EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") made this 16th of January, 2004 by
and among XXXXXXXXXXXX.XXX, INC., a Nevada corporation ("Parent"), FPQT
ACQUISITION CORPORATION, a Nevada corporation ("Sub"), and DIGITAL LEARNING
INSTITUTE, INC., a Delaware 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
1.01 The Merger. Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Delaware Corporations Code (the "Delaware
Statutes") and the Nevada Corporations Code (the "Nevada 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 Digital Learning Institute, 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 Delaware and Nevada
Statutes. The Merger shall become effective at such time as the Articles of
Merger are duly filed with the Secretaries of State of Delaware and Nevada (as
applicable), respectively, or at such other time as is permissible in accordance
with the Delaware and Nevada 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"). Parent shall use reasonable
efforts to have the Closing Date and the Effective Time of the Merger to be the
same day.
1.04 Effects of the Merger. The Merger shall have the effects set forth in the
applicable provisions of the California, Delaware and Nevada Statutes.
1.05 Articles of Incorporation; Bylaws; Purposes.
(a) The Certificate of Incorporation of the Company in effect
immediately prior to the Effective Time of the Merger shall be the Certificate
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 of
its authorized capital stock shall be as set forth in the Certificate 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 may be amended as
provided in the Certificate 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
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 therefor.
(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"). Two Million Two Hundred Fifteen Thousand Eight Hundred Three
(2,215,803) shares of said Merger Consideration shall be the "Initial Deposit"
and deposited by the Parent with the Exchange Agent (as described below) further
to Section 2.04(a) herein, and Thirty Eight Thousand One Hundred Twenty Nine
(38,129) shares of said Merger Consideration shall be deposited into escrow
pursuant to the terms hereof, such shares to be known as the "Merger
Consideration Escrow Deposit" and which will be deposited by the Escrow Agent
(as described below) with the Exchange Agent (as described below) further to
Section 2.04(b)(vi) herein. In addition, the Parent shall deposit an additional
Thirty Eight Thousand One Hundred Twenty Nine (38,129) shares of its Common
Stock into escrow with the Escrow Agent further to Section 2.04(b) herein (the
"Parent Escrow Deposit").
(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 Delaware 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 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.
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(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 therefor upon surrender of such certificate in accordance with
Section 2.04.
(f) Issuance of Additional Shares. As of the Effective Time of the
Merger, Parent shall issue an additional Sixty Six Thousand Eighty Eight
(66,088) shares of Parent Common Stock to the following to individuals in the
following amounts:
Xxx Xxxxx 16,522
Xxx Xxxxxxxxxxxx 8,261
Xxxxxx Xxxxxxxxxxxx 8,261
Xxxxxxx Xxxxxxxxx 16,522
Xxxx Xxxxxxx 16,522
2.02 Exchange Ratio. The "Exchange Ratio" is as follows:
Each share of Company Common Stock shall be converted into .4431606 of a share
of Parent Common Stock in the Merger, an Exchange Ratio of 1:.4431606. The
Initial Deposit shall be distributable by the Exchange Agent effective as of the
Effective Time of the Merger in accordance with the provisions of Section
2.04(a) herein and the Escrow Deposit shall be distributable pursuant to the
provisions of Section 2.04(b)(iv) herein. No fractional Parent Common Stock
shall be issued in the Merger. If the product of the number of shares a Company
shareholder holds immediately prior to the Closing multiplied by the exchange
ratio would result in the issuance of a fractional share of Parent Common Stock,
that product will be rounded down to the nearest whole number of shares of
Parent Common Stock if it is equal to or less than the fraction of one-half (.5)
of one Parent Common Stock or round up to the nearest whole number of shares of
Parent Common Stock if the said product is greater than the fraction of one-half
(.5) of one Parent Common Stock.
2.03 Stock Options; Warrants.
(a) Assumption. At the Effective Time of the Merger, all options to
purchase Company Common Stock then outstanding under the Company's Stock Option
Plan (the "Company Option Plan"), and all options to purchase Company Common
Stock then outstanding which are not under the Company Option Plan, and all
outstanding warrants to purchase Company Common Stock the outstanding 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.
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(b) Stock Options and Warrants. At the Effective Time of the Merger,
each outstanding option to purchase Company Common Stock (each, a "Company Stock
Option"), whether or not granted under the Company Option Plan, and all
outstanding warrants to purchase Company Common Stock the outstanding whether or
not vested, shall by virtue of the Merger be assumed by Parent. Each Company
Stock Option and Warrant 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 and 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 Company Shares that were issuable
upon exercise of such Company Stock Option or Warrant 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 if the said product is
equal to or less than the fraction of one-half (.5) of one Parent Common Stock
or rounded up to the nearest whole number of shares of Parent Common Stock if
the said product is greater than the fraction of one-half (.5) of one 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 and
Warrant will be equal to the quotient determined by dividing the exercise price
per Company Share at which such Company Stock Option and Warrant 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 Warrants 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 and Warrants on
the terms set forth in this Section 2.03(b).
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 Initial Deposit with
its transfer agent (the "Exchange Agent"), for the benefit of the holders of
shares of Company Common Stock, for exchange in accordance with this Article II.
Any shares remaining in the Escrow Deposit (as described below) after the
Settlement Date (as described below) will be transferred by the Escrow Agent (as
described below) to the Exchange Agent further to the provisions of Section
2.04(b)(vi) herein, for the benefit of the holders of shares of Company Common
Stock, for disbursement pro rata to the holders of shares of Company Common
Stock as of the Effective Date of the Merger.
(b) Escrow Deposit.
(i) At the Effective Time of the Merger, Parent will cause to
be delivered to Westpark Capital, Inc. as escrow agent (the "Escrow Agent") the
Merger Consideration Escrow Deposit and the Parent Escrow Deposit to be held
pursuant to the Escrow Agreement attached thereto as Exhibit A (The "Escrow
Agreement").
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(ii) The settlement date as set forth herein and in the Escrow
Agreement (the "Settlement Date") shall be such date which is six months from
the Effective Time of the Merger and the date of the resolution of any Contests
further to Section 8.03 herein.
(iii) After the Settlement Date (a) all shares of the Parent
Escrow Deposit pursuant to which Indemnity Claims were paid further to the
provisions of the Escrow Agreement and (b) all remaining shares, if any, in the
Merger Consideration Escrow Deposit shall be transferred by the Escrow Agent to
the Exchange Agent for disbursement further to Section 2.04(a) herein, said
transfer to take place within ten (10) business days after the Settlement Date.
Exchange Agent shall deliver stock certificates of Parent Common Stock to
Company shareholders of record as of the date immediately prior to the Closing
within twenty (20) business days of receiving the aforementioned shares from
Escrow Agent. The number of shares of Parent Common Stock referenced above and
evidenced in the delivered stock certificates to each Company shareholder will
be in accordance with said shareholder's pro rata holding of Company Common
Stock as of the date immediately prior to the Closing and the terms of Section
2.02 hereof.
(c) 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.
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(d) 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. In addition, after the
Settlement Date, all remaining shares, if any, in the Parent Escrow Deposit
shall be transferred by the Escrow Agent to the Parent for cancellation, said
transfer to take place within ten (10) business days after the Settlement Date.
(e) 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.
(f) 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, 2004 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
3.01 Representations and Warranties of the Company. Except as set forth in the
Company Disclosure Schedule (as defined in subsection 3.01(a)), attached hereto
as Exhibit B, or a certain schedule comprising the Disclosure Schedule, 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
Delaware 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 9.02) with respect to 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.
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(c) Capital Structure. The authorized capital stock of the Company
consists of Ten Million (10,000,000) shares of Company Common Stock and Two
Million (2,000,000) shares of Preferred Stock. There are Five Million
(5,000,000) shares of Common Stock outstanding. One Hundred Forty Two Thousand
One Hundred Two (142,102) shares of Company Common Stock are issuable upon
exercise of outstanding Company Stock Options and Twenty-Eight Thousand Six
Hundred Eight (28,680) shares of Company Common Stock are issuable upon exercise
of outstanding 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. There are no 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. The Company
Disclosure Schedule sets forth the outstanding Capitalization of the Company.
Except as set forth above, 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. Other than the Company Stock 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. There are
no agreements or arrangements pursuant to which the Company 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 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.
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(e) Absence of Certain Changes or Events. Since December 31, 2003, 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. 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. 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 is not, or has not,
received any 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. For purposes of this Agreement, a Material Contract
means any contract, agreement or commitment that is effective as of the Closing
Date to which the Company is a party (i) with expected receipts or expenditures
in excess of $100,000, (ii) requiring the Company to indemnify any person, (iii)
granting exclusive rights to any party, (iv) evidencing indebtedness for
borrowed or loaned money in excess of $100,000 or more, including guarantees of
such indebtedness, or (v) which, if breached by the Company in such a manner
would (A) permit any other party to cancel or terminate the same (with or
without notice of passage of time) or (B) provide a basis for any other party to
claim money damages (either individually or in the aggregate with all other such
claims under that contract) from the Company or (C) give rise to a right of
acceleration of any material obligation or loss of any material benefit under
any such contract, agreement or commitment.
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(l) Properties. The Company has good, clear and marketable title to all
the tangible properties and tangible 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 material liens.
(m) Trademarks and Related Contracts. To the knowledge of the Company:
(i) As used in this Agreement, the term "Trademarks" means
trademarks, service marks, trade names, Internet domain names, designs, slogans,
and general intangibles of like nature; the term "Trade Secrets" means
technology; trade secrets and other confidential information, know-how,
proprietary processes, formulae, algorithms, models, and methodologies; the term
"Intellectual Property" means patents, copyrights, Trademarks, applications for
any of the foregoing, and Trade Secrets; the term "Company License Agreements"
means any license agreements granting any right to use or practice any rights
under any Intellectual Property (except for such agreements for shrink-wrap or
click wrap software or other off-the-shelf products that are generally available
for less than $25,000), and any written settlements relating to any Intellectual
Property, to which the Company is a party or otherwise bound; and the term
"Software" means any and all computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in source code
or object code.
(ii) To the knowledge of the Company, none of the Company's
Intellectual Property, Software or Company License Agreements infringe upon the
rights of any third party that may give rise to a cause of action or claim
against the Company or its successors.
(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. Except as set forth in
the disclosure schedule delivered by Parent to the Company at the time of
execution of this Agreement (the "Parent Disclosure Schedule"), 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 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
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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.
(b) Subsidiaries. The only direct or indirect subsidiaries of Parent
are listed in the Parent Disclosure Schedule (together with Sub, 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 the 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.
(c) Capital Structure. The authorized capital stock of Parent consists
of 20,000,000 shares of Parent Common Stock, $0.001 par value, of which
2,697,000 shares of Parent Common Stock are issued and outstanding and no shares
of Parent Common Stock are issuable upon the exercise of outstanding warrants,
convertible notes, options and otherwise. Immediately after the Effective Time
of the Merger, 2,500,000 shares of Parent Common Stock held by Xxxx Xxxxxxxx
shall be automatically cancelled further to that Share Cancellation Agreement
attached hereto as Exhibit D. Also authorized are 5,000,000 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. There are no outstanding bonds, debentures, notes or other
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.
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(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
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, as required, 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 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.
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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
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 January 2004 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) Litigation; Labor Matters; Compliance with Laws.
There is no suit, action or proceeding or investigation
pending or, to the knowledge of Parent, threatened against or affecting Parent
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 Parent or prevent, hinder or materially
delay the ability of Parent 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 Parent having, or which,
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insofar as reasonably could be foreseen by Parent, in the future could have, any
such effect.
(ii) Parent 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 Parent.
(iii) The conduct of the business of Parent complies with all
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees or
arbitration awards applicable thereto.
(i) Benefit Plans. Parent is not a party to any Benefit Plan under
which Parent currently has an obligation to provide benefits to any current or
former employee, officer or director of Parent.
(j) Certain Employee Payments. Parent is not a party to any employment
agreement which could result in the payment to any current, former or future
director or employee of Parent 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.
(k) Tax Returns and Tax Payments. Parent 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 Parent or is being asserted against Parent, no audit of any Tax
Return of Parent 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 Parent
and is currently in effect.
(l) Environmental Matters. Parent is in compliance with all applicable
Environmental Laws.
(m) Material Contract Defaults. Parent is not, or has not, received any
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. For purposes of this Agreement, a Material Contract means any contract,
agreement or commitment that is effective as of the Closing Date to which Parent
is a party (i) with expected receipts or expenditures in excess of $10,000, (ii)
requiring Parent to indemnify any person, (iii) granting exclusive rights to any
party, (iv) evidencing indebtedness for borrowed or loaned money in excess of
$10,000 or more, including guarantees of such indebtedness, or (v) which, if
breached by Parent in such a manner would (A) permit any other party to cancel
or terminate the same (with or without notice of passage of time) or (B) provide
15
a basis for any other party to claim money damages (either individually or in
the aggregate with all other such claims under that contract) from Parent or (C)
give rise to a right of acceleration of any material obligation or loss of any
material benefit under any such contract, agreement or commitment.
(n) Properties. Parent has good, clear and marketable title to all the
tangible properties and tangible assets reflected in the latest balance sheet as
being owned by Parent or acquired after the date thereof which are, individually
or in the aggregate, material to Parent's business (except properties sold or
otherwise disposed of since the date thereof in the ordinary course of
business), free and clear of all material liens.
(o) Trademarks and Related Contracts.
(i) As used in this Agreement, the term "Parent License
Agreements" means any license agreements granting any right to use or practice
any rights under any Intellectual Property (except for such agreements for
shrink-wrap or click wrap software or other off-the-shelf products that are
generally available for less than $25,000), and any written settlements relating
to any Intellectual Property, to which Parent is a party or otherwise bound.
(ii) To the knowledge of Parent, none of Parent's Intellectual
Property, Software or Parent License Agreements infringe upon the rights of any
third party that may give rise to a cause of action or claim against Parent or
its successors.
(p) Board Recommendation. The Board of Directors of Parent has
unanimously determined that the terms of the Merger are fair to and in the best
interests of the shareholders of Parent.
ARTICLE IV
COVENANTS RELATING TO
CONDUCT OF BUSINESS PRIOR TO MERGER
4.01 Conduct of Company and Parent. From the date of this Agreement and until
the Effective Time, or until the prior termination of this Agreement, Company
and Parent shall not, unless mutually agreed to in writing:
(a) engage in any transaction, except in the normal and ordinary course
of business, or create or suffer to exist any Lien or other encumbrance upon any
of their respective assets or which will not be discharged in full prior to the
Effective Time;
16
(b) sell, assign or otherwise transfer any of their assets, or cancel
or compromise any debts or claims relating to their assets, other than for fair
value, in the ordinary course of business, and consistent with past practice;
(c) fail to use reasonable efforts to preserve intact their present
business organizations, keep available the services of their employees and
preserve its material relationships with customers, suppliers, licensors,
licensees, distributors and others, to the end that its good will and on-going
business not be impaired prior to the Effective Time;
(d) except for matters related to complaints by former employees
related to wages, suffer or permit any material adverse change to occur with
respect to Company and Parent or their business or assets; or
(e) make any material change with respect to their business in
accounting or bookkeeping methods, principles or practices, except as required
by GAAP.
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
or obtain the unanimous written consent of its shareholders for the same
aforementioned purpose.
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, Sub, and Parent will
hold, and will cause its respective directors, officers, employees, accountants,
counsel, financial advisors and other representatives and affiliates to hold,
any nonpublic information in confidence.
17
(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 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.
Notwithstanding the foregoing, Company may disclose the contemplated Merger in
letters to the Company's optionees for purposes of fulfilling the Company's
obligations under the Company Option Plan to the said optionees.
5.05 Expenses. All costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses.
5.06 Directorships. Upon the Effective Time of the Merger, all officers Parent
shall have resigned and Parent shall have taken all action to cause Xxx Xxxxxx
and Xxxxx Xxxxx to be elected to its Board of Directors and its officers to
consist of the following: Xxx Xxxxxx, President, and Xxxxx Xxxxx, Chief
Financial Officer.
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5.07 No Solicitation. Except as previously agreed to in writing by the other
party, neither Company or Parent shall 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 Company or Parent, respectively, 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. Company or
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 five percent (5%) 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
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.
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(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
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 any suit,
action or proceeding before any court, Governmental Entity or authority (i)
pertaining to the 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.
20
(d) Consents, etc. Company 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.
(e) Filing of Merger Agreement. Parent shall have filed or will
promptly file after the Closing Date in the office of the Secretary of State or
other office of each jurisdiction in which such filings are required for the
Merger to become effective.
(f) Registrations. Parent shall deliver to the Company written
resignations of all of the officers of the Parent and evidence of election of
those new directors and officers as further described in Section 5.06 herein.
(g) Cancellation Agreement. Parent shall deliver to the Company the
executed share Cancellation Agreement attached hereto as Exhibit D.
(h) 8-K. Parent shall file a Form 8-K with the SEC within fifteen days
of the closing of the Merger and a subsequent Form 8-K within 60 days thereafter
containing audited financial statements of the Company as required by Regulation
S-X.
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 February 29, 2004 (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 a material adverse change shall have occurred
relative to the Company;
21
(e) by Parent, if the Company willfully fails to perform in any
material respect any of its material obligations under this Agreement; or
(f) by the Company, if Parent or Sub willfully fails to perform in any
material respect any of their respective 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
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. Subject to Section 7.01(c), 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.
7.06 Return of Documents. In the event of termination of this Agreement for any
reason, Parent and Company will return to the other party all of the other
party's documents, work papers, and other materials (including copies) relating
to the transactions contemplated in this Agreement, whether obtained before or
after execution of this Agreement. Parent and Company will not use any
information so obtained from the other party for any purpose and will take all
reasonable steps to have such other party's information kept confidential.
22
ARTICLE VIII
INDEMNIFICATION AND RELATED MATTERS
8.01 Survival of Representations and Warranties. The representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time of the Merger until the Settlement
Date.
8.02 Indemnification.
(a) Irrespective of any due diligence investigation conducted by
Company with regard the transactions contemplated hereby, the Parent shall
indemnify and hold the Company and each of its officers and directors (the
"Company Representatives") harmless from and against any and all liabilities,
obligations, damages, losses, deficiencies, costs, penalties, interest and
expenses (collectively, "Losses") arising out of, based upon, attributable to or
resulting from any and all Losses incurred or suffered by the Company or any of
the Company Representatives resulting from or arising out of any breach of a
representation, warranty or covenant made by Parent as set forth herein.
(b) Notwithstanding anything to the contrary contained in this
Agreement, in the absence of any fraud or intentional misconduct on the party of
the Parent, the sole remedy of the Company or the Company Representatives
further to this Section 8.02 shall be offset of such Losses against shares held
in the Parent Escrow Deposit as further described in the Escrow Agreement and in
Section 8.04 herein.
(c) The Company shall indemnify and hold the Parent and each of its
officers and directors (the "Parent Representatives") harmless from and against
any and all liabilities, obligations, damages, losses, deficiencies, costs,
penalties, interest and expenses (collectively, "Losses") arising out of, based
upon, attributable to or resulting from any and all Losses incurred or suffered
by the Parent or any of the Parent Representatives resulting from or arising out
of any breach of a representation, warranty or covenant made by Company as set
forth herein.
(d) Notwithstanding anything to the contrary contained in this
Agreement, in the absence of any fraud or intentional misconduct on the party of
the Company, the sole remedy of the Parent or the Parent Representatives further
to this Section 8.02 shall be offset of such Losses against shares held in the
Merger Consideration Escrow Deposit as further described in the Escrow Agreement
and in Section 8.04 herein.
8.03 Notice of Indemnification. In the event any proceeding shall be threatened
or instituted or any claim or demand shall be asserted in respect of which
payment may be sought by the Parent or any Parent Representative or by the
Company or any Company Representative, against the other, as the case may be
(each an "Indemnitee"), under the provisions of this Article VIII (an "Indemnity
Claim"), the Indemnitee shall promptly cause written notice of the assertion of
any such Claim of which it has knowledge which is covered by this indemnity to
be forwarded to the Parent Representative, who shall be Xxxx Xxxxxxxx, or the
Company, as the case may be, and the Escrow Agent. Any notice of an Indemnity
Claim by reason of any of the representations, warranties or covenants contained
in this Agreement shall state specifically the representation, warranty or
covenant with respect to which the Indemnity Claim is made, the facts giving
rise to an alleged basis for the Claim, and the amount of the liability asserted
against the Indemnitor by reason of the Indemnity Claim. Within ten (10) days of
the receipt of such written notice, the Parent Representative or the Company, as
23
the case may be, shall notify the Indemnitee in writing of its intent to contest
the indemnification obligation (a "Contest") or to accept liability hereunder.
If the Parent Representative or the Company, as the case may be, accepts
liability, the Parent Representative, or the Company, as the case may be, will
deliver a Notice to Escrow Agent that there is a determination of liability
under Section 8.03 and the Escrow Agent shall be instructed to adjust the Parent
Escrow Deposit or the Merger Consideration Escrow Deposit, as the case may be,
further to the Escrow Agreement. If the Parent Representative or the Company, as
the case may be, does not respond within ten (10) days of the request of such
written notice to such written notice, the Parent Representative or the Company,
as the case may be, will be deemed to accept liability as it relates to the
Parent Escrow Deposit or the Merger Consideration Escrow Deposit, as the case
may be. In such event, the Indemnitee will deliver a Notice to the Escrow Agent
that there is a determination of liability to this Section 8.03 and the Escrow
Agent shall be instructed to adjust the Parent Escrow Deposit or the Merger
Consideration Escrow Deposit, as the case may be, further to the Escrow
Agreement. In the event of a Contest, within ten (10) days of the receipt of the
written notice thereof, the parties will select arbitrators and submit the
dispute to binding arbitration in California. The arbitrators shall be selected
by the mutual agreement of the parties. If the parties can not agree on the
arbitrator, each may select one arbitrator and the two designated arbitrators
shall select the third arbitrator. If the third arbitrator can not be agreed
upon, the Federal District Court for the Southern District of California shall
select the third arbitrator. A decision by the individual arbitrator or a
majority decision by the three arbitrators shall be final and binding upon the
parties. Such arbitration shall follow the rules of the American Arbitration
Association and must be resolved by the arbitrators within thirty (30) days
after the matter is submitted to arbitration. If the arbitration is ruled
favorably for Parent so that there is a determination of a Loss, the Indemnitee
will deliver a Notice to Escrow Agent that there is a determination of liability
pursuant to this Section 8.03 and the Escrow Agent shall be instructed to adjust
the Parent Escrow Deposit or the Merger Consideration Escrow Deposit, as the
case may be, further to the Escrow Agreement.
8.04. Indemnification Payments. The Escrow Agent shall pay any sums due and
owing by the Indemnitor to the Indemnitee by delivering shares out of the Parent
Escrow Deposit or the Merger Consideration Escrow Deposit, as the case may be,
further to the terms of the Escrow Agreement in a number equal to the amount of
the Loss (at an assumed per share price of $1.00) within ten (10) days after
receipt of Notice by the Indemnitee that there is a determination of liability
pursuant to the provisions of this Article VIII.
24
ARTICLE IX
GENERAL PROVISIONS
9.01 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 facsimile, electronic mail, or 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 Parent Representative, to:
FreePCSQuote,com, Inc.
0000 Xxxxxxxx Xxxxx
Xxx Xxxxx, XX 00000
Attn: Xxxx Xxxxxxxx, President
Fax: ______________
with a copy to:
Law Firm of Xxxxxx X. Xxxx
000 Xxxxx Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxx Xxxxx, XX 00000
Attn: Xxxx XxXxxxxxx
Fax: (000) 000-0000
(b) if to the Company, to:
Digital Learning Institute
00000 Xxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxx Xxxxxx, President
Fax: (000) 000-0000
with a copy to:
Xxxxxx X. Xxxxxxx, Esq.
Xxxxxxxxxxx & Xxxxxxxx LLP
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxxxx Xxxxx
Xxx Xxxxxxx, XX 00000
Fax: (000) 000-0000
25
9.02 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.
9.03 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".
9.04 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.
9.05 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
9.06 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.
26
9.07 Enforcement. The parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed In
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
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 Santa
Xxxxx 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.
9.08 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.
9.09 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.
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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.
XXXXXXXXXXXX.XXX, INC.
By:
----------------------------------------
Name: Xxxx Xxxxxxxx
Title: President
Attest:
Xxxx Xxxxxxxx, Secretary
FPQT ACQUISITION CORPORATION
By:
----------------------------------------
Name: Xxxx Xxxxxxxx
Title: President
Attest:
Xxxx Xxxxxxxx, Secretary
DIGITAL LEARNING INSTITUTE, INC.
By:
----------------------------------------
Name: Xxx Xxxxxx
Title: President
Attest:
Al Jinnah, Secretary
28
