Exhibit 10.25
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER made this 28th day of April, 2003 by and among
ALPHA VIRTUAL, INC., a Delaware corporation ("Parent"), ALPHA ACQUISITION
CORPORATION, a Nevada corporation ("Sub"), and ESSTEC, INC., a Nevada
corporation (the "Company").
Recitals:
A. The respective Boards of Directors of Parent and the Company have determined
that a merger of Sub with and into the Company (the "Merger"), upon the terms
and subject to the conditions set forth in this Agreement, would be fair and in
the best interests of their respective shareholders, and such Boards of
Directors have approved such Merger, pursuant to which shares of Common Stock of
the Company ("Company Common Stock") issued and outstanding immediately prior to
the Effective Time of the Merger (as defined in Section 1.03) will be converted
into the right to receive Common Stock of Parent ("Parent Common Stock") other
than Dissenting Shares (as defined in Section 2.01(d)).
B. Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
C. For federal income tax purposes, the parties intend that the Merger shall
qualify as a reorganization under the provisions of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations, warranties, covenants
and agreements contained in this Agreement, the parties agree as follows:
ARTICLE I
The Merger
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1.01 The Merger. Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Nevada Revised Statutes (the "Nevada
Statutes") and the Delaware Corporations Code (the "Delaware Statutes"), Sub
shall be merged with and into the Company at the Effective Time of the Merger.
At the Effective Time of the Merger, the separate existence of Sub shall cease,
and the Company shall continue as the surviving corporation (the "Surviving
Corporation") and shall continue under the name Esstec, Inc.
1.02 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.01 and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the closing of the Merger (the "Closing") will take place at 10:00
a.m. on the business day after satisfaction of the conditions set forth in
Article VI (or as soon as practicable thereafter following satisfaction or
waiver of the conditions set forth in Article VI) (the "Closing Date"), at the
offices of Xxxxxxxxxxx & Xxxxxxxx LLP, unless another date, time or place is
agreed to in writing by the parties hereto.
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1.03 Effective Time of Merger. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI, the parties
shall file articles of merger (the "Articles of Merger") executed in accordance
with the relevant provisions of the Nevada Statutes and the Delaware Statutes
and shall make all other filings or recordings required under the Nevada
Statutes and the Delaware Statutes. The Merger shall become effective at such
time as the Articles of Merger are duly filed with the Secretaries of State of
Nevada and Delaware, or at such other time as is permissible in accordance with
the Nevada Statutes and the Delaware Statutes and as Parent and the Company
shall agree should be specified in the Articles of Merger (the time the Merger
becomes effective being the "Effective Time of the Merger").
1.04 Effects of the Merger. The Merger shall have the effects set forth in the
applicable provisions of the Nevada and Delaware Statutes.
1.05 Articles of Incorporation; Bylaws; Purposes.
(a) The Articles of Incorporation of the Company in effect immediately
prior to the Effective Time of the Merger shall be the Articles of Incorporation
of the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
(b) The Bylaws of the Company in effect at the Effective Time of the
Merger shall be the Bylaws of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law.
(c) The purposes of the Surviving Corporation and the total number and par
value of its authorized capital stock shall be as set forth in the Articles of
Incorporation of the Company in effect immediately prior to the Effective Time
of the Merger until such time as such purposes and such number and par value may
be amended as provided in the Articles of Incorporation of the Surviving
Corporation and by applicable law.
1.06 Directors. The directors of the Company at the Effective Time of the
Merger shall be the directors of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
1.07 Officers. The officers of the Company at the Effective Time of the Merger
shall be the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
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ARTICLE II
Effect of the Merger
on the Capital Stock
of the Constituent Corporations
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2.01 Effect on Capital Stock. As of the Effective Time of the Merger, by
virtue of the Merger and without any action on the part of the holders of shares
of Company Common Stock or any shares of capital stock of Sub:
(a) Common Stock of Sub. Each share of common stock of Sub issued and
outstanding immediately prior to the Effective Time of the Merger shall be
converted into one share of Common Stock of the Surviving Corporation and shall
be the issued and outstanding capital stock of the Surviving Corporation.
(b) Cancellation of Parent-Owned Company Common Stock. Each share of
Company Common Stock that is owned by Parent, Sub or any other subsidiary of
Parent shall automatically be cancelled and retired and shall cease to exist,
and no Parent Common Stock or other consideration shall be delivered or
deliverable in exchange therefore.
(c) Conversion of Company Common Stock. Except as otherwise provided
herein, each issued and outstanding share of Company Common Stock shall be
converted into fully paid and nonassessable shares of Parent Common Stock in
accordance with the Exchange Ratio described in Section 2.02 (the "Merger
Consideration").
(d) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock issued and outstanding immediately
prior to the Effective Time of the Merger held by a holder (if any) who has the
right to demand payment for and an appraisal of such shares in accordance with
the Nevada Statutes ("Dissenting Shares") shall not be converted into a right to
receive Merger Consideration unless such holder fails to perfect or otherwise
loses such holder's right to such payment or appraisal, if any. If, after the
Effective Time of the Merger, such holder fails to perfect or loses any such
right to appraisal, each such share of such holder shall be treated as a share
that had been converted as of the Effective Time of the Merger into the right to
receive Merger Consideration in accordance with this Section 2.01. The Company
shall give prompt notice to Parent of any demands received by the Company for
appraisal of shares of Company Common Stock, and Parent shall have the right to
participate in and direct all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written consent of Parent,
make any payment with respect to, or settle or offer to settle, any such
demands.
(e) Cancellation and Retirement of Company Common Stock. As of the
Effective Time of the Merger, all shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time of the Merger, shall no
longer be outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such shares of
Company Common Stock shall cease to have any rights with respect thereto, except
the right to receive the applicable Merger Consideration to be issued in
consideration therefore upon surrender of such certificate in accordance with
Section 2.04.
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2.02 Exchange Ratio. The "Exchange Ratio" is as follows:
Each share of Company Common Stock shall be converted into one share of Parent
Common Stock in the Merger, an Exchange Ratio of 1:1.
2.03 Stock Options; Warrants.
(a) Assumption. At the Effective Time of the Merger, all options to
purchase Company Shares then outstanding under the Company's 2000 Incentive and
Nonstatury Stock Option Plan (the "Company Option Plan"), and all options to
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purchase Company Shares then outstanding which are not under the Company Option
Plan, in each case whether vested or unvested, and the Company Option Plan
itself, shall be assumed by Parent in accordance with Section 2.03(b) hereof,
and at the Effective Time of the Merger all warrants to purchase Company Shares
then outstanding (collectively, the "Company Warrants") shall be assumed by
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Parent in accordance with Section 2.03(c) hereof.
(b) Stock Options. At the Effective Time of the Merger, each outstanding
option to purchase Company Shares (each, a "Company Stock Option"), whether or
not granted under the Company Option Plan, whether or not vested, shall by
virtue of the Merger be assumed by Parent. Each Company Stock Option so assumed
by Parent under this Agreement will continue to have, and be subject to, the
same terms and conditions of such options immediately prior to the Effective
Time of the Merger (including, without limitation, any repurchase rights or
vesting provisions and provisions regarding the acceleration of vesting on
certain transactions), except that (i) each Company Stock Option will be
exercisable (or will become exercisable in accordance with its terms) for that
number of whole shares of Parent Common Stock equal to the product of the number
of Company Shares that were issuable upon exercise of such Company Stock Option
immediately prior to the Effective Time of the Merger multiplied by the Exchange
Ratio, rounded down to the nearest whole number of shares of Parent Common Stock
and (ii) the per share exercise price for the shares of Parent Common Stock
issuable upon exercise of such assumed Company Stock Option will be equal to the
quotient determined by dividing the exercise price per Company Share at which
such Company Stock Option was exercisable immediately prior to the Effective
Time of the Merger by the Exchange Ratio, rounded up to the nearest whole cent.
Parent shall comply with the terms of all such Company Stock Options and use its
best efforts to ensure, to the extent required by, and subject to the provisions
of, the Company Option Plan and permitted under the Code or other relevant laws
and regulations that any Company Stock Option that qualified for tax treatment
under Section 424(b) of the Code prior to the Effective Time of the Merger
continue to so qualify after the Effective Time of the Merger. Parent shall take
all corporate actions necessary to reserve for issuance a sufficient number of
shares of Parent Common Stock for delivery upon exercise of all Company Stock
Options on the terms set forth in this Section 2.03(b).
(c) Company Warrants. At the Effective Time of the Merger, each
outstanding Company Warrant, whether or not exercisable, will be assumed by
Parent. Each Company Warrant so assumed by Parent under this Agreement will
continue to have, and be subject to, the same terms and conditions set forth in
the applicable Company Warrant immediately prior to the Effective Time of the
Merger, except that (i) each Company Warrant will be exercisable (or will become
exercisable in accordance with its terms) for that number of whole shares of
Parent Common Stock equal to the product of the number of shares of Company
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Shares that were issuable upon exercise of such Company Warrant immediately
prior to the Effective Time of the Merger multiplied by the Exchange Ratio,
rounded to the nearest whole number of shares of Parent Common Stock, and (ii)
the per share exercise price for the shares of Parent Common Stock issuable upon
exercise of such assumed Company Warrant will be equal to the quotient
determined by dividing the exercise price per share of the Company Shares at
which such Company Warrant was exercisable immediately prior to the Effective
Time of the Merger by the Exchange Ratio, rounded to the nearest whole cent. As
soon as reasonably practicable after the Effective Time of the Merger, Parent
will issue to each holder of an outstanding Company Warrant a notice describing
the foregoing assumptions of such Company Warrant by Parent.
2.04 Exchange of Certificates.
(a) Exchange Agent. As soon as reasonably practicable as of or after the
Effective Time of the Merger, Parent shall deposit the Merger Consideration with
U.S. Stock Transfer Corporation (the "Exchange Agent"), for the benefit of the
holders of shares of Company Common Stock, for exchange in accordance with this
Article II.
(b) Exchange Procedures. As soon as practicable after the Effective Time
of the Merger, each holder of an outstanding certificate or certificates which
prior thereto represented shares of Company Common Stock shall, upon surrender
to the Exchange Agent of such certificate or certificates and acceptance thereof
by the Exchange Agent, be entitled to a certificate or certificates representing
the number of shares of Parent Common Stock into which the aggregate number of
shares of Company Common Stock previously represented by such certificate or
certificates surrendered shall have been converted pursuant to this Agreement.
The Exchange Agent shall accept such certificates upon compliance with such
reasonable terms and conditions as the Exchange Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange practices. After the
Effective Time of the Merger, there shall be no further transfer on the records
of the Company or its transfer agent of certificates representing shares of
Company Common Stock and if such certificates are presented to the Company for
transfer, they shall be cancelled against delivery of certificates for Parent
Common Stock as hereinabove provided. If any certificate for such Parent Common
Stock is to be issued in a name other than that in which the certificate for
Company Common Stock surrendered for exchange is registered, it shall be a
condition of such exchange that the certificate so surrendered shall be properly
endorsed, with signature guaranteed, or otherwise in proper form for transfer
and that the person requesting such exchange shall pay to Parent or its transfer
agent any transfer or other taxes or other costs required by reason of the
issuance of certificates for such Parent Common Stock in a name other than that
of the registered holder of the certificate surrendered, or establish to the
satisfaction of Parent or its transfer agent that all taxes have been paid.
Until surrendered as contemplated by this Section 2.04(b), each certificate for
shares of Company Common Stock shall be deemed at any time after the Effective
Time of the Merger to represent only the right to receive upon such surrender
the Merger Consideration as contemplated by Section 2.01.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Parent Common Stock with a record date after
the Effective Time of the Merger shall be paid to the holder of any
unsurrendered certificate for shares of Company Common Stock with respect to the
shares of Parent Common Stock represented thereby until the surrender of such
certificate in accordance with this Article II.
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(d) No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of certificates
representing shares of Company Common Stock in accordance with the terms of this
Article II shall be deemed to have been issued (and paid) in full satisfaction
of all rights pertaining to the shares of Company Common Stock theretofore
represented by such certificates.
(e) No Liability. None of Parent, Sub, the Company or the Exchange Agent
shall be liable to any person in respect of any shares of Parent Common Stock
(or dividends or distributions with respect thereto) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any certificates representing shares of Company Common Stock shall not have
been surrendered prior to December 31, 2003 any such shares, dividends or
distributions in respect of such certificate shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interests of any person previously entitled thereto.
ARTICLE III
Representations and Warranties
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3.01 Representations and Warranties of the Company. The Company represents
and warrants to Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has the requisite corporate power and authority to carry on its
business as now being conducted. The Company is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed (individually or in the aggregate) would not have a
material adverse effect (as defined in Section 8.03) with respect to the
Company. Attached as Schedule 3.01(a) of the disclosure schedule ("Disclosure
Schedule") delivered to Parent by the Company at the time of execution of this
Agreement are complete and correct copies of the Articles of Incorporation and
Bylaws of the Company.
(b) Subsidiaries. The Company does not own, directly or indirectly, any
capital stock or other ownership interest in any corporation, partnership,
business association, joint venture or other entity.
(c) Capital Structure. The authorized capital stock of the Company
consists of 50,000,000 shares of Company Common Stock, par value $0.001 per
share and 5,000,000 shares which are undesignated Preferred Stock, par value
$0.001 per share. Subject to any Permitted Changes (as defined in Section
4.01(a)(ii)) there are 4,276,162 shares of Common Stock and no shares of
Preferred Stock issued and outstanding. 1,376,845 shares of Company Common Stock
are issuable upon exercise of outstanding Company Stock Options and 284,134
shares of Company Common Stock are issuable upon exercise of outstanding Company
Warrants. Except as set forth above, no shares of capital stock or other equity
securities of the Company are issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of the Company are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
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Except as set forth on Schedule 3.01(c) of the Disclosure Schedule, there are no
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outstanding bonds, debentures, notes or other indebtedness or other securities
of the Company having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which shareholders
of the Company may vote. Except as set forth on Schedule 3.01(c) of the
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Disclosure Schedule, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which the Company is a party or by which it is bound obligating the Company
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other equity or voting securities of the Company or
obligating the Company to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or undertaking.
The outstanding indebtedness for borrowed money of the Company is set forth on
Schedule 3.01(c) of the Disclosure Schedule. Other than the Company Stock
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Options and Company Warrants, there are no outstanding contractual obligations,
commitments, understandings or arrangements of the Company to repurchase, redeem
or otherwise acquire or make any payment in respect of any shares of capital
stock of the Company. Schedule 3.01(c) of the Disclosure Schedule sets forth the
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ownership of the capital stock of the Company. Except as set forth on Schedule
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3.01(c), there are no agreements or arrangements pursuant to which the Company
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is or could be required to register shares of Company Common Stock or other
securities under the Securities Act of 1933, as amended (the "Securities Act")
or other agreements or arrangements with or among any securityholders of the
Company with respect to securities of the Company.
(d) Authority; Noncontravention. The Company has the requisite corporate
and other power and authority to enter into this Agreement and to consummate the
Merger. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company.
This Agreement has been duly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions hereof will not, conflict with, or
result in any breach or violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of or "put" right with respect to any obligation or
to loss of a material benefit under, or result in the creation of any lien upon
any of the properties or assets of the Company under, (i) the Articles of
Incorporation or Bylaws of the Company, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to the Company, its properties or
assets, or (iii) subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule, regulation or arbitration award applicable to the Company, its
properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any federal, state or
local government or any court, administrative agency or commission or other
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governmental authority, agency, domestic or foreign (a "Governmental Entity"),
is required by or with respect to the Company in connection with the execution
and delivery of this Agreement by the Company or the consummation by the Company
of the transactions contemplated hereby, except, with respect to this Agreement,
for the filing of the Articles of Merger with the Secretaries of State of Nevada
and Delaware.
(e) Absence of Certain Changes or Events. Since December 31, 2002, the
date of its most recent financial statements, the Company has conducted its
business only in the ordinary course consistent with past practice, and there is
not and has not been: (i) any material adverse change with respect to the
Company; (ii) any condition, event or occurrence which individually or in the
aggregate could reasonably be expected to have a material adverse effect or give
rise to a material adverse change with respect to the Company; (iii) any event
which, if it had taken place following the execution of this Agreement, would
not have been permitted by Section 4.01 without prior consent of Parent; or (iv)
any condition, event or occurrence which could reasonably be expected to
prevent, hinder or materially delay the ability of the Company to consummate the
transactions contemplated by this Agreement.
(f) Litigation; Labor Matters; Compliance with Laws.
(i) There is no suit, action or proceeding or investigation pending
or, to the knowledge of the Company, threatened against or affecting the
Company or any basis for any such suit, action, proceeding or investigation
that, individually or in the aggregate, could reasonably be expected to have a
material adverse effect with respect to the Company or prevent, hinder or
materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against the
Company having, or which, insofar as reasonably could be foreseen by the
Company, in the future could have, any such effect.
(ii) The Company is not a party to, or bound by, any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization, nor is it the subject of any proceeding asserting
that it has committed an unfair labor practice or seeking to compel it to
bargain with any labor organization as to wages or conditions of employment nor
is there any strike, work stoppage or other labor dispute involving it pending
or, to its knowledge, threatened, any of which could have a material adverse
effect with respect to the Company.
(iii) The conduct of the business of the Company complies with all
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees or
arbitration awards applicable thereto.
(g) Benefit Plans. Except as described on Schedule 3.01(g) of the
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Disclosure Schedule, the Company is not a party to any collective bargaining
agreement or any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, phantom stock,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical or other plan, arrangement or understanding (whether or not legally
binding) under which the Company currently has an obligation to provide benefits
to any current or former employee, officer or director of the Company
(collectively, "Benefit Plans").
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(h) Certain Employee Payments. Except as described on Schedule 3.01(h) of
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the Disclosure Schedule, the Company is not a party to any employment agreement
which could result in the payment to any current, former or future director or
employee of the Company of any money or other property or rights or accelerate
or provide any other rights or benefits to any such employee or director as a
result of the transactions contemplated by this Agreement, whether or not (i)
such payment, acceleration or provision would constitute a "parachute payment"
(within the meaning of Section 280G of the Code), or (ii) some other subsequent
action or event would be required to cause such payment, acceleration or
provision to be triggered.
(i) Tax Returns and Tax Payments. The Company has timely filed all Tax
Returns required to be filed by it, has paid all Taxes shown thereon to be due
and has provided adequate reserves in its financial statements for any Taxes
that have not been paid, whether or not shown as being due on any returns. No
material claim for unpaid Taxes has been made or become a lien against the
property of the Company or is being asserted against the Company, no audit of
any Tax Return of the Company is being conducted by a tax authority, and no
extension of the statute of limitations on the assessment of any Taxes has been
granted by the Company and is currently in effect. As used herein, "taxes" shall
mean all taxes of any kind, including, without limitation, those on or measured
by or referred to as income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium value added, property or windfall profits taxes, customs,
duties or similar fees,, assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax or additional amounts
imposed by any governmental authority, domestic or foreign. As used herein, "Tax
Return" shall mean any return, report or statement required to be filed with any
governmental authority with respect to Taxes.
(j) Environmental Matters. The Company is in compliance with all
applicable Environmental Laws. "Environmental Laws" means all applicable
federal, state and local statutes, rules, regulations, ordinances, orders,
decrees and common law relating in any manner to contamination, pollution or
protection of human health or the environment, and similar state laws.
(k) Material Contract Defaults. The Company has provided or made available
to Parent copies of all material contracts, agreements, commitments,
arrangements, leases, policies or other instruments to which it is a party or by
which it is bound ("Material Contracts") all of which are listed on Schedule
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3.01(k) of the Disclosure Schedule. The Company is not, or has not, received any
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notice or has any knowledge that any other party is, in default in any respect
under any Material Contract; and there has not occurred any event that with the
lapse of time or the giving of notice or both would constitute such a material
default.
(l) Properties. The Company has good, clear and marketable title to all
the properties and assets reflected in the latest balance sheet as being owned
by the Company or acquired after the date thereof which are, individually or in
the aggregate, material to the Company's business (except properties sold or
otherwise disposed of since the date thereof in the ordinary course of
business), free and clear of all liens.
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(m) Trademarks and Related Contracts. The Company owns (in each case,
clear of any liens and claims), all trademarks, trade names, copyrights,
know-how and processes ("Intellectual Property") used in or necessary for the
conduct of its business as currently conducted which are material to the
condition (financial and other), business, or operations of the Company. To the
best knowledge of the Company, (i) the use of such Intellectual Property by the
Company does not infringe on the rights of any person, (ii) no person is
infringing on any right of the Company with respect to any such trademarks,
trade names, copyrights, know-how or processes, and (iii) no claims have been
asserted against the Company with respect to the Intellectual Property that if
upheld against the Company could adversely affect the Company's business or
operations.
(n) Board Recommendation. The Board of Directors of the Company has
unanimously determined that the terms of the Merger are fair to and in the best
interests of the shareholders of the Company and recommended that the holders of
the shares of Company Common Stock approve the Merger.
(o) Required Company Vote. The affirmative vote of a majority of the
shares of each of the Company Common Stock is the only vote of the holders of
any class or series of the Company's securities necessary to approve the Merger
(the "Company Shareholder Approval").
3.02 Representations and Warranties of Parent and Sub. Parent and Sub
represent and warrant to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent, Sub and
the other Parent Subsidiaries (as defined in Section 3.02(b)) is (or at Closing
will be) duly organized, validly existing and in good standing under the laws of
the State of Delaware and Nevada, as is applicable, and has the requisite
corporate power and authority to carry on its business as now being conducted.
Each of Parent, Sub and the other Parent Subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) would not have a material adverse effect with respect to Parent.
Parent has delivered to the Company complete and correct copies of its
Certificate of Incorporation and Bylaws and the articles of incorporation (or
other organization documents) and bylaws of Sub and the other Parent
Subsidiaries (the "Parent Disclosure Schedule").
(b) Subsidiaries. The only direct or indirect subsidiaries of Parent are
listed in Schedule 3.02(b) of the Parent Disclosure Schedule (together with Sub,
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the "Parent Subsidiaries"). All the outstanding shares of capital stock of each
such Parent Subsidiary which is a corporation have been validly issued and are
fully paid and nonassessable and, except as set forth in Schedule 3.02(b) of the
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Parent Disclosure Schedule, are owned (of record and beneficially) by Parent,
free and clear of all Liens. Except for the capital stock of its subsidiaries
which are corporations, Parent does not own, directly or indirectly, any capital
stock or other ownership interest in any corporation, partnership, business
association, joint venture or other entity.
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(c) Capital Structure. The authorized capital stock of Parent consists of
60,000,000 shares of Parent Common Stock, $0.001 par value, of which 1,498,952
shares of Parent Common Stock are issued and outstanding. 550,109 shares of
Parent Common Stock are issuable upon the exercise of outstanding warrants,
convertible notes and options. 3,000,000 shares of Parent Common Stock are
reserved for issuance pursuant to Stock Option Plans (the "Parent Stock Plans").
Also authorized are 2,000,000 shares of preferred stock, $0.001 par value, none
of which is issued and outstanding. Except as set forth above, no shares of
capital stock or other equity securities of Parent are issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of Parent are,
and all shares which may be issued pursuant to this Agreement will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and, not
subject to preemptive rights, and issued in compliance with all applicable state
and federal laws concerning the issuance of securities. Except as set forth in
Schedule 3.02(c), there are no outstanding bonds, debentures, notes or other
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indebtedness or other securities of Parent having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which shareholders of Parent may vote. Except as set forth above,
there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Parent or any of its subsidiaries is a party or by which any of them is bound
obligating Parent or any its subsidiaries to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock or other equity
securities of Parent or any of its subsidiaries or obligating Parent or any of
its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other equity securities of Parent or
any of its subsidiaries or obligating Parent or any of its subsidiaries to
issue, grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. There are no
outstanding contractual obligations, commitments, understandings or arrangements
of Parent or any of its subsidiaries to repurchase, redeem or otherwise acquire
or make any payment in respect of any shares of capital stock of Parent or any
of its subsidiaries. The authorized capital stock of Sub consists of 75,000
shares of common stock, no par value per share, 1,000 shares of which have been
validly issued, are fully paid and nonassessable, were issued in compliance with
all applicable state and federal laws concerning the issuance of securities, and
are owned by Parent, free and clear of any lien.
(d) Authority; Noncontravention. Parent and Sub have all requisite
corporate authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by Parent and Sub and the consummation by Parent and Sub of the
transactions contemplated by this Agreement have been (or at Closing will have
been) duly authorized by all necessary corporate action on the part of Parent
and Sub. This Agreement has been duly executed and delivered by and constitutes
a valid and binding obligation of each of Parent and Sub, enforceable against
each such party in accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement will not,
conflict with, or result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of or "put" right with respect to any
obligation or to loss of a material benefit under, or result in the creation of
any lien upon any of the properties or assets of Parent or any of its
11
subsidiaries under, (i) the articles of incorporation or bylaws of Parent or Sub
or the comparable charter or organizational documents of any other subsidiary of
Parent, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or license
applicable to Parent, Sub or any other subsidiary of Parent or their respective
properties or assets, or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule, regulation or arbitration award applicable to
Parent, Sub or any other subsidiary of Parent or their respective properties or
assets, other than, in the case of clauses (ii) and (iii), any such conflicts,
breaches, violations, defaults, rights, losses or liens that individually or in
the aggregate could not have a material adverse effect with respect to Parent or
could not prevent, hinder or materially delay the ability of Parent to
consummate the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration or filing
with, or notice to, any Governmental Entity is required by or with respect to
Parent, Sub or any other subsidiary of Parent in connection with the execution
and delivery of this Agreement by Parent or Sub or the consummation by Parent or
Sub, as the case may be, of any of the transactions contemplated by this
Agreement, except for the filing of the Articles of Merger with the Secretaries
of State of Delaware and Nevada and such other consents, approvals, orders,
authorizations, registrations, declarations, filings or notices as may be
required under the "blue sky" laws of various states.
(e) S.E.C. Documents; Undisclosed Liabilities. Parent has filed all
reports, schedules, forms, statements and other documents as required by the
Securities and Exchange Commission (the "S.E.C.") and Parent has delivered or
made available to the Company all reports, schedules, forms, statements and
other documents filed with the S.E.C. (collectively, and in each case including
all exhibits and schedules thereto and documents incorporated by reference
therein, the "Parent S.E.C. Documents"). As of their respective dates, the
Parent S.E.C. Documents complied in all material respects with the requirements
of the Securities Act or the Securities Exchange Act of 1934, as the case may
be, and the rules and regulations of the S.E.C. promulgated thereunder
applicable to such Parent S.E.C. documents, and none of the Parent S.E.C.
Documents (including any and all consolidated financial statements included
therein) as of such date contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Except to the extent set forth in Schedule
--------
3.02(e) of the Parent Disclosure Schedule and except to the extent revised or
-------
superseded by a subsequent filing with the S.E.C. (a copy of which has been
provided to the Company prior to the date of this Agreement), none of the Parent
S.E.C. Documents contains any untrue statement of a material fact or omits to
state any material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The consolidated
financial statements of Parent included in such Parent S.E.C. Documents comply
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the S.E.C. with respect thereto, have
been prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited consolidated quarterly statements, as
permitted by Form 10-Q of the S.E.C.) applied on a consistent basis during the
12
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Parent and its consolidated
subsidiaries as of the dates thereof and the consolidated results of operations
and changes in cash flows for the periods then ended (subject, in the case of
unaudited quarterly statements, to normal year-end audit adjustments as
determined by Parent's independent accountants). Except as set forth in the
Parent S.E.C. Documents, at the date of the most recent audited financial
statements of Parent included in the Parent S.E.C. Documents, neither Parent nor
any of its subsidiaries had, and since such date neither Parent nor any of such
subsidiaries has incurred, any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which, individually or in the
aggregate, could reasonably be expected to have a material adverse effect with
respect to Parent.
(f) Absence of Certain Changes or Events. Except as disclosed in the
Parent S.E.C. Documents, since the date of the most recent financial statements
included in the Parent S.E.C. Documents, Parent has conducted its business only
in the ordinary course consistent with past practice in light of its current
business circumstances, and there is not and has not been: (i) any material
adverse change with respect to Parent; (ii) any condition, event or occurrence
which, individually or in the aggregate, could reasonably be expected to have a
material adverse effect or give rise to a material adverse change with respect
to Parent; (iii) any event which, if it had taken place following the execution
of this Agreement, would not have been permitted by Section 4.02 without the
prior consent of the Company; or (iv) any condition, event or occurrence which
could reasonably be expected to prevent, hinder or materially delay the ability
of Parent to consummate the transactions contemplated by this Agreement.
(g) Interim Operations of Sub. Sub was formed in April 2003 solely for
the purpose of engaging in the transactions contemplated hereby, has (or will
have) engaged in no other business activities and has (or will have) conducted
its operations only as contemplated hereby.
(h) Benefit Plans. Except as set forth on Schedule 3.02(h), Parent is not
----------------
a party to any Benefit Plans.
(i) Environmental Matters. Parent and its subsidiaries are in compliance
with all Environmental Laws.
13
ARTICLE IV
Covenants Relating to
Conduct of Business Prior to Merger
-----------------------------------
4.01 Conduct of Business of the Company.
(a) Conduct of Business by the Company. During the period from the date of
this Agreement to the Effective Time of the Merger (except as otherwise
specifically required by the terms of this Agreement), the Company shall act and
carry on its business in the usual, regular and ordinary course of business
consistent with past practice and, to the extent consistent therewith, use its
reasonable best efforts to preserve intact its current business organization,
keep available the services of its current officers and employees and preserve
its relationships with customers, suppliers, advertisers, distributors and
others having business dealings with it to the end that its goodwill and ongoing
business shall be unimpaired at the Effective Time of the Merger.
(b) Changes in Employment Arrangements. The Company shall not amend the
employment arrangements of any of its employees.
(c) Severance. The Company shall not grant any new or modified severance
or termination arrangement or increase or accelerate any benefits payable under
its severance or termination pay policies in effect on the date hereof.
(d) Tax Elections. The Company shall not make any tax election or settle
or compromise any federal, state, local or foreign income tax liability.
(e) During the period from the date of this Agreement to the Effective
Time of the Merger, the Company shall not, without prior consent of the Parent:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (y) split, combine or
reclassify or otherwise alter the Parent Common Stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, except as expressly provided herein, or (z)
purchase, redeem or otherwise acquire any shares of Parent Common Stock or other
securities convertible into or exchangeable for such shares, except as expressly
provided herein;
(ii) authorize for issuance, issue, deliver or sell any shares of
Parent Common Stock, Parent Preferred Stock or other securities convertible into
or exchangeable for such shares;
(iii) make any changes in its Articles of Incorporation or Bylaws;
(iv) mortgage, pledge or subject to lien or encumbrance any of its
assets;
(v) waive any rights of value;
(vi) incur any debt, guarantee any debt of other parties or commit or
make any capital expenditures or investments;
14
(vii) make any loan, accrual or arrangement for or payment of bonuses
or special compensation of any kind or any severance or termination payment to
any of its present or former officers or employees;
(viii) change its method of accounting or management;
(ix) enter into any transactions;
(x) hire any persons;
(xi) adopt or enact any Benefit Plans;
(xii) grant or agree to grant any options, warrants or other rights
for its stock, bonds or other corporate securities calling for the issuance
thereof; or
(xiii) sell, transfer or agree to sell or transfer any assets.
4.02 Conduct of Business of Parent.
(a) During the period from the date of this Agreement to the Effective
Time of the Merger (except as otherwise specifically required by the terms of
this Agreement), Parent shall use its reasonable best efforts to preserve intact
its and its subsidiaries' current business organizations, keep available the
services of their current officers and employees and preserve their
relationships with others having business dealings with them to the end that
their goodwill and ongoing businesses shall be unimpaired at the Effective Time
of the Merger.
(b) During the period from the date of this Agreement to the Effective
Time of the Merger, Parent shall not, without the prior consent of the Company:
(i) (x) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, (y) split, combine
or reclassify or otherwise alter the Parent Common Stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, except as expressly provided
herein, or (z) purchase, redeem or otherwise acquire any shares of Parent Common
Stock or other securities convertible into or exchangeable for such shares,
except as expressly provided herein;
(ii) authorize for issuance, issue, deliver or sell any shares of
Parent Common Stock, Parent Preferred Stock or other securities convertible into
or exchangeable for such shares;
(iii) make any changes in its Articles of Incorporation or Bylaws;
(iv) mortgage, pledge or subject to lien or encumbrance any of its
assets;
(v) waive any rights of value;
(vi) incur any debt, guarantee any debt of other parties or commit
or make any capital expenditures or investments;
15
(vii) make any loan, accrual or arrangement for or payment of
bonuses or special compensation of any kind or any severance or termination
payment to any of its present or former officers or employees;
(viii) change its method of accounting or management;
(ix) enter into any transactions;
(x) hire any persons;
(xi) adopt or enact any Benefit Plans;
(xii) grant or agree to grant any options, warrants or other
rights for its stock, bonds or other corporate securities calling for the
issuance thereof; or
(xiii) sell, transfer or agree to sell or transfer any assets.
ARTICLE V
Additional Agreements
---------------------
5.01 Shareholders Meetings. The Company will, as promptly as practicable
following the execution of this Agreement, call, give notice of, convene and
hold a meeting of its shareholders (the "Shareholders Meeting") for the purpose
of approving this Agreement and the transactions contemplated by this Agreement.
5.02 Access to Information; Confidentiality.
(a) The Company shall, and shall cause its officers, employees, counsel,
financial advisors and other representatives to, afford to Parent and its
representatives reasonable access during normal business hours during the period
prior to the Effective Time of the Merger to its properties, books, contracts,
commitments, personnel and records and, during such period, the Company shall,
and shall cause its officers, employees and representatives to, furnish promptly
to Parent all information concerning its business, properties, financial
condition, operations and personnel as such other party may from time to time
reasonably request. For the purposes of determining the accuracy of the
representations and warranties of the Company set forth herein and compliance by
the Company of its obligations hereunder, during the period prior to the
Effective Time of the Merger, Parent shall provide the Company and its
representatives with reasonable access during normal business hours to its
properties, books, contracts, commitments, personnel and records as may be
necessary to enable the Company to confirm the accuracy of the representations
and warranties of Parent set forth herein and compliance by Parent and Sub of
their obligations hereunder, and, during such period, Parent shall, and shall
cause its subsidiaries, officers, employees and representatives to, furnish
promptly to the Company upon its request (i) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (ii) all
other information concerning its business, properties, financial condition,
operations and personnel as such other party may from time to time reasonably
request. Except as required by law, each of the Company and Parent will hold,
and will cause its respective directors, officers, employees, accountants,
16
counsel, financial advisors and other representatives and affiliates to hold,
any nonpublic information in confidence.
(b) No investigation pursuant to this Section 5.02 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
5.03 Best Efforts. Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement. Parent, Sub and the Company will use their best efforts and cooperate
with one another (i) in promptly determining whether any filings are required to
be made or consents, approvals, waivers, permits or authorizations are required
to be obtained (or, which if not obtained, would result in an event of default,
termination or acceleration of any agreement or any put right under any
agreement) under any applicable law or regulation or from any governmental
authorities or third parties, including parties to loan agreements or other debt
instruments and including such consents, approvals, waivers, permits or
authorizations as may be required to transfer the assets and related liabilities
of the Company to the Surviving Corporation in the Merger, in connection with
the transactions contemplated by this Agreement, and (ii) in promptly making any
such filings, in furnishing information required in connection therewith and in
timely seeking to obtain any such consents, approvals, permits or
authorizations. Parent and the Company shall mutually cooperate in order to
facilitate the achievement of the benefits reasonably anticipated from the
Merger.
5.04 Indemnification. For three (3) years after the Effective Time of the
Merger, Surviving Corporation shall indemnify all present and former directors
or officers of the Company for acts and omissions occurring prior to the
Effective Time of the Merger to the fullest extent now provided in its
certificate of incorporation or bylaws consistent with applicable law.
5.05 Public Announcements. Parent and Sub, on the one hand, and the Company, on
the other hand, will consult with each other before issuing, and provide each
other the opportunity to review and comment upon, any press release or other
public statements with respect to the transactions contemplated by this
Agreement and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
law or court process. The parties agree that the initial press release or
releases to be issued with respect to the transactions contemplated by this
Agreement shall be mutually agreed upon prior to the issuance thereof.
5.06 Expenses.
(a) If Parent or Company terminates this Agreement pursuant to Section
7.01(d) or 7.01(e) hereof respectively, the other party shall reimburse the
terminating party (promptly after submission of statements therefore) for all
out-of-pocket expenses and fees actually incurred by it or on its behalf in
connection with the Merger and the consummation of all transactions contemplated
by this Agreement in connection with the negotiation, preparation, execution and
performance of this Agreement up to a maximum of $50,000.
17
(b) Except as provided above, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses.
5.07 Directorships. Promptly following the Effective Time of the Merger,
Parent's Board of Directors will take all action to cause the Board of Directors
of Parent to consist of Xxxxxxx Xxxxxx, Xxxx Xxxxxxx, Xxxx Xxxxxx, Faysal
Zarooni and Xxxxx Xxxxx to be directors of Parent.
5.08 No Solicitation. Except as previously agreed to in writing by the Company,
Parent shall not authorize or permit any of its officers, directors, agents,
representatives, or advisors to (a) solicit, initiate or encourage or take any
action to facilitate the submission of inquiries, proposals or offers from any
person relating to any matter concerning any merger, consolidation, business
combination, recapitalization or similar transaction involving Parent other than
the transaction contemplated by this Agreement or any other transaction the
consummation of which would or could reasonably be expected to impede, interfere
with, prevent or delay the Merger or which would or could be expected to dilute
the benefits to the Company of the transactions contemplated hereby. Parent will
immediately cease and cause to be terminated any existing activities,
discussions and negotiations with any parties conducted heretofore with respect
to any of the foregoing.
ARTICLE VI
Conditions Precedent
--------------------
6.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. The Company Shareholder Approval shall have been
obtained.
(b) OTCBB Clearance. The shares of Parent Common Stock shall have been
cleared for quotation on the Over-the-Counter Bulletin Board.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect.
(d) No Dissent. Holders of no more than twenty percent (20%) of the
Company's Common Stock shall have dissented to the Merger.
6.02 Conditions to Obligations of Parent and Sub. The obligations of Parent
and Sub to effect the Merger are further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company set forth 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 Date as though made on and as of the Closing Date. Parent shall have
18
received a certificate signed on behalf of the Company by the president of the
Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed the obligations required to be performed by it under this Agreement at
or prior to the Closing Date (except for such failures to perform as have not
had or could not reasonably be expected, either individually or in the
aggregate, to have a material adverse effect with respect to the Company or
adversely affect the ability of the Company to consummate the transactions
herein contemplated or perform its obligations hereunder), and Parent shall have
received a certificate signed on behalf of the Company by the president of the
Company to such effect.
(c) Consents, etc. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and other third parties as necessary in connection with the transactions
contemplated hereby have been obtained.
(d) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (or by any other person any
suit, action or proceeding which has a reasonable likelihood of success), (i)
challenging or seeking to restrain or prohibit the consummation of the Merger or
any of the other transactions contemplated by this Agreement or seeking to
obtain from Parent or any of its subsidiaries any damages that are material in
relation to Parent and its subsidiaries taken as a whole, (ii) seeking to
prohibit or limit the ownership or operation by the Company, Parent or any of
its subsidiaries of any material portion of the business or assets of the
Company, Parent or any of its subsidiaries, or to dispose of or hold separate
any material portion of the business or assets of the Company, Parent or any of
its subsidiaries, as a result of the Merger or any of the other transactions
contemplated by this Agreement, (iii) seeking to impose limitations on the
ability of Parent or Sub to acquire or hold, or exercise full rights of
ownership of, any shares of Company Common Stock or Common Stock of the
Surviving Corporation, including, without limitation, the right to vote the
Company Common Stock or Common Stock of the Surviving Corporation on all matters
properly presented to the shareholders of the Company or the Surviving
Corporation, respectively, or (iv) seeking to prohibit Parent or any of its
subsidiaries from effectively controlling in any material respect the business
or operations of the Company.
6.03 Conditions to Obligation of the Company. The obligation of the Company to
effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Sub set forth 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 Date as though made on and as of the Closing Date. The Company shall
have received a certificate signed on behalf of Parent by the president of
Parent to such effect.
(b) Performance of Obligations of Parent and Sub. Parent and Sub shall
have performed the obligations required to be performed by them under this
Agreement at or prior to the Closing Date (except for such failures to perform
as have not had or could not reasonably be expected, either individually or in
19
the aggregate, to have a material adverse effect with respect to Parent or
adversely affect the ability of Parent to consummate the transactions herein
contemplated or perform its obligations hereunder), and the Company shall have
received a certificate signed on behalf of Parent by the president of Parent to
such effect.
(c) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (or by any other person, any
suit, action or proceeding which has a reasonable likelihood of success), which
could reasonably be expected, if adversely determined, to result in criminal or
material uninsured and unindemnified or unindemnifiable personal liability on
the part of one or more directors of the Company, (i) challenging or seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement or (ii) seeking to prohibit or limit
the ownership or operation by the Company, Parent or any of its subsidiaries, or
to dispose of or hold separate any material portion of the business or assets of
the Company, Parent or of its any subsidiaries, as a result of the Merger.
(d) Consents, etc. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and other third parties as necessary in connection with the transactions
contemplated hereby have been obtained.
ARTICLE VII
Termination, Amendment and Waiver
---------------------------------
7.01 Termination. This Agreement may be terminated and abandoned at any time
prior to the Effective Time of the Merger:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable;
(c) by either Parent or the Company if the Merger shall not have been
consummated on or before June 30, 2003 (other than as a result of the failure of
the party seeking to terminate this Agreement to perform its obligations under
this Agreement required to be performed at or prior to the Effective Time of the
Merger);
(d) by Parent, if the Company willfully fails to perform in any material
respect any of its material obligations under this Agreement; or
(e) by the Company, if Parent or Sub willfully fails to perform in any
material respect any of their respective material obligations under this
Agreement.
7.02 Effect of Termination. In the event of termination of this Agreement by
either the Company or Parent as provided in Section 7.01, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
20
the part of Parent, Sub or the Company, other than the provisions of the last
sentence of Section 5.02(a) and this Section 7.02. Nothing contained in this
Section shall relieve any party for any breach of the representations,
warranties, covenants or agreements set forth in this Agreement.
7.03 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
7.04 Extension; Waiver. At any time prior to the Effective Time of the Merger,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement, or (c) waive compliance with any
of the agreements or conditions contained in this Agreement. Any agreement on
the part of a 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. The failure of
any party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
7.05 Procedure for Termination, Amendment, Extension or Waiver. A termination
of this Agreement pursuant to Section 7.01, an amendment of this Agreement
pursuant to Section 7.03 or an extension or waiver of this Agreement pursuant to
Section 7.04 shall, in order to be effective, require in the case of Parent,
Sub or the Company, action by its Board of Directors.
ARTICLE VIII
General Provisions
------------------
8.01 Nonsurvival of Representations and Warranties. None of the representations
and warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time of the Merger. This Section 8.01
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time of the Merger.
8.02 Notices. All notices, requests, claims, demands and other communications
under this Agreement shall be in writing and shall be deemed given if delivered
personally or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or Sub, to:
Alpha Virtual, Inc.
00000 Xxxx Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxx Xxxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxx, President
Fax: (000) 000-0000
21
with a copy to:
Law Offices of Xxxxxxx X. Xxxxxxx
00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx Xxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx Xxxxxxx, Esq.
Fax: (000) 000-0000
(b) if to the Company, to:
EssTec, Inc.
0000 Xxxx Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxxx, XX 00000
Attn: Xxx Xxxxx, President
Fax: (000) 000-0000
with a copy to:
Xxxxxxxxxxx & Xxxxxxxx, LLP
00000 Xxxxx Xxxxxx Xxxxxxxxx
0xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
22
8.03 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "material adverse change" or "material adverse effect" means, when
used in connection with the Company or Parent, any change or effect that either
individually or in the aggregate with all other such changes or effects is
materially adverse to the business, assets, properties, condition (financial or
otherwise) or results of operations of such party and its subsidiaries taken as
a whole (after giving effect in the case of Parent to the consummation of the
Merger);
(c) "person" means an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity; and
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its board of Directors or
other governing body (or, if there are no such voting interests, fifty percent
(50%) or more of the equity interests of which) is owned directly or indirectly
by such first person.
8.04 Interpretation. When a reference is made in this Agreement to a Section,
Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or
Schedule to, this Agreement unless otherwise indicated. The 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".
8.05 Entire Agreement; No Third-Party Beneficiaries. This Agreement and the
other agreements referred to herein constitute the entire agreement, and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement. This Agreement
is not intended to confer upon any person other than the parties any rights or
remedies.
8.06 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Nevada, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
8.07 Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
8.08 Enforcement. The parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed n
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
23
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of California, this being in addition to any other remedy
to which they are entitled at law or in equity. In addition, each of the parties
hereto (a) consents to submit itself to the personal jurisdiction of the Los
Angeles Superior Court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement to the extent such courts
would have subject matter jurisdiction with respect to such dispute, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction or venue
by motion or other request for leave from any such court, and (c) agrees that it
will not bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any state court other than such court.
8.09 Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
8.10 Counterparts. This Agreement may be executed in one or more identical
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more such counterparts shall have been
executed by each of the parties and delivered to the other parties.
24
IN WITNESS WHEREOF, the undersigned have caused their duly authorized
officers (or representatives in the case of Sub) to execute this Agreement as of
the date first above written.
ALPHA VIRTUAL, INC.
By: /s/ Xxxxxxx Xxxxxx
-----------------------------------
Name: Xxxxxxx Xxxxxx
Title: President
Attest:
/s/ Xxxx Xxxxxx
-----------------------------------
Xxxx Xxxxxx, Secretary
ALPHA ACQUISITION CORP.
By: /s/ Xxxxxxx Xxxxxx
-----------------------------------
Name: Xxxxxxx Xxxxxx
Title: President
Attest:
/s/ Xxxx Xxxxxx
-----------------------------------
Xxxx Xxxxxx, Secretary
ESSTEC, INC.
By: /s/ Xxx Xxxxx
----------------------------------
Name: Xxx Xxxxx
Title: President
Attest:
/s/ Xxxxx Xxxxxx
----------------------------------
Xxxxx Xxxxxx, Secretary
25
Schedule 3.01(a)
----------------
1. Certificate of Incorporation
2. By-Laws of the Company.
26
Schedule 3.01 (b)
-----------------
Subsidiaries
None
27
Schedule 3.01(c)
Outstanding Common Stocks
----------------------------------------------------- --------------
Investor Name & Address # of Shares
----------------------------------------------------- --------------
Xxxxx Xxxxx Xxxxxx 15,000
----------------------------------------------------- --------------
Xxxxx Xxxxx T. Muhiedeen 9,028
----------------------------------------------------- --------------
Xxxxx Xxxxx Khan 171,600
----------------------------------------------------- --------------
Xxxx Xxxxxxx 5,000
----------------------------------------------------- --------------
Xxxxx Xxxx 37,500
----------------------------------------------------- --------------
Adriem Xxxxx 2,500
----------------------------------------------------- --------------
Afshan and Xxxxxxx Xxxxxxxx 10,000
----------------------------------------------------- --------------
Ahmed Xxxxx Xxxxx Xxxxx 10,000
----------------------------------------------------- --------------
Xxxx Xxxxx 13,000
----------------------------------------------------- --------------
Xxxxxxxxx X. Xxxxx 4,000
----------------------------------------------------- --------------
Americal Legal Network 10,000
----------------------------------------------------- --------------
Xxxx Xxxx 1,500
----------------------------------------------------- --------------
Xxxx Xxxxxxxx 10,000
----------------------------------------------------- --------------
Xxxxxxx X. Xxxxxxx 3,100
----------------------------------------------------- --------------
Xxxxxx X' Xxxxx 500
----------------------------------------------------- --------------
Xxxx Xxxxxxx 2,000
----------------------------------------------------- --------------
Xxxxx Xxxxx 40,000
----------------------------------------------------- --------------
Bombaywala Family Trust 5,000
----------------------------------------------------- --------------
Xxxxx and Xxxxxxx Xxxxxx 1,000
----------------------------------------------------- --------------
Xxxxx Xxxxxx 500
----------------------------------------------------- --------------
Xxxxxx Xxxxxxxx 2,000
----------------------------------------------------- --------------
Xxxx Xxxxx 5,000
----------------------------------------------------- --------------
Xxxxxxxxxxx Xxxxxxx Xxxxxx 750
----------------------------------------------------- --------------
28
----------------------------------------------------- --------------
Investor Name & Address # of Shares
----------------------------------------------------- --------------
Xxxxxxxxxxx Xxxx Xxxxx 500
----------------------------------------------------- --------------
Xxxxxxxxxxx Xxxx 500
----------------------------------------------------- --------------
Xxxxx Xxxxxx 2,000
----------------------------------------------------- --------------
Xxxxx X. Xxxxxx 500
----------------------------------------------------- --------------
Xxxxx Xxxxx and Associates, Escrow Agent 15,456
----------------------------------------------------- --------------
Xxxxx Xxxxxxxx 1,000
----------------------------------------------------- --------------
Xxxxx X. Xxx 1,000
----------------------------------------------------- --------------
Xxxxxx Juergans 2,000
----------------------------------------------------- --------------
Xx. Xxxxx Xxxxx 4,000
----------------------------------------------------- --------------
Xx. Xxxx Jafar 5,000
----------------------------------------------------- --------------
Dr. Xxxxxxxx Xxxx 4,000
----------------------------------------------------- --------------
Xx. Xxxx Pasha 1,000
----------------------------------------------------- --------------
Xxxx X. Xxxx 28,000
----------------------------------------------------- --------------
Dr. Seroush 2,400
----------------------------------------------------- --------------
Xx. Xxxx Xxxxxx Xxxxx 4,000
----------------------------------------------------- --------------
Xxxx Van Der Velden 2,000
----------------------------------------------------- --------------
Xxxx X. Xxxxxxx and A. Xxxxxxxx Xxxxxxx 20,000
----------------------------------------------------- --------------
Xxxxx-Xxxxx Xxxxxx 500
----------------------------------------------------- --------------
Xxxxx X. XxXxxx 500
----------------------------------------------------- --------------
Xxxxx Xxxxxxx Xxxxxxxxx 555
----------------------------------------------------- --------------
Xxxxxxx Ventures Limited 47,618
----------------------------------------------------- --------------
Xxxxxx Xxxxxx 500
----------------------------------------------------- --------------
Xxxxxx Xxxxxx 400
----------------------------------------------------- --------------
Xxxxx Xxxxxx 1,000
----------------------------------------------------- --------------
Xxxxxx Xxxxx 500
----------------------------------------------------- --------------
Hay-xxx-Xxx 20,000
----------------------------------------------------- --------------
29
----------------------------------------------------- --------------
Investor Name & Address # of Shares
----------------------------------------------------- --------------
HSC Capital Ltd. 23,530
----------------------------------------------------- --------------
Xxxxx Xxxxxx 172,000
----------------------------------------------------- --------------
Xxxxx Xxxxxx 200,000
----------------------------------------------------- --------------
Xxxxx Xxxxx 1,000
----------------------------------------------------- --------------
Xxxxx Xxxxx 1,000
----------------------------------------------------- --------------
Xxxx Ltd 1,200
----------------------------------------------------- --------------
Janaharan Xxxxxxxxxx 5,000
----------------------------------------------------- --------------
Xxxx Xxxxxx 500
----------------------------------------------------- --------------
Xxxx X. Xxxxx 300
----------------------------------------------------- --------------
Xxxx Xxxxxx 1,000
----------------------------------------------------- --------------
Xxxx Xxxxxxxx 500
----------------------------------------------------- --------------
Xxxxxx X. Xxxxx Irrev. Trust Dtd. 12/21/85 2,000
----------------------------------------------------- --------------
Xxxxxxx X. Xxxxx Rev. Trust Dtd. 05/25/94 6,000
----------------------------------------------------- --------------
Khelifa Ventures 300,000
----------------------------------------------------- --------------
Knightrider Investments, Ltd. 500,347
----------------------------------------------------- --------------
Xxxx Xxxxxxxxx 1,500
----------------------------------------------------- --------------
Xxxx and Xxxx Xxxxxxx 500
----------------------------------------------------- --------------
Lu Min 5,000
----------------------------------------------------- --------------
Xxxxx Xxxx, Inc. 100,000
----------------------------------------------------- --------------
Xxxx Xxxxxx 2,000
----------------------------------------------------- --------------
Xxxx Xxxxx 40,000
----------------------------------------------------- --------------
Xxxxxx Xxxxx 1,000
----------------------------------------------------- --------------
Xxxxxxx Xxxxxx Xxxxxx/Xxx Xxxxx Xxxxxx 5,000
----------------------------------------------------- --------------
Xxxxxxxx Xx 2,000
----------------------------------------------------- --------------
Xxxxxxxx Xxxx 100,000
----------------------------------------------------- --------------
Xxxxxxxx Securities International, Ltd. 25,000
----------------------------------------------------- --------------
30
----------------------------------------------------- --------------
Investor Name & Address # of Shares
----------------------------------------------------- --------------
Xxxxx Xxxxx 1,000
----------------------------------------------------- --------------
Xxxxx Xxxxxx 3,000
----------------------------------------------------- --------------
Xxxx Xxxx 1,000
----------------------------------------------------- --------------
Xxxxx Xxxx 10,000
----------------------------------------------------- --------------
Xxxxxxx Xxxxxxx 1,500
----------------------------------------------------- --------------
Xxxxxxxx Xxxxxx 1,000
----------------------------------------------------- --------------
Xxxxxx Xxxx 1,000
----------------------------------------------------- --------------
Xxxxx Xxxxxxxx 400
----------------------------------------------------- --------------
Xxxx Xxxxxx 1,000
----------------------------------------------------- --------------
Xxxx Xxxxxxxx 500
----------------------------------------------------- --------------
Xxxxx X. Xx 2,000
----------------------------------------------------- --------------
Pei-Xxx Xxx 10,000
----------------------------------------------------- --------------
Xxxxx Xxxxxxxx 1,000
----------------------------------------------------- --------------
Xxxxx Xxxxxxxxxx 1,000
----------------------------------------------------- --------------
Xxxxx X. Xxxxxxx 33,333
----------------------------------------------------- --------------
Xxxxxxx Xxxxx 1,000
----------------------------------------------------- --------------
Xxxxxx X. Xxxxxxx 16,000
----------------------------------------------------- --------------
Xxxxxx Xxxxxxx 500
----------------------------------------------------- --------------
Xxxxxx Xxxxxxx 72,000
----------------------------------------------------- --------------
Xxx X Xxxxxx 1,000
----------------------------------------------------- --------------
Xxxxxx X. Xxxxxx, Trustee of the Winthrop Trust
dated 6/25/93 150,000
----------------------------------------------------- --------------
Xxxxxx Corporate Group 75,000
----------------------------------------------------- --------------
Xxxx Van Heerden 3,500
----------------------------------------------------- --------------
Xxxxx Xxxx 12,857
----------------------------------------------------- --------------
Xxx Xxxx Xxxxx 2,000
----------------------------------------------------- --------------
Xxxxx Xxxx 182,857
----------------------------------------------------- --------------
31
----------------------------------------------------- --------------
Investor Name & Address # of Shares
----------------------------------------------------- --------------
Xxxxxx Xxxxxxx 10,000
----------------------------------------------------- --------------
Shokat & Nazira Aubhai 40,000
----------------------------------------------------- --------------
Xxxxxx Xxxx 50,000
----------------------------------------------------- --------------
Xxxxxxx XxXxxx 1,000
----------------------------------------------------- --------------
Xxxxx X. Xxxxxx and Xxxxxxxx X. Xxxxxx, JTWROS 2,000
----------------------------------------------------- --------------
Xxxxxx X. Xxxxxx 5,000
----------------------------------------------------- --------------
Xxxxx Xxxxx 50,000
----------------------------------------------------- --------------
Xxxxx X. Xxxxx 10,000
----------------------------------------------------- --------------
Taseer Badar 10,000
----------------------------------------------------- --------------
Xxxxxxx Xxxxx 5,000
----------------------------------------------------- --------------
Xxx Xxx 5,000
----------------------------------------------------- --------------
Xxxx Xxxx 11,000
----------------------------------------------------- --------------
Xxxx Xxxxxx 33,333
----------------------------------------------------- --------------
Unico Finance Ltd. 859,257
----------------------------------------------------- --------------
Verifica International Ltd. 66,675
----------------------------------------------------- --------------
Viaura Holdings 66,666
----------------------------------------------------- --------------
Winthrop Venture Fund, Ltd. 423,500
----------------------------------------------------- --------------
Xxxxx Xxxxxxx 5,000
----------------------------------------------------- --------------
ZT Financial Network 3,000
----------------------------------------------------- --------------
ZT Global Investments 15,000
----------------------------------------------------- --------------
32
Outstanding Stock Options
-------------------------------- ------------------- -------------------
Optionee's Name # of Options Exercise Price
-------------------------------- ------------------- -------------------
Xxxxxxxx Xxxx 1,643 $0.10
-------------------------------- ------------------- -------------------
Xxxxx Xxxxxxx 1,643 $ 0.10
-------------------------------- ------------------- -------------------
Xxxxxx Xxxxx 1,643 $0.10
-------------------------------- ------------------- -------------------
Xxxxxx Xxxxxxx 1,428 $0.10
-------------------------------- ------------------- -------------------
Xxxxx Xxxxxxx 1,428 $0.10
-------------------------------- ------------------- -------------------
Xxxxxxxx Xxxxx 1,035 $0.10
-------------------------------- ------------------- -------------------
Xxxxxxx Xxxxxxx 1,035 $0.10
-------------------------------- ------------------- -------------------
Xxxxx Xxxxxx 1,428 $0.50
-------------------------------- ------------------- -------------------
Xxxxxx Xxxxx 1,428 $0.50
-------------------------------- ------------------- -------------------
Xxxxx Xxxxx Xxxxxx 50,000 $1.00
-------------------------------- ------------------- -------------------
Xxxxxx Xxxxx 5,000 $1.00
-------------------------------- ------------------- -------------------
Khalifa Ventures 200,000 $1.25
-------------------------------- ------------------- -------------------
Sinlex Finance Ltd 100,000 $1.25
-------------------------------- ------------------- -------------------
Xxxxxx Corporation 200,000 $1.25
-------------------------------- ------------------- -------------------
Xxxxxx Xxxxxxx 25,000 $1.50
-------------------------------- ------------------- -------------------
Xxxx Xxxxx Xxxxx 75,000 $1.75
-------------------------------- ------------------- -------------------
Faysal Al-Zarooni 75,000 $1.75
-------------------------------- ------------------- -------------------
Xxxxx Xxxxxx 7,500 $3.50
-------------------------------- ------------------- -------------------
Xxxxxx Xxxxxxx 10,000 $3.50
-------------------------------- ------------------- -------------------
Xxxxxx Xxxxxxx 12,500 $3.50
-------------------------------- ------------------- -------------------
Xxxxxx Xxxxxxx 25,000 $3.50
-------------------------------- ------------------- -------------------
Xxxxxx Xxxxxxx 25,000 $3.50
-------------------------------- ------------------- -------------------
Xxxxxxx X. Xxxxx 7,500 $3.50
-------------------------------- ------------------- -------------------
Xxxx Xxxxx 5,000 $3.50
-------------------------------- ------------------- -------------------
Xxxxxx Corporation 37,500 $3.50
-------------------------------- ------------------- -------------------
33
-------------------------------- ------------------- -------------------
Optionee's Name # of Options Exercise Price
-------------------------------- ------------------- -------------------
Red Sea Ltd 150,000 $3.50
-------------------------------- ------------------- -------------------
Panna Sharma 2,500 $3.50
-------------------------------- ------------------- -------------------
Xxxx Xxxxxx 150,000 $3.50
-------------------------------- ------------------- -------------------
Xxxx Xxxxxxx 30,000 $3.50
-------------------------------- ------------------- -------------------
Elegant Set-up 100,000 $3.50
-------------------------------- ------------------- -------------------
Khalid El-Saadi 25,000 $5.00
-------------------------------- ------------------- -------------------
Xxx Xxxxx 100,000 $5.00
-------------------------------- ------------------- -------------------
Xxxxxx Xxxxxxx 20,000 $5.00
-------------------------------- ------------------- -------------------
Xxxxx Xxxxx 1,500 $5.00
-------------------------------- ------------------- -------------------
34
Outstanding Warrants
--------------------------------------- ---------------- ----------------
Warrant Holder # of Warrants Exercise Price
--------------------------------------- ---------------- ----------------
Xxxxx Xxxx, Inc. 70,000 $1.00
--------------------------------------- ---------------- ----------------
Winthrop Venture Fund 50,000 $1.00
--------------------------------------- ---------------- ----------------
Winthrop Venture Management 2,500 $1.00
--------------------------------------- ---------------- ----------------
Sark Investment, Ltd 75,000 $1.00
--------------------------------------- ---------------- ----------------
Winthrop Trust 50,000 $1.00
--------------------------------------- ---------------- ----------------
Xxxxxx Xxxxx 16,634 $1.00
--------------------------------------- ---------------- ----------------
Xxxxxx & Xxxxxxxxxx 20,000 $3.50
--------------------------------------- ---------------- ----------------
Company Indebtedness
----------------------------------------------------- --------------
Debtor Amount
----------------------------------------------------- --------------
First Step Inc $21,985.00
----------------------------------------------------- --------------
Xx. Xxxxxx Xxxx $25,000.00
----------------------------------------------------- --------------
Manhattan Capital Partners $14,034.00
----------------------------------------------------- --------------
Red Sea Ltd $150,000.00
----------------------------------------------------- --------------
Winthorpe Venture Fund $31,014.00
----------------------------------------------------- --------------
Manhattan West $56,835.00
----------------------------------------------------- --------------
Xxxxxxx & Beam $8,000.00
----------------------------------------------------- --------------
Xxxxxx & Yap $8,539.00
----------------------------------------------------- --------------
Xxxxxx Corporate Group $25,500.00
----------------------------------------------------- --------------
Singer Lewak Xxxxxxxxx & Xxxxxxxxx $10,000.00
----------------------------------------------------- --------------
Xxxxx Xxxxxx $15,000.00
----------------------------------------------------- --------------
Payroll Taxes $91,366.00
----------------------------------------------------- --------------
35
Schedule 3.01(g)
----------------
1. Company Stock Option Plan.
36
Schedule 3.01(h)
----------------
Employee Indebtedness
----------------------------------------------------- --------------
Employee Amount
----------------------------------------------------- --------------
Xxxxx Xxxx $17,071.00
----------------------------------------------------- --------------
Xxxxx X Xxxxxx $25,500.00
----------------------------------------------------- --------------
Xxxxxxxx Xxx Xxxxx $17,477.00
----------------------------------------------------- --------------
Xxxxx Xxxxxxxx $29,738.00
----------------------------------------------------- --------------
Xxx Xxxxx $65,000.00
----------------------------------------------------- --------------
37
Schedule 3.01(k)
----------------
1. Medflow Solutions Inc.
2. Elite Medical Management Inc.
38
Schedule 3.02 (b)
-----------------
Subsidiaries
None
39
Schedule 3.02 (c)
-----------------
Outstanding Bonds, Notes, Debentures, Etc.
As of March 31, 2003 and March 31, 2002, there is a loan outstanding of $50,000
with a foreign customer. The note bears interest at 6% per year. The terms of
the note required repayment by March 1, 1996 and it is questionable whether this
note will be repaid.
As of March 31, 2003 and March 31, 2002 respectively the Company had loans
outstanding of $18,000 and $28,000 to various shareholders. $10,000 of the notes
were converted into 66,665 shares (13,333 shares after the November 2002 stock
split). These loans are past due as of March 31,2002. The loans are convertible
to common stock at $0.15 per share at the option of the note holders ($0.75 per
share after the November 2002 stock split) and $5.25 per share after the April,
2003 reverse split of 1:7.
On July 9, 2002, the Company entered into a Restated Multiple Advance
Convertible Promissory Note (the "Note") with its principal shareholder ("GAC").
The Note provides up to $425,000 of term debt to the Company maturing on July 9,
2003 at an interest rate of 11.5 percent. As of March 31, 2003, the Company
amended the note and had borrowed an aggregate of $435,000 from GAC. The Note is
convertible, at the election of GAC, into the Company's common stock at a price
per share equal to 30% of the average trading price for the twenty business day
period prior to date of conversion. The Note is secured, pursuant to a Security
Agreement, by all of the Company's computer software programs. The terms of the
note require repayment on demand, but in no event, earlier than July 9, 2003.
The Company recorded accrued interest of $13,415 at December 31, 2002 and
$11,962 at March 31, 2003 related to the note.
40
Schedule 3.02 (e)
-----------------
S.E.C. Documents
Although the Parent is current in all of its filings with the Securities and
Exchange Commission, it has received two comment letters from the S.E.C. on its
past filings. Both comment letters have been delivered to counsel for the
Company, and the Parent is actively involved in responding to such comments.
In regard to its private placement in December 2002, the Parent has not filed
its Form D with the S.E.C. or the State of California. The Form D will be filed
with both governmental agencies prior to the closing.
41
Schedule 3.02 (h)
-----------------
Benefit Plans
The Parent has one benefit plan-401K Employees Savings Plan
and Retirement Trust.
42
