Exhibit 10.3
EXCHANGE AGREEMENT
This Exchange Agreement (“Agreement”) is made as of this  _____  day of August,
2011 by and among Homeland Security Capital Corporation (“Parent”), the persons
listed on Schedule A attached hereto (each, a “Management Investor” and
collectively, the “Management Investors”) and Chris Leichtweis, solely in his
capacity as representative of the Management Investors (“Representative”).
RECITALS:
A. Pursuant to that certain Stock Purchase Agreement by and among Parent, Safety
& Ecology Holdings Corporation (the “Company”), and Perma-Fix Environmental
Services, Inc. (“PESI”), dated as of July 15, 2011 (the “Purchase Agreement”),
Parent is selling all of its capital stock in the Company to PESI (the “Sale”)
in exchange for (i) PESI’s payment to Parent of $22,000,000 in cash payable at
closing (the “Initial Cash Consideration”), $2,000,000 of which will be held in
escrow to satisfy certain indemnification obligations of Parent pursuant to the
Purchase Agreement (the “Escrow Amount” and together with the Initial Cash
Consideration, the “Cash Consideration”) and (ii) PESI’s delivery to Parent of
an unsecured promissory note in the aggregate principal amount of $2,500,000
issued by PESI to Parent (the “Note”), each as more fully described therein.
Capitalized terms used herein but not otherwise defined shall have the meanings
ascribed thereto in the Purchase Agreement.
B. The Management Investors hold shares of Parent’s Series I Preferred Stock,
par value $0.01 per share (the “Series I Preferred”), and certain warrants to
purchase Parent’s common stock, par value $0.001 per share (the “Warrants”),
each as set forth on Exhibit A attached hereto.
C. As more fully set forth in the Purchase Agreement, Parent has agreed to
transfer a portion of the Initial Cash Consideration to the Management Investors
in order to enable them to purchase the number of shares of PESI’s common stock,
par value $0.001 (“PESI Common Stock”), set forth on Exhibit B attached hereto,
pursuant to, and in accordance with, certain subscription agreements to be
entered into with PESI, in substantially the form attached as Exhibit _____ to
the Purchase Agreement (the “Subscription Agreements”).
D. In connection with the Sale, the Management Investors desire to cancel their
shares of Series I Preferred and Warrants and in exchange therefor, receive a
portion of (i) the Initial Cash Consideration, (ii) the Escrow Amount and
(iii) the Note, and (iv) shares of PESI Common Stock, all on the terms set forth
herein (collectively, the “Exchange Consideration”).
THEREFORE, THE PARTIES AGREE AS FOLLOWS:
A. Cancellation of Series I Preferred. Each Management Investor hereby agrees
that, effective simultaneously with the closing of the Sale, each share of
Series I Preferred and each Warrant held by such Management Investor, as
applicable, shall be cancelled and of no further force or effect.

 

 

--------------------------------------------------------------------------------

 

B. Exchange Consideration. Each Management Investor hereby agrees that in
exchange for the cancellation of such Management Investor’s Series I Preferred
and Warrants, such Management Investor will:
1. receive the number of shares of PESI Common Stock set forth opposite such
Management Investor’s name on Exhibit B in accordance with the terms of the
Subscription Agreement (the “Exchange Stock Consideration”);
2. be entitled, contemporaneously with the Closing, to receive a cash amount
(the “Exchange Cash Consideration”) equal to (i) $25,000 multiplied by (ii) the
percentage set forth opposite such Management Investor’s name on Exhibit A (such
Management Investor’s “Percentage Interest”), the total Exchange Cash
Consideration payable to the Management Investors not to exceed in the aggregate
$25,000;
3. be entitled to a portion of the proceeds of the Note, in an amount equal to
such Management Investor’s respective Percentage Interest of the Representative
Proceeds (as defined in that certain Instruction to Pay attached hereto as
Exhibit C (the “Instruction to Pay”)) to be paid by PESI to the Representative
in accordance with the terms and conditions set forth in the Instruction to Pay
and the Note, and subject to reduction as described in Section 4 hereof (the
“Exchange Note Consideration”), the total Exchange Note Consideration payable to
all such Management Investors not to exceed in the aggregate $100,000; and
4. be entitled, upon receipt by Parent of all or any portion of the Escrow
Amount, to receive a cash amount equal to (i) five percent (5%) of all or such
portion of the Escrow Amount that is released to Parent, multiplied by (ii) such
Management Investor’s Percentage Interest (the “Exchange Escrow Consideration”),
the total Exchange Escrow Consideration payable to all such Management Investors
not to exceed in the aggregate five percent (5%) of all or such portion of the
Escrow Amount that is released to Parent.
C. Payment of Consideration.
1. Each Management Investor acknowledges that PESI will issue and deliver the
Exchange Stock Consideration to such Management Investor at Closing.
2. At Closing, Parent shall wire (or cause to be wired) the Exchange Cash
Consideration to Representative in accordance with the wire instructions
provided in writing by Representative to Parent at least one business day prior
to Closing, to be distributed to the Management Investors in the amounts set
forth on Exhibit B attached hereto.
3. At Closing, Parent and the Representative shall execute the Instruction to
Pay such that the Management Investors will be entitled to the Exchange Note
Consideration. Each Management Investor acknowledges and agrees that with
respect to the payment of the Exchange Note Consideration, (i) the Exchange Note
Consideration is payable only if Parent is paid by PESI in accordance with the
Note, (ii) upon certain Events of Default (as defined in the Note) under the
Note, Parent may elect to receive from PESI (A) Payoff Shares (as defined in the
Note), (B) the Payoff Amount (as defined in the Note) or (C) a combination of
the Payoff Shares and Payoff Amount, (y) any election by Parent to receive
Payoff Shares, the Payoff Amount or any combination thereof will be made in
Parent’s sole discretion, and (iii) upon any such election to receive a
combination of the Payoff Shares and the Payoff Amount, such Management Investor
will receive his or her portion of the Exchange Note Consideration in the same
proportion as Parent is receiving from PESI. Upon receipt of the proper
allocation of the Payoff Amount or Payoff Shares or any combination thereof,
each Management Investor agrees that delivery of such Payoff Amount or Payoff
Shares to the Management Investors will be the full and final settlement of
Parent’s obligations with respect to the Exchange Note Consideration. Each
Management Investor hereby acknowledges that Parent will only be able to
transfer any Payoff Shares in compliance with applicable state and federal
securities laws, and Parent undertakes to transfer such Payoff Shares promptly
after such shares have either been registered under the Securities Act of 1933,
as amended, or the transfer of such shares is exempt therefrom.

 

2

--------------------------------------------------------------------------------

 

4. Each Management Investor acknowledges that PESI will deposit the Escrow
Amount with the Escrow Agent at Closing, to be distributed to Parent in
accordance with the terms of the Escrow Agreement and subject to reduction for
certain indemnification obligations of Parent set forth in the Purchase
Agreement. Upon the release to Parent of all or any portion of the Escrow Amount
in accordance with the Escrow Agreement, Parent shall wire (or cause to be
wired) the Exchange Escrow Consideration to an account designated by the
Representative for distribution to the Management Investors as set forth on
Exhibit B, subject to any reduction for outstanding claims or resolution of any
outstanding claims under the Escrow Agreement.
D. Indemnification; Offset.
1. The Management Investors acknowledge and agree that in the Purchase
Agreement, Parent and the Company have made certain representations and
warranties to PESI regarding the Company and the subsidiaries of the Company,
and subject to the provisions contained therein, Parent has agreed to indemnify
PESI and others for certain indemnifiable claims. If Parent is required pursuant
to the Purchase Agreement to indemnify PESI, such indemnification obligations
will reduce the Escrow Amount and may reduce the amount payable under the Note
and accordingly reduce the Exchange Escrow Consideration and the Exchange Note
Consideration, respectively. The Management Investors acknowledge and agree that
they are responsible, severally and not jointly, for up to five percent of any
indemnification claims that may be made against Parent under the Purchase
Agreement and each Management Investor is responsible for an amount of such
indemnification claim up to his or her Percentage Interest of five percent (5%)
of the Exchange Escrow Consideration and the Exchange Note Consideration. For
illustrative purposes only, if Parent becomes subject to an indemnification
obligation of $1,000, the Management Investors in the aggregate will be
responsible for five percent (or $50) of such obligation, with each Management
Investor responsible for his or her Percentage Interest of $50.
2. The Management Investors acknowledge and agree that if Parent is required to
indemnify PESI pursuant to the Purchase Agreement for claims in excess of the
Escrow Amount, PESI may offset against its obligations to make payments under
the Note, including payments of Exchange Note Consideration. Any offset shall be
made among Parent and the Management Investors such that the Management
Investors will be responsible for up to five percent (5%) of any amounts offset
against the Exchange Note Consideration and each Management Investor is
responsible for an amount of such offset up to his or her Percentage Interest of
the Exchange Note Consideration. For illustrative purposes only, if Parent
becomes subject to an indemnification obligation of $1,000, and PESI seeks to
offset against the Note an amount equal to $1,000, the Management Investors in
the aggregate will be responsible for five percent of such offset (or $50), with
each Management Investor responsible for his or her Percentage Interest of $50.

 

3

--------------------------------------------------------------------------------

 

3. Each Management Investor acknowledges that, pursuant to the terms of the
Purchase Agreement, Parent is obligated to cause certain of the Management
Investors to purchase an aggregate number of restricted shares of PESI Common
Stock valued at not less than $900,000 nor more than $1,000,000, as calculated
on the basis of the per share price set forth in Section 5.21 of the Purchase
Agreement. Each Management Investor agrees to purchase that number of shares of
PESI Common Stock set forth opposite its name on Exhibit B attached hereto
pursuant to the terms and conditions of the Subscription Agreement and to
purchase such additional number of shares of PESI Common Stock on a pro rata
basis as may be required to permit Parent to fulfill its obligations set forth
in Section 5.21.
E. Representation and Warranty of Parent. Parent represents and warrants to
Representative and the Management Investors the following: (a) Parent has the
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement, (b) this Agreement
constitutes the legal, valid and binding obligation of Parent, enforceable
against it in accordance with its terms, except to the extent that such
enforceability may be affected by: (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors; and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies,
and (c) the execution and delivery of this Agreement has been duly authorized by
all necessary corporate action on the part of Parent.
F. Representations and Warranties of Representative and Management Investors.
Representative and each Management Investor hereby, severally and not jointly,
represents and warrants to Parent as follows:
1. He or she has the requisite power and authority to enter into this Agreement
and to consummate the transactions contemplated by this Agreement.
2. This Agreement constitutes the legal, valid and binding obligation of him or
her, enforceable against him or her in accordance with its terms, except to the
extent that such enforceability may be affected by: (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors; and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
3. Management Investor is the sole record and beneficial owner of the shares of
Series I Preferred and Warrants set forth opposite such Management Investor’s
name on Exhibit A. All of the shares of Series I Preferred and the Warrants
owned by such Management Investor are owned free and clear of any liens and such
Management Investor has not granted any rights to purchase such shares of
Series I Preferred or Warrants to any other person. Neither the execution,
delivery or performance of this Agreement will, or would reasonably be expected
to, contravene, conflict with or result in a violation of any law or order or
agreement to which such Management Investor is subject, and such Management
Investor is not required to make any filing or obtain any consent from any
person or entity in connection with the execution, delivery or performance of
this Agreement or the transactions contemplated hereby.

 

4

--------------------------------------------------------------------------------

 

G. Release. Contingent upon and effective immediately prior to the Closing, each
Management Investor acknowledges on such Management Investor’s own behalf that
as of the date hereof such Management Investor has no rights of action (known or
unknown, actual or contingent) against Parent, any affiliate of Parent, or any
of their respective officers, directors, employees, shareholders, agents and
representatives and to the extent there are any such rights of action they are
hereby waived and Parent, each affiliate of Parent, and their respective
officers, directors, employees, shareholders, agents and representatives are
hereby released; provided, however, that the foregoing shall not apply to rights
of action, if any, with respect to the right (i) to receive from Parent any
payments arising out of or relating to this Agreement, (ii) to any obligation to
any Management Investor for payroll, expense reimbursement or related employment
liabilities, or (iii) to claim indemnification pursuant to the Parent or the
Company’s Certificate of Incorporation, Bylaws or any insurance policy related
to such Management Investor’s position as a director or officer.
H. Representative.
1. By execution of this Agreement by each Management Investor, the
Representative is appointed, authorized and empowered to be the exclusive proxy,
representative, agent and attorney-in-fact of each Management Investor to make
all decisions and determinations and to act and execute, deliver and receive all
documents, instruments and consents on behalf of such Management Investor, at
any time, in connection with, and that may be deemed by Representative to be
necessary or appropriate to accomplish the intent and implement the provisions
of this Agreement and to facilitate the consummation of the transactions
contemplated hereby, and in connection with the activities to be performed by or
on behalf of such Management Investor under this Agreement, and each other
agreement or document referred to herein. By executing this Agreement,
Representative accepts such appointment, authority and power. Without limiting
the generality of the foregoing, Representative shall have the power to take any
of the following actions on behalf of such Management Investors: (i) to give and
receive notices, communications and consents under this Agreement; (ii) to
receive and distribute payments pursuant to this Agreement; (iii) to waive any
provision of this Agreement; (iv) to agree to any offsets or other additions or
subtractions of amounts to be paid under this Agreement as Representative, in
his sole discretion, may deem necessary or desirable; and (v) to make, execute,
acknowledge and deliver all such other agreements, guarantees, orders, receipts,
endorsements, notices, requests, instructions, certificates, stock powers,
letters and other writings, and, in general, to do any and all things and to
take any and all action that Representative, in his sole and absolute
discretion, may consider necessary or proper or convenient in connection with or
to carry out the activities described herein.
2. All decisions of Representative shall be final and binding on all Management
Investors, and no Management Investors shall have the right to object, dissent,
protest or otherwise contest the same. Parent shall be entitled to rely upon,
without independent investigation, any act, notice, instruction or communication
from Representative and any document executed by Representative on behalf of any
such Management Investor and shall be fully protected in connection with any
action or inaction taken or omitted to be taken in reliance thereon absent
willful misconduct.

 

5

--------------------------------------------------------------------------------

 

3. Representative shall not be responsible for any loss suffered by, or
liability of any kind to, such Management Investors arising out of any act done
or omitted by Representative in connection with the acceptance or administration
of Representative’s duties under this Agreement, unless such act or omission is
found by a court of competent jurisdiction not subject to further appeal to
involve gross negligence or willful misconduct on the part of Representative.
Further, the Management Investors shall jointly and severally indemnify
Representative and hold him harmless against any loss, liability or expense
incurred by Representative arising out of or in connection with the acceptance
or administration of his duties under this Agreement, including, without
limitation, the legal fees and expenses of any legal counsel retained by
Representative (such losses, liabilities and expenses, collectively referred to
as “Representative Expenses”); provided, that, Representative shall not be
entitled to indemnification hereunder or the reimbursement of any Representative
Expenses if, and to the extent, it is found by a court of competent
jurisdiction, not subject to further appeal, that Representative Expenses were a
direct and primary result of Representative’s gross negligence or willful
misconduct.
4. Management Investors representing a majority of the Percentage Interest may
at any time (or from time to time), by written notice to Parent and the then
current Representative, remove such Representative and appoint a replacement
Representative to serve in accordance with this Agreement; provided, however,
that such appointment shall be subject to such newly-appointed Representative
notifying Parent in writing of his, her or its appointment and appropriate
contact information for purposes of this Agreement, and Parent shall be entitled
to rely upon, without independent investigation, the identity of such
newly-appointed Representative as set forth in such written notice.
5. Representative may resign by providing written notice to each Management
Investor, and Parent. Upon the resignation of Representative, the Management
Investors representing a majority of the Percentage Interest shall appoint a
replacement Representative to serve in accordance with the terms of this
Agreement; provided, however, that such appointment shall be subject to such
newly-appointed Representative’s notifying Parent in writing of his, her or its
appointment and appropriate contact information for purposes of this Agreement
and Parent shall be entitled to rely upon, without independent investigation,
the identity of such newly-appointed Representative as set forth in such written
notice.
I. Miscellaneous
1. Entire Agreement. This Agreement is intended by the parties to be the final
expression of their agreement with respect to the terms included in this
Agreement and may not be contradicted by evidence of any prior or
contemporaneous agreement and is intended to supersede all prior written or oral
agreements of the parties hereto with respect to the subject matter hereof.
2. Notice. Any notice, demand, request, consent, or approval required or
permitted hereunder to be in writing shall be effective on the day on which same
is received by a party hereto at the address set forth below; such notices shall
be hand delivered, or sent by reputable overnight courier to such party at said
address, or by fax with confirmed receipt of same.

 

6

--------------------------------------------------------------------------------

 

3. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the personal representatives, successors and permitted assigns of the
parties hereto.
4. Counterparts. This Agreement may be executed in any number of counterparts
and all such counterparts taken together shall be deemed to constitute one and
the same instrument.
5. Amendments, Waiver. This Agreement may be modified, amended or terminated,
and any provision of this Agreement may be waived, only by a writing signed by
the party or parties burdened or affected by such modification, amendment,
termination or waiver.
6. Captions. The captions and underscoring in this Agreement are for convenience
of reference only and have no legal effect and do not define or limit the
provisions hereof.
7. Term. This Agreement shall remain in full force and effect until Parent has
delivered the Stock Consideration or the net proceeds from the sale thereof in
accordance with Section 4.
8. No Joint Venture or Partnership. This Agreement does not constitute, nor is
it the intention of the parties to create, a joint venture or partnership among
the parties to this Agreement.
9. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware.
10. Jurisdiction. Each of the parties agrees that any claim, suit, action or
proceeding seeking to enforce any provision of, or based on any matter arising
out of, under or in connection with, this Agreement shall be heard and
determined in the Chancery Court of the State of Delaware (and each agrees that
no such claim, suit, action or proceeding relating to this Agreement shall be
brought by it except in such court), and the parties hereby irrevocably and
unconditionally submit to the exclusive jurisdiction of such court in any such
claim, suit, action or proceeding and irrevocably and unconditionally waive the
defense of an inconvenient forum to the maintenance of any such claim, suit,
action or proceeding; provided, however, that if the Chancery Court of the State
of Delaware declines to accept jurisdiction over a particular matter, any state
or federal court within the State of Delaware shall be deemed sufficient for
purposes of this section. Each of the parties hereto further agree that, to the
fullest extent permitted by applicable law, service of any process, summons,
notice or document in any such claim, suit, action or proceeding may be served
on such party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided herein shall be deemed effective
service of process on such party. The parties hereto hereby agree that a final,
non-appealable judgment in any such claim, suit, action or proceeding shall be
conclusive and may be enforced in other jurisdictions in the world by suit on
the judgment or in any other manner provided by applicable law.
[SIGNATURE PAGE FOLLOWS]

 

7

--------------------------------------------------------------------------------

 

This Agreement is executed as of the date specified above by the parties hereto.

                  PARENT:   MANAGEMENT INVESTORS:    
 
                Homeland Security Capital Corporation                   By      
 
By
         
 
Name:    
 
               
 
  Name:       Address:    
 
  Title:       Fax No.:    
 
  Address:          
 
               
 
  Fax No.:   By        
 
               
 
        Name:             Address:    
REPRESENTATIVE:
      Fax No.:    
 
               
By
      By        
 
               
 
  Name:       Name:    
 
  Address:       Address:    
 
  Fax No.:       Fax No.:    
 
               
 
      By        
 
               
 
          Name:    
 
          Address:    
 
          Fax No.:    
 
               
 
      By        
 
               
 
          Name:    
 
          Address:    
 
          Fax No.:    

 

8