EXHIBIT 10.1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF CONNECTICUT
BRIDGEPORT DIVISION
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: In re: : Chapter 7
:
GEM TECHNOLOGIES, INC. : Case No. 93-50754
:
Debtor :
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SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is entered into as of MAY 30, 2001, by and among the following parties (collectively, the "Parties"):
(a) Robert F. Gruder ("Gruder");
(b) Information Architects Corporation, a
North Carolina corporation formerly named Alydaar Software Corporation, which is the survivor of a merger between Daar, Inc., a North Carolina corporation, and Alydaar Software Corporation, a Utah corporation formerly named both Gem Technologies, Inc. and Enertronix, Inc. ("IARC");
(c) Thomas J. Dudchik ("Dudchik");
(d) Richard Belford, as Trustee of the Estate of Gem Technologies, Inc. a Connecticut corporation (the "Debtor") in a case (the "Bankruptcy Case") filed under Chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Connecticut in Bridgeport captioned In re Gem Technologies, Inc., No. 93-50754 (the "Trustee");
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(e) Mark B. Fisher ("Fisher");
(f) Steven R. Goldberg ("Goldberg"); and
(g) Andrew Kaplan, Kenneth Carter, John R. Conhenney, Brian Donahue, Randi Fisher, Jonathan Fleisig, Thomas Hansen, Melvin A. Brosterman, Bernard A. Hoffman, Joseph F. Joyce, Jack Kamin, Dennis Maloney, Edmond Mekertichian, Russell Paparo, Neil Rosenfeld, Robert Shearman, Keith Simons, Joann P. Visconto, Donald Vogel and Joel Weisman (collectively, the "Fisher Group").
WHEREAS, Gruder was chairman, president and majority shareholder of the Debtor upon its incorporation in 1989; and
WHEREAS, in October 1989 the Fisher Group and Goldberg loaned the Debtor $175,000 pursuant to a Note Purchase Agreement and
Promissory Notes(collectively, the "Loan Documents") providing for the conversion of the Promissory Notes into equity interests in the Debtor under conditions and circumstances as set forth in detail in the Loan Documents; and
WHEREAS, in October 1989 Robert Gruder, Trustee became record owner of a majority of the shares of Enertronix, Inc., a predecessor of IARC; and
WHEREAS, the Debtor was dissolved by the Connecticut Secretary of State in July 1992; and
WHEREAS, the Bankruptcy Case was commenced by the filing of a petition for relief on March 8, 1993; and
WHEREAS, an order was entered closing the Bankruptcy Case and discharging the Trustee on November 3, 1993; and
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WHEREAS, the Fisher Group commenced litigation against Gruder, Dudchik, the Debtor and IARC in the Connecticut Superior Court for the Judicial District of Fairfield at Bridgeport by writ returnable on July 23, 1996, in a case captioned Kaplan v. Gruder, No. CV-96-0334308S (the "State Court Case"); and
WHEREAS, as of the date of commencement of the State Court Case Gruder was the record owner of certain shares of IARC, record ownership of which had previously been in the name of "Robert F. Gruder, Trustee"; and
WHEREAS, in the State Court Case the Fisher Group alleged, among other things, that they had a right to receive an equity interest in IARC upon the exercise of the conversion rights granted to them in the Loan Documents, and that their attempt to exercise such rights had been wrongly rejected; and
WHEREAS, the defendants in the State Court Case denied all liability; and
WHEREAS, the Court in the State Court Case rendered decisions by memoranda dated May 19, 1999 and May 25, 2000, in which certain relief sought by the Fisher Group was granted, other relief was denied, and the right to other relief was held to belong solely to the Trustee; and
WHEREAS, judgment in the State Court Case was entered for the Fisher Group in the amount of $175,000, plus interest in the amount of $185,979.45 as of May 25, 2000, plus attorneys' fees and expenses in the amount of $403,241.72; and
WHEREAS, Gruder caused the sum of $765,421.17 to be deposited in escrow by his attorneys, Zeldes, Needle & Cooper, A Professional Corporation ("ZNC") on June 14, 2000, which sum, with interest thereon (aggregating
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$796,239.32 as of April 30, 2001) ZNC continues to hold in escrow (the "June 2000 Escrow Account"); and
WHEREAS, the Fisher Group filed an appeal to the Appellate Court from the judgment of the Superior Court in the State Court case, which appeal bears docket no. AC 20901 (the "State Court Appeal"); and
WHEREAS, Gruder filed a cross appeal in the State Court Appeal; and
WHEREAS, the State Court Appeal is awaiting assignment for oral
argument; and
WHEREAS, on or about December 20, 1999 the Trustee moved to reopen the Bankruptcy Case, which motion was granted on February 14, 2000; and
WHEREAS, Fisher claims that, subsequent to the reopening of the Bankruptcy Case, he purchased 1,411 shares of the Debtor's Common Stock (the "Acquired Shares") from the individuals listed on EXHIBIT A hereto; and
WHEREAS, Fisher, Goldberg and the Fisher Group have filed documents titled "Proof of Claim" in the Bankruptcy Case to which Gruder filed objections; and
WHEREAS, by complaint dated June 26, 2000 the Trustee initiated an adversary proceeding against Gruder, captioned Belford v. Gruder, Adv. Pro. No. 00-5049 (the "Adversary Proceeding"), purporting to seek the turnover of all of Gruder's shares in IARC and all proceeds from any sales of IARC shares by Gruder; and
WHEREAS, the Trustee, Fisher, Goldberg and the Fisher Group claim that certain shares of IARC, record ownership of which was previously in the name of
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Robert Gruder, Trustee, should have been listed as an asset of the Debtor in 1993 and that such shares, of which record ownership is now in Gruder's name, as well as the proceeds realized from sales of such shares, should now be turned over to the Trustee by Gruder; and
WHEREAS, as a purported shareholder of the Debtor, Fisher further claims an interest in certain IARC shares of which Gruder has been the record owner, as well as in the proceeds of sales thereof; and
WHEREAS, Goldberg and the Fisher Group claim that, as a result of the Loan Documents, they are entitled to an ownership interest in certain IARC shares of which Gruder has been the record owner, as well as the proceeds of sales thereof; and
WHEREAS, Gruder denies that the shares of IARC of which he is or was record owner are or were property of the Debtor, denies that the Trustee, the Debtor, Fisher, Goldberg, or the Fisher Group has ever had any property interest in such shares or the proceeds thereof at any time, and denies all liability in the Adversary Proceeding; and
WHEREAS, the trial in the Adversary Proceeding has commenced but has not been concluded; and
WHEREAS, on February 7, 2001, the Bankruptcy Court entered an order from the bench prohibiting Gruder from alienating, transferring or encumbering any shares in IARC of which he is the record owner (the "Injunction"); and
WHEREAS, Gruder filed a motion in the adversary proceeding seeking to disqualify the Trustee's counsel (the "Disqualification Motion"), which motion the
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Bankruptcy Court denied from the bench on March 1, 2001, with a written memorandum to follow; and
WHEREAS, on March 9, 2001 Gruder filed an appeal to the United States District Court from the oral decision of the Bankruptcy Court denying the Disqualification Motion (the "Bankruptcy Appeal"); and
WHEREAS, pursuant to the Stipulated Motion for Entry of Order Staying Appeal, a copy of which is annexed hereto as EXHIBIT B, Gruder and the Trustee have stipulated to a stay of all proceedings on the Bankruptcy Appeal pending implementation of the settlement provided for in this Settlement Agreement; and
WHEREAS, Gruder caused the sum of $400,000 to be deposited in escrow by ZNC on April 23, 2001, which sum, with interest thereon, ZNC continues to hold in escrow (the "April 2001 Escrow Account"); and
WHEREAS, in order to avoid the expense, delay and uncertainty of future litigation, and without admitting that any claims, defenses, objections, positions, arguments or appeals of any Party are or may be meritorious, the Parties wish to resolve their differences, and IARC in particular has determined that it is in its best interest to resolve all pending litigation matters pertaining to it to avoid future expense (including attorneys' fees), the risks of prolonged litigation and the disruption of its business activities;
NOW, THEREFORE, in consideration of the foregoing recitals, all of which are incorporated as substantive provisions of this Settlement Agreement, their respective rights and obligations hereunder, the mutual promises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of
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which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree with each other as follows:
1. Contemporaneously with the execution hereof, Gruder, the Trustee, Fisher and ZNC, as Escrow Agent, shall execute the Cash Escrow Agreement annexed hereto as EXHIBIT C. The funds being held in the April 2001 Escrow Account shall thereafter be released pursuant to the terms of the Cash Escrow Agreement.
2. Forthwith upon the execution of this Settlement Agreement by the Parties, the Trustee shall file with the Bankruptcy Court a Motion for Order Approving Settlement of Claims Between Richard Belford, the Chapter 7 Trustee for Gem Technologies, Inc., Robert F. Gruder, Information Architects Corporation, Thomas J. Dudchik, Mark B. Fisher, Steven R. Goldberg and the Fisher Group ("Motion to Approve Settlement") annexed hereto as EXHIBIT D . The Trustee shall cause a hearing to be set on the Motion to Approve Settlement on July 10, 2001 at 2:00 p.m. (or as soon thereafter as the Bankruptcy Court's calendar will allow), subject to postponement pursuant to paragraph 5 hereof; shall provide notice of the Motion to Approve Settlement and the hearing to all parties in interest in the Bankruptcy Case, including but not limited to all creditors, equity security holders and contract parties who are listed in the Debtor's Statement and Schedules as they may be amended to date, or who have filed proofs of claim or interest, or who have been otherwise disclosed to the Trustee, or who are listed on EXHIBIT A as sellers of Acquired Shares to
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Fisher; and, at the hearing, shall provide or proffer testimony in support of the Motion to Approve Settlement and the relief requested therein.
3. Contemporaneously with the execution hereof, IARC, Gruder and Fisher shall execute the Registration Rights Agreement annexed hereto as EXHIBIT E (the "Registration Rights Agreement") with respect to the 610,000 common shares of IARC referred to in paragraph 7(a) hereof and the 500,000 common shares of IARC referred to in paragraph 7(b) hereof.
4. No later than the third business day after Fisher provides the information required by ss.6.2 of the Registration Rights Agreement, or June 12, 2001, whichever is later, IARC shall cause a Registration Statement to be filed with the Securities and Exchange Commission ("SEC") on Form S-3 (or such other form as may be appropriate under the Securities Act of 1933), which, upon being declared effective, will cause the shares of IARC that are the subject of the Registration Rights Agreement to be registered for resale to the public under the Securities Act of 1933 (the "Registration Statement"). (The date on which the Registration Statement is declared effective is referred to as the "Registration Date.")
5. In the event that, as of 12:00 noon on the last business day before a hearing on the Motion to Approve Settlement (the "Hearing") is initially scheduled to be heard or to which such Hearing has been continued or adjourned, the Registration Statement cannot yet be declared effective due to the fact that the SEC has issued (or stated its intention to issue) a comment letter to which IARC has not yet responded to the SEC's satisfaction, then Fisher and the
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Trustee shall elect to do one of the following: (a) adjourn the Hearing for twenty-one (21) days or such longer period of time if agreed to by the Parties; or (b) declare this Settlement Agreement terminated. Fisher and the Trustee shall give notice of this election to Gruder and IARC no later than 12:00 noon on the last business day preceding the Hearing. If Fisher and the Trustee disagree, or if either of them fails to give such notice of their election by 12:00 noon on the last business day preceding the Hearing, the Hearing shall be adjourned for twenty-one (21) days. If this Settlement Agreement is terminated pursuant to this paragraph, the Trustee will withdraw the Motion to Approve Settlement
6. The parties agree that counsel for the Trustee and counsel for Gruder shall jointly request the Court to schedule trial dates on the Adversary Proceeding for a date no earlier than August 15, 2001 so that the Trustee can proceed with the trial of the Adversary Proceeding in the event the Motion to Approve Settlement is withdrawn or otherwise denied.
7. Upon the entry of an order by the Bankruptcy Court granting the Motion to Approve Settlement and upon such order becoming final and unappealable after exhaustion of all appeals or the expiration of the time for any appeal or motion for extension of time to appeal with no appeal or motion having been filed (the "Final Order," which shall be deemed entered on the date on which it becomes final as described in this sentence), Gruder shall take the following actions:
(a) Gruder shall cause a certificate or certificates for 610,000 common shares of IARC to be delivered to Fisher. The shares shall become
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registered for resale to the public upon the effectiveness of the Registration Statement, which will permit the resale of the Shares by Fisher as described in the Registration Rights Agreement, shall be free and clear of all liens and encumbrances, and may, in addition to shares owned by Gruder, include shares newly issued by IARC.
(b) Gruder shall execute and deliver to Fisher a non-negotiable promissory note (the "Non-Recourse Note") in ...