continue the benefits for the Employee and his family provided
for
under Section
2
at no
cost to the Employee.
(f) Voluntary
Resignation.
The
Employee's employment with the Company may be terminated by the Employee without
Good Reason. In the event of any termination under this Section
4(f),
the
Company shall pay all amounts of Base Salary then due to the Employee under
Section
2(a)
up to
the payroll period worked but for which payment had not yet been made up to
the
date of termination (but expressly excluding any bonuses or other incentive
compensation). The Company shall have no further obligations to the Employee
under this Agreement (including no obligation with respect to bonuses or other
incentive compensation), and any and all stock options granted to the Employee
shall terminate according to their terms of grant; provided that if such
termination occurs during the first year of the Employment Term any such vested
options would be exercisable for the shorter of (i) 90 days from the date of
termination and (ii) the exercise term of each relevant option grant, and if
the
termination occurs thereafter any such vested options would continue to be
exercisable for the full exercise term of each relevant option
grant.
5. Non-Competition.
During
the Employment Term and for two years following termination thereof (other
than
any such termination by the Company without Cause or by the Employee for Good
Reason), the Employee shall not, directly or indirectly own any interest in,
manage, control, participate in, consult with, render services for, advise,
or
in any manner engage in the Company Business within a 100 mile radius of any
office operated by the Company or any subsidiary of the Company, whether as
an
officer, director, stockholder, consultant, investor, agent or otherwise (unless
the Board shall have authorized such activity and the Company shall have
consented thereto in writing). For purposes of this Section 5, “Company
Business” means (i) providing
accounts receivable funding (factoring), outsourcing of accounts receivable
management including collections and the risk of customer default, purchase
order financing, lawsuit financing, trade finance and government contract
funding and (ii) back office support including payroll, payroll tax compliance
and invoice processing services. Passive
investments in less than 5% of the outstanding securities of any entity subject
to the reporting requirements of Section 13 or Section 15(d) of the Exchange
Act, shall not be prohibited by this Section
5.
The
provisions of this Section
5
are
subject to the provisions of Section
14.
6
6. Inventions
and Confidential Information.
The
parties hereto recognize that a major need of the Company is to preserve its
specialized knowledge, trade secrets and confidential information. The strength
and good will of the Company is derived from the specialized knowledge, trade
secrets, and confidential information generated from experience with the
activities undertaken by the Company. The unauthorized disclosure of this
information and knowledge to competitors would be beneficial to such competitors
and detrimental to the Company, as would the disclosure of non-public
information about the marketing practices, pricing practices, costs, profit
margins, design specifications, development and business plans, analytical
techniques and similar items of the Company. The Employee acknowledges that
specific proprietary information and non-public data obtained by him while
employed by the Company concerning the business or affairs of the Company are
the property of the Company. By reason of his being a senior executive of the
Company, the Employee has or will have access to, and has obtained or will
obtain, trade secrets and confidential information about the Company's
operations, which operations extend throughout the United States. Therefore,
subject to the provisions of Section
14,
the
Employee hereby agrees as follows, recognizing that the Company is relying
on
these agreements in entering into this Agreement:
(a) During
the Employment Term and for three years following termination of the Employee's
employment with the Company for any reason, the Employee will not use, disclose
to others, or publish or otherwise make available to any other party (other
than
in furtherance of his obligations hereunder) any non-public or confidential
business information about the business and affairs of the Company, including
but not limited to confidential information concerning the Company's products,
methods, engineering designs and standards, analytical techniques, technical
information, customer information, employee information, inventions and other
confidential information acquired by him in the course of his past or future
services for the Company during the Employment Term. The Employee agrees to
hold
as the Company's property all books, papers, letters, formulas, memoranda,
notes, plans, records, reports, computer tapes, printouts, software and other
documents, and all copies thereof and therefrom, relating to the Company's
business and affairs conducted by him as Chief Executive Officer of the Company,
whether made by him or otherwise coming into his possession or control, and
on
termination of his employment, or upon demand of the Company, at any time after
termination of his employment, to deliver the same to the Company.
7
(b) During
the Employment Term and for 18 months following termination of the Employee's
employment with the Company for any reason, the Employee will not (i) directly
or indirectly, including through an entity or agent, induce or otherwise attempt
to influence any employee of the Company to leave the Company's employ, (ii)
hire, cause to be hired or induce a third party to hire, any such employee
(unless the Board shall have authorized such employment and the Company shall
have consented thereto in writing) or in any way materially interfere with
the
relationship between the Company and any employee thereof, or (iii) induce
or
attempt to induce any customer, supplier, licensee, licensor or other business
relation of the Company to cease or otherwise limit doing business with the
Company or in any way materially interfere to the detriment of the Company
with
the relationship between any such customer, supplier, licensee or business
relation of the Company.
7. Indemnification;
Director and Officer Liability Insurance.
The
Company will indemnify (and advance the costs of defense of) the Employee (and
his legal representatives) to the fullest extent permitted by the laws of the
state in which the Company is incorporated, as in effect at the time of the
subject act or omission, or by the Certificate of Incorporation and Bylaws
of
the Company, as in effect at such time or on the date of this Agreement,
whichever affords greater protection to the Employee, and both
during and after termination (for any reason) of the Employee's employment,
the
Company shall cause the Employee to be covered under a directors and officers'
liability insurance policy for his acts (or non-acts) as an officer or director
of the Company or any of its affiliates. Such policy shall be maintained by
the
Company, at its expense in an amount of at least $5 million and on terms
(including the time period of coverage after the Employee's employment
terminates) at least as favorable to the Employee as policies covering the
Company's other members of its Board of Directors.
8. Litigation
Expenses.
In the
event of any litigation or other proceeding between the Company and the Employee
with respect to the subject matter of this Agreement and the enforcement of
the
rights hereunder and such litigation or proceeding results in final judgment
or
order in favor of the Employee, which judgment or order is substantially
inconsistent with the positions asserted by the Company in such litigation
or
proceeding, the losing party shall reimburse the prevailing party for all of
his/its reasonable costs and expenses relating to such litigation or other
proceeding, including, without limitation, his/its reasonable attorneys' fees
and expenses.
9. Consolidation;
Merger; Sale of Assets; Change of Control.
Nothing
in this Agreement shall preclude the Company from combining, consolidating
or
merging with or into, transferring all or substantially all of its assets to,
or
entering into a partnership or joint venture with, another corporation or other
entity, or effecting any other kind of corporate combination provided that
the
corporation resulting from or surviving such combination, consolidation or
merger, or to which such assets are transferred, or such partnership or joint
venture expressly assumes in writing this Agreement and all obligations and
undertakings of the Company hereunder. Upon such a consolidation, merger,
transfer of assets or formation of such partnership or joint venture, this
Agreement shall inure to the benefit of, be assumed by, and be binding upon
such
resulting or surviving transferee corporation or such partnership or joint
venture, and the term “Company,” as used in this Agreement, shall mean such
corporation, partnership or joint venture or other entity, and this Agreement
shall continue in full force and effect and shall entitle the Employee and
his
heirs, beneficiaries and representatives to exactly the same compensation,
benefits, perquisites, payments and other rights as would have been their
entitlement had such combination, consolidation, merger, transfer of assets
or
formation of such partnership or joint venture not occurred.
8
10. No
Set-off; No Mitigation Required.
Except
as expressly provided otherwise in this Agreement, the obligation of the Company
to make any payments provided for hereunder and otherwise to perform its
obligations hereunder will not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Employee or others. In no event will the Employee be obligated
to
seek other employment or take other action by way of mitigation of the amounts
payable to the Employee under any of the provisions of this Agreement, and
such
amounts will not be reduced (except as otherwise specifically provided herein)
whether or not the Employee obtains other employment.
11. Section
409A Compliance.
This
Agreement is intended to comply with Internal Revenue Code Section 409A.
Notwithstanding any provision herein to the contrary, this Agreement shall
be
interpreted, operated and administered consistent with this intent. In that
regard, any payment described herein that is subject to Code Section 409A shall
not be made earlier than six (6) months after the date of termination to the
extent required by Code Section 409A(a)(2)(B)(i); provided that any such payment
that is deferred pursuant to this Section 11 shall be paid in full as soon
as
possible consistent with this Section 11.
12. Survival
of Obligations.
Sections
4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15
and
16
shall
survive the termination for any reason of this Agreement (whether such
termination is by the Company, by the Employee, upon the expiration of this
Agreement or otherwise).
13. Employee's
Representations.
The
Employee hereby represents and warrants to the Company that (i) the execution,
delivery and performance of this Agreement by the Employee do not and shall
not
conflict with, breach, violate or cause a default under any material contract,
agreement, instrument, order, judgment or decree to which the Employee is a
party or by which he is bound, (ii) the Employee is not a party to, or bound
by,
any employment agreement, noncompete agreement or confidentiality agreement
with
any other person or entity, and (iii) upon the execution and delivery of this
Agreement by the Company, this Agreement shall be the valid and binding
obligation of the Employee, enforceable in accordance with its terms. The
Employee hereby acknowledges and represents that he has consulted with legal
counsel regarding his rights and obligations under this Agreement and that
he
fully understands the terms and conditions contained herein.
14. Company's
Representations.
The
Company hereby represents and warrants to the Employee that (i) the execution,
delivery and performance of this Agreement by the Company do not and shall
not
conflict with, breach, violate or cause a default under any material contract,
agreement, instrument, order, judgment or decree to which the Company is a
party
or by which it is bound, and (ii) upon the execution and delivery of this
Agreement by the Employee, this Agreement shall be the valid and binding
obligation of the Company, enforceable in accordance with its
terms.
9
15. Enforcement.
Because
the Employee's services are unique and because the Employee has access to
confidential information concerning the Company, the parties hereto agree that
money damages shall not be an adequate remedy for any breach of this Agreement.
Therefore, in the event of a breach or threatened breach of this Agreement
that
cannot be compensated with monetary damages, the Company may, in addition to
other rights and remedies existing in its favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other relief in
order
to enforce, or prevent any violations of, the provisions hereof (without posting
a bond or other security).
16. Severability.
In case
any one or more of the provisions or part of a provision contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect in any jurisdiction, such invalidity, illegality or
unenforceability shall be deemed not to affect any other jurisdiction or any
other provision or part of a provision of this Agreement, nor shall such
invalidity, illegality or unenforceability affect the validity, legality or
enforceability of this Agreement or any provision or provisions hereof in any
other jurisdiction; and this Agreement shall be reformed and construed in such
jurisdiction as if such provision or part of a provision held to be invalid
or
illegal or unenforceable had never been contained herein and such provision
or
part reformed so that it would be valid, legal and enforceable in such
jurisdiction to the maximum extent possible. In furtherance and not in
limitation of the foregoing, the Company and the Employee each intend that
the
covenants contained in Sections
5
and
6
shall be
deemed to be a series of separate covenants. If, in any judicial proceeding,
a
court shall refuse to enforce any of such separate covenants, then such
unenforceable covenants shall be deemed eliminated from the provisions hereof
for the purpose of such proceedings to the extent necessary to permit the
remaining separate covenants to be enforced in such proceedings. If, in any
judicial proceeding, a court shall refuse to enforce any one or more of such
separate covenants because the total time, scope or area thereof is deemed
to be
excessive or unreasonable, then it is the intent of the parties hereto that
such
covenants, which would otherwise be unenforceable due to such excessive or
unreasonable period of time, scope or area, be enforced for such lesser period
of time, scope or area as shall be deemed reasonable and not excessive by such
court.
17. Entire
Agreement; Amendment.
This
Agreement contains the entire agreement between the Company and the Employee
with respect to the subject matter hereof. This Agreement may not be amended,
waived, changed, modified or discharged except by an instrument in writing
executed by or on behalf of the party against whom enforcement of any amendment,
waiver, change, modification or discharge is sought. No course of conduct or
dealing shall be construed to modify, amend or otherwise affect any of the
provisions hereof.
18. Notices.
All
notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if physically delivered,
delivered by express mail or other expedited service or upon receipt if mailed,
postage prepaid, via registered mail, return receipt requested, addressed as
follows:
10
| (a) To the Company: | (b) To the Employee: |
|
BTHC
XI, Inc.
c/o
Anchor Funding Services, LLC
2201
Crownpoint Executive Drive
Charlotte,
NC 28227
|
Morry
Rubin
17853
Key Vista Way
Boca
Raton, FL 33496
|
and/or
to
such other persons and addresses as any party shall have specified in writing
to
the other.
19. Assignability.
This
Agreement shall not be assignable by either party and shall be binding upon,
and
shall inure to the benefit of, the heirs, executors, administrators, legal
representatives, successors and assigns of the parties. In the event that all
or
substantially all of the business of the Company is sold or transferred, then
this Agreement shall be binding on the transferee of the business of the Company
whether or not this Agreement is expressly assigned to the
transferee.
20. Governing
Law.
This
Agreement shall be governed by and construed under the laws of the State of
Delaware without regard to conflict of laws principles.
21. Waiver
and Further Agreement.
Any
waiver of any breach of any terms or conditions of this Agreement shall not
operate as a waiver of any other breach of such terms or conditions or any
other
term or condition, nor shall any failure to enforce any provision hereof operate
as a waiver of such provision or of any other provision hereof. Each of the
parties hereto agrees to execute all such further instruments and documents
and
to take all such further action as the other party may reasonably require in
order to effectuate the terms and purposes of this Agreement.
22. Headings
of No Effect.
The
Section headings contained in this Agreement are for reference purposes only
and
shall not in any way affect the meaning or interpretation of this
Agreement.
(Remainder
of page intentionally left blank)
11
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement effective
as of
the date first above written.
| COMPANY: | ||
| BTHC XI, INC. | ||
| |
|
|
| By: | /s/ | |
|
Name: Brad Bernstein |
||
|
Title:
President
|
||
|
EMPLOYEE:
|
||
| |
|
|
| By: | /s/ | |
|
Morry Rubin |
||
12
Exhibit
10.3
EMPLOYMENT
AGREEMENT
THIS
EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”),
dated
as of January
31,
2007
is entered into by and between BTHC
XI,
Inc.,
a
Delaware corporation (together with its subsidiaries, the “Company”),
and
Brad
Bernstein
(the
“Employee”).
W
I T N E S S E T H:
WHEREAS,
the Employee desires to serve the Company as President and Chief Financial
Officer; and
WHEREAS,
the Company desires to employ the Employee as President and Chief Financial
Officer.
NOW
THEREFORE in consideration of the mutual benefits to be derived from this
Agreement, the Company and the Employee hereby agree as follows:
1. Term
of Employment; Office and Duties.
(a) Commencing
on the date hereof, and for an initial term ending January
31,
2010,
the Company shall employ the Employee as President and Chief Financial Officer,
with such duties and responsibilities consistent with such position as may
from
time to time be assigned to the Employee by the Company’s Board of Directors.
The Employee agrees to perform such duties and discharge such responsibilities
in accordance with the terms of this Agreement. This Agreement shall be
automatically renewed for additional one year terms unless either party notifies
the other, in writing, at least 60 days prior to the expiration of the term,
of
such party’s intention not to renew this Agreement. The period that the Employee
serves as an employee of the Company pursuant to this Agreement, including
as a
result of any extension of the initial term, shall be referred to as the
“Employment
Term.”
(b) The
Employee shall be required to devote his full business time and efforts to
the
business and affairs of the Company other than during vacations and periods
of
illness or incapacity; provided that it is understood and agreed that until
such
time as the sale of Preferred Labor, LLC is completed it is expected that the
Employee shall continue to provide minimal services to Preferred Labor, LLC,
including in connection with completing such sale, and that the provision of
such services will not be deemed to violate this Section 1(b)
provided
such services do not interfere with the performance of his duties and
responsibilities under this Agreement.
Notwithstanding the foregoing, the Employee shall be permitted to: (i) serve
as
a director of any organization or entity that does not result in a violation
of
Section
5;
(ii)
deliver lectures or fulfill speaking engagements; or (iii) make and manage
passive investments and engage in charitable and community
activities
but only
if such services and activities do not interfere with the performance of his
duties and responsibilities under this Agreement.
2. Compensation
and Benefits.
For all
services rendered by the Employee during the Employment Term, including, without
limitation, any services as a director generally or member of the any committee
of the Board or any subsidiary or division thereof, the Employee shall be
compensated as follows:
(a) Base
Salary.
The
Company shall pay the Employee a fixed base salary (“Base
Salary”)
of
$205,000 during the first year of the Employment Term, $220,000 during the
second year of the Employment Term and $240,000 during the Third Year and any
additional year of the Employment Term. The Board may periodically review the
Employee's Base Salary and may determine to increase (but not decrease) the
Base
Salary, in accordance with such policies as the Company may hereafter adopt
from
time to time, if it deems appropriate. Base Salary will be payable in accordance
with the customary payroll practices of the Company. As part of the Employee’s
compensation program the Company extends a $1000 per month automobile
allowance;
it being
understood the Company shall not be responsible for any insurance, repairs,
tires gas or other expenses related to Employee’s automobile except as provided
in Section 3.
(b) Bonus.
The
Employee may be entitled to receive an annual bonus (“Annual
Bonus”)
for
each fiscal year payable subsequent to the issuance of final audited financial
statements for such fiscal year in the sole discretion of the Board in an amount
as determined by the Compensation Committee of the Board. The targeted amount
of
any Annual Bonus (the “Target Bonus”) shall be determined by the Compensation
Committee of the Board in its discretion.
(c) Fringe
Benefits.
(i) The
Employee shall be entitled to participate in such employee benefit and other
compensatory or non-compensatory plans that are available to similarly situated
executives of the Company, which may include disability, health, dental and
life
insurance plans, option and bonus plans and other fringe benefit plans or
programs, including a 401(k) retirement plan, of the Company established from
time to time by the Board, subject to the rules and regulations applicable
thereto, and which shall include an executive insurance program under which
Employee shall be entitled to be reimbursed for up to $25,000 of medical costs
not covered by the Company’s health insurance per year. The Employee shall also
be entitled to reimbursement for out-of-pocket moving costs incurred in
connection with the relocation of the Company’s offices to Boca Raton,
FL.
(ii) Notwithstanding
anything in Section
2(c)(i)
to the
contrary, contemporaneous with the execution of this Agreement, the Employee
will be granted a non-qualified stock option (the “Employment
Option”)
to
purchase 950,000 shares of the Company’s common stock, par value $.001 per share
(the “Common
Stock”),
with
an exercise price of $1.25 per share, pursuant to the Company’s 2007 Omnibus
Equity Compensation Plan and the Employee will execute any award agreement
or
other documents required by the Company to evidence such grant. 33.33% of the
options shall vest immediately on grant; an additional 33.33% of such options
shall vest on February 29, 2008 and an additional 33.33% of such options shall
vest on February 28, 2009; provided,
however,
that in
the event (A) of a Change in Control or (B) the Employee's employment is
terminated by (I) the Company without Cause pursuant to Section
4(d)
or (II)
the Employee for Good Reason pursuant to Section
4(e),
all
unvested options shall accelerate and immediately vest and become exercisable
in
full on the earliest of the date of the Change in Control or the date of the
Employee's termination pursuant to Sections
4(d)
and
(e),
as
applicable. The term of the Employment Option will be 10 years from the date
of
grant.
(iii) For
purposes of this Agreement, a “Change
in Control”
shall
mean:
(A) the
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
“Exchange
Act”))
(a
“Person”)
of
“beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more of (I) the then-outstanding shares of Common Stock
(the “Outstanding
Company Common Stock”),
or
(II) the combined voting power of the then-outstanding voting securities of
the
Company generally entitled to vote in the election of directors (the
“Outstanding
Company Voting Securities”)
regardless of whether such acquisition is as a result of the issuance of
securities by the Company to such Person, by such Person acquiring such shares
publicly or in private sales (or in any combination of acquisitions or public
or
private sales or both), or otherwise; provided,
however,
that
the following shall not constitute a Change in Control: (a) any issuance or
acquisition of securities of the Company whereby the Employee (including his
affiliates) reaches or exceeds such 50% threshold; (b) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any entity controlled by the Company; or (c) any issuance of shares of Series
1 Preferred Stock issued in the Company’s initial offering of such shares or any
shares of common stock issued upon conversion of such shares of Series 1
Preferred Stock;
(B) approval
by the stockholders of the Company of a reorganization, merger, consolidation
or
other business combination (collectively, a “Business
Combination”),
unless following such Business Combination more than 50% of, respectively,
the
then-outstanding shares of common stock of the entity resulting from such
Business Combination and the combined voting power of the then-outstanding
voting securities of such entity generally entitled to vote in the election
of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination in
substantially the same proportions as their ownership, immediately prior to
such
Business Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be;
and
(C) (I) approval
by the stockholders of the Company of a complete liquidation or dissolution
of
the Company or (II) the first to occur of (a) the sale or other
disposition (in one transaction or a series of related transactions) of all
or
substantially all of the assets of the Company, or (b) the approval by the
stockholders of the Company of any such sale or disposition.
(d) Withholding
and Employment Tax.
Payment
of all compensation hereunder shall be subject to customary withholding tax
and
other employment taxes as may be required with respect to compensation paid
by
an employer to an employee.
(e) Disability.
The
Company shall, to the extent such benefits can be obtained at a reasonable
cost,
provide the Employee with disability insurance benefits of at least 60% of
his
gross Base Salary per month. In the event of the Employee's Disability (as
hereinafter defined), the Employee and his family shall continue to be covered
by all of the Company's employee welfare benefit plans described under
Section
2(c),
at the
Company's expense, to the extent such benefits may, by law, be provided, for
the
lesser of the term of such Disability and 24 months, in accordance with the
terms of such plans.
(f) Death.
The
Company shall, to the extent such benefits can be obtained at a reasonable
cost,
provide the Employee with life insurance benefits in the amount of at least
$500,000. In the event of the Employee's death, the Employee's family shall
continue to be covered by all of the Company's employee welfare benefit plans
described under Section
2(c),
at the
Company's expense, to the extent such benefits may, by law, be provided, for
12
months following the Employee's death in accordance with the terms of such
plans.
(g) Vacation.
The
Employee shall receive four weeks of vacation annually, administered in
accordance with the Company's existing vacation policy.
3. Business
Expenses.
The
Company shall pay or reimburse the Employee for all reasonable travel (including
travel by automobile), business and entertainment expenses incurred by or
necessary for the Employee to perform his duties under this Agreement in
accordance with such policies and procedures as the Company may from time to
time establish for senior officers and subject to the Company's normal
requirements with respect to reporting and documentation of such expenses.
4. Termination
of Employment.
Notwithstanding any other provision of this Agreement, the Employee's employment
with the Company may be terminated as set forth below:
(a) Termination
by Mutual Agreement.
The
Employee's employment with the Company may be terminated at anytime by, and
upon
the terms and conditions of, a mutual written agreement between the
parties.
(b) Termination
for Cause.
The
Employee's employment with the Company may be terminated by the Company for
Cause. Provided Cause actually exists, the
date
of termination for Cause shall be the date the Company sends the Employee a
written notice to such effect specifying the reason(s) for the termination
for
Cause.
For
purposes of this Agreement, “Cause”
shall
mean any one of the following: (i) conviction of the Employee for committing
a
felony or crime or other crime involving moral turpitude; (ii) the Employee
having committed acts or omissions constituting willful or wanton misconduct
with respect to the Company; (iii) the Employee having committed any act of
fraud or embezzlement involving the Company; (iv) the Employee having committed
any willful and material violation of any statutory or common law duty of
loyalty to the Company; (v) the Employee having committed acts or omissions
constituting a material breach of this Agreement that continues for more than
15
days after notice from the Company specifically identifying such
breach.
In the
event of any termination under this Section
4(b),
the
Company shall pay all amounts of Base Salary then due to the Employee under
Section
2(a)
up to
the payroll period worked but for which payment had not yet been made up to
the
date of termination (but expressly excluding any bonuses or other incentive
compensation). The Company shall have no further obligations to the Employee
under this Agreement (including no obligation with respect to bonuses or other
incentive compensation), and any and all stock options granted to the Employee
shall terminate according to their terms of grant with any such vested options
being exercisable for the shorter of (i) 90 days from the date of termination
and (ii) the exercise term of each relevant option grant.
(b) Termination
for Disability.
The
Employee's employment with the Company may be terminated by the Company in
the
event of the Employee's Disability. The
date
of termination for Disability shall be the date the Company sends the Employee
a
written notice to such effect. In
the
event of any termination under this Section
4(b),
on the
date of termination all options that would have otherwise vested within the
12
months following the date of the date of termination shall accelerate and
immediately vest and become exercisable in full. Such options may be exercised
for the longer of (i) 12 months from the date of the date of termination and
(ii) the exercise term of each relevant option grant. For purposes of this
Agreement, “Disability”
shall
mean the inability of the Employee, in the reasonable judgment of a physician
appointed by the Board, to perform his duties of employment because of any
physical or mental disability or incapacity, where such disability shall exist
for an aggregate period of more than 150 days in any 365-day period or for
any
period of 90 consecutive days. In the event of any termination under this
Section
4(b),
the
Company shall (i) pay by the next payroll period all amounts then due to the
Employee under Section
2(a)
up to
the payroll period worked but for which payment had not yet been made up to
the
date of termination (including bonuses then-earned or owing), and (ii) comply
with its obligations under Section
2(e).
(c) Termination
upon Death.
The
Employee's employment with the Company automatically terminates on the
Employee's death. In the event of the Employee's death (i) the Company will
continue to pay the Employee's heirs or beneficiaries his Base Salary for 6
months following the date of termination (on regular payroll dates) and (ii)
on
the date of termination all options that would have otherwise vested within
the
12 months following the date of the Employee's death shall accelerate and
immediately vest and become exercisable in full. Such options may be exercised
for the longer of (i) 12 months from the date of the Employee's death and (ii)
the exercise term of each relevant option grant. In addition, in the event
of
the Employee's death, the Company shall (i) pay by the next payroll period
all
amounts then due to the Employee under Section
2(a)
up to
the payroll period worked but for which payment had not yet been made up to
the
date of termination (including bonuses then-earned or owing), and (ii) comply
with its obligations under Section
2(f).
(d) Termination
without Cause.
The
Employee's employment with the Company may be terminated by the Company, in
the
absence of Cause, for any reason and in its sole and absolute discretion,
provided that in such event (which
would include the Company's declining to extend the Employment Term in
accordance with Section 1(a))
the
Company shall continue to pay to the Employee the Base Salary (on regular
payroll dates) for twelve months from the date of termination (the “Termination
Payments”)
plus
any bonuses then-earned or owing on the date of termination and an amount equal
to the Target Bonus for the year in which the termination occurs pro rated
based
on the number of days of service in such year. On
the
date of termination, all
unvested options shall accelerate and immediately vest and become exercisable
in
full.
Such
options may be exercised for the longer of (i) 12 months from the date of
termination and (ii) the exercise term of each relevant option grant. Finally,
during any period in which Termination Payments are required to be paid, the
Company shall continue the benefits for the Employee and his family provided
for
under Section
2
at no
cost to the Employee.
(e) Termination
by
the
Employee for
Good Reason.
The
Employee's employment with the Company may be terminated by the Employee for
Good Reason. “Good
Reason”
shall
be deemed to exist: (i) if the Employee’s duties or responsibilities are
materially diminished or the Employee is assigned any duties materially
inconsistent with the duties or responsibilities contemplated by this Agreement;
(ii) if the Company shall have continued to fail to comply with any material
provision of this Agreement after a 30-day period to cure (if such failure
is
curable) following written notice by the Employee to the Company of such
non-compliance; (iii) upon a Change in Control; or (iv) if the Company requires
that the Employee be based at any location other than Charlotte, NC or Boca
Raton, FL (or the suburban area of either). In the event of any termination
under this Section
4(e),
the
Company shall pay the Termination Payments plus any bonuses then-earned or
owing
on the date of termination and an amount equal to the Target Bonus for the
year
in which the termination occurs pro rated based on the number of days of service
in such year to the Employee in the same amount and manner as under Section
4(d).
On
the
date of termination, all
unvested options shall accelerate and immediately vest and become exercisable
in
full.
Such
options may be exercised for the longer of (i) 12 months from the date of
termination and (ii) the exercise term of each relevant option grant. Finally,
during any period in which Termination Payments are required to be paid, the
Company shall continue the benefits for the Employee and his family provided
for
under Section
2
at no
cost to the Employee.
(f) Voluntary
Resignation.
The
Employee's employment with the Company may be terminated by the Employee without
Good Reason. In the event of any termination under this Section
4(f),
the
Company shall pay all amounts of Base Salary then due to the Employee under
Section
2(a)
up to
the payroll period worked but for which payment had not yet been made up to
the
date of termination (but expressly excluding any bonuses or other incentive
compensation). The Company shall have no further obligations to the Employee
under this Agreement (including no obligation with respect to bonuses or other
incentive compensation), and any and all stock options granted to the Employee
shall terminate according to their terms of grant; provided that if such
termination occurs during the first year of the Employment Term any such vested
options would be exercisable for the shorter of (i) 90 days from the date of
termination and (ii) the exercise term of each relevant option grant, and if
the
termination occurs thereafter any such vested options would continue to be
exercisable for the full exercise term of each relevant option
grant.
5. Non-Competition.
During
the Employment Term and for two years following termination thereof (other
than
any such termination by the Company without Cause or by the Employee for Good
Reason), the Employee shall not, directly or indirectly own any interest in,
manage, control, participate in, consult with, render services for, advise,
or
in any manner engage in the Company Business within a 100 mile radius of any
office operated by the Company or any subsidiary of the Company, whether as
an
officer, director, stockholder, consultant, investor, agent or otherwise (unless
the Board shall have authorized such activity and the Company shall have
consented thereto in writing). For purposes of this Section 5, “Company
Business” means (i) providing
accounts receivable funding (factoring), outsourcing of accounts receivable
management including collections and the risk of customer default, purchase
order financing, lawsuit financing, trade finance and government contract
funding and (ii) back office support including payroll, payroll tax compliance
and invoice processing services. Passive
investments in less than 5% of the outstanding securities of any entity subject
to the reporting requirements of Section 13 or Section 15(d) of the Exchange
Act, shall not be prohibited by this Section
5.
The
provisions of this Section
5
are
subject to the provisions of Section
14.
6. Inventions
and Confidential Information.
The
parties hereto recognize that a major need of the Company is to preserve its
specialized knowledge, trade secrets and confidential information. The strength
and good will of the Company is derived from the specialized knowledge, trade
secrets, and confidential information generated from experience with the
activities undertaken by the Company. The unauthorized disclosure of this
information and knowledge to competitors would be beneficial to such competitors
and detrimental to the Company, as would the disclosure of non-public
information about the marketing practices, pricing practices, costs, profit
margins, design specifications, development and business plans, analytical
techniques and similar items of the Company. The Employee acknowledges that
specific proprietary information and non-public data obtained by him while
employed by the Company concerning the business or affairs of the Company are
the property of the Company. By reason of his being a senior executive of the
Company, the Employee has or will have access to, and has obtained or will
obtain, trade secrets and confidential information about the Company's
operations, which operations extend throughout the United States. Therefore,
subject to the provisions of Section
14,
the
Employee hereby agrees as follows, recognizing that the Company is relying
on
these agreements in entering into this Agreement:
(a) During
the Employment Term and for three years following termination of the Employee's
employment with the Company for any reason, the Employee will not use, disclose
to others, or publish or otherwise make available to any other party (other
than
in furtherance of his obligations hereunder) any non-public or confidential
business information about the business and affairs of the Company, including
but not limited to confidential information concerning the Company's products,
methods, engineering designs and standards, analytical techniques, technical
information, customer information, employee information, inventions and other
confidential information acquired by him in the course of his past or future
services for the Company during the Employment Term. The Employee agrees to
hold
as the Company's property all books, papers, letters, formulas, memoranda,
notes, plans, records, reports, computer tapes, printouts, software and other
documents, and all copies thereof and therefrom, relating to the Company's
business and affairs conducted by him as President of the Company, whether
made
by him or otherwise coming into his possession or control, and on termination
of
his employment, or upon demand of the Company, at any time after termination
of
his employment, to deliver the same to the Company.
(b) During
the Employment Term and for 18 months following termination of the Employee's
employment with the Company for any reason, the Employee will not (i) directly
or indirectly, including through an entity or agent, induce or otherwise attempt
to influence any employee of the Company to leave the Company's employ, (ii)
hire, cause to be hired or induce a third party to hire, any such employee
(unless the Board shall have authorized such employment and the Company shall
have consented thereto in writing) or in any way materially interfere with
the
relationship between the Company and any employee thereof, or (iii) induce
or
attempt to induce any customer, supplier, licensee, licensor or other business
relation of the Company to cease or otherwise limit doing business with the
Company or in any way materially interfere to the detriment of the Company
with
the relationship between any such customer, supplier, licensee or business
relation of the Company.
7. Indemnification;
Director and Officer Liability Insurance.
The
Company will indemnify (and advance the costs of defense of) the Employee (and
his legal representatives) to the fullest extent permitted by the laws of the
state in which the Company is incorporated, as in effect at the time of the
subject act or omission, or by the Certificate of Incorporation and Bylaws
of
the Company, as in effect at such time or on the date of this Agreement,
whichever affords greater protection to the Employee, and both
during and after termination (for any reason) of the Employee's employment,
the
Company shall cause the Employee to be covered under a directors and officers'
liability insurance policy for his acts (or non-acts) as an officer or director
of the Company or any of its affiliates. Such policy shall be maintained by
the
Company, at its expense in an amount of at least $5 million and on terms
(including the time period of coverage after the Employee's employment
terminates) at least as favorable to the Employee as policies covering the
Company's other members of its Board of Directors.
8. Litigation
Expenses.
In the
event of any litigation or other proceeding between the Company and the Employee
with respect to the subject matter of this Agreement and the enforcement of
the
rights hereunder and such litigation or proceeding results in final judgment
or
order in favor of the Employee, which judgment or order is substantially
inconsistent with the positions asserted by the Company in such litigation
or
proceeding, the losing party shall reimburse the prevailing party for all of
his/its reasonable costs and expenses relating to such litigation or other
proceeding, including, without limitation, his/its reasonable attorneys' fees
and expenses.
9. Consolidation;
Merger; Sale of Assets; Change of Control.
Nothing
in this Agreement shall preclude the Company from combining, consolidating
or
merging with or into, transferring all or substantially all of its assets to,
or
entering into a partnership or joint venture with, another corporation or other
entity, or effecting any other kind of corporate combination provided that
the
corporation resulting from or surviving such combination, consolidation or
merger, or to which such assets are transferred, or such partnership or joint
venture expressly assumes in writing this Agreement and all obligations and
undertakings of the Company hereunder. Upon such a consolidation, merger,
transfer of assets or formation of such partnership or joint venture, this
Agreement shall inure to the benefit of, be assumed by, and be binding upon
such
resulting or surviving transferee corporation or such partnership or joint
venture, and the term “Company,” as used in this Agreement, shall mean such
corporation, partnership or joint venture or other entity, and this Agreement
shall continue in full force and effect and shall entitle the Employee and
his
heirs, beneficiaries and representatives to exactly the same compensation,
benefits, perquisites, payments and other rights as would have been their
entitlement had such combination, consolidation, merger, transfer of assets
or
formation of such partnership or joint venture not occurred.
10. No
Set-off; No Mitigation Required.
Except
as expressly provided otherwise in this Agreement, the obligation of the Company
to make any payments provided for hereunder and otherwise to perform its
obligations hereunder will not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Employee or others. In no event will the Employee be obligated
to
seek other employment or take other action by way of mitigation of the amounts
payable to the Employee under any of the provisions of this Agreement, and
such
amounts will not be reduced (except as otherwise specifically provided herein)
whether or not the Employee obtains other employment.
11. Section
409A Compliance.
This
Agreement is intended to comply with Internal Revenue Code Section 409A.
Notwithstanding any provision herein to the contrary, this Agreement shall
be
interpreted, operated and administered consistent with this intent. In that
regard, any payment described herein that is subject to Code Section 409A shall
not be made earlier than six (6) months after the date of termination to the
extent required by Code Section 409A(a)(2)(B)(i); provided that any such payment
that is deferred pursuant to this Section 11 shall be paid in full as soon
as
possible consistent with this Section 11.
12. Survival
of Obligations.
Sections
4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15
and
16
shall
survive the termination for any reason of this Agreement (whether such
termination is by the Company, by the Employee, upon the expiration of this
Agreement or otherwise).
13. Employee's
Representations.
The
Employee hereby represents and warrants to the Company that (i) the execution,
delivery and performance of this Agreement by the Employee do not and shall
not
conflict with, breach, violate or cause a default under any material contract,
agreement, instrument, order, judgment or decree to which the Employee is a
party or by which he is bound, (ii) the Employee is not a party to, or bound
by,
any employment agreement, noncompete agreement or confidentiality agreement
with
any other person or entity, and (iii) upon the execution and delivery of this
Agreement by the Company, this Agreement shall be the valid and binding
obligation of the Employee, enforceable in accordance with its terms. The
Employee hereby acknowledges and represents that he has consulted with legal
counsel regarding his rights and obligations under this Agreement and that
he
fully understands the terms and conditions contained herein.
14. Company's
Representations.
The
Company hereby represents and warrants to the Employee that (i) the execution,
delivery and performance of this Agreement by the Company do not and shall
not
conflict with, breach, violate or cause a default under any material contract,
agreement, instrument, order, judgment or decree to which the Company is a
party
or by which it is bound, and (ii) upon the execution and delivery of this
Agreement by the Employee, this Agreement shall be the valid and binding
obligation of the Company, enforceable in accordance with its
terms.
15. Enforcement.
Because
the Employee's services are unique and because the Employee has access to
confidential information concerning the Company, the parties hereto agree that
money damages shall not be an adequate remedy for any breach of this Agreement.
Therefore, in the event of a breach or threatened breach of this Agreement
that
cannot be compensated with monetary damages, the Company may, in addition to
other rights and remedies existing in its favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other relief in
order
to enforce, or prevent any violations of, the provisions hereof (without posting
a bond or other security).
16. Severability.
In case
any one or more of the provisions or part of a provision contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect in any jurisdiction, such invalidity, illegality or
unenforceability shall be deemed not to affect any other jurisdiction or any
other provision or part of a provision of this Agreement, nor shall such
invalidity, illegality or unenforceability affect the validity, legality or
enforceability of this Agreement or any provision or provisions hereof in any
other jurisdiction; and this Agreement shall be reformed and construed in such
jurisdiction as if such provision or part of a provision held to be invalid
or
illegal or unenforceable had never been contained herein and such provision
or
part reformed so that it would be valid, legal and enforceable in such
jurisdiction to the maximum extent possible. In furtherance and not in
limitation of the foregoing, the Company and the Employee each intend that
the
covenants contained in Sections
5
and
6
shall be
deemed to be a series of separate covenants. If, in any judicial proceeding,
a
court shall refuse to enforce any of such separate covenants, then such
unenforceable covenants shall be deemed eliminated from the provisions hereof
for the purpose of such proceedings to the extent necessary to permit the
remaining separate covenants to be enforced in such proceedings. If, in any
judicial proceeding, a court shall refuse to enforce any one or more of such
separate covenants because the total time, scope or area thereof is deemed
to be
excessive or unreasonable, then it is the intent of the parties hereto that
such
covenants, which would otherwise be unenforceable due to such excessive or
unreasonable period of time, scope or area, be enforced for such lesser period
of time, scope or area as shall be deemed reasonable and not excessive by such
court.
17. Entire
Agreement; Amendment.
This
Agreement contains the entire agreement between the Company and the Employee
with respect to the subject matter hereof. This Agreement may not be amended,
waived, changed, modified or discharged except by an instrument in writing
executed by or on behalf of the party against whom enforcement of any amendment,
waiver, change, modification or discharge is sought. No course of conduct or
dealing shall be construed to modify, amend or otherwise affect any of the
provisions hereof.
18. Notices.
All
notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if physically delivered,
delivered by express mail or other expedited service or upon receipt if mailed,
postage prepaid, via registered mail, return receipt requested, addressed as
follows:
| (a) To the Company: | (b) To the Employee: |
|
BTHC
XI, Inc.
c/o
Anchor Funding Services, LLC
2201
Crownpoint Executive Drive
Charlotte,
NC 28227
|
Brad
Bernstein
5936
Woodleigh Oaks Dr.
Charlotte,
NC 28226
|
and/or
to
such other persons and addresses as any party shall have specified in writing
to
the other.
19. Assignability.
This
Agreement shall not be assignable by either party and shall be binding upon,
and
shall inure to the benefit of, the heirs, executors, administrators, legal
representatives, successors and assigns of the parties. In the event that all
or
substantially all of the business of the Company is sold or transferred, then
this Agreement shall be binding on the transferee of the business of the Company
whether or not this Agreement is expressly assigned to the
transferee.
20. Governing
Law.
This
Agreement shall be governed by and construed under the laws of the State of
Delaware without regard to conflict of laws principles.
21. Waiver
and Further Agreement.
Any
waiver of any breach of any terms or conditions of this Agreement shall not
operate as a waiver of any other breach of such terms or conditions or any
other
term or condition, nor shall any failure to enforce any provision hereof operate
as a waiver of such provision or of any other provision hereof. Each of the
parties hereto agrees to execute all such further instruments and documents
and
to take all such further action as the other party may reasonably require in
order to effectuate the terms and purposes of this Agreement.
22. Headings
of No Effect.
The
Section headings contained in this Agreement are for reference purposes only
and
shall not in any way affect the meaning or interpretation of this
Agreement.
(Remainder
of page intentionally left blank)
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement effective
as of
the date first above written.
| COMPANY: | ||
| BTHC XI, INC. | ||
| |
|
|
| By: | /s/ | |
|
Name: |
||
| Title | ||
| EMPLOYEE: | ||
| |
|
|
| By: | /s/ | |
|
Brad Bernstein |
||
| Title | ||
Exhibit
10.4
|
COLUMN
A
|
COLUMN
B
|
COLUMN
C
|
COLUMN
D
|
COLUMN
D
|
||||||||||||
|
CLIENTS'
A/R
|
FUNDS
EMPLOYED
|
LINE
LIMIT
|
TNW
CAP
|
Calculated
Loan Avail
|
||||||||||||
|
LINE
LIMIT
|
$2,500,000
|
TO
CLIENTS
|
||||||||||||||
|
BEGINNING
COLLATERAL (FROM PREVIOUS REPORT)
|
as
of
|
Line
8 should be the
|
||||||||||||||
|
PLUS:
NET INVOICES PURCHASED
|
$
|
-
|
(See
Attached
|
lesser
of line 8A - 8D
|
||||||||||||
|
LESS:
CREDITS
|
$
|
-
|
Client
Summary)
|
|
*4
|
|||||||||||
|
ENDING
COLLATERAL
|
$
|
|
$ | - | ||||||||||||
|
INELIGIBLE
COLLATERAL
|
$
|
$
|
y
|
|||||||||||||
|
TOTAL
ELIGIBLE COLLATERAL
|
$ | |||||||||||||||
|
PERCENT
OF ADVANCE ON ELIGIBLE COLLATERAL
|
$
|
0.72
|
$
|
0.85
|
s
|
s | ||||||||||
|
CALCULATED
LOAN AVAILABILITY
|
$
|
-
|
$
|
-
|
$
|
500.000.00
|
$
|
-
|
$
|
-
|
||||||
|
ANCHOR
II \DIM; SERVICES. LLC
|
TOTAL
|
|||||||||||||||
|
BEGINNING
LOAN (FROM PREVIOUS REPORT)
|
$
|
-
|
||||||||||||||
|
LESS:
COLLECTIONS
|
$
|
-
|
||||||||||||||
|
PLUS
INTEREST CHARGES AND LOAN FEES
|
$
|
-
|
||||||||||||||
|
+(-)ADJUSTMENTS
(OTHER FEES - i.e.WireFees ti3U_u~i)
|
$
|
-
|
||||||||||||||
|
NET
LOAN OUTSTANDING BEFORE ADVANCES
|
$
|
-
|
||||||||||||||
|
AVAILABLE
TO BORROW (LINE 8 MINUS LINE I)
|
$
|
-
|
||||||||||||||
|
ADDITIONAL
ADVANCE REQUESTED
|
$
|
-
|
||||||||||||||
|
NEW
LOAN BALANCE (LINE 13 PLUS LINE 15)
|
$
|
-
|
||||||||||||||
|
NET
AVAILABILITY (LINE 8 MINUS LINE 16)
|
$
|
-
|
||||||||||||||
|
SALES
DETAIL
|
CREDIT
DETAIL
|
LOCKBOX
DETAIL
|
INELIGIBLE
DETAIL
|
|||||||||||||
|
COLLECTIONS
- LINE 10
$ -
|
DEPOSITS
|
Over
90 (From Invoice Date
|
)
|
|||||||||||||
|
Purchased
Invoices $ -
|
Check
Deductions/Chargebacks $ -
|
$
|
-
|
Foreign/Fed.
Government
|
$
|
-
|
||||||||||
|
Purchased
Invoices $ -
|
Inhouse
Chargebacks $ -
|
$
|
-
|
Not
"approved" (C.I.) or Verified
|
$ | |||||||||||
|
Purchased
Invoices $ -
|
Other
- $ -
|
$
|
-
|
Disputes
|
$
|
-
|
||||||||||
|
Purchased
Credits (Put in as -) $ -
|
Other-
$ -
|
$
|
-
|
Other-
|
$
|
-
|
||||||||||
|
Other-
$ -
|
Other-
$ -
|
$
|
-
|
Concentration-Customer
|
||||||||||||
|
Other-
$ -
|
Credit
Backs (put in as a -) $ -
|
$
|
-
|
Concentration-Client
|
||||||||||||
|
Other-
$ -
|
Non
Factored Cash (put in as a -) $ -
|
$
|
-
|
Client
Advances > 85
|
%
|
$
|
-
|
|||||||||
|
NET
SALES - LINE 2 $ -
|
TOTAL
CREDIT - LINE 3 $ -
|
$
|
-
|
$
|
-
|
$
|
-
|
Total
|
||||||||
Borrower
hereby (a)
as security for the repayment of Borrower's
present and future indebtedness to
FCC,
LLC. (herein"FCC"),
assigns,
transfers
and pledges to
FCC,
its
successors and assigns,
and
gives and agrees that FCC has a security interest in, under and pursuant
the
Loan and Security Agreement and/or other financing instruments between Borrower
and
FCC,
the Accounts specifically described in the invoice copies or schedules of
accounts receivable attached hereto and identified herein,
and
the Inventory (i.e.
Merchandise)
generally
identified herein or described in lien statements or security agreements
attached hereto,
and
in all presently outstanding Accounts and in all Inventory now owned by
Borrower,
and
all Accounts and Inventory hereafter created,
acquired
or purchased by Borrower; (b) warrants and certifies to
FCC
that
all Accounts created since the prior Report are evidenced by invoice copies
or
schedules of accounts receivable attached hereto,
and
that the total of all Accounts on the books and records of Borrower at said
date
is as shown and there is now owing on Accounts that amount; (c) warrants
and
certifies to
FCC
that
all inventory made or acquired since the prior report is identified herein
or is
evidenced by suppliers'
invoices,
purchased journals,
production
reports,
or
other records attached hereto,
and
that the total of all inventory of Borrower is as shown as of the date shown
hereon for Inventory and that Borrower now has in its possession and
control,
or
in the possession of a third party of its account which third party has been
identified in writing by Borrower to FCC, Inventory in that
amount;
(d)
warrants that the total of withdrawals since the prior report are as
shown;
and
(e)
warrants
that all collections received or credits allowed on Accounts previously assigned
to FCC has been duly and regularly entered to the credit of the respective
debtors on the books and accounts of Borrower;
that
all such collections have been remitted and all such credits have been reported
to
FCC
promptly; that none of the Accounts previously
or hereby assigned have been sold,
assigned
or pledged to any other party;
and
that prompt report has been made to
FCC of
returned
or rejected goods covered by
any
Account previously
assigned,
with
payment to FCC of the amount thereof.
| Borrower: |
ANCHOR
FUNDING SERVICES, LLC
|
|
| |
|
|
| By: | /s/ | |
|
(Authorized
Signature)
|
||
This
assignment and security agreement
is accepted by
FCC,
LLC in Fort Lauderdale, FL, in reliance on
the warranties,
certifications and
agreements of
Borrower above,
and
those contained
in
said Loan
and
Security Agreement.
FCC,
LLC
By:
(Title)
Exhibit
B
FACTORING
AND SECURITY AGREEMENT
THIS
FACTORING AGREEMENT (this
"Agreement")
is made as of (the "Effective
Date"),
by and
between
("Seller") and
ANCHOR FUNDING SERVICES, LLC ("Purchaser").
1.
Definitions.
As used
herein, the following terms shall have the following respective meanings. All
capitalized terms not herein defined shall have the meaning set forth in the
Uniform Commercial Code:
1.1.
"Anniversary
Date"
-
See
Section 19.
1.2.
"Clearance
Days"
- (i)
one (1) business day for checks drawn on banks located within the state in
which
Purchaser has its principal place of business, and for all electronic funds
transfers, and (ii) three (3) business days for all other payments.
1.3.
"Closed"
- a
Purchased Account is closed upon the first to occur of (i) receipt of full
payment by Purchaser or (ii) the unpaid Face Amount has been charged to the
Reserve Account by Purchaser pursuant to the terms hereof.
1.4.
"Collateral"
- any
collateral now or hereafter described in any form UCC-1 filed against Seller
naming Purchaser as the secured party, and all of Seller's right, title, and
interest in and to the following property, now owned and hereafter
acquired:
All
Accounts (including Accounts purchased by Purchaser hereunder and repurchased
by
Seller), chattel paper, general intangibles including, but not limited to,
tax
refunds, registered and unregistered patents, trademarks, service marks,
copyrights, trade names, trade secrets, customer lists, licenses, documents,
instruments, deposit accounts, certificates of deposit, and all rights of Seller
as a seller of goods, including rights of reclamation, repletion, and stoppage
in transit;
1.4.1.
All goods including, but not limited to: 1.4.1.1. All inventory, wherever
located;
1.4.1.2.
All equipment and fixtures, wherever located, and all additions, substitutions,
replacements (including spare parts), and accessions thereof and
thereto;
1.4.1.3.
All books and records relating to all of the foregoing property and interests
in
property, including, without limitation, all computer programs, printed output,
and computer readable data in the possession or control of the Seller, any
computer service bureau, or other third party;
1.4.1.4.
All investment property; and
1.4.1.5.
All proceeds of the foregoing, including, but not limited to, all insurance
proceeds, all claims against third parties for loss or destruction of or damage
to any of the foregoing, and all income from
the
lease or rental of any of the foregoing.
1.5.
"Concentration
Account"
- A
Purchased Account which, when added to other unpaid Purchased Accounts from
the
same Account Debtor will cause the balance owing from the Account Debtor to
exceed 25% of the total unpaid amount of all Purchased Accounts.
1.6.
"Concentration
Factoring Fee"
- the
Concentration Factoring Fee Percentage multiplied by the Face Amount of each
Concentration Account. The Concentration Factoring Fee shall be paid as
compensation for the Credit and Collection Services.
2
1.7.
"Concentration
Factoring Fee Percentage"
-.0%.
1.8. "Concentration
Reserve Percentage"
-
%.
1.9.
"Credit
and Collection Services"
- the
following services performed by Purchaser on behalf of Seller as a result of
the
purchase of accounts hereunder:
1.9.1.
All accounts receivable record keeping, including the recording of invoices
and
payments; 1.9.2. Assumption of the credit risk with respect to certain Purchased
Accounts, as set forth herein; 1.9.3. Collection of accounts; and
1.9.4.
Setting of such credit limits for sales by Seller as may be
required.
1.10.
"Early
Termination Date"
- any
termination date requested by Seller which is earlier than the next occurring
Anniversary Date.
1.11.
"Early
Termination Fee"
- The
greater of the (i) average monthly Factoring Fees earned by Purchaser for the
three full months (or portion thereof) prior to the date on which Purchaser
receives a Notice of Early Termination of this Agreement, or (ii) Minimum
Monthly Fee, multiplied by the remaining months in the term of the
Agreement.
1.12.
"Eligible
Account"
- an
Account which is acceptable for purchase as determined by Purchaser in the
exercise of its sole reasonable credit or business judgment.
1.13.
"Event
of Default"
- See
Section 16.1.
1.14.
"Face
Amount"
- the
face amount due on an Account at the time it is purchased pursuant to this
Agreement.
1.15.
"Factoring
Fee"
- The
Factoring Fee Percentage multiplied by the Face Amount of a Purchased Account
at
the time of purchase by Purchaser, for each Factoring Fee Period or portion
thereof, that any portion thereof remains unpaid, computed from the last day
of
the Initial Factoring Fee Period to and including the Late Payment Date. The
Factoring Fee shall be paid as compensation for the Credit and Collection
Services and in the event Purchaser has also requested that Purchaser provide
its Payroll Administration and Bookkeeping Services, the Factoring Fee shall
be
inclusive of all such services as described in the applicable
addendum.
1.16.
"Factoring
Fee Percentage"
-
.0%.
1.17.
"Factoring
Fee Period"
-
days.
1.
18.
"Fees" - The Factoring Fee.
1.19.
"Initial
Factoring Fee"
- 0% of
the Face Amount. 1.20. "Initial
Factoring Fee Period"
-
days
1.21.
"Insolvency
Event"
- the
filing of a petition under any state or federal debtor relief or liquidation
statute by or against an Account Debtor, within the Insolvency
Period.
1.22.
"Insolvency
Period"
- days
from the invoice date.
1.23.
"Invoice"
- the
document that evidences an Account. Where the context so requires, reference
to
an Invoice shall be deemed to refer to the Account to which it
relates.
3
1.24.
"Late
Charge"
- .06%
per day.
1.25. "Late
Payment Date" -
the date
which is () days from the date on which a Purchased Account was
created.
1.26.
"Maximum
Amount"
-
$.
1.27.
"Minimum
Monthly Fee"
-
$.
1.28.
"Misdirected
Payment Fee"
-
fifteen percent (15%) of the amount of any payment on account of a Purchased
Account which has been received by Seller and not delivered in kind to Purchaser
on the next business day following the date of receipt by Seller.
1.29.
"Missing
Notation Fee"
- 15% of
the Face Amount.
1.30.
"Notation"
- "This
account has been assigned and is payable directly to Anchor Funding Services,
LLC, located at 2201-E CrownPoint Executive Drive, Suite E, Charlotte, North
Carolina 28227, to whom notice of any claim or dispute must be advised, either
in writing or by telephone (866-789-3863 x203)."
1.31.
"Notice
of Early Termination"
- Any
notice of termination that is effective on other than a Termination
Date.
1.32.
"Obli
atg ions"
- all
present and future obligations owing by Seller to Purchaser whether or not
for
the payment of money, whether or not evidenced by any note or other instrument,
whether direct or indirect, absolute or contingent, due or to become due, joint
or several, primary or secondary, liquidated or unliquidated, secured or
unsecured, original, renewed, or extended, whether arising before, during,
or
after the commencement of any bankruptcy case in which Seller is a Debtor,
including but not limited to any obligations arising pursuant to letters of
credit or acceptance transactions or any other financial
accommodations.
1.33.
"Party"
or
"Parties"
- Each
of Seller and
Purchaser.
1.34.
"Payment
Date"
- the
date on which a Purchased Account is either paid in full to Purchaser or
Repurchased.
1.35.
"Payment
Delay"
- with
respect to each Account, the number of days between the Purchase Date and the
Payment Date.
1.36.
"Purchase
Date"
- with
respect to each Account, the date on which the Account was purchased pursuant
to
this Agreement.
1.37.
"Purchased
Account"
- an
Account purchased hereunder which has not been Repurchased.
1.38.
"Repurchased"
- an
Account has been repurchased when Seller has paid to Purchaser the then unpaid
Face Amount.
1.39.
"Required
Reserve Amount"
- the
Reserve Percentage multiplied by the unpaid balance of Purchased
Accounts.
1.40.
"Reserve
Account"
- a
bookkeeping account on the books of the Purchaser representing an unpaid portion
of the Face Amounts, maintained by Purchaser to ensure Seller's performance
with
the provisions hereof.
1.41.
"Reserve
Percentage"
-
%.
1.42.
"Reserve
Shortfall"
- the
amount by which the Reserve Account is less than the Required Reserve
Amount.
4
1.43.
"Schedule
of Accounts"
- a form
supplied by Purchaser from time to time wherein Seller lists such of its
Accounts as it requests that Purchaser purchase under the terms of this
Agreement.
1.44.
"Seller's
Account"
- any
demand deposit account maintained by Seller or represented by an employee of
Seller to be maintained by Seller.
2.
Sale;
Purchase Price, Reserve; Billing
2.1.
Assignment
and
Sale.
2.1.1.
Seller shall sell to Purchaser as absolute owner such of Seller's Accounts
as
are listed from time to time on a Schedule of Accounts. Upon purchase, Purchaser
will assume the risk of non-payment on Purchased Accounts, so long as the
cause
of
non-payment is solely due to the occurrence of an Insolvency Event. This
assumption of credit risk shall be limited to the
product
of the Face Amount of a Purchased Account multiplied by the difference between
100% a nd the Reserve Percentage or actual
amount paid for the Purchased Account, if any, whichever is less. In the event
a
Purchased Account remains unpaid beyond
() days,
Seller shall then be obligated to repurchase the Purchased Account.
2.1.2.
Seller shall provide with each Schedule of Accounts such documentation
supporting and evidencing the Accounts identified therein as Purchaser shall
from time to time request.
2.1.3.
Purchaser shall be entitled to purchase from Seller such Accounts as Purchaser
determines to be Eligible Accounts, so long as the unpaid balance of Purchased
Accounts does not exceed, before and after such purchase, the Maximum
Amount.
2.1.4.
Purchaser shall pay the Face Amount, less any amounts due to Purchaser from
Seller, including, without limitation, any amounts due under, inter
alia, Sections
1.6, 1.19, and 2.3.2 hereof, of any Purchased Account, to Seller's Account
within two (2) business days of Seller's receipt of a statement from Purchaser
listing the Accounts which Purchaser, has agreed to purchase, whereupon the
Accounts shall be deemed purchased hereunder.
2.2.
Billing.
Purchaser may send a weekly statement to all Account Debtors itemizing their
account activity during the preceding billing period. All Account Debtors will
be instructed to make payments to Purchaser.
2.3.
Reserve
Account.
2.3.1.
Purchaser may pay any portion of any Face Amount to the Reserve Account in
the
amount of the Reserve Shortfall.
2.3.2.
Seller shall pay to Purchaser on demand the amount of any Reserve
Shortfall.
2.3.3.
Purchaser shall pay to Seller, upon Seller's request, any amount by which
collected funds on a entire closed schedule in the Reserve Account are greater
than the Required Reserve Amount, provided that Seller shall be entitled to
make
such demand not more than once in any one (1) week.
2.3.4.
Purchaser may charge the Reserve Account with any Obligation, including any
amounts due from Seller to Purchaser hereunder.
2.3.5.
Purchaser may pay any amounts due Seller hereunder by a credit to the Reserve
Account.
2.3.6.
Purchaser may adjust the Reserve Percentage at any time without notice if such
adjustment is necessitated by a change in the quality of the Purchased Accounts
in Purchaser's reasonable credit judgment.
5
3.
Authorization
for Purchases.
Subject
to the terms and conditions of this Agreement, Purchaser is authorized to
purchase Accounts upon telephonic, facsimile, or other instructions received
from anyone purporting to be an officer, employee, or representative of
Seller.
4. Fees
and Expenses.
Seller
shall pay to Purchaser: 4.1. Fees. The
Fees
on the Purchase Date.
4.2.
Minimum
Monthly Fee.
Any
amount by which the Fees earned in any month (prorated for partial months)
is
less than the Minimum
Monthly Fee
to be
paid
on
the
first
day
of
the following
month
4.3.
Misdirected
Payment Fee.
Any
Misdirected Payment Fee immediately upon its accrual.
4.4.
Missing
Notation Fee.
The
Missing Notation Fee on any Invoice that is
sent by
Seller
to an Account Debtor which does not contain the Notation.
4.5.
Late
Charge.
The Late
Charge, on demand, on:
4.5.1.
all past due amounts due from Seller to Purchaser hereunder; and 4.5.2. The
amount of any Reserve Shortfall.
4.6.
Out-of-Pocket
Expenses.
The
out-of-pocket expenses directly incurred by Purchaser in the administration
of
this or any other Agreement that is executed between the Parties including
but
not limited to wire transfer fees, NSF fees, postage, taxes, search fees, filing
fees, travel expenses and audit fees. Seller shall not be required to pay for
more than four audits per twelve-month period.
4.7.
Early
Termination Fee.
The
Early Termination Fee multiplied by the number of months (or portion thereof)
between the Early Termination Date and the next occurring Anniversary
Date.
5.
Concentrations.
5.1.
Notwithstanding anything to the contrary contained herein, if a Purchased
Account is a Concentration Account:
5.1.1.
The applicable Reserve Percentage shall be the Concentration Reserve Percentage;
and
5.1.2.
The applicable Factoring Fee shall be the Concentration Factoring
Fee.
6. Repurchase
Of Accounts.
Purchaser may require that Seller repurchase, by payment of the then unpaid
Face
Amount thereof together with any unpaid fees relating to the Purchased Account
on demand or, at Purchaser's option, by Purchaser's charge to the Reserve
Account:
6.1.
Notwithstanding the occurrence of an Insolvency Event:
6.1.1.
Any Purchased Account, the payment of which has been disputed by the Account
Debtor obligated thereon, Purchaser being under no obligation to determine
the
bona fides of such dispute;
6.1.2.
All Purchased Accounts upon the occurrence of an Event of Default, or upon
the
termination date of this Agreement; and
6.2.
If
an Insolvency Event has not occurred on or prior to the Late Payment Date,
any
Purchased Account which remains unpaid beyond the Late Payment
Date.
7. Security
Interest.
6
7.1.
As
collateral securing
the Obligations, Seller grants to Purchaser a continuing first
priority security
interest in and to the Collateral.
7.2.
Notwithstanding the creation of the above security interest, the relationship
of
the parties shall be that of Purchaser and Seller of accounts, and not that
of
lender and borrower.
8. Clearance
Days.
For all
purposes under this Agreement, Clearance Days will be added to the date on
which
any payment is received by Purchaser.
9. Authorization
to Purchaser.
9.1.
Seller hereby irrevocably authorizes Purchaser and any designee of Purchaser,
at
Seller's sole expense, to exercise at any times in Purchaser's or such
designee's discretion all or any of the following powers until all of the
Obligations have been paid in full:
9.1.1.
Receive, take, endorse, assign, deliver, accept, and deposit, in the name of
Purchaser or Seller, any and all cash, checks, commercial paper, drafts,
remittances, and other instruments and documents relating to the Collateral
or
the proceeds thereof;
9.1.2.
Take or bring, in the name of Purchaser or Seller, all steps, actions, suits,
or
proceedings deemed by Purchaser necessary or desirable to effect collection
of
or other realization upon the accounts and other Collateral;
9.1.3.
After an Event of Default, change the address for delivery of mail to Seller
and
to receive and open mail addressed to Seller;
9.1.4.
Extend the time of payment of, compromise or settle for cash, credit, return
of
merchandise, and upon any terms or conditions, any and all Accounts or other
Collateral which includes a monetary obligation and discharge or release any
account debtor or other obligor (including filing of any public record releasing
any lien granted to Seller by such account debtor), without affecting any of
the
Obligations;
9.1.5.
Execute in the name of Seller and file against Seller in favor of Purchaser
financing statements or amendments with respect to the Collateral;
9.1.6.
Pay any sums necessary to discharge any lien or encumbrance which is senior
to
Purchaser's security interest in the Collateral, which sums shall be included
as
Obligations hereunder, and in connection with which sums the Late Charge shall
accrue and shall be due and payable; and
9.1.7.
At
any
time, irrespective of whether an Event of Default has occurred, without notice
to or the assent of Seller, notify any Account Debtor obligated with respect
to
any Account, that the underlying Account has been assigned to Purchaser by
Seller and that payment thereof is to be made to the order of and directly
and
solely to Purchaser.
9.1.8.
At
anytime, communicate directly with Seller's Account Debtors to verify the amount
and validity of any Account created by Seller.
9.2.
Seller hereby releases and exculpates Purchaser, its officers, employees, and
designees, from any liability arising from any acts under this Agreement or
in
furtherance thereof whether of omission or commission, and whether based upon
any error of judgment or mistake of law or fact, except for willful misconduct.
In no event will Purchaser have any liability to Seller for lost profits or
other special or consequential damages. Without limiting the generality of
the
foregoing, Seller releases Purchaser from any claims which Seller may now or
hereafter have arising out of Purchaser's endorsement and deposit of checks
issued by Seller's customers stating that they were in full payment of an
account, but issued for less than the full amount which may have been owed
on
the account.
7
9.3.
Seller authorizes Purchaser to accept, endorse, and deposit on behalf of Seller
any checks tendered by an account debtor "in full payment" of its obligation
to
Seller. Seller shall not assert against Purchaser any claim arising therefrom,
irrespective of whether such action by Purchaser effects an accord and
satisfaction of seller's claims, under §3-311 of the Uniform Commercial Code, or
otherwise.
9.4.
Seller shall fully complete and execute, as taxpayer, prior to or immediately
upon the execution of this Agreement, a form 8821 (Rev. January 2000) issued
by
the Department of the Treasury, Internal Revenue Service or such other forms
as
may be requested
by Purchaser, irrevocably authorizing Purchaser to inspect or receive tax
information relating to any type of tax, tax form,
years or
periods or otherwise desired by Purchaser on an ongoing basis.
9.5.
ACH
Authorization.
In order
to satisfy any of the Obligations, Purchaser is hereby authorized by Seller
to
initiate electronic debit or credit entries through the ACH system to Seller's
Account or any other deposit account maintained by Seller wherever located.
Seller may only terminate this authorization by giving Purchaser thirty (30)
days prior written notice of termination.
10.
Covenants
B,, Ste.
10.1.
After written notice by Purchaser to Seller, and automatically, without notice,
after an Event of Default, Seller shall not, without the prior written consent
of Purchaser in each instance:
10.1.1.
Grant any extension of time for payment of any of the accounts or any other
Collateral which includes a monetary obligation;
10.1.2.
Compromise or settle any of the Accounts or any such other Collateral for less
than the full amount thereof;
10.1.3.
Release in whole or in part any account debtor or other person liable for the
payment of any of the accounts or
any such
other Collateral; or
10.1.4.
Grant any credits, discounts, allowances, deductions, return authorizations,
or
the like with respect to any of the accounts or any such other
Collateral.
10.2.
From time to time as requested by Purchaser, at the sole expense of Seller,
Purchaser or its designee shall have access, during reasonable business hours
if
prior to an Event of Default and at any time if on or after an Event of Default,
to all premises where Collateral is located for the purposes of inspecting
(and
removing, if after the occurrence of an Event of Default) any of the Collateral,
including Seller's books and records, and Seller shall permit Purchaser or
its
designee to make copies of such books and records or extracts therefrom as
Purchaser may request. Without expense to Purchaser, Purchaser may use any
of
Seller's personnel, equipment, including computer equipment, programs, printed
output, and computer readable media, supplies, and premises for the collection
of accounts and realization on other Collateral as Purchaser, in its sole
discretion, deems appropriate. Seller hereby irrevocably authorizes all
accountants and third parties to disclose and deliver to Purchaser at Seller's
expense all financial information, books and records, work papers, management
reports, and other information in their possession relating to
Seller.
10.3.
Before sending any Invoice to an account debtor, Seller shall mark same with
the
Notation or such other notation as Purchaser shall have advised Seller in
writing.
10.4.
Seller shall pay when due all payroll and other taxes, and shall provide proof
thereof to Purchaser in such form as Purchaser shall reasonably
require.
10.5.
Encumbrance
of Collateral.
Seller
shall not create, incur, assume, or permit to exist any lien upon or with
respect to any Collateral now owned or hereafter acquired by
Seller.
8
11.
Insurance.
Seller
shall maintain insurance on all insurable property owned or leased by Seller
in
the manner, to the extent, and against at least such risks (in any event,
including but not limited to fire and business interruption insurance) as
usually maintained by owners of similar businesses and properties in similar
geographic areas. All such insurance shall be in amounts and form and with
insurance companies acceptable to Purchaser in its sole discretion. Seller
shall
furnish to Purchaser:
11.1.
Upon written request, any and all information concerning such insurance
carried;
11.2.
As
requested by Purchaser, lender loss payable endorsements (or their equivalent)
in favor of Purchaser.
All
policies of insurance shall provide for not less than thirty- (30) days' prior
written cancellation notice to Purchaser.
12. Delivery
of Misdirected Payments.
Notwithstanding that Seller has agreed to pay the Misdirected Payment Fee
pursuant to Section 4.3 hereof, Seller shall deliver in kind to Purchaser on
the
next banking day following the date of receipt by Seller of the amount of any
payment on account of a Purchased Account.
13. Account
Disputes.
Seller
shall notify Purchaser promptly of and, if requested by Purchaser, will settle
all disputes concerning any Purchased Account, at Seller's sole cost and
expense. However, Seller shall not, without Purchaser's prior written consent,
compromise or adjust any Purchased Account or grant any additional discounts,
allowances, or credits thereon. Purchaser may, but is not required to, attempt
to settle, compromise, or litigate (collectively, "Resolve")
the
dispute upon such terms as Purchaser in its sole discretion deem advisable,
for
Seller's account and risk and at Seller's sole expense. Upon the occurrence
of
an Event of Default Purchaser may Resolve such issues with respect to any
Account of Seller.
14. Perfection
of Security Interest.
Seller
shall execute and deliver to Purchaser such documents and instruments,
including, without limitation, Uniform Commercial Code financing statements,
as
Purchaser may request from time to time in order to evidence and perfect its
security interest in any collateral securing the Obligations.
15. Representation
and Warranty.
Seller
represents and warrants that:
15.1.
It
is fully authorized to enter into this Agreement and to perform hereunder;
15.2.
This
Agreement constitutes its legal, valid, and binding obligation; and 15.3. Seller
is solvent and in good standing in the State of its organization.
1
5 4
Each Purchased Account at the time each is submitted for purchase
is and will remain:
15.4.1.
Bona fide existing obligations created by the sale and delivery of goods or
the
rendition of services in the ordinary
course of Seller's business; the amount of each Account is due and owing to
Seller and represents an accurate statement of a
bona
fide sale, delivery and acceptance of goods or performance of service by Seller
to or for an Account Debtor. The terms for payment of each Account sold is
not
more than thirty (30) days from date of invoice and the payment of such Account
is not contingent upon the fulfillment by Seller of any further performance
of
any nature whatsoever.
15.4.2.
Unconditionally owed and will be paid to Purchaser without defenses, disputes,
offsets, counterclaims, or rights of return or cancellation.
15.4.3.
Sales to an entity which is at no time affiliated with Seller or in any way
not
an "arms length"
transaction.
15.5.
Seller has not received notice of actual or imminent bankruptcy, insolvency,
or
material impairment of the financial condition of any applicable account debtor
regarding Purchased Accounts.
9
15.6.
Seller shall notify Purchaser, in writing, immediately after obtaining knowledge
from any source of the filing, by any means, of any lien, claim, or levy,
against any property of Seller or Account Debtor.
15.7.
Seller shall not interfere with Purchaser's rights under this
Agreement.
15.8.
Seller has not and will not transfer, assign or pledge any of its Accounts
and
shall not grant a security interest therein
to any
party other than Purchaser and that there are no financing statements now on
file in any public office governing any property of Seller of any kind, real
or
personal, in which Seller is named in or has signed as the debtor, except the
financing statement or statements filed or to be filed in respect to this
Agreement or those statements now on file that have been disclosed in writing
by
Seller to Purchaser. Seller will not execute any financing statement in favor
of
any other person or entity, except Purchaser, during the term of this
Agreement.
15.9.
Seller shall notify Purchaser in writing of any proposed change in Seller's
name, legal entity, trade name, and office location or ownership
structure.
15.10.
Seller shall indemnify Purchaser from any loss arising out of the assertion
of
any avoidance claim (that being any claim that any payment received by Purchaser
from or for the account of an Account Debtor is avoidable under the Bankruptcy
Code or any other debtor relief statute), other than such claims which relate
to
Purchased Accounts which are the subject of an Insolvency Event, and shall
pay
to Purchaser on demand the amount thereof. Seller shall notify Purchaser within
two business days of it becoming aware of the assertion of an Avoidance Claim.
This subsection shall survive termination of this Agreement. If after receipt
of
any payment or proceeds of Collateral applied to the payment of any obligation,
Purchaser becomes subjected to an Avoidance Claim or is required to surrender
or
return such payment or proceeds to any person as a result of an Avoidance Claim,
then the obligation intended to be satisfied by such payment or application
of
such proceeds shall be deemed immediately reinstated and continue in full force
and effect as if such payment or proceeds had not been received by Purchaser.
This Section shall remain effective notwithstanding any contrary action which
may be taken by Purchaser in reliance upon such payment or proceeds and shall
survive the termination of this Agreement.
15.11.
Seller shall accept no returns and shall grant no allowances or credit to any
Account Debtor without notice to and the prior written approval of Purchaser.
Seller shall provide to Purchaser for each Account Debtor on Accounts that
have
been purchased, a weekly report in form and substance satisfactory to Purchaser
itemizing all such returns and allowances made during the previous week with
respect such Eligible Accounts and a check (or wire transfer) payable to
Purchaser for the amount thereof.
15.12.
The address set forth below Seller's signature hereon is Seller's mailing
address, its chief executive office, principal place
of
business and the office where all of the books and records concerning the
Accounts purchased are maintained and that there
will be
no change made to such location without first giving Purchaser at least thirty
(30) days prior written notice.
15.13.
Seller shall maintain its books and records in accordance with generally
accepted accounting principals and shall reflect on its books the absolute
sale
of the Accounts to Purchaser. Seller shall furnish Purchaser, upon request,
such
information and statements as Purchaser shall request from time to time
regarding Seller's business affairs, financial condition and results of its
operations. Without limiting the generality of the forgoing, Seller shall
provide to Purchaser, on or prior to the 30`x' day of each month, unaudited
consolidated and consolidating financial statements with respect to the prior
month and, within ninety (90) days after the end of Seller's fiscal years,
annual consolidated and consolidating financial statements and such certificates
relating to the foregoing as Purchaser may request including, without
limitation, a monthly certificate from the president and chief financial officer
of Seller stating whether any Events of Default have occurred and stating in
detail the nature of the Events of Default. Seller will furnish to Purchaser
upon request a current listing of all open and unpaid accounts payable and
accounts receivable, and such other items of information that Purchaser may
deem
necessary or appropriate from time to time. Unless otherwise expressly provided
herein or unless Purchaser otherwise consents, computations and determinations
pursuant hereto shall be made in accordance with generally accepted accounting
principals, consistently applied.
10
15.14.
Seller has paid and will pay all taxes and governmental charges imposed with
respect to sales of goods and furnish to Purchaser upon request satisfactory
proof of payment and compliance with all federal, state and local
tax requirements.
15.15.
Seller will promptly notify Purchaser of (i) the filing of any lawsuit against
Seller involving amounts greater than $10,000.00, and (ii) any attachment or
any
other legal process levied against Seller.
15.16.
Any application made by Seller in connection with this Agreement, and the
statements made therein are true and correct at the time that this Agreement
is
executed. There is no fact which Seller has not disclosed to Purchaser in
writing which could materially adversely affect the Collateral, business or
financial condition of Seller, or any of the Accounts, or which is necessary
to
disclose in order to keep the foregoing representations and warranties from
being misleading.
15.17.
In
no event shall the funds paid to Seller hereunder be used directly or indirectly
for personal, family, household or agricultural purposes.
15.18.
Seller does business under no trade or assumed names except as indicated
below.
(None)
16.
Default.
16.1.
Events
of Default.
Each of
the following events will constitute an Event of Default hereunder:
16.1.1.
Seller defaults in the payment of any Obligations or in the performance of
provision hereof or of any other agreement now or hereafter entered into with
Purchaser, or any warranty or representation contained herein proves to be
false
in any way, howsoever minor;
16.1.2.
Seller or any guarantor of the Obligations becomes subject to any debtor-relief
proceedings;
16.1.3.
any such guarantor fails to perform or observe any of such Guarantor's
obligations to Purchaser or shall notify
Purchaser of its intention to rescind, modify, terminate, or revoke any guaranty
of the Obligations, or any such guaranty shall cease to be in full force and
effect for any reason whatever;
16.1.4.
Purchaser for any reason, in good faith, deems itself insecure
with
respect to the prospect of repayment or performance of the
Obligations.
16.2.
Waiver
of Notice.
SELLER
WAIVES ANY REQUIREMENT THAT PURCHASER INFORM SELLER BY AFFIRMATIVE ACT OR
OTHERWISE OF ANY ACCELERATION OF SELLER'S OBLIGATIONS HEREUNDER. FURTHER,
PURCHASER'S FAILURE TO CHARGE OR ACCRUE INTEREST OR FEES AT ANY "DEFAULT" OR
"PAST DUE" RATE SHALL NOT BE DEEMED A WAIVER BY PURCHASER OF ITS CLAIM
THERETO.
16.3.
Effect
of Default.
16.3.1.
Upon the occurrence of any Event of Default, in addition to any rights Purchaser
has under this Agreement or
applicable law:
16.3.1.1.
Purchaser may immediately terminate this Agreement, at which time all
Obligations shall become immediately become due and payable without notice;
and
16.3.1.2.
The Late Charge shall accrue and is payable on demand on any Obligation not
paid
when due.
11
16.4.
In
the event Purchaser deems it necessary to seek equitable relief, including,
but
not limited to, injunctive or receivership remedies, as a result of Seller's
default, Seller waives any requirement that Purchaser post or otherwise obtain
or procure any bond. Alternatively, in the event Purchaser, in its sole and
exclusive discretion, desires to procure and post a bond, Purchaser
may procure and file with the court a bond, or in lieu of a bond, a deposit
into
the court registry, in an amount up to and not
greater than $10,000.00 notwithstanding any common or statutory legal
requirement to the contrary. Upon Purchaser's posting
of such
bond, or in lieu of a bond, or deposit into the court registry, it shall be
entitled to all benefits as if such bond was posted in full compliance with
state law. Seller waives any right it may be entitled to, including an award
of
attorney's fees or costs, in the event
any
equitable relief sought by and awarded to Purchaser is thereafter, for whatever
reason(s), vacated, dissolved or reversed.
16.5.
Seller acknowledges that it has a duty to timely pay all tax obligation(s)
and
that if, for whatever reason, a tax lien or levy were to issue that Seller
shall
cause such lien or levy to be satisfied or discharged within fifteen (15) days.
Until such lien or levy is satisfied and discharged, Purchaser shall be entitled
to withhold any sum(s) that may otherwise be due Seller and upon request or
demand from such taxing authority may remit any such sums due Seller and over
which Purchaser makes no claim to the taxing authority. Moreover, Seller agrees
that until the tax lien or levy is satisfied or discharged, Seller shall be
entitled to collect all proceeds of accounts and apply such proceeds to
Purchaser's indebtedness. Nothing contained herein shall suspend or abate any
performance due Purchaser.
16.6.
All
post judgment interest shall bear interest at either the contract rate or the
highest rate allowed by law, whichever is higher.
17. Account
Stated.
Purchaser shall render to Seller a statement setting forth the transactions
arising hereunder. Each statement shall be in a format and in such detail as
Purchaser, in its sole discretion, deems appropriate. Purchaser's books and
records shall be admissible in evidence without objection as prima facie
evidence of the status of the Accounts. Each statement, report, or accounting
rendered, issued or available to Seller by Purchaser shall be deemed
conclusively accurate and binding on Seller unless within fifteen (15) days
after the date of issuance Seller notifies Purchaser by registered or certified
mail, setting forth with specificity the reasons why Seller believes such
statement, report, or accounting is inaccurate, as well as what Seller believes
to be correct amount(s) therefore. Seller's failure to receive any monthly
statement shall not relieve it of the responsibility to request such statement
and failure to do so shall nonetheless bind Seller to whatever Purchaser's
records would have reported.
18. Waiver.
No
failure to exercise and no delay in exercising any right, power, or remedy
hereunder shall impair any right, power, or remedy which Purchaser may have,
nor
shall any such delay be construed to be a waiver of any of such rights, powers,
or remedies, or any acquiescence in any breach or default hereunder; nor shall
any waiver by Purchaser of any breach or default by Seller hereunder be deemed
a
waiver of any default or breach subsequently occurring. All rights and remedies
granted to Purchaser hereunder shall remain in full force and effect
notwithstanding any single or partial exercise of, or any discontinuance of
action begun to enforce, any such right or remedy. The rights and remedies
specified herein are cumulative and not exclusive of each other or of any rights
or remedies that Purchaser would otherwise have. Any waiver, permit, consent,
or
approval by Purchaser of any breach or default hereunder must be in writing
and
shall be effective only to the extent set forth in such writing and only as
to
that specific instance.
19. Termination,
Effective Date.
This
Agreement will be effective as of the Effective Date, will continue in full
force and effect for one year, and shall be further annually extended
automatically for successive years unless Seller gives Purchaser written notice
of its intention to terminate at least sixty days prior to each such anniversary
date (each an "Anniversary
Date"),
whereupon this Agreement shall terminate on the next following anniversary.
Upon
termination Seller shall pay the Obligations to Purchaser and Seller shall
remain obligated to tender all Accounts to Purchaser notwithstanding that
Purchaser may thereafter determine that no Account may qualify as an Eligible
Account.
20. Amendment.
Neither
this Agreement nor any provisions hereof may be changed, waived, discharged,
or
terminated, nor may any consent to the departure from the terms hereof be given,
orally (even if supported by new consideration), but only by an instrument
in
writing signed by all parties to this Agreement. Any waiver or consent so given
shall be effective only in the specific instance and for the specific purpose
for which given.
12
21. Survival.
All
representations, warranties, and agreements herein contained shall be effective
so long as any portion of this Agreement remains executory.
22. No
Lien Termination Without Release.
In recognition of the Purchaser's right to have its attorneys' fees and other
expenses incurred in connection with this Agreement secured by the Collateral,
notwithstanding payment in full of all Obligations by Seller, Purchaser shall
not be required to record any terminations or satisfactions of any of
Purchaser's liens on the Collateral unless and until Seller has executed and
delivered to Purchaser a general release in a form reasonably satisfactory
to
Purchaser. Seller understands that this provision constitutes a waiver of its
rights under §9-404 of
the
UCC.
23. Conflict.
Unless
otherwise expressly stated in any other agreement between Purchaser and Seller,
if a conflict exists between the provisions of this Agreement and the provisions
of such other agreement, the provisions of this Agreement shall control, except
that in the event any conflict arises with respect to any addendum, the addendum
controls.
24. Enforcement.
This
Agreement and all agreements relating to the subject matter hereof are the
product of negotiation and preparation by and among each party and its
respective attorneys, and shall be construed accordingly.
25. Severability.
In the
event any one or more of the provisions contained in this Agreement is held
to
be invalid, illegal or unenforceable in any respect, then such provision shall
be ineffective only to the extent of such prohibition or invalidity, and the
validity, legality, and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
26. Relationship
of Parties.
The
relationship of the parties hereto shall be that of Seller and Purchaser of
accounts, and neither party is or shall be deemed a fiduciary of or to the
other. Seller acknowledges that there is not now, and that it will not seek
or
attempt to establish, any fiduciary relationship between Purchaser and Seller,
and Seller waives any right to assert, now or in the future, the existence
or
creation of any fiduciary relationship between Purchaser and Seller in any
action or proceeding (whether by way of claim, counterclaim, crossclaim or
otherwise) between them.
27. Attorneys'
Fees.
Seller agrees to reimburse Purchaser on demand for:
27.1.
The
actual amount of all costs and expenses, including attorneys' fees, which
Purchaser has incurred or may incur in:
27.1.1.
Negotiating, preparing, or administering this Agreement and any documents
prepared in connection herewith;
27.1.2.
Any way arising
out of this Agreement; and
27.1.3.
Protecting, preserving, or enforcing any lien, security interest, or other
right
granted by Seller to Purchaser or arising under applicable law, whether or
not
suit is brought;
27.2.
The
actual costs, including photocopying (which, if performed by Purchaser's
employees, shall be at the rate of $. 10/page), travel, and attorneys' fees
and
expenses incurred in complying with any subpoena or other legal process
attendant to any litigation in which Seller is a party;
27.3.
Either (the
choice of
which
shall
be in the sole discretion of Purchaser):
27.3.1.
The actual amount of all costs and expenses, including attorneys' fees, which
Purchaser may incur in enforcing this Agreement and any documents prepared
in
connection herewith, or in connection with any federal or state insolvency
proceeding commenced by or against Seller, including those (i) arising out
the
automatic stay, (ii) seeking dismissal or conversion of the bankruptcy
proceeding or (ii) opposing confirmation of Seller's plan
thereunder.
13
27.3.2.
Twenty percent (20%) of the amount of the claim of Purchaser against Seller,
which Seller agrees shall constitute a reasonable substitute for such actual
fees and expenses.
All
such
costs and expenses of Purchaser which has been incurred on or prior to the
execution hereof shall be paid contemporaneously with the execution hereof.
Any
such costs and expenses incurred subsequent to the execution hereof shall become
part of the Obligations when incurred and may be added to the outstanding
principal amount due hereunder.
27.4.
Notwithstanding the existence of any common law, statute or rule in any
jurisdiction which may provide Seller with a right to attorney's fees or costs,
Seller hereby waives any and all rights to seek attorney's fees or costs
thereunder and Seller agrees that Purchaser exclusively shall be entitled to
recovery of its attorney's fees or costs in respect to any litigation based
on,
arising out of, or related to this Agreement, whether under, or in connection
with, this and/or any agreement executed in conjunction herewith, or any course
of conduct, course of dealing, statements (whether verbal or written) or actions
of either party.
28.
Entire
Agreement.
This
Agreement and any addenda supersedes all prior or contemporaneous agreements
and
understandings between said parties, verbal or written, express or implied,
relating to the subject matter hereof. No promises of any kind have been made
by
Purchaser or any third party to induce Seller to execute this Agreement. No
course of dealing, course of performance, or trade usage, and no parole evidence
of any nature, shall be used to supplement or modify any terms of this
Agreement.
29. Choice
of Law.
This
Agreement and all transactions contemplated hereunder and/or evidenced hereby
shall be governed by, construed under, and enforced in accordance with the
internal laws of the State of North Carolina.
30. Jury
Trial Waiver.
In
recognition of the higher costs and delay which may result from a jury trial,
Purchaser hereto may elect to waive any right to trial by jury and Seller agrees
to grant its consent of any claim, demand, action or cause of action (a) arising
hereunder, or (b) in any way connected with or related or incidental to the
dealings of the parties hereto or any of them with respect hereto, in each
case
whether now existing or hereafter arising, and whether sounding in contract
or
tort or otherwise.
3
1.
Venue,
Jurisdiction.
The
Parties agree that any suit, action, or proceeding arising out of the subject
matter hereof, or the interpretation, performance, or breach of this Agreement,
shall, if Purchaser so elects, be instituted in the United States District
Court
for the Eastern District of North Carolina or any court of the State of North
Carolina located in Raleigh (each an "Acceptable
Forum"),
each
Party agrees that the Acceptable Forums are convenient to it, and each Party
irrevocably submits to the jurisdiction of the Acceptable Forums, irrevocably
agrees to be bound by any judgment rendered thereby in connection with this
Agreement, and waives any and all objections to jurisdiction or venue that
it
may have under the laws of the State of North Carolina or otherwise in those
courts in any such suit, action or proceeding. Should such proceeding be
initiated in any other forum, Seller waives any right to oppose any motion
or
application made by Purchaser as a consequence of such proceeding having been
commenced in a forum other than an Acceptable Forum.
32.
Notice.
[Missing
Graphic Reference]
32.1.
All
notices required to be given to any Party other than Purchaser shall be deemed
given upon the first to occur of (i)
deposit
thereof in a receptacle under the control of the United States Postal Service,
(ii) transmittal by electronic means to a receiver under the control of such
party; or (iii) actual receipt by such party or an employee or agent of such
party.
32.2.
All
notices required to be given to Purchaser hereunder shall be deemed given upon
actual receipt by a responsible officer of Purchaser.
32.3.
For
the purposes hereof, notices hereunder shall be sent to the following addresses,
or to such other addresses as each such party may in writing hereafter
indicate.
14
33. Financial
Accommodation and Non-Assumable.
This
Agreement shall be deemed to be one of financial accommodation and not assumable
by any debtor, trustee or debtor-in-possession in any bankruptcy proceeding
without Purchaser's express written consent and may be suspended in the event
a
petition in bankruptcy is filed by or against Seller.
34. Rights
Against Successor Entity.
In the
event Seller's principals, officers or directors form a new entity similar
to
that of Seller during the term of this Agreement or while Seller remains liable
to Purchaser for any obligations under this Agreement, whether corporate,
partnership, limited liability company or otherwise, the principals hereby
acknowledge that such entity shall be deemed to have expressly assumed the
obligations due Purchaser by Seller under this Agreement. Upon the formation
of
any such entity, Purchaser shall be deemed to have been granted an irrevocable
power of attorney with authority to execute, on behalf of the newly formed
successor business, a new UCC-1 or UCC-3 financing statement and have it filed
with the appropriate secretary of state or UCC filing office. Purchaser shall
be
held-harmless and be relieved of any liability as a result of Purchaser's
execution and recording of any such financing statement or the resulting
perfection of a lien in any of the successor entity's assets. In addition,
Purchaser shall have the right to notify the successor entity's account debtors
of Purchaser's lien rights, its right to collect all Accounts, and to notify
any
new lender who has sought to procure a competing lien of Purchaser's right
in
such successor entity's assets.
35. Counterparts.
This
Agreement my be signed in any number of counterparts, each of which shall be
an
original, with the same effect as if all signatures were upon the same
instrument. Delivery of an executed counterpart of the signature page to this
Agreement by facsimile transmission shall be effective as delivery of a manually
executed counterpart of this Agreement, and any party delivering such an
executed counterpart of the signature page to this Agreement by facsimile to
any
other party shall thereafter also promptly deliver a manually executed
counterpart of this Agreement to such other party, provided that the failure
to
deliver such manually executed counterpart shall not affect the validity,
enforceability, or binding effect of this Agreement.
IN
WITNESS WHEREOF, the Parties have executed this Agreement on the day and year
first above
|
written.
|
|||
| SELLER: LLC | PURCHASER: ANCHOR FUNDING SERVICES, | ||
| /s/ | /s/ | ||
|
|
|
||
| Name Title Address
for Notices:
|
Name
Title Address
for Notices:
2201-E
CrownPoint Executive Drive Charlotte, North Carolina
28227
|
||
| OFFICER: | OFFICER: Brad Bernstein | ||
|
FAX NO.:
FEIN:
|
FAX NO.: (704) 847-2259 |
15
BANK
ACCOUNT INFORMATION
NAME
OF
ACCOUNT: NAME OF BANK:
BANK
CONTACT:
BANK
PHONE: BANK ABA #:
YOUR
BANK
ACCT #: SPECIAL INSTRUCTIONS:
Exhibit
10.5
BTHC
XI, Inc.
c/o
Anchor Funding Services, LLC
2201
E. Crownpoint Executive Drive
Charlotte,
N.C. 28227
| Fordham Financial Management, Inc |
January
31, 2007
|
14
Wall
Street, 18th Floor
New
York,
NY 10005
Telephone:
(212) 732-8500
Facsimile:
(212) 349-2554
Gentlemen:
The
following consulting agreement (this “Agreement”) sets forth our understanding
with respect to Fordham Financial Management, Inc., a Colorado corporation
(“Fordham”), providing financial advisory consulting services for BTHC XI, Inc.,
a Delaware corporation (the “Company”). Any capitalized terms used but not
defined herein shall have the meaning given to them in that certain Placement
Agent Agreement entered into between Fordham and the Company dated January
2,
2007.
1. Scope
of Work; Term.
(a) For
a
period of one (1) year from the closing of our Private Placement Offering,
Fordham will render financial consulting services to the Company as such
services shall be required but in no event shall such services require more
than
one business day per month and such services shall include the
following:
(i) to
advise
and assist in matters pertaining to the financial requirements of the Company
and to assist, as and when required, in formulating plans and methods of
financing; and
(ii) to
assist
in obtaining financial management, and technical and advisory services, and
financial and corporate public relations, as may be requested or
advisable.
(b) All
services required to be performed hereunder shall be requested by the Company
in
writing and upon not less than three business days' notice, unless such notice
is waived by Fordham. Such notice shall be to the address or facsimile number
specified above or to such other place as Fordham shall designate to the Company
in writing.
2. Compensation.
For
Fordham’s services to be performed hereunder, and for Fordham’s continued
availability to perform such services, the Company will pay Fordham at each
Closing, a fee of 1% of the gross proceeds of the Private Placement Offering.
Further, the Company will reimburse Fordham for such reasonable out-of-pocket
expenses as may be incurred by Fordham on the Company’s behalf, but only to the
extent authorized in writing by the Company.
1
3. Confidentiality.
(a) Fordham
and its “affiliates” (as defined in Rule 144(a) of the Securities Act of 1933,
as amended (the "Securities Act")) recognize and acknowledge that it and its
employees will have access to confidential information and trade secrets of
the
Company, and other entities doing business with the Company relating to
research, development, manufacturing, marketing, financial, employee, salary,
and other business-related activities or may discover, conceive, perfect or
develop, solely or jointly with others, inventions, discoveries, improvements,
know-how, computer programs, patents, patent applications, design patents,
models, prototypes, copyrights and trade secrets or other technical,
manufacturing, marketing, customer, and/or financial data, agreements,
correspondence and information (hereinafter “Confidential Information”). Such
Confidential Information constitutes valuable, special, and unique property
of
the Company, and/or other entities doing business with the Company.
(b) Fordham
and its affiliates will keep such Confidential Information in strict confidence
and will not, during or after the term of its assignment at the Company, make
any use of, or disclose any of such Confidential Information to any person,
firm, corporation, association, or other entity for any reason or purpose
whatsoever, except as is generally available to the public or as specifically
allowed in writing by an authorized representative of the Company.
(c) Fordham
and its affiliates, during or after the term of its assignment at the Company,
agree not to solicit or encourage any employee or consultant of Company to
leave
the employ of or terminate its consulting relationship with the
Company.
(d) Fordham
and its affiliates agree not to make use of or disclose any Confidential
Information, including trade secrets, of any other person or entity in carrying
out Fordham's or its affiliates' assignment for the Company.
(e) In
the
event of a breach or threatened breach by Fordham or its affiliates of the
provisions of this Section
3,
Company
shall be entitled to an injunction restraining Fordham or its affiliates from
disclosing and/or using, in whole or in part, such Confidential Information.
Nothing herein shall be construed as prohibiting Company from pursuing other
remedies available to Company for such breach or threatened breach, including
the recovery of damages from Fordham and/or its affiliates.
4. Independent
Consultant.
Fordham
is and shall perform this Agreement as an independent consultant, and, as such,
shall have and maintain sole control over its operations and/or services.
Fordham shall not be, represent, act, report to, or be deemed to be the agent,
representative, employee or servant of Company. The amounts payable to Fordham
hereunder are inclusive of any gross receipts, sales or other tax.
5. Assignment.
Fordham
may not assign its rights or delegate its obligations hereunder without the
prior written consent of Company. Company may assign its rights and obligations
hereunder to any of its subsidiaries or affiliates. Company may also assign
its
rights herein to any company that acquires substantially all of the Company’s
business to which this Agreement relates upon prior written notice to Fordham.
2
6. Entire
Agreement.
The
foregoing represents the sole and entire agreement between the parties with
respect to the subject matter hereof and supersedes any prior agreements between
the parties with respect thereto. This Agreement may not be modified, renewed,
extended or terminated except by a written instrument signed by a duly
authorized officer or representative of the party against whom enforcement
of
such modification, renewal, extension or termination is sought. This Agreement
shall be governed by and construed in accordance with the internal laws of
the
State of New York, without regard to the principles of conflicts of laws of
such
state.
[Remainder
of Page Intentionally Left Blank]
3
Please
signify Fordham's agreement and consent to the foregoing by signing and
returning to the Company the enclosed copy of this Agreement which will
thereupon constitute a binding agreement between Fordham and the
Company.
|
Very
truly yours,
|
||
| BTHC XI, Inc. | ||
| |
|
|
| Date: | By: | /s/ |
|
Brad Bernstein, |
||
|
President
|
||
Agreed
and Consented to:
FORDHAM
FINANCIAL MANAGEMENT, INC.
BY______________________________
William
Baquet,
Chief
Executive Officer
Austin_1
266068v.3
4
Exhibit
99.1
BTHC
XI,
INC.
2007
OMNIBUS EQUITY COMPENSATION PLAN
| Section 1. |
Definitions
|
The
following terms shall have the meanings set forth below for purposes of the
Plan:
(a) “Board”
shall mean the Board of Directors of the Company.
(b) “Cause”
shall mean, except to the extent specified otherwise by the Committee, a finding
by the Committee that the Grantee (i) has breached his or her employment or
service contract with the Employer, (ii) has engaged in disloyalty to the
Company, including, without limitation, fraud, embezzlement, theft, commission
of a felony or proven dishonesty, (iii) has disclosed trade secrets or
confidential information of the Employer to persons not entitled to receive
such
information, (iv) has breached any written non-competition or non-solicitation
agreement between the Grantee and the Employer or (v) has engaged in such other
behavior detrimental to the interests of the Employer as the Committee
determines.
(c) “Change
of Control” shall be deemed to have occurred if:
(i) the
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange
Act"))
(a
"Person")
of
"beneficial ownership" (within the meaning of Rule 13d-3 promulgated under
the
Exchange Act) of 50%
or
more of (I) the then-outstanding shares of Common Stock (the "Outstanding
Company Common Stock"),
or
(II) the combined voting power of the then-outstanding voting securities of
the
Company generally entitled to vote in the election of directors (the
"Outstanding
Company Voting Securities")
regardless of whether such acquisition is as a result of the issuance of
securities by the Company to such Person, by such Person acquiring such shares
publicly or in private sales (or in any combination of acquisitions or public
or
private sales or both), or otherwise; provided,
however,
that
the following shall not constitute a Change of Control: (a) any issuance or
acquisition of securities of the Company whereby the Employee (including his
affiliates) reaches or exceeds such 50%
threshold; (b) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any entity controlled by the Company;
or (c) any issuance of shares of Series
1
Preferred Stock issued in the Company’s initial offering of such
shares
or any
shares of common stock issued upon conversion of such shares of Series 1
Preferred Stock;
(ii) approval
by the stockholders of the Company of a reorganization, merger, consolidation
or
other business combination (collectively, a "Business
Combination"),
unless following such Business Combination more than 50% of, respectively,
the
then-outstanding shares of common stock of the entity resulting from such
Business Combination and the combined voting power of the then-outstanding
voting securities of such entity generally entitled to vote in the election
of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination in
substantially the same proportions as their ownership, immediately prior to
such
Business Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be;
and
1
(iii) (I)
approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company or (II) the first to occur of (a) the sale or other
disposition (in one transaction or a series of related transactions) of all
or
substantially all of the assets of the Company, or (b) the approval by the
stockholders of the Company of any such sale or disposition.
(d) “Code”
shall mean the Internal Revenue Code of 1986, as amended.
(e) “Committee”
shall mean the committee, consisting of members of the Board, designated by
the
Board to administer the Plan, as described in Section 2.
(f) “Company”
shall mean BTHC XI, Inc. and shall include its successors.
(g) “Company
Stock” shall mean a share of common stock of the Company.
(h) “Disability”
or “Disabled” shall mean a Grantee’s becoming disabled within the meaning of
section 22(e)(3) of the Code, within the meaning of the Employer’s long-term
disability plan applicable to the Grantee, or as otherwise determined by the
Committee.
(i) “Dividend
Equivalent” shall mean an amount determined by multiplying the number of shares
of Company Stock subject to a Grant by the per-share cash dividend paid by
the
Company on Company Stock, or the per-share fair market value (as determined
by
the Committee) of any dividend paid on Company Stock in consideration other
than
cash.
(j) “Employee”
shall mean an employee of an Employer.
(k) “Employed
by, or providing service to, the Employer” shall mean employment or service as
an Employee, Key Advisor or member of the Board (so that, for purposes of
exercising Options and SARs and satisfying conditions with respect to other
Grants, a Grantee shall not be considered to have terminated employment or
service until the Grantee ceases to be an Employee, Key Advisor and member
of
the Board), unless the Committee determines otherwise.
(l) “Employer”
shall mean the Company and its subsidiaries and other related entities, as
determined by the Committee.
(m) “Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.
(n) “Exercise
Price” shall mean the purchase price of Company Stock subject to an
Option.
2
(o) “Fair
Market Value” shall mean:
(i) If
the
Company Stock is publicly traded, then the Fair Market Value per share shall
be
determined as follows: (x) if the principal trading market for the Company
Stock
is a national securities exchange or the Nasdaq National Market, the last
reported sale price thereof on the relevant date or (if there were no trades
on
that date) the latest preceding date upon which a sale was reported, or (y)
if
the Company Stock is not principally traded on such exchange or market, the
mean
between the last reported “bid” and “asked” prices of Company Stock on the
relevant date, as reported on Nasdaq or, if not so reported, as reported by
the
National Daily Quotation Bureau, Inc. or as reported in a customary financial
reporting service, as applicable and as the Committee determines.
(ii) If
the
Company Stock is not publicly traded or, if publicly traded, is not subject
to
reported transactions or “bid” or “asked” quotations as set forth above, the
Fair Market Value per share shall be as determined by the Committee through
any
reasonable valuation method authorized under section 409A of the Code or section
422 of the Code, as applicable.
(p) “Grant”
shall mean a grant of Options, SARs, Stock Awards, Stock Units or Other
Stock-Based Awards under the Plan.
(q) “Grant
Instrument” shall mean the agreement that sets forth the terms of a Grant,
including any amendments.
(r) “Grantee”
shall mean an Employee, Non-Employee Director or Key Advisor who receives a
Grant under the Plan.
(s) “Incentive
Stock Option” shall mean an option to purchase Company Stock that is intended to
meet the requirements of section 422 of the Code.
(t) “Key
Advisor” shall mean a consultant or advisor of an Employer.
(u) “Non-Employee
Director” shall mean a member of the Board of the Company or member of the board
of directors of a subsidiary of the Company who is not an Employee.
(v) “Nonqualified
Stock Option” shall mean an option to purchase Company Stock that is not
intended to meet the requirements of section 422 of the Code.
(w) “Option”
shall mean an Incentive Stock Option or Nonqualified Stock Option granted under
the Plan, as described in Section 6.
(x) “Other
Stock-Based Award” shall mean any Grant based on, measured by or payable in
Company Stock, as described in Section 10.
(y) “Plan”
shall mean the BTHC XI, Inc. 2007 Omnibus Equity Compensation Plan.
(z) “SAR”
shall mean a stock appreciation right with respect to a share of Company Stock,
as described in Section 9.
(aa) “Stock
Award” shall mean an award of a share of Company Stock, with or without
restrictions, as described in Section 7.
3
(bb) “Stock
Unit” shall mean a unit that represents a hypothetical share of Company Stock,
as described in Section 8.
| Section 2. |
Administration
|
(a) Committee.
The
Plan shall be administered and interpreted by a Committee appointed by the
Board; provided that until such appointment the Plan shall be administered
and
interpreted by the Board. The Committee may consist of two or more persons
who
are “outside directors” as defined under section 162(m) of the Code, and related
Treasury regulations, and “non-employee directors” as defined under Rule 16b-3
under the Exchange Act. However, the Board may ratify or approve any grants
as
it deems appropriate, and the Board shall approve and administer all grants
made
to Non-Employee Directors. The Committee may delegate authority to one or more
subcommittees, as it deems appropriate. To the extent that the Board or a
subcommittee administers the Plan, references in the Plan to the “Committee”
shall be deemed to refer to such Board or such subcommittee.
(b) Committee
Authority.
The
Committee shall have the sole authority to (i) determine the individuals to
whom
grants shall be made under the Plan, (ii) determine the type, size and terms
of
the grants to be made to each such individual, (iii) determine the time when
the
grants will be made and the duration of any applicable exercise or restriction
period, including the criteria for exercisability and the acceleration of
exercisability, (iv) amend the terms of any previously issued grant, subject
to
the provisions of Section 18 below, and (v) deal with any other matters arising
under the Plan.
(c) Committee
Determinations.
The
Committee shall have full power and express discretionary authority to
administer and interpret the Plan, to make factual determinations and to adopt
or amend such rules, regulations, agreements and instruments for implementing
the Plan and for the conduct of its business as it deems necessary or advisable,
in its sole discretion. The Committee’s interpretations of the Plan and all
determinations made by the Committee pursuant to the powers vested in it
hereunder shall be conclusive and binding on all persons having any interest
in
the Plan or in any awards granted hereunder. All powers of the Committee shall
be executed in its sole discretion, in the best interest of the Company, not
as
a fiduciary, and in keeping with the objectives of the Plan and need not be
uniform as to similarly situated individuals.
| Section 3. |
Grants
|
Awards
under the Plan may consist of grants of Options, Stock Awards, SARs, Stock
Units, Dividend Equivalents and Other Stock-Based Awards. All Grants shall
be
subject to the terms and conditions set forth herein and to such other terms
and
conditions consistent with this Plan as the Committee deems appropriate and
as
are specified in writing by the Committee to the individual in the Grant
Instrument. All Grants shall be made conditional upon the Grantee’s
acknowledgement, in writing or by acceptance of the Grant, that all decisions
and determinations of the Committee shall be final and binding on the Grantee,
his or her beneficiaries and any other person having or claiming an interest
under such Grant. Grants under a particular Section of the Plan need not be
uniform as among the Grantees.
| Section 4. |
Shares
Subject to the Plan
|
(a) Shares
Authorized.
Subject
to adjustment as described in subsection (d) below, the aggregate number of
shares of Company Stock that may be issued or transferred under the Plan is
2,100,000 shares.
4
(b) Source
of Shares; Share Counting.
Shares
issued or transferred under the Plan may be authorized but unissued shares
of
Company Stock or reacquired shares of Company Stock, including shares purchased
by the Company on the open market for purposes of the Plan. If and to the extent
Options or SARs granted under the Plan terminate, expire, or are canceled,
forfeited, exchanged or surrendered without having been exercised, and if and
to
the extent any Stock Awards, Stock Units or Other Stock-Based Awards are
forfeited, terminated or otherwise not paid in full, the shares subject to
such
Grants shall again be available for purposes of the Plan. Shares of Stock
surrendered in payment of the Exercise Price of an Option shall again be
available for issuance under the Plan. To the extent any Grants are paid in
cash, and not in shares of Company Stock, any shares previously subject to
such
Grants shall again be available for issuance or transfer under the
Plan.
(c) Individual
Limits.
All
Grants under the Plan shall be expressed in shares of Company Stock. The maximum
aggregate number of shares of Company Stock that may be subject to Grants made
under the Plan to any individual during any calendar year shall be 1,000,000
shares, subject to adjustment as described in subsection (d) below. A
Participant may not accrue Dividend Equivalents during any calendar year in
excess of $500,000. The individual limits of this subsection (c) shall apply
without regard to whether the Grants are to be paid in Company Stock or cash.
All cash payments (other than with respect to Dividend Equivalents) shall equal
the Fair Market Value of the shares of Stock to which the cash payments
relate.
(d) Adjustments.
If
there is any change in the number or kind of shares of Company Stock outstanding
(i) by reason of a stock dividend, spinoff, recapitalization, stock split,
or
combination or exchange of shares, (ii) by reason of a merger, reorganization
or
consolidation, (iii) by reason of a reclassification or change in par value,
or
(iv) by reason of any other extraordinary or unusual event affecting the
outstanding Company Stock as a class without the Company’s receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company’s payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for issuance under the Plan, the maximum number of shares of
Company Stock for which any individual may receive Grants in any year, the
number of shares covered by outstanding Grants, the kind of shares issued under
the Plan, and the price per share or the applicable market value of such Grants
maybe appropriately adjusted by the Committee to reflect any increase or
decrease in the number of, or change in the kind or value of, issued shares
of
Company Stock to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under such Grants; provided, however, that
any
fractional shares resulting from such adjustment shall be eliminated. Any
adjustments determined by the Committee shall be final, binding and
conclusive.
| Section 5. |
Eligibility
for Participation
|
(a) Eligible
Persons.
All
Employees and Non-Employee Directors shall be eligible to participate in the
Plan. Key Advisors shall be eligible to participate in the Plan if the Key
Advisors render bona fide services to the Employer, the services are not in
connection with the offer and sale of securities in a capital-raising
transaction and the Key Advisors do not directly or indirectly promote or
maintain a market for the Company’s securities.
(b) Selection
of Grantees.
The
Committee shall select the Employees, Non-Employee Directors and Key Advisors
to
receive Grants and shall determine the number of shares of Company Stock subject
to each Grant.
5
| Section 6. |
Options
|
The
Committee may grant Options to an Employee, Non-Employee Director or Key
Advisor, upon such terms as the Committee deems appropriate. The following
provisions are applicable to Options:
(a) Number
of Shares.
The
Committee shall determine the number of shares of Company Stock that will be
subject to each Grant of Options to Employees, Non-Employee Directors and Key
Advisors.
(b) Type
of Option and Price.
(i) The
Committee may grant Incentive Stock Options or Nonqualified Stock Options or
any
combination of the two, all in accordance with the terms and conditions set
forth herein. Incentive Stock Options may be granted only to employees of the
Company or its subsidiary corporations, as defined in section 424 of the Code.
Nonqualified Stock Options may be granted to Employees, Non-Employee Directors
and Key Advisors.
(ii) The
Exercise Price of Company Stock subject to an Option shall be determined by
the
Committee and shall be equal to or greater than the Fair Market Value of a
share
of Company Stock on the date the Option is granted; provided, however, that
an
Incentive Stock Option may not be granted to an Employee who, at the time of
grant, owns stock possessing more than 10% of the total combined voting power
of
all classes of stock of the Company or any parent or subsidiary, of the Company,
as defined in section 424 of the Code, unless the Exercise Price per share
is
not less than 110% of the Fair Market Value of Company Stock on the date of
grant.
(c) Option
Term.
The
Committee shall determine the term of each Option, which, unless otherwise
determined by the Committee, shall not exceed ten years from the date of grant.
However, an Incentive Stock Option that is granted to an Employee who, at the
time of grant, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, or any parent or subsidiary of
the
Company, as defined in section 424 of the Code, may not have a term that exceeds
five years from the date of grant. In no event will the term for any Incentive
Stock Option exceed ten years from the date of grant.
(d) Exercisability
of Options.
(i) Options
shall become exercisable in accordance with such terms and conditions,
consistent with the Plan, as may be determined by the Committee and specified
in
the Grant Instrument. The Committee may accelerate the exercisability of any
or
all outstanding Options at any time for any reason including in connection
with
a Change of Control.
(ii) The
Committee may provide in a Grant Instrument that the Grantee may elect to
exercise part or all of an Option before it otherwise has become exercisable.
Any shares so purchased shall be restricted shares and shall be subject to
a
repurchase right in favor of the Company during a specified restriction period,
with the repurchase price equal to the lesser of (i) the Exercise Price or
(ii)
the Fair Market Value of such shares at the time of repurchase, or such other
restrictions as the Committee deems appropriate.
(e) Grants
to Non-Exempt Employees.
Notwithstanding the foregoing, Options granted to persons who are non-exempt
employees under the Fair Labor Standards Act of 1938, as amended, may not be
exercisable for at least six months after the date of grant (except that such
Options may become exercisable, as determined by the Committee, upon the
Grantee’s death, Disability or retirement, or upon a Change of Control or other
circumstances permitted by applicable regulations).
6
(f) Termination
of Employment, Disability or Death.
Unless
otherwise provided in the Grant Instrument:
(i) Except
as
provided below an Option may only be exercised while the Grantee is employed
by,
or providing service to, the Employer as an Employee, Key Advisor or member
of
the Board.
(ii) In
the
event that a Grantee ceases to be employed by, or provide service to, the
Employer for any reason other than Disability, death, or termination for Cause,
any Option which is otherwise exercisable by the Grantee shall terminate unless
exercised within 90 days after the date on which the Grantee ceases to be
employed by, or provide service to, the Employer (or within such other period
of
time as may be specified by the Committee), but in any event no later than
the
date of expiration of the Option term. Except as otherwise provided by the
Committee, any of the Grantee’s Options that are not otherwise exercisable as of
the date on which the Grantee ceases to be employed by, or provide service
to,
the Employer shall terminate as of such date.
(iii) In
the
event the Grantee ceases to be employed by, or provide service to, the Company
on account of a termination for Cause by the Employer, any Option held by the
Grantee shall terminate as of the date the Grantee ceases to be employed by,
or
provide service to, the Employer. In addition, notwithstanding any other
provisions of this Section 6, if the Committee determines that the Grantee
has
engaged in conduct that constitutes Cause at any time while the Grantee is
employed by, or providing service to, the Employer or after the Grantee’s
termination of employment or service, any Option held by the Grantee shall
immediately terminate and the Grantee shall automatically forfeit all shares
underlying any exercised portion of an Option for which the Company has not
yet
delivered the share certificates, upon refund by the Company of the Exercise
Price paid by the Grantee for such shares. Upon any exercise of an Option,
the
Company may withhold delivery of share certificates pending resolution of an
inquiry that could lead to a finding resulting in a forfeiture.
(iv) In
the
event the Grantee ceases to be employed by, or provide service to, the Employer
because the Grantee is Disabled, any Option which is otherwise exercisable
by
the Grantee shall terminate unless exercised within one year after the date
on
which the Grantee ceases to be employed by, or provide service to, the Employer
(or within such other period of time as may be specified by the Committee),
but
in any event no later than the date of expiration of the Option term. Except
as
otherwise provided by the Committee, any of the Grantee’s Options which are not
otherwise exercisable as of the date on which the Grantee ceases to be employed
by, or provide service to, the Employer shall terminate as of such
date.
(v) If
the
Grantee dies while employed by, or providing service to, the Employer or within
90 days after the date on which the Grantee ceases to be employed or provide
service on account of a termination specified in Section 6(f)(i) above (or
within such other period of time as may be specified by the Committee), any
Option that is otherwise exercisable by the Grantee shall terminate unless
exercised within one year after the date on which the Grantee ceases to be
employed by, or provide service to, the Employer (or within such other period
of
time as may be specified by the Committee), but in any event no later than
the
date of expiration of the Option term. Except as otherwise provided by the
Committee, any of the Grantee’s Options that are not otherwise exercisable as of
the date on which the Grantee ceases to be employed by, or provide service
to,
the Employer shall terminate as of such date.
7
(g) Exercise
of Options.
A
Grantee may exercise an Option that has become exercisable, in whole or in
part,
by delivering a notice of exercise to the Company. The Grantee shall pay the
Exercise Price for an Option as specified by the Committee (w) in cash, (x)
with
the approval of the Committee, by delivering shares of Company Stock owned
by
the Grantee (including Company Stock acquired in connection with the exercise
of
an Option, subject to such restrictions as the Committee deems appropriate)
and
having a Fair Market Value on the date of exercise equal to the Exercise Price
or by attestation (on a form prescribed by the Committee) to ownership of shares
of Company Stock having a Fair Market Value on the date of exercise equal to
the
Exercise Price, (y) payment through a broker in accordance with procedures
permitted by Regulation T of the Federal Reserve Board, or (z) by such other
method as the Committee may approve. Shares of Company Stock used to exercise
an
Option shall have been held by the Grantee for the requisite period of time
to
avoid adverse accounting consequences to the Company with respect to the Option.
Payment for the shares pursuant to the Option, and any required withholding
taxes, must be received by the time specified by the Committee depending on
the
type of payment being made, but in all cases prior to the issuance of the
Company Stock.
(h) Limits
on Incentive Stock Options.
Each
Incentive Stock Option shall provide that, if the aggregate Fair Market Value
of
the stock on the date of the grant with respect to which Incentive Stock Options
are exercisable for the first time by a Grantee during any calendar year, under
the Plan or any other stock option plan of the Company or a parent or
subsidiary, as defined in section 424 of the Code, exceeds $100,000, then the
Option, as to the excess, shall be treated as a Nonqualified Stock Option.
An
Incentive Stock Option shall not be granted to any person who is not an Employee
of the Company or a parent or subsidiary, as defined in section 424 of the
Code.
| Section 7. |
Stock
Awards
|
The
Committee may issue or transfer shares of Company Stock to an Employee,
Non-Employee Director or Key Advisor under a Stock Award, upon such terms as
the
Committee deems appropriate. The following provisions are applicable to Stock
Awards:
(a) General
Requirements.
Shares
of Company Stock issued or transferred pursuant to Stock Awards may be issued
or
transferred for consideration or for no consideration, and subject to
restrictions or no restrictions, as determined by the Committee. The Committee
may, but shall not be required to, establish conditions under which restrictions
on Stock Awards shall lapse over a period of time or according to such other
criteria as the Committee deems appropriate, including, without limitation,
restrictions based upon the achievement of specific performance goals. The
period of time during which the Stock Awards will remain subject to restrictions
will be designated in the Grant Instrument as the “Restriction
Period.”
(b) Number
of Shares.
The
Committee shall determine the number of shares of Company Stock to be issued
or
transferred pursuant to a Stock Award and the restrictions applicable to such
shares.
8
(c) Requirement
of Employment or Service.
If the
Grantee ceases to be employed by, or provide service to, the Employer during
a
period designated in the Grant Instrument as the Restriction Period, or if
other
specified conditions are not met, the Stock Award shall terminate as to all
shares covered by the Grant as to which the restrictions have not lapsed, and
those shares of Company Stock must be immediately returned to the Company.
The
Committee may, however, provide for complete or partial exceptions to this
requirement as it deems appropriate.
(d) Restrictions
on Transfer and Legend on Stock Certificate.
During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of a Stock Award except to a successor under
Section 15(a). Each certificate for a share of a Stock Award shall contain
a
legend giving appropriate notice of the restrictions in the Grant. The Grantee
shall be entitled to have the legend removed from the stock certificate covering
the shares subject to restrictions when all restrictions on such shares have
lapsed. The Committee may determine that the Company will not issue certificates
for Stock Awards until all restrictions on such shares have lapsed, or that
the
Company will retain possession of certificates for shares of Stock Awards until
all restrictions on such shares have lapsed.
(e) Right
to Vote and to Receive Dividends.
Unless
the Committee determines otherwise, during the Restriction Period, the Grantee
shall have the right to vote shares of Stock Awards and to receive any dividends
or other distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee, including, without limitation, the achievement
of
specific performance goals.
(f) Lapse
of Restrictions.
All
restrictions imposed on Stock Awards shall lapse upon the expiration of the
applicable Restriction Period and the satisfaction of all conditions imposed
by
the Committee. The Committee may determine, as to any or all Stock Awards,
that
the restrictions shall lapse without regard to any Restriction
Period.
| Section 8. |
Stock
Units
|
The
Committee may grant Stock Units, each of which shall represent one hypothetical
share of Company Stock, to an Employee, Non-Employee Director or Key Advisor,
upon such terms and conditions as the Committee deems appropriate. The following
provisions are applicable to Stock Units:
(a) Crediting
of Units.
Each
Stock Unit shall represent the right of the Grantee to receive an amount based
on the value of a share of Company Stock, if specified conditions are met.
All
Stock Units shall be credited to bookkeeping accounts established on the
Company’s records for purposes of the Plan.
(b) Terms
of Stock Units.
The
Committee may grant Stock Units that are payable if specified performance goals
or other conditions are met, or under other circumstances. Stock Units may
be
paid at the end of a specified performance period or other period, or payment
may be deferred to a date authorized by the Committee. The Committee shall
determine the number of Stock Units to be granted and the requirements
applicable to such Stock Units.
9
(c) Requirement
of Employment or Service.
If the
Grantee ceases to be employed by, or provide service to, the Employer during
a
specified period, or if other conditions established by the Committee are not
met, the Grantee’s Stock Units shall be forfeited, unless the Grantee’s
employment agreement, if any, with the Employer provides otherwise. The
Committee may, however, provide for complete or partial exceptions to this
requirement as it deems appropriate.
(d) Payment
With Respect to Stock Units.
Payments with respect to Stock Units shall be made in cash, in Company Stock,
or
in a combination of the two, as determined by the Committee.
| Section 9. |
Stock
Appreciation Rights
|
The
Committee may grant stock SARs to an Employee, Non-Employee Director or Key
Advisor separately or in tandem with any Option. The following provisions are
applicable to SARs:
(a) General
Requirements.
The
Committee may grant SARs to an Employee, Non-Employee Director or Key Advisor
separately or in tandem with any Option (for all or a portion of the applicable
Option). Tandem SARs may be granted either at the time the Option is granted
or
at any time thereafter while the Option remains outstanding; provided, however,
that, in the case of an Incentive Stock Option, SARs may be granted only at
the
time of the Grant of the Incentive Stock Option. The Committee shall establish
the base amount of the SAR at the time the SAR is granted. The base amount
of
each SAR shall be equal to the per share Exercise Price of the related Option
or, if there is no related Option, an amount equal to or greater than the Fair
Market Value of a share of Company Stock as of the date of Grant of the
SAR.
(b) Tandem
SARs.
In the
case of tandem SARs, the number of SARs granted to a Grantee that shall be
exercisable during a specified period shall not exceed the number of shares
of
Company Stock that the Grantee may purchase upon the exercise of the related
Option during such period. Upon the exercise of an Option, the SARs relating
to
the Company Stock covered by such Option shall terminate. Upon the exercise
of
SARs, the related Option shall terminate to the extent of an equal number of
shares of Company Stock.
(c) Exercisability.
An SAR
shall be exercisable during the period specified by the Committee in the Grant
Instrument and shall be subject to such vesting and other restrictions as may
be
specified in the Grant Instrument. The Committee may accelerate the
exercisability of any or all outstanding SARs at any time for any reason. SARs
may only be exercised while the Grantee is employed by, or providing service
to,
the Employer or during the applicable period after termination of employment
or
service as described in Section 6(f). A tandem SAR shall be exercisable only
during the period when the Option to which it is related is also
exercisable.
(d) Grants
to Non-Exempt Employees.
Notwithstanding the foregoing, SARs granted to persons who are non-exempt
employees under the Fair Labor Standards Act of 1938, as amended, may not be
exercisable for at least six months after the date of grant (except that such
SARs may become exercisable, as determined by the Committee, upon the Grantee’s
death, Disability or retirement, or upon a Change of Control or other
circumstances permitted by applicable regulations).
(e) Value
of SARs.
When a
Grantee exercises SARs, the Grantee shall receive in settlement of such SARs
an
amount equal to the value of the stock appreciation for the number of SARs
exercised, payable in cash, Company Stock or a combination thereof. The stock
appreciation for an SAR is the amount by which the Fair Market Value of the
underlying Company Stock on the date of exercise of the SAR exceeds the base
amount of the SAR as described in subsection (a).
(f) Form
of Payment.
The
Committee shall determine whether the appreciation in an SAR shall be paid
in
the form of cash, shares of Company Stock, or a combination of the two, in
such
proportion as the Committee deems appropriate. For purposes of calculating
the
number of shares of Company Stock to be received, shares of Company Stock shall
be valued at their Fair Market Value on the date of exercise of the SAR. If
shares of Company Stock are to be received upon exercise of an SAR, cash shall
be delivered in lieu of any fractional share.
10
| Section 10. |
Other
Stock-Based Awards
|
The
Committee may grant Other Stock-Based Awards, which are awards (other than
those
described in Sections 6, 7, 8, 9 and 11 of the Plan) that are based on, measured
by or payable in Company Stock to any Employee, Non-Employee Director or Key
Advisor, on such terms and conditions as the Committee shall determine. Other
Stock-Based Awards may be awarded subject to the achievement of performance
goals or other conditions and may be payable in cash, Company Stock or any
combination of the foregoing, as the Committee shall determine.
| Section 11. |
Dividend
Equivalents
|
The
Committee may grant Dividend Equivalents in connection with Grants under the
Plan. Dividend Equivalents may be paid currently or accrued as contingent cash
obligations and may be payable in cash or shares of Company Stock, and upon
such
terms as the Committee may establish, including, without limitation, the
achievement of specific performance goals.
| Section 12. |
Qualified
Performance-Based Compensation
|
The
Committee may determine that Stock Awards, Stock Units, Dividend Equivalents
and
Other Stock-Based Awards granted to an Employee shall be considered “qualified
performance-based compensation” under section 162(m) of the Code, in which case
the provisions of this Section 12 shall apply to such Grants. The Committee
may
also grant Options and SARs under which the exercisability of the Options is
subject to achievement of performance goals as described in this Section 12
or
otherwise. The following provisions shall apply to Grants of Stock Awards,
Stock
Units, Dividend Equivalents and Other Stock-Based Awards that are to be
considered “qualified performance-based compensation” under section 162(m) of
the Code:
(a) Performance
Goals.
When
Stock Awards, Stock Units, Dividend Equivalents and Other Stock-Based Awards
that are to be considered “qualified performance-based compensation” are
granted, the Committee shall establish in writing (A) the objective performance
goals that must be met, (B) the performance period during which performance
will
be measured, (C) the maximum amounts that may be paid if the performance goals
are met, and (D) any other conditions that the Committee deems appropriate
and
consistent with the Plan and section 162(m) of the Code. The Committee shall
establish the performance goals in writing either before the beginning of the
performance period or during a period ending no later than the earlier of (i)
90
days after the beginning of the performance period or (ii) the date on which
25%
of the performance period has been completed, or such other date as may be
required or permitted under applicable regulations under section 162(m) of
the
Code. The performance goals shall satisfy the requirements for “qualified
performance-based compensation,” including the requirement that the achievement
of the goals be substantially uncertain at the time they are established and
that the goals be established in such a way that a third party with knowledge
of
the relevant facts could determine whether and to what extent the performance
goals have been met. The Committee shall not have discretion to increase the
amount of compensation that is payable upon achievement of the designated
performance goals.
(b) Criteria
Used for Performance Goals.
The
Committee shall use objectively determinable performance goals based on one
or
more of the following criteria: stock price, earnings per share, price-earnings
multiples, net earnings, operating earnings, revenue, number of days sales
outstanding in accounts receivable, productivity, margin, EBITDA (earnings
before interest, taxes, depreciation and amortization), net capital employed,
return on assets, stockholder return, return on equity, return on capital
employed, growth in assets, unit volume, sales, cash flow, market share,
relative performance to a comparison group designated by the Committee, or
strategic business criteria consisting of one or more objectives based on
meeting specified revenue goals, market penetration goals, customer growth,
geographic business expansion goals, cost targets, goals relating to
acquisitions or divestitures or goals relating to FDA or other regulatory
approvals. The performance goals may relate to one or more business units or
the
performance of the Company as a whole, or any combination of the foregoing.
Performance goals need not be uniform as among Grantees.
11
(c) Certification
of Results.
The
Committee shall certify the performance results for each performance period
after the announcement of the Company’s financial results for the performance
period. The Committee shall determine the amount, if any, to be paid pursuant
to
each Grant based on the achievement of the performance goals and the
satisfaction of all other terms of the Grant Instrument. If and to the extent
that the Committee does not certify that the performance goals have been met,
the grants of Stock Awards, Stock Units and Other Stock-Based Awards for the
performance period shall be forfeited or shall not be made, as
applicable.
(d) Death,
Disability or Other Circumstances.
The
Committee may provide in the Grant Instrument that Grants under this Section
12
shall be payable or restrictions on such Grants shall lapse, in whole or in
part, in the event of the Grantee’s death or Disability, a Change of Control, or
under other circumstances consistent with the Treasury regulations and rulings
under section 162(m) of the Code.
| Section 13. |
Deferrals
|
The
Committee may permit or require a Grantee to defer receipt of the payment of
cash or the delivery of shares that would otherwise be due to such Grantee
in
connection with any Grant. The Committee shall establish rules and procedures
for any such deferrals, consistent with applicable requirements of section
409A
of the Code.
| Section 14. |
Withholding
of Taxes
|
(a) Required
Withholding.
All
Grants under the Plan shall be subject to applicable federal (including FICA),
state and local tax withholding requirements. The Employer may require that
the
Grantee or other person receiving or exercising Grants pay to the Employer
the
amount of any federal, state or local taxes that the Employer is required to
withhold with respect to such Grants, or the Employer may deduct from other
wages paid by the Employer the amount of any withholding taxes due with respect
to such Grants.
(b) Election
to Withhold Shares.
If the
Committee so permits, a Grantee may elect to satisfy the Employer’s tax
withholding obligation with respect to Grants paid in Company Stock by having
shares withheld, at the time such Grants become taxable, up to an amount that
does not exceed the Grantee’s minimum applicable withholding tax rate for
federal (including FICA), state and local tax liabilities. The election must
be
in a form and manner prescribed by the Committee and may be subject to the
prior
approval of the Committee.
| Section 15. |
Transferability
of Grants
|
(a) Restrictions
on Transfers.
Except
as described in subsection (b) below, only the Grantee may exercise rights
under
a Grant during the Grantee’s lifetime. A Grantee may not transfer those rights
except (i) by will or by the laws of descent and distribution or (ii) with
respect to Grants other than Incentive Stock Options, if permitted in any
specific case by the Committee, pursuant to a domestic relations order or
otherwise as permitted by the Committee. When a Grantee dies, the personal
representative or other person entitled to succeed to the rights of the Grantee
may exercise such rights. Any such successor must furnish proof satisfactory
to
the Company of his or her right to receive the Grant under the Grantee’s will or
under the applicable laws of descent and distribution.
(b) Transfer
of Nonqualified Stock Options.
Notwithstanding the foregoing, the Committee may provide, in a Grant Instrument,
that a Grantee may transfer Nonqualified Stock Options to family members, or
one
or more trusts or other entities for the benefit of or owned by family members,
consistent with the applicable securities laws, according to such terms as
the
Committee may determine; provided that the Grantee receives no consideration
for
the transfer of an Option and the transferred Option shall continue to be
subject to the same terms and conditions as were applicable to the Option
immediately before the transfer.
12
| Section 16. |
Consequences
of a Change of Control
|
In
the
event of a Change of Control, the Committee may take any of the following
actions with respect to any or all outstanding Grants: the Committee may (i)
require that Grantees surrender their outstanding Options and SARs in exchange
for one or more payments by the Company, in cash or Company Stock as determined
by the Committee, in an amount equal to the amount by which the then Fair Market
Value of the shares of Company Stock subject to the Grantee’s unexercised
Options and SARs exceeds the Exercise Price of the Options or the base amount
of
the SARs, as applicable, (ii) after giving Grantees an opportunity to exercise
their outstanding Options and SARs, terminate any or all unexercised Options
and
SARs at such time as the Committee deems appropriate, or (iii) determine that
all outstanding Options and SARs that are not exercised shall be assumed by,
or
replaced with comparable options or rights by, the surviving corporation (or
a
parent or subsidiary of the surviving corporation), and other outstanding Grants
that remain in effect after the Change of Control shall be converted to similar
grants of the surviving corporation (or a parent or subsidiary of the surviving
corporation). Such surrender termination shall take place as of the date of
the
Change of Control or such other date as the Committee may specify.
| Section 17. |
Requirements
for Issuance or Transfer of
Shares
|
(a) Limitations
on Issuance or Transfer of Shares.
No
Company Stock shall be issued or transferred in connection with any Grant
hereunder unless and until all legal requirements applicable to the issuance
or
transfer of such Company Stock have been complied with to the satisfaction
of
the Committee. The Committee shall have the right to condition any Grant made
to
any Grantee hereunder on such Grantee’s undertaking in writing to comply with
such restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions
as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon. No Participant shall have
any
right as a stockholder with respect to Company Stock covered by a Grant until
shares have been issued to the Participant.
(b) Lock-Up
Period.
In
addition to any other lock-up agreement entered into by a Grantee, if so
requested by the Company or any representative of the underwriters (the
“Managing Underwriter”) in connection with any underwritten offering of
securities of the Company under the Securities Act of 1933, as amended (the
“Securities Act”), a Grantee (including any successors or assigns) shall not
sell or otherwise transfer any shares or other securities of the Company during
the 30-day period preceding and the 180-day period following the effective
date
of a registration statement of the Company filed under the Securities Act for
such underwriting (or such shorter period as may be requested by the Managing
Underwriter and agreed to by the Company) (the “Market Standoff Period”). The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff
Period.
| Section 18. |
Amendment
and Termination of the Plan
|
(a) Amendment.
The
Board may amend or terminate the Plan at any time; provided, however, that
the
Board shall not amend the Plan without stockholder approval if such approval
is
required in order to comply with the Code or applicable laws, or to comply
with
applicable stock exchange requirements.
13
(b) Stockholder
Approval for “Qualified Performance-Based Compensation.”
If
Stock Awards, Stock Units, Dividend Equivalents and Other Stock-Based Awards
are
granted as “qualified performance-based compensation” under Section 12 above,
the Plan must be reapproved by the stockholders no later than the first
stockholders meeting that occurs in the fifth year following the year in which
the stockholders previously approved the provisions of Section 12, if additional
Grants are to be made under Section 12 and if required by section 162(m) of
the
Code or the regulations thereunder.
(c) Termination
of Plan.
The
Plan shall terminate on the day immediately preceding the tenth anniversary
of
its effective date, unless the Plan is terminated earlier by the Board or is
extended by the Board with the approval of the stockholders.
(d) Termination
and Amendment of Outstanding Grants.
A
termination or amendment of the Plan that occurs after a Grant is made shall
not
materially impair the rights of a Grantee unless the Grantee consents or unless
the Committee acts under Section 19(f). The termination of the Plan shall not
impair the power and authority of the Committee with respect to an outstanding
Grant. Whether or not the Plan has terminated, an outstanding Grant may be
terminated or amended under Section 19(f) or may be amended by agreement of
the
Company and the Grantee consistent with the Plan.
(e) Effective
Date of the Plan.
The
Plan shall be effective as of January
30, 2007.
| Section 19. |
Miscellaneous
|
(a) Grants
in Connection with Corporate Transactions and Otherwise.
Nothing
contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants under this Plan in connection with the acquisition,
by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees, or for other proper corporate purposes, or (ii) limit
the
right of the Company to grant stock options or make other awards outside of
this
Plan. The Committee may make a Grant to an employee of another corporation
who
becomes an Employee by reason of a corporate merger, consolidation, acquisition
of stock or property, reorganization or liquidation involving the Company in
substitution for a stock option or stock awards grant made by such corporation.
Notwithstanding anything in the Plan to the contrary, the Committee may
establish such terms and conditions of the substitute grants as it deems
appropriate, including setting the Exercise Price of Options at a price
necessary to retain for the Grantee the same economic value as the substituted
Option.
(b) Governing
Document.
The
Plan shall be the controlling document. No other statements, representations,
explanatory materials or examples, oral or written, may amend the Plan in any
manner. The Plan shall be binding upon and enforceable against the Company
and
its successors and assigns.
14
(c) Funding
of the Plan; Limitation on Rights.
This
Plan shall be unfunded. The Company shall not be required to establish any
special or separate fund or to make any other segregation of assets to assure
the payment of any Grants under this Plan. Nothing contained in the Plan and
no
action taken pursuant hereto shall create or be construed to create a fiduciary
relationship between the Company and any Grantee or any other person. No Grantee
or any other person shall under any circumstances acquire any property interest
in any specific assets of the Company. To the extent that any person acquires
a
right to receive payment from the Company hereunder, such right shall be no
greater than the right of any unsecured general creditor of the
Company.
(d) Rights
of Participants.
Nothing
in this Plan shall entitle any Employee, Key Advisor, Non-Employee Director
or
other person to any claim or right to be granted a Grant under this Plan.
Neither this Plan nor any action taken hereunder shall be construed as giving
any individual any rights to be retained by or in the employ of the Employer
or
any other employment rights.
(e) No
Fractional Shares.
No
fractional shares of Company Stock shall be issued or delivered pursuant to
the
Plan or any Grant. The Committee shall determine whether cash, other awards
or
other property shall be issued or paid in lieu of such fractional shares or
whether such fractional shares or any rights thereto shall be forfeited or
otherwise eliminated.
(f) Compliance
with Law.
The
Plan, the exercise of Options and SARs and the obligations of the Company to
issue or transfer shares of Company Stock under Grants shall be subject to
all
applicable laws and to approvals by any governmental or regulatory agency as
may
be required. With respect to persons subject to section 16 of the Exchange
Act,
it is the intent of the Company that the Plan and all transactions under the
Plan comply with all applicable provisions of Rule 16b-3 or its successors
under
the Exchange Act. In addition, it is the intent of the Company that Incentive
Stock Options comply with the applicable provisions of section 422 of the Code,
that Grants of “qualified performance-based compensation” comply with the
applicable provisions of section 162(m) of the Code and that, to the extent
applicable, Grants comply with the requirements of section 409A of the Code.
To
the extent that any legal requirement of section 16 of the Exchange Act or
sections 422, 162(m) or 409A of the Code as set forth in the Plan ceases to
be
required under section 16 of the Exchange Act or sections 422, 162(m) or 409A
of
the Code, that Plan provision shall cease to apply. The Committee may revoke
any
Grant if it is contrary to law or modify a Grant to bring it into compliance
with any valid and mandatory government regulation. The Committee may also
adopt
rules regarding the withholding of taxes on payments to Participants. The
Committee may, in its sole discretion, agree to limit its authority under this
Section.
15
(g) Employees
Subject to Taxation Outside the United States.
With
respect to Grantees who are subject to taxation in countries other than the
United States, the Committee may make Grants on such terms and conditions as
the
Committee deems appropriate to comply with the laws of the applicable countries,
and the Committee may create such procedures, addenda and subplans and make
such
modifications as may be necessary or advisable to comply with such
laws.
(h) Governing
Law.
The
validity, construction, interpretation and effect of the Plan and Grant
Instruments issued under the Plan shall be governed and construed by and
determined in accordance with the laws of the State of Delaware, without giving
effect to the conflict of laws provisions thereof.
Approved
by the Board of Directors and the stockholders on January
30, 2007.
16
Exhibit
99.2
BTHC
XI, INC.
2007
OMNIBUS EQUITY COMPENSATION PLAN
NONQUALIFIED
STOCK OPTION GRANT
This
STOCK OPTION GRANT (this “Agreement”), dated as of ______, 200_ (the “Date of
Grant”), is delivered by BTHC XI, Inc. (the “Company”) to______________ (the
“Grantee”).
RECITALS
A. The
BTHC
XI, Inc. 2007 Omnibus Equity Compensation Plan (the “Plan”) provides for the
grant of options to purchase shares of common stock of the Company. The Board
of
Directors of the Company (the “Board”) has decided to make a stock option grant
as an inducement for the Grantee to promote the best interests of the Company
and its stockholders. Grantee has also entered into an employment agreement
with
the Company dated on or about the date hereof (the “Employment Agreement”) and,
to the extent applicable, the terms of such Employment Agreement shall be
incorporated herein by reference.
B. The
Board
is authorized to appoint a committee to administer the Plan. If a committee
is
appointed, all references in this Agreement to the “Board” shall be deemed to
refer to the committee.
NOW,
THEREFORE, the parties to this Agreement, intending to be legally bound hereby,
agree as follows:
1. Grant
of Option.
Subject
to the terms and conditions set forth in this Agreement, the Employment
Agreement and in the Plan, the Company hereby grants to the Grantee a
nonqualified stock option (the “Option”) to purchase ______ shares of common
stock of the Company (“Shares”) at an exercise price of $_____ per Share. The
Option shall become exercisable according to Section 2
below.
2. Exercisability
of Option.
The
Option shall become exercisable on the following dates, if the Grantee is
employed by, or providing service to, the Employer (as defined in the Plan)
on
the applicable date or as otherwise provided in the Employment
Agreement:
|
Date
|
Shares
for Which the Option is Exercisable
|
||
1
3. Term
of Option.
(a) Except
as
otherwise provided herein, the Option shall have a term of ten years from the
Date of Grant and shall terminate at the expiration of that period, unless
it is
otherwise terminated pursuant to the provisions of this Agreement or the
Plan.
(b) The
following terms shall apply to the Option upon the termination of Grantee’s
employment with or service to Employer:
(i) If
Grantee is terminated by Employer for Cause (as defined in the Employment
Agreement), the Option shall terminate with respect to non-exercisable Shares
and the Option with respect to exercisable Shares may be exercised for the
shorter of (i) 90 days from the date of termination and (ii) the exercise term
in Section 3(a).
(ii) If
Grantee ceases to be employed by, or provide service to, the Employer on account
of Disability (as defined in the Employment Agreement) or death, on the date
of
termination all Shares that would have otherwise become exercisable within
the
12 months following the date of termination shall accelerate and immediately
vest and become exercisable in full. The Option may be exercised for the longer
of (i) 12 months from the date of any such termination and (ii) the exercise
term in Section 3(a).
(iii) If
Grantee is terminated by Employer without Cause or ceases to be employed by,
or
provide service to, the Employer for Good Reason (as defined in the Employment
Agreement), on the date of termination, all unvested Shares shall accelerate
and
immediately vest and become exercisable in full. The Option may be exercised
for
the longer of (i) 12 months from the date of any such termination and (ii)
the
exercise term in Section 3(a).
(iv) If
Grantee ceases to be employed by, or provide service to, the Employer on account
of his voluntary resignation, the Option shall terminate with respect to
non-exercisable Shares and (A) if such termination occurs during the first
year
of the employment term, any vested Shares would be exercisable for 90 days
from
the date of termination, and (B) if the termination occurs thereafter, any
such
vested Shares would continue to be exercisable for the full exercise term in
Section 3(a).
4. Exercise
Procedures.
(a) Subject
to the provisions of Sections 2
and
3
above,
the
Grantee may exercise part or all of the exercisable Option by giving the Company
written notice of intent to exercise in the manner provided in this Agreement,
specifying the number of Shares as to which the Option is to be exercised and
the method of payment. Payment of the exercise price shall be made in accordance
with procedures established by the Board from time to time based on type of
payment being made but, in any event, prior to issuance of the Shares. The
Grantee shall pay the exercise price (i) in cash, (ii) with the approval of
the
Board, by delivering Shares of the Company, which shall be valued at their
fair
market value on the date of delivery, or by attestation (on a form prescribed
by
the Board) to ownership of Shares having a fair market value on the date of
exercise equal to the exercise price, (iii) after a public offering of the
Company’s stock, by payment through a broker in accordance with procedures
permitted by Regulation T of the Federal Reserve Board or (iv) by such other
method as the Board may approve. The Board may impose from time to time such
limitations as it deems appropriate on the use of Shares of the Company to
exercise the Option.
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(b) The
obligation of the Company to deliver Shares upon exercise of the Option shall
be
subject to all applicable laws, rules, and regulations and such approvals by
governmental agencies as may be deemed appropriate by the Board, including
such
actions as Company counsel shall deem necessary or appropriate to comply with
relevant securities laws and regulations. The Company may require that the
Grantee (or other person exercising the Option after the Grantee’s death)
represent that the Grantee is purchasing Shares for the Grantee’s own account
and not with a view to or for sale in connection with any distribution of the
Shares, or such other representation as the Board deems appropriate.
(c) All
obligations of the Company under this Agreement shall be subject to the rights
of the Company as set forth in the Plan to withhold amounts required to be
withheld for any taxes, if applicable. Subject to Board approval, the Grantee
may elect to satisfy any tax withholding obligation of the Employer with respect
to the Option by having Shares withheld up to an amount that does not exceed
the
minimum applicable withholding tax rate for federal (including FICA), state
and
local tax liabilities.
5. Change
of Control.
Upon a
Change of Control, all unvested shares granted under this Option shall
accelerate and immediately vest and become exercisable in full on the date
of
the Change of Control. The provisions of Section 16(i) and (ii) of the Plan
shall not apply to this Option.
6. Restrictions
on Exercise.
(a) Except
as
the Board may otherwise permit pursuant to the Plan or as described in Section
6(b),
only
the Grantee may exercise the Option during the Grantee’s lifetime and, after the
Grantee’s death, the Option shall be exercisable (subject to the limitations
specified in the Plan) solely by the legal representatives of the Grantee,
or by
the person who acquires the right to exercise the Option by will or by the
laws
of descent and distribution, to the extent that the Option is exercisable
pursuant to this Agreement.
(b) Grantee
may transfer the Option to family members, or one or more trusts or other
entities for the benefit of or owned by family members, consistent with the
applicable securities laws; provided that (i) any such transfer shall be by
gift
with no consideration; (ii) no subsequent transfer of such Option shall be
permitted other than by will or the laws of descent and distribution; (iii)
the
Option shall not otherwise be transferable except by will or the laws of descent
and distribution; and (iv) the transferred Option shall continue to be subject
to the same terms and conditions as were applicable to the Option immediately
before the transfer.
7. Grant
Subject to Plan Provisions.
This
grant is made pursuant to the Plan, the terms of which are incorporated herein
by reference, and in all respects shall be interpreted in accordance with the
Plan. The grant and exercise of the Option are subject to interpretations,
regulations and determinations concerning the Plan established from time to
time
by the Board in accordance with the provisions of the Plan, including, but
not
limited to, provisions pertaining to (a) rights and obligations with respect
to
withholding taxes, (b) the registration, qualification or listing of the Shares,
(c) changes in capitalization of the Company and (d) other requirements of
applicable law. The Board shall have the authority to interpret and construe
the
Option pursuant to the terms of the Plan, and its decisions shall be conclusive
as to any questions arising hereunder.
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8. No
Employment or Other Rights.
The
grant of the Option shall not confer upon the Grantee any right to be retained
by or in the employ or service of the Employer and shall not interfere in any
way with the right of the Employer to terminate the Grantee’s employment or
service at any time. The right of the Employer to terminate at will the
Grantee’s employment or service at any time for any reason is specifically
reserved.
9. No
Stockholder Rights.
Neither
the Grantee, nor any person entitled to exercise the Grantee’s rights in the
event of the Grantee’s death, shall have any of the rights and privileges of a
stockholder with respect to the Shares subject to the Option, until certificates
for Shares have been issued upon the exercise of the Option.
10. Assignment
and Transfers.
Except
as otherwise provided herein or as the Board may otherwise permit pursuant
to
the Plan or this Agreement, the rights and interests of the Grantee under this
Agreement may not be sold, assigned, encumbered or otherwise transferred except,
in the event of the death of the Grantee, by will or by the laws of descent
and
distribution. In the event of any attempt by the Grantee to alienate, assign,
pledge, hypothecate, or otherwise dispose of the Option or any right hereunder,
except as provided for in this Agreement, or in the event of the levy or any
attachment, execution or similar process upon the rights or interests hereby
conferred, the Company may terminate the Option by notice to the Grantee, and
the Option and all rights hereunder shall thereupon become null and void. The
rights and protections of the Company hereunder shall extend to any successors
or assigns of the Company and to the Company’s parents, subsidiaries, and
affiliates.
11. Applicable
Law.
The
validity, construction, interpretation and effect of this instrument shall
be
governed by and construed in accordance with the laws of the State of Delaware,
without giving effect to the conflicts of laws provisions thereof.
12. Notice.
Any
notice to the Company provided for in this instrument shall be addressed to
the
Company at its principal office and any notice to the Grantee shall be addressed
to such Grantee at the current address shown on the payroll of the Employer,
or
to such other address as the Grantee may designate to the Employer in writing.
Any notice shall be delivered by hand, sent by telecopy or enclosed in a
properly sealed envelope addressed as stated above, registered and deposited,
postage prepaid, in a post office regularly maintained by the United States
Postal Service.
[Signature
Page Follows]
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IN
WITNESS WHEREOF, the Company has caused its duly authorized officers to execute
and attest this Agreement, and the Grantee has executed this Agreement,
effective as of the Date of Grant.
|
BTHC
XI, INC.
|
||
| |
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| By: | /s/ | |
|
Name: |
||
| Title | ||
I
hereby
accept the Option described in this Agreement, and I agree to be bound by the
terms of the Plan and this Agreement. I hereby further agree that all the
decisions and determinations of the Board shall be final and
binding.
| Grantee: | ||
| |
|
|
| Date: | By: | /s/ |
|
|
||
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