EXHIBIT 2.1
SECURITIES PURCHASE AGREEMENT
-----------------------------
AND PLAN OF REORGANIZATION
--------------------------
THIS SECURITIES PURCHASE AGREEMENT AND PLAN OF REORGANIZATION (the
"AGREEMENT") is entered into on March 10, 2004 by and among: (i) DRILLING, INC.,
a Nevada corporation ("DRILLING"); (ii) PIVX SOLUTIONS, LLC, a California
limited liability company (the "COMPANY"); (iii) the members representing a
majority in interest of the Company who have executed this Agreement on the
signature page attached hereto as EXHIBIT A (the "MAJORITY MEMBERS"); (iv) the
members of the Company who will purchase a membership interest in the Private
Placement (as defined below) following the date of this Agreement but prior to
the Initial Closing (as defined below) (the "INVESTING MEMBERS") by executing
and delivering the subscription agreement, the form of which is attached hereto
as EXHIBIT B (the "INVESTOR SUBSCRIPTION AGREEMENT"); and (v) the current
members of the Company other than the Majority Members and Investing Members
(the "CURRENT MEMBERS," and with the Majority Members and Investing Members,
collectively, the "MEMBERS") who have executed and delivered the subscription
agreement, the form of which is attached hereto as EXHIBIT C (the "CURRENT
MEMBER SUBSCRIPTION AGREEMENT").
R E C I T A L S
---------------
A. The Company's capitalization consists of the following: (i)
10,000,000 membership interests ("MEMBERSHIP INTERESTS") issued and outstanding
as of the date of this Agreement, and (ii) warrants and options issued and
outstanding which entitle their holders to purchase from the Company an
aggregate of 1,458,333 Membership Interests upon the exercise or conversion of
such instruments.
B. In addition to the Membership Interests described in Recital A, the
Company proposes to sell solely to accredited investors (as defined in
Regulation D promulgated under the Securities Act of 1933, as amended (the
"SECURITIES ACT")), up to 1,612,903 additional Membership Interests (the
"PRIVATE PLACEMENT INTERESTS") at a purchase price of $3.10 per Private
Placement Interest, (the "PRIVATE PLACEMENT") prior to the Initial Closing (as
defined below). All issued and outstanding Membership Interests, including the
Private Placement Interests issued after the date of this Agreement and any
Membership Interests issued upon exercise of outstanding warrants and options,
are referred to herein as "COMPANY MEMBERSHIP INTERESTS."
C. Drilling has authorized capital stock consisting of 100,000,000
shares of common stock ("DRILLING COMMON STOCK"), $0.001 par value, of which
772,200 shares of Drilling Common Stock are issued and outstanding as of the
date of this Agreement. Prior to the Initial Closing, Drilling intends to
conduct a 7.5 for 1 forward split ("SPLIT") of the outstanding shares of
Drilling Common Stock.
D. The holders of the Company Membership Interests wish to sell, and
Drilling wishes to acquire, all of the issued and outstanding Company Membership
Interests in exchange for Drilling's issuance of shares Drilling Common Stock
("DRILLING SHARES") to the holders of Company Membership Interests, at the rate
of 1.55 Drilling Shares (post-Split) for every one (1) Company Membership
Interest (the "EXCHANGE RATIO"), subject to and upon the terms and conditions
hereinafter set forth (the "REORGANIZATION").
1
A G R E E M E N T
-----------------
ARTICLE 1
SECURITIES PURCHASE AND REORGANIZATION
It is agreed as follows:
1.1 INCORPORATION OF RECITALS. The provisions and recitals set
forth above are hereby referred to and incorporated herein and made a part of
this Agreement by reference.
1.2 AGREEMENT TO EXCHANGE SECURITIES. Subject to the terms and
upon the conditions set forth herein:
(a) INITIAL CLOSING. Each Majority Member, each
Investing Member who has executed and delivered to Drilling the Investor
Subscription Agreement prior to the Initial Closing, and each Current Member who
has executed and delivered to Drilling the Current Member Subscription Agreement
prior to the Initial Closing, agrees to sell, assign, transfer and deliver to
Drilling, and Drilling agrees to purchase from each such Member, at the Initial
Closing, the Company Membership Interests owned by the respective Member, in
exchange for the issuance, at the Initial Closing, by Drilling to each such
Member of 1.55 Drilling Shares (post-Split) for every one (1) Company Membership
Interest sold and delivered to Drilling.
(b) ADDITIONAL CLOSINGS. From time to time after the
Initial Closing, Drilling shall purchase from any and all Members who did not
participate in the Initial Closing, pursuant to either an Investor Subscription
Agreement or Current Member Subscription Agreement executed and delivered to
Drilling by each such Member, the Company Membership Interests owned by the
Member in exchange for a number of shares issued by Drilling to such Member at
the Exchange Ratio.
(c) COMPANY OPTIONS AND WARRANTS. Drilling shall
assume all Company option and warrants outstanding as of the Initial Closing
Date, by issuing, at the request of such holder, an option or warrant to
purchase shares of Drilling Common Stock on the same terms and conditions as the
option or warrant held by the holder thereof except that (a) each such option or
warrant shall be exercisable for a number of shares of Drilling Common Stock
equal to the number of Company Membership Interests subject to such option or
warrant multiplied by the Exchange Ratio, (b) the option or warrant price per
share shall be an amount equal to the quotient of the option or warrant exercise
price subject to such Company options or warrant in effect immediately prior to
the Initial Closing Date divided by the Exchange Ratio, and (c) fractional
shares shall be handled pursuant to Section 1.2(d) below.
(d) FRACTIONAL SHARES. No fractional shares of
Drilling Common Stock shall be issued upon (i) exchange of any Company
Membership Interests pursuant to Section 1.2(a) or (b), or (ii) any exercise of
any option or warrant issued by Drilling pursuant to Section 1.2(c), or
otherwise pursuant hereto. In lieu thereof, each recipient of Drilling Common
Stock who would otherwise be entitled to a fraction of a share of Drilling
Common Stock (after aggregating all fractional shares of Drilling Common Stock
to be received by such holder) shall be entitled to receive one whole share of
Drilling Common Stock.
2
1.3 CLOSING. The initial closing ("Initial Closing") of the
exchange of the Company Membership Interests and the Drilling Shares shall take
place at the offices of Xxxxxxx Xxxxx & Xxxxx LLP, 0000 Xxxx Xxxxxx, Xxxxx 000,
Xxxxxx, Xxxxxxxxxx 00000, at 10:00 a.m., local time, on March 22, 2004, or at
such other time and place as may be agreed to by the Company and Drilling
("Initial Closing Date"). From time to time after the Initial Closing, Drilling
and the Members other than the Members participating in the Initial Closing may
effect additional exchanges of Company Membership Interests in accordance with
Sections 1.2(b) and 1.4. The Initial Closing and each additional closing is
referred to herein as a "Closing" and the Initial Closing Date and the date of
each additional closing is referred to herein as a "Closing Date".
1.4 INSTRUMENTS OF TRANSFER.
(a) COMPANY MEMBERSHIP INTERESTS. Each Member shall
deliver to Drilling on the Closing Date evidence of the Company Membership
Interests owned by the Member ("COMPANY CERTIFICATES"), if any, along with duly
executed assignments of such Company Certificates, in order to effectively vest
in Drilling all right, title and interest in and to the Company Membership
Interests owned by the Member. From time to time after the Closing Date, and
without further consideration, the Member will execute and deliver such other
instruments of transfer and take such other actions as Drilling may reasonably
request in order to more effectively transfer to Drilling the securities
intended to be transferred hereunder.
(b) DRILLING SHARES. Drilling shall deliver to the
Members on the Closing Date original certificates evidencing the Drilling
Shares, in form and substance satisfactory to the Members, in order to
effectively vest in each Member its respective right, title and interest in and
to the Drilling Shares. From time to time after the Closing Date, and without
further consideration, Drilling will execute and deliver such other instruments
and take such other actions as the Members may reasonably request in order to
more effectively issue to them the Drilling Shares.
1.5 TAX FREE REORGANIZATION. The parties intend that the
transaction under this Agreement qualify as a tax free reorganization under
Section 351 of the Internal Revenue Code of 1986, as amended.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Drilling as follows:
2.1 DISCLOSURE SCHEDULE. The disclosure schedule attached
hereto as EXHIBIT 2.1 (the "COMPANY DISCLOSURE SCHEDULE") is divided into
sections that correspond to the sections of this Article 2. The Company
Disclosure Schedule comprises a list of all exceptions to the truth and accuracy
of, and of all disclosures or descriptions required by, the representations and
warranties set forth in the remaining sections of this Article 2.
2.2 CORPORATE ORGANIZATION, ETC. The Company is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of California with the requisite corporate power and
authority to carry on its business as it is now being conducted and to own,
operate and lease its properties and assets, is duly qualified or licensed to do
business as a foreign corporation in good standing in every other jurisdiction
in which the character or location of the properties and assets owned, leased or
3
operated by it or the conduct of its business requires such qualification or
licensing, except in such jurisdictions in which the failure to be so qualified
or licensed and in good standing would not, individually or in the aggregate,
have a Material Adverse Effect (as defined below) on the Company. The Company
Disclosure Schedule contains a list of all jurisdictions in which the Company is
qualified or licensed to do business. Complete and correct copies of the
Company's articles of organization and operating agreement have previously been
provided to Drilling. The Company does not own or control any capital stock of
any corporation or any interest in any partnership, joint venture or other
entity.
2.3 CAPITALIZATION. The Company Disclosure Schedule sets forth
the total number of Company Membership Interests issued and outstanding as of
the date of this Agreement. All issued and outstanding Company Membership
Interests are duly authorized, validly issued, fully paid and nonassessable and
are without, and were not issued in violation of, preemptive rights. Other than
as set forth on the Company Disclosure Schedule or as contemplated by this
Agreement, there is no subscription, option, warrant, call, right, contract,
agreement, commitment, understanding or arrangement to which the Company is a
party, or by which it is bound, with respect to the issuance, sale, delivery or
transfer of the capital securities of the Company, including any right of
conversion or exchange under any security or other instrument.
2.4 AUTHORIZATION, ETC. The Company has all requisite
corporate power and authority to enter into, execute, deliver, and perform its
obligations under this Agreement. This Agreement has been duly and validly
executed and delivered by the Company and is the valid and binding legal
obligation of the Company enforceable against the Company in accordance with its
terms, subject to bankruptcy, moratorium, principles of equity and other
limitations limiting the rights of creditors generally.
2.5 NON-CONTRAVENTION. Except as set forth in the Company
Disclosure Schedule, neither the execution, delivery and performance of this
Agreement, and each other agreement to be entered into in connection with this
Agreement, nor the consummation of the transactions contemplated herein will:
(a) violate, contravene or be in conflict with any
provision of the articles of organization or operating
agreement of the Company;
(b) be in conflict with, or constitute a default,
however defined (or an event which, with the giving of due
notice or lapse of time, or both, would constitute such a
default), under, or cause or permit the acceleration of the
maturity of, or give rise to any right of termination,
cancellation, imposition of fees or penalties under any debt,
note, bond, lease, mortgage, indenture, license, obligation,
contract, commitment, franchise, permit, instrument or other
agreement or obligation to which the Company is a party or by
which the Company or any of the Company's properties or assets
is or may be bound;
(c) result in the creation or imposition of any
pledge, lien, security interest, restriction, option, claim or
charge of any kind whatsoever ("ENCUMBRANCES") upon any
property or assets of the Company under any debt, obligation,
contract, agreement or commitment to which the Company is a
party or by which the Company or any of the Company's assets
or properties are bound; or
4
(d) materially violate any statute, treaty, law,
judgment, writ, injunction, decision, decree, order,
regulation, ordinance or other similar authoritative matters
(referred to herein individually as a "Law" and collectively
as "LAWS") of any foreign, federal, state or local
governmental or quasi-governmental, administrative, regulatory
or judicial court, department, commission, agency, board,
bureau, instrumentality or other authority (referred to herein
individually as an "AUTHORITY" and collectively as
"AUTHORITIES").
2.6 CONSENTS AND APPROVALS. Except as set forth in the Company
Disclosure Schedule, with respect to the Company, no consent, approval, order or
authorization of or from, or registration, notification, declaration or filing
with ("CONSENT") any individual or entity, including without limitation any
Authority, is required in connection with the execution, delivery or performance
of this Agreement by the Company or the consummation by the Company of the
transactions contemplated herein.
2.7 FINANCIAL STATEMENTS. The Company Disclosure Schedule
contains a copy of the balance sheet of the Company as of December 31, 2003 (the
"BALANCE SHEET") and a statement of income for the Company for the twelve (12)
months ended December 31, 2003 (the "INCOME STATEMENT") (collectively, the
"FINANCIAL STATEMENTS"). Except as disclosed therein or in the Company
Disclosure Schedule, the aforesaid Financial Statements: (i) are in accordance
with the books and records of the Company and have been prepared in conformity
with good accounting practices (except as stated therein or in the notes
thereto); and (ii) are true, complete and accurate in all material respects and
fairly present the financial position of the Company as of the date thereof, and
the income or loss for the period then ended, except that the Balance Sheet and
the Income Statement do not contain all required footnotes and are subject to
normal year-end adjustments. Within seventy-five (75) days of the Initial
Closing, the Company will deliver to Drilling an audited balance sheet of the
Company as of December 31, 2003 and audited statements of income, cash flows and
stockholders equity for the two fiscal years then ended.
2.8 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not
have any material liabilities, obligations or claims of any kind whatsoever,
whether secured or unsecured, accrued or unaccrued, fixed or contingent, matured
or unmatured, known or unknown, direct or indirect, contingent or otherwise and
whether due or to become due (referred to herein individually as a "LIABILITY"
and collectively as "LIABILITIES"), other than: (a) Liabilities that are fully
reflected or reserved for in the Balance Sheet; (b) Liabilities that are set
forth on the Company Disclosure Schedule; (c) Liabilities incurred by the
Company in the ordinary course of business after the date of the Balance Sheet
and consistent with past practice; (d) Liabilities in an amount not to exceed
$50,000 individually or in the aggregate unless such amounts are disclosed on
the Company Disclosure Schedule; or (e) Liabilities for express executory
obligations to be performed after the Closing under the contracts described in
Section 2.14 of the Company Disclosure Schedule.
2.9 ABSENCE OF CERTAIN CHANGES. Except as set forth in the
Company Disclosure Schedule, since the date of the Balance Sheet, the Company
has owned and operated its assets, properties and business in the ordinary
course of business and consistent with past practice. Without limiting the
generality of the foregoing, subject to the aforesaid exceptions:
(a) the Company has not experienced any change that
has had or could reasonably be expected to have a Material
Adverse Effect on the Company; and
5
(b) the Company has not suffered (i) any loss,
damage, destruction or other property or casualty (whether or
not covered by insurance) or (ii) any loss of officers,
employees, dealers, distributors, independent contractors,
customers or suppliers, which had or may reasonably be
expected to result in a Material Adverse Effect on the
Company.
2.10 ASSETS. Except as set forth in the Company Disclosure
Schedule, the Company has good and marketable title to all of its assets and
properties, whether or not reflected in the Balance Sheet or acquired after the
date thereof (except for properties sold or otherwise disposed of since the date
thereof in the ordinary course of business and consistent with past practices),
that relate to or are necessary for the Company to conduct its business and
operations as currently conducted (collectively, the "ASSETS"), free and clear
of any mortgage, pledge, lien, security interest, conditional or installment
sales agreement, encumbrance, claim, easement, right of way, tenancy, covenant,
encroachment, restriction or charge of any kind or nature (whether or not of
record) (a "LIEN"), other than (i) liens securing specific Liabilities shown on
the Balance Sheet with respect to which no breach, violation or default exists;
(ii) mechanics', carriers', workers' or other like liens arising in the ordinary
course of business; (iii) minor imperfections of title that do not individually
or in the aggregate, impair the continued use and operation of the Assets to
which they relate in the operation of the Company as currently conducted; and
(iv) liens for current taxes not yet due and payable or being contested in good
faith by appropriate proceedings ("PERMITTED LIENS").
2.11 RECEIVABLES AND PAYABLES.
(a) Except as set forth on the Company Disclosure
Schedule, all accounts receivable of the Company represent
sales in the ordinary course of business and, to the Company's
knowledge, are current and collectible net of any reserves
shown on the Balance Sheet and none of such receivables is
subject to any Lien other than a Permitted Lien.
(b) Except as set forth on the Company Disclosure
Schedule, all payables by the Company arose in bona fide
transactions in the ordinary course of business and no such
payable is delinquent by more than sixty (60) days beyond the
due date in its payment.
2.12 INTELLECTUAL PROPERTY RIGHTS. The Company owns or has the
unrestricted right to use all patents, patent applications, patent rights,
registered and unregistered trademarks, trademark applications, tradenames,
service marks, service xxxx applications, copyrights, internet domain names,
computer programs and other computer software, inventions, know-how, trade
secrets, technology, proprietary processes, trade dress, software and formulae
(collectively, "INTELLECTUAL PROPERTY RIGHTS") used in, or necessary for, the
operation of its Business as currently conducted or proposed to be conducted.
Except as set forth on the Company Disclosure Schedule, to the Company's
knowledge, the use of all Intellectual Property Rights necessary or required for
the conduct of the Business of the Company as presently conducted and as
proposed to be conducted does not infringe or violate the Intellectual Property
Rights of any person or entity. Except in the ordinary course of business or
except as described on the Company Disclosure Schedule, to the Company's
knowledge: (a) the Company does not own or use any Intellectual Property Rights
pursuant to any written license agreement; (b) the Company has not granted any
person or entity any rights, pursuant to a written license agreement or
otherwise, to use the Intellectual Property Rights; and (c) the Company owns,
6
has unrestricted right to use and has sole and exclusive possession of and has
good and valid title to, all of the Intellectual Property Rights, free and clear
of all Liens and Encumbrances. All license agreements relating to Intellectual
Property Rights are binding and there is not, under any of such licenses, any
existing default or event of default (or event which with notice or lapse of
time, or both, would constitute a default, or would constitute a basis for a
claim on non-performance) on the part of the Company or, to the knowledge of the
Company, any other party thereto. The Company Disclosure Schedule contains a
list of all patents, trademarks and domain names owned or licensed by the
Company.
2.13 LITIGATION. Except as set forth in the Company Disclosure
Schedule, there is no legal, administrative, arbitration, or other proceeding,
suit, claim or action of any nature or investigation, review or audit of any
kind, or any judgment, decree, decision, injunction, writ or order pending,
noticed, scheduled, or, to the knowledge of the Company, threatened or
contemplated by or against or involving the Company, its assets, properties or
business or its directors, officers, agents or employees (but only in their
capacity as such), whether at law or in equity, before or by any person or
entity or Authority, or which questions or challenges the validity of this
Agreement or any action taken or to be taken by the parties hereto pursuant to
this Agreement or in connection with the transactions contemplated herein.
2.14 CONTRACTS AND COMMITMENTS; NO DEFAULT.
(a) Except as set forth in the Company Disclosure
Schedule, the Company is not a party to, nor are any of the
Assets bound by, any written or oral:
(i) employment, non-competition, consulting or
severance agreement, collective bargaining agreement,
or pension, profit-sharing, incentive compensation,
deferred compensation, stock purchase, stock option,
stock appreciation right, group insurance, severance
pay or retirement plan or agreement;
(ii) indenture, mortgage, note, installment
obligation, agreement or other instrument relating to
the borrowing of money by the Company;
(iii) contract, agreement, lease (real or
personal property) or arrangement that (A) is not
terminable on less than 30 days' notice without
penalty, (B) is not over one year in length of
obligation of the Company, or (C) involves an
obligation of more than $5,000 over its term;
(iv) contract, agreement, commitment or license
relating to Intellectual Property Rights or contract,
agreement or commitment of any other type, whether or
not fully performed, not otherwise disclosed pursuant
to this Section 2.14;
(v) obligation or requirement to provide funds
to or make any investment (in the form of a loan,
capital contribution or otherwise) in any person or
entity; or
7
(vi) outstanding sales or purchase contracts,
commitments or proposals that will result in any
material loss upon completion or performance thereof
after allowance for direct distribution expenses, or
bound by any outstanding contracts, bids, sales or
service proposals quoting prices that are not
reasonably expected to result in a normal profit.
(b) True and complete copies (or summaries, in the
case of oral items) of all agreements disclosed pursuant to
this Section 2.14 (the "COMPANY CONTRACTS") have been provided
to Drilling for review. Except as set forth in the Company
Disclosure Schedule, all of the Company Contracts items are
valid and enforceable by and against the Company in accordance
with their terms, and are in full force and effect. The
Company is not in breach, violation or default, however
defined, in the performance of any of its obligations under
any of the Company Contracts, and no facts and circumstances
exist which, whether with the giving of due notice, lapse of
time, or both, would constitute such breach, violation or
default thereunder or thereof, and, to the knowledge of the
Company, no other parties thereto are in a breach, violation
or default, however defined, thereunder or thereof, and no
facts or circumstances exist which, whether with the giving of
due notice, lapse of time, or both, would constitute such a
breach, violation or default thereunder or thereof.
2.15 COMPLIANCE WITH LAW; PERMITS AND OTHER OPERATING RIGHTS.
Except as set forth in the Company Disclosure Schedule, the Assets, properties,
business and operations of the Company are and have been in compliance in all
respects with all Laws applicable to the Company's assets, properties, business
and operations, except where the failure to comply would not have a Material
Adverse Effect. The Company possesses all material permits, licenses and other
authorizations from all Authorities necessary to permit it to operate its
business in the manner in which it presently is conducted and the consummation
of the transactions contemplated by this Agreement will not prevent the Company
from being able to continue to use such permits and operating rights. The
Company has not received notice of any violation of any such applicable Law, and
is not in default with respect to any order, writ, judgment, award, injunction
or decree of any Authority.
2.16 BROKERS. Neither the Company nor, to the knowledge of the
Company, any of the its directors, officers or employees, has employed any
broker, finder, investment banker or financial advisor or incurred any liability
for any brokerage fee or commission, finder's fee or financial advisory fee, in
connection with the transactions contemplated hereby, nor is there any basis
known to the Company for any such fee or commission to be claimed by any person
or entity.
2.17 ISSUANCE OF DRILLING COMMON STOCK. To the Company's
knowledge, as of the date of this Agreement and as of the Effective Time, no
facts or circumstances exist or will exist that could cause the issuance of
Drilling Common Stock pursuant to the Merger to fail to meet the exemption from
the registration requirements of the Securities Act set forth in Rule 506 of
Regulation D under of the Securities Act.
2.18 BOOKS AND RECORDS. The books of account, minute books,
stock record books, and other material records of the Company, all of which have
been made available to Drilling, are complete and correct in all material
respects and have been maintained in accordance with reasonable business
practices. The minute books of the Company contain accurate and complete records
of all formal meetings held of, and corporate action taken by, the members, the
managers and committees of the managers of the Company. At the Closing, all of
those books and records will be in the possession of the Company.
8
2.19 BUSINESS GENERALLY; ACCURACY OF INFORMATION. No
representation or warranty made by the Company in this Agreement, the Company
Disclosure Schedule, or in any document, agreement or certificate furnished or
to be furnished to Drilling at the Closing by or on behalf of the Company in
connection with any of the transactions contemplated by this Agreement contains
or will contain any untrue statement of material fact or omit or will omit to
state any material fact necessary in order to make the statements herein or
therein not misleading in light of the circumstances in which they are made, and
all of the foregoing completely and correctly present the information required
or purported to be set forth herein or therein.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE MAJORITY MEMBERS
Each Majority Member, severally and not jointly, represents, warrants
and covenants to and with Drilling with respect to himself, as follows:
3.1 POWER AND AUTHORITY. The Majority Member has all requisite
power and authority to enter into and to carry out all of the terms of this
Agreement and all other documents executed and delivered in connection herewith
(collectively, the "DOCUMENTS"). All action on the part of the Majority Member
necessary for the authorization, execution, delivery and performance of the
Documents by the Majority Member has been taken and no further authorization on
the part of the Majority Member is required to consummate the transactions
provided for in the Documents. When executed and delivered by the Majority
Member, the Documents shall constitute the valid and legally binding obligation
of the Majority Member enforceable in accordance with their respective terms.
3.2 OWNERSHIP OF AND TITLE TO SECURITIES. EXHIBIT A to this
Agreement accurately and completely sets forth all of the Company Membership
Interests owned by the Majority Member. The Majority Member represents that the
Majority Member has and will transfer to Drilling good and marketable title to
the Company Membership Interests which he owns, free and clear of all pledges,
security interests, mortgages, liens, claims, charges, restrictions or
encumbrances, except for any restrictions imposed by federal or state securities
laws.
3.3 INVESTMENT AND RELATED REPRESENTATIONS.
(a) SECURITIES LAWS COMPLIANCE. The Majority Member
is aware that neither the Drilling Shares nor the offer or sale thereof to the
Majority Member has been registered under the Securities Act, or under any state
securities law. The Majority Member understands that the Drilling Shares will be
characterized as "restricted" securities under federal securities laws inasmuch
as they are being acquired in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act only in certain limited
circumstances. The Majority Member agrees that the Majority Member will not sell
all or any portion of Drilling Shares except pursuant to registration under the
Securities Act or pursuant to an available exemption from registration under the
Securities Act. The address of the Majority Member is as set forth on Exhibit A
attached hereto. The Majority Member understands that each certificate for
9
Drilling Shares issued to the Majority Member or to any subsequent transferee
shall be stamped or otherwise imprinted with the legend set forth below
summarizing the restrictions described in this Section 3.3 and that Drilling
shall refuse to transfer the Drilling Shares except in accordance with such
restrictions:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT").
THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF A CURRENT AND EFFECTIVE REGISTRATION STATEMENT
UNDER THE 1933 ACT WITH RESPECT TO SUCH SHARES, OR AN OPINION
OF THE ISSUER'S COUNSEL TO THE EFFECT THAT REGISTRATION IS NOT
REQUIRED UNDER THE 1933 ACT.
(b) INVESTMENT REPRESENTATION. This Agreement is made
with the Majority Member in reliance upon the Majority Member's representation,
which by the Majority Member's execution of this Agreement the Majority Member
hereby confirms, that the Drilling Shares to be received by the Majority Member
are being acquired pursuant to this Agreement for investment and not with a view
to the public resale or distribution thereof unless pursuant to an effective
registration statement or exemption under the Securities Act.
(c) NO PUBLIC SOLICITATION. The Majority Member is
acquiring the Drilling Shares after private negotiation and has not been
attracted to the acquisition of the Drilling Shares by any press release,
advertising or publication.
(d) ACCESS TO INFORMATION. The Majority Member
acknowledges having received and reviewed Drilling's Annual Report on Form
10-KSB for the year ended December 31, 2003 ("2003 ANNUAL REPORT") and the
reports filed by Drilling with the Securities and Exchange Commission ("SEC")
subsequent thereto (collectively the "SEC REPORTS"). The Majority Member further
acknowledges that Drilling has given to the Majority Member and his counsel,
accountants and other advisors, agents, consultants and representatives, full
access to all of the properties, books, contracts, commitments and records of
Drilling, and has furnished or will furnish all such information concerning it
(including its operations, financial condition and business plan) as the
Majority Member has requested or may request.
(e) INVESTOR SOLICITATION AND ABILITY TO BEAR RISK TO
LOSS. The Majority Member, if a corporation or a partnership, has not been
organized for the purpose of acquiring the Drilling Shares. The Majority Member
acknowledges that it is able to protect its interests in connection with the
acquisition of the Drilling Shares and can bear the economic risk of investment
in such securities without producing a material adverse change in the Majority
Member's financial condition. The Majority Member otherwise has such knowledge
and experience in financial or business matters that the Majority Member is
capable of evaluating the merits and risks of the investment in the Drilling
Shares.
(f) ACCREDITED INVESTOR STATUS. The Majority Member
is an "accredited investor" as that term is defined in Regulation D promulgated
under the Securities Act.
10
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF DRILLING
Drilling represents and warrants to the Company and the Members as
follows:
4.1 DISCLOSURE SCHEDULE. The disclosure schedule attached
hereto as EXHIBIT 4.1 (the "DRILLING DISCLOSURE SCHEDULE") is divided into
sections that correspond to the sections of this Article 4. The Drilling
Disclosure Schedule comprises a list of all exceptions to the truth and accuracy
of, and of all disclosures or descriptions required by, the representations and
warranties set forth in the remaining sections of this Article 4.
4.2 CORPORATE ORGANIZATION, STANDING AND POWER. Drilling is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada. Drilling has all corporate power and authority to own
its properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect on Drilling.
Drilling does not own or control any capital stock of any corporation or any
interest in any partnership, joint venture or other entity.
4.3 AUTHORIZATION. Drilling has all the requisite corporate
power and authority to enter into this Agreement and to carry out the
transactions contemplated herein. The Board of Directors of Drilling has taken
all action required by law, their respective articles of incorporation and
bylaws or otherwise to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated herein. This
Agreement is the valid and binding legal obligation of Drilling enforceable
against Drilling in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization or similar laws
that affect creditors' rights generally.
4.4 CAPITALIZATION. The Drilling Disclosure Schedule sets
forth the authorized capital securities of Drilling. All issued and outstanding
shares of Drilling Common Stock are duly authorized, validly issued, fully paid
and nonassessable and are without, and were not issued in violation of,
preemptive rights. Other than as set forth on the Drilling Disclosure Schedule
and pursuant to this Agreement, there is no subscription, option, warrant, call,
right, contract, agreement, commitment, understanding or arrangement to which
Drilling is a party, or by which it is bound, with respect to the issuance,
sale, delivery or transfer of the capital securities of Drilling, including any
right of conversion or exchange under any security or other instrument.
4.5 NON-CONTRAVENTION. Neither the execution, delivery and
performance of this Agreement nor the consummation of the transactions
contemplated herein will:
(a) violate any provision of the articles of
incorporation or bylaws of Drilling; or
(b) be in conflict with, or constitute a default,
however defined (or an event which, with the giving of due
notice or lapse of time, or both, would constitute such a
default), under, or cause or permit the acceleration of the
maturity of, or give rise to, any right of termination,
cancellation, imposition of fees or penalties under, any debt,
note, bond, lease, mortgage, indenture, license, obligation,
11
contract, commitment, franchise, permit, instrument or other
agreement or obligation to which Drilling is a party or by
which Drilling or any of their respective properties or assets
is or may be bound;
(c) result in the creation or imposition of any
Encumbrance upon any property or assets of Drilling under any
debt, obligation, contract, agreement or commitment to which
Drilling is a party or by which Drilling or any of their
respective assets or properties is or may be bound; or
(d) violate any Law of any Authority.
4.6 CONSENTS AND APPROVALS. No Consent is required by any
person or entity, including without limitation any Authority, in connection with
the execution, delivery and performance by Drilling of this Agreement, or the
consummation of the transactions contemplated herein, other than any Consent
which, if not made or obtained, will not, individually or in the aggregate, have
a Material Adverse Effect on the business of Drilling.
4.7 VALID ISSUANCE. The Drilling Common Stock to be issued in
connection with this Agreement will be duly authorized and, when issued,
delivered and paid for as provided in this Agreement, will be validly issued,
fully paid and non-assessable.
4.8 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Drilling has delivered or made available to the
Company accurate and complete copies (excluding copies of
exhibits) of the SEC Reports. All statements, reports,
schedules, forms and other documents required to have been
filed by Drilling with the SEC have been so filed on a timely
basis. As of the time it was filed with the SEC (or, if
amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): (i) each of the
SEC Reports complied in all material respects with the
applicable requirements of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"); and (ii) none of the SEC Reports 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 the light of the circumstances
under which they were made, not misleading.
(b) The consolidated financial statements contained
in the SEC Reports: (i) complied as to form in all material
respects with the published rules and regulations of the SEC
applicable thereto; (ii) were prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered
(except as may be indicated in the notes to such financial
statements and, in the case of unaudited statements, as
permitted by Form 10-QSB of the SEC); and (iii) fairly
present, in all material respects, the consolidated financial
position of Drilling and its consolidated subsidiaries as of
the respective dates thereof and the consolidated results of
operations of Drilling and its consolidated subsidiaries for
the periods covered thereby. All adjustments considered
necessary for a fair presentation of the financial statements
have been included.
4.9 NO LIABILITIES. Drilling does not have any Liabilities,
except for (i) Liabilities expressly stated in the most recent balance sheet
included in the SEC Reports or the notes thereto, or (ii) Liabilities which do
not exceed $1,500 in the aggregate.
12
4.10 NO ASSETS. As of the Closing, Drilling will not have any
assets or operations of any kind, except as identified in the most recent
balance sheet and notes thereto included in the Drilling SEC Reports or the
Drilling Disclosure Schedule.
4.11 ABSENCE OF CERTAIN CHANGES. Except as set forth in the
Drilling Disclosure Schedule, Drilling has owned and operated its assets,
properties and business in the ordinary course of business and consistent with
past practice. Without limiting the generality of the foregoing, subject to the
aforesaid exceptions, Drilling has not experienced any change that has had or
could reasonably be expected to have a Material Adverse Effect on Drilling.
4.12 LITIGATION. Except as disclosed in the Drilling
Disclosure Schedule, there is no legal, administrative, arbitration, or other
proceeding, suit, claim or action of any nature or investigation, review or
audit of any kind, or any judgment, decree, decision, injunction, writ or order
pending, noticed, scheduled, or, to the knowledge of Drilling, threatened or
contemplated by or against or involving Drilling, its assets, properties or
business or its directors, officers, agents or employees (but only in their
capacity as such), whether at law or in equity, before or by any person or
entity or Authority, or which questions or challenges the validity of this
Agreement or any action taken or to be taken by the parties hereto pursuant to
this Agreement or in connection with the transactions contemplated herein.
4.13 CONTRACTS AND COMMITMENTS; NO DEFAULT. Except as
disclosed in the Drilling Disclosure Schedule, Drilling is not a party to, nor
are any of its Assets bound by, any contract (a "DRILLING CONTRACT") that is not
disclosed in the SEC Reports. Except as disclosed in the Drilling Disclosure
Schedule, none of the Drilling Contracts contains a provision requiring the
consent of any party with respect to the consummation of the transactions
contemplated by this Agreement. Drilling is not in breach, violation or default,
however defined, in the performance of any of its obligations under any of the
Drilling Contracts, and no facts and circumstances exist which, whether with the
giving of due notice, lapse of time, or both, would constitute such breach,
violation or default thereunder or thereof, and, to the knowledge of the
Drilling, no other parties thereto are in a breach, violation or default,
however defined, thereunder or thereof, and no facts or circumstances exist
which, whether with the giving of due notice, lapse of time, or both, would
constitute such a breach, violation or default thereunder or thereof.
4.14 NO BROKER OR FINDER. No broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with any of the transactions contemplated by this Agreement based
upon arrangements made by or on behalf of Drilling.
4.15 INTERCOMPANY AND AFFILIATE TRANSACTIONS; INSIDER
INTERESTS. Except as expressly identified in the Drilling Disclosure Schedule,
there are, and during the last two years there have been, no transactions,
agreements or arrangements of any kind, direct or indirect, between Drilling, on
the one hand, and any director, officer, employee, stockholder, or affiliate of
Drilling, on the other hand, including, without limitation, loans, guarantees or
pledges to, by or for Drilling or from, to, by or for any of such persons, that
are currently in effect.
ARTICLE 5
COVENANTS OF THE PARTIES
5.1 CONDUCT OF BUSINESS. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Initial
Closing Date, the Company and Drilling will each conduct its business and
operations according to its ordinary and usual course of business consistent
with past practices. Without limiting the generality of the foregoing, and,
13
except as otherwise expressly provided in this Agreement or as otherwise
disclosed on the Company Disclosure Schedule or Drilling Disclosure Schedule,
respectively, prior to the Initial Closing Date, without the prior written
consent of the other party, Drilling and the Company will not:
(a) amend its articles of incorporation, articles of
organization, bylaws or operating agreement, as the case may
be;
(b) issue, reissue, sell, deliver or pledge or
authorize or propose the issuance, reissuance, sale, delivery
or pledge of shares of capital stock or membership interests
of any class (except as provided in Recital B above), or
securities convertible into capital stock or membership
interests of any class, or any rights, warrants or options to
acquire any convertible securities, capital stock or
membership interests;
(c) adjust, split (except as provided in Recital C
above), combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or
otherwise acquire, any membership interests or shares of its
capital stock, or any of its other securities;
(d) declare, set aside or pay any dividend or
distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock or
membership interests, redeem or otherwise acquire any
membership interests, shares of its capital stock or other
securities, or alter any term of any of its outstanding
securities;
(e) (i) except as required under any employment
agreement, increase in any manner the compensation of any of
its directors, officers or other employees; (ii) pay or agree
to pay any pension, retirement allowance or other employee
benefit not required or permitted by any existing plan,
agreement or arrangement to any such director, officer or
employee, whether past or present; or (iii) commit itself to
any additional pension, profit-sharing, bonus, incentive,
deferred compensation, stock purchase, stock option, stock
appreciation right, group insurance, severance pay, retirement
or other employee benefit plan, agreement or arrangement, or
to any employment agreement or consulting agreement (arising
out of prior employment ) with or for the benefit of any
person, or, except to the extent required to comply with
applicable law, amend any of such plans or any of such
agreements in existence on the date of this Agreement;
(f) hire any additional personnel;
(g) incur, assume, suffer or become subject to,
whether directly or by way of guarantee or otherwise, any
Liabilities which, individually or in the aggregate, exceed
$1,500 in the case of Drilling or $50,000 in the case of the
Company;
(h) make or enter into any commitment for capital
expenditures in excess of $1,500 in the case of Drilling or
$50,000 in the case of the Company;
14
(i) pay, lend or advance any amount to, or sell,
transfer or lease any properties or assets (real, personal or
mixed, tangible or intangible) to, or enter into any agreement
or arrangement with, any of its officers or directors or any
affiliate or associate of any of its officers or directors;
(j) terminate, enter into or amend in any material
respect any contract, agreement, lease, license or commitment,
or take any action or omit to take any action which will cause
a breach, violation or default (however defined) under any
contract, except in the ordinary course of business and
consistent with past practice;
(k) acquire any of the business or assets of any
other person or entity;
(l) permit any of its current insurance (or
reinsurance) policies to be cancelled or terminated or any of
the coverage thereunder to lapse, unless simultaneously with
such termination, cancellation or lapse, replacement policies
providing coverage equal to or greater than coverage remaining
under those cancelled, terminated or lapsed are in full force
and effect;
(m) enter into other material agreements, commitments
or contracts not in the ordinary course of business or in
excess of current requirements;
(n) settle or compromise any suit, claim or dispute
or threatened suit, claim or dispute; or
(o) agree in writing or otherwise to take any of the
foregoing actions or any action which would make any
representation or warranty in this Agreement untrue or
incorrect in any material respect.
5.2 FULL ACCESS. Throughout the period prior to the Initial
Closing, each party will afford to the other and its directors, officers,
employees, counsel, accountants, investment advisors and other authorized
representatives and agents, reasonable access to the facilities, properties,
books and records of the party in order that the other may have full opportunity
to make such investigations as it will desire to make of the affairs of the
disclosing party. Each party will furnish such additional financial and
operating data and other information as the other will, from time to time,
reasonably request, including without limitation access to the working papers of
its independent certified public accountants; PROVIDED, HOWEVER, that any such
investigation will not affect or otherwise diminish or obviate in any respect
any of the representations and warranties of the disclosing party.
5.3 CONFIDENTIALITY. Each of the parties hereto agrees that it
will not use, or permit the use of, any of the information relating to any other
party hereto furnished to it in connection with the transactions contemplated
herein ("INFORMATION") in a manner or for a purpose detrimental to such other
party or otherwise than in connection with the transaction, and that they will
not disclose, divulge, provide or make accessible (collectively, "DISCLOSE"), or
permit the Disclosure of, any of the Information to any person or entity, other
than their respective directors, officers, employees, investment advisors,
accountants, counsel and other authorized representatives and agents, except as
may be required by judicial or administrative process or, in the opinion of such
party's counsel, by other requirements of Law; provided, however, that prior to
any Disclosure of any Information permitted hereunder, the disclosing party will
first obtain the recipients' undertaking to comply with the provisions of this
Section with respect to such information. The term "INFORMATION" as used herein
will not include any information relating to a party that the party disclosing
15
such information can show: (i) to have been in its possession prior to its
receipt from another party hereto; (ii) to be now or to later become generally
available to the public through no fault of the disclosing party; (iii) to have
been available to the public at the time of its receipt by the disclosing party;
(iv) to have been received separately by the disclosing party in an unrestricted
manner from a person entitled to disclose such information; or (v) to have been
developed independently by the disclosing party without regard to any
information received in connection with this transaction. Each party hereto also
agrees to promptly return to the party from whom it originally received such
information all original and duplicate copies of written materials containing
Information should the transactions contemplated herein not occur. A party
hereto will be deemed to have satisfied its obligations to hold the Information
confidential if it exercises the same care as it takes with respect to its own
similar information.
5.4 FILINGS; CONSENTS; REMOVAL OF OBJECTIONS. Subject to the
terms and conditions herein provided, the parties hereto will use their best
efforts to take or cause to be taken all actions and do or cause to be done all
things necessary, proper or advisable under applicable Laws to consummate and
make effective, as soon as reasonably practicable, the transactions contemplated
hereby, including without limitation obtaining all Consents of any person or
entity, whether private or governmental, required in connection with the
consummation of the transactions contemplated herein. In furtherance, and not in
limitation of the foregoing, it is the intent of the parties to consummate the
transactions contemplated herein at the earliest practicable time, and they
respectively agree to exert commercially reasonable efforts to that end,
including without limitation: (i) the removal or satisfaction, if possible, of
any objections to the validity or legality of the transactions contemplated
herein; and (ii) the satisfaction of the conditions to consummation of the
transactions contemplated hereby.
5.5 FURTHER ASSURANCES; COOPERATION; NOTIFICATION.
(a) Each party hereto will, before, at and after
Initial Closing, execute and deliver such instruments and take
such other actions as the other party or parties, as the case
may be, may reasonably require in order to carry out the
intent of this Agreement. Without limiting the generality of
the foregoing, at any time after the Closing, at the
reasonable request of Drilling and without further
consideration, the Company will execute and deliver such
instruments of sale, transfer, conveyance, assignment and
confirmation and take such action as Drilling may reasonably
deem necessary or desirable in order to more effectively
consummate the transactions contemplated hereby.
(b) At all times from the date hereof until the
Initial Closing, each party will promptly notify the other in
writing of the occurrence of any event which it reasonably
believes will or may result in a failure by such party to
satisfy the conditions specified in this Article 5.
5.6 PUBLIC ANNOUNCEMENTS. None of the parties hereto will make
any public announcement with respect to the transactions contemplated herein
without the prior written consent of the other parties, which consent will not
be unreasonably withheld or delayed; PROVIDED, HOWEVER, that any of the parties
hereto may at any time make any announcements that are required by applicable
Law so long as the party so required to make an announcement promptly upon
learning of such requirement notifies the other parties of such requirement and
discusses with the other parties in good faith the exact proposed wording of any
such announcement.
16
5.7 SATISFACTION OF CONDITIONS PRECEDENT. Each party will use
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent that are applicable to them, and to cause the transactions
contemplated by this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all material consents and authorizations
of third parties and to make filings with, and give all notices to, third
parties that may be necessary or reasonably required on its part in order to
effect the transactions contemplated hereby.
5.8 RESIGNATION OF OFFICERS AND DIRECTORS. At the Initial
Closing, the pre-Initial Closing officers and directors of Drilling shall submit
their written resignations from such offices effective as of the Closing. Prior
to their resignations, the pre-Initial Closing directors of Drilling shall
appoint to the board of directors of Drilling Xxx Xxxxxxx, Xxxxx Xxxxxxx, D.
Xxxx Xxxxxx, and Xxx Xxxxxxx effective as of the Initial Closing.
5.9 STOCK SPLIT. Drilling shall cause the Split to take place
prior to the Initial Closing.
5.10 RULE 10B-17 AND 14f-1 NOTICES. Drilling shall file (i)
with the NASD at least ten (10) days prior to the effective date of the Split
the appropriate notice under Rule 10b-17 of the Exchange Act concerning the
Split, and (ii) with the SEC at least ten (10) days prior to Initial Closing the
appropriate notice under Rule 14f-1 of Exchange Act concerning the intended
change in control of the board of directors of Drilling.
5.11 TERMINATION OF PRIVATE PLACEMENT. Prior to the Initial
Closing, the Company shall have terminated the sale of the Private Placement
Membership Interests.
ARTICLE 6
CONDITIONS TO THE OBLIGATIONS OF DRILLING
Notwithstanding any other provision of this Agreement to the contrary,
the obligation of Drilling to effect the transactions contemplated herein will
be subject to the satisfaction at or prior to the Closing, or waiver by
Drilling, of each of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of the Company and the Majority Members contained in this
Agreement, including without limitation in the Company Disclosure Schedule
initially delivered to Drilling as Exhibit 2.1, will be true, complete and
accurate in all material respects as of the date when made and at and as of the
Closing Date as though such representations and warranties were made at and as
of such time, except for changes specifically permitted or contemplated by this
Agreement, and except insofar as the representations and warranties relate
expressly and solely to a particular date or period, in which case they will be
true and correct at the Closing with respect to such date or period.
6.2 PERFORMANCE. The Company will have performed and complied
in all material respects with all agreements, covenants, obligations and
conditions required by this Agreement to be performed or complied with by the
Company on or prior to the Closing.
6.3 REQUIRED APPROVALS AND CONSENTS.
17
(a) All action required by law and otherwise to be
taken by the Members of the Company to authorize the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will have
been duly and validly taken.
(b) All Consents of or from all Authorities required
hereunder to consummate the transactions contemplated herein,
will have been delivered, made or obtained, and Drilling will
have received copies thereof.
6.4 AGREEMENTS AND DOCUMENTS. Drilling will have received the
following agreements and documents, each of which will be in full force and
effect:
(a) a certificate executed on behalf of the Company
by its Chief Executive Officer confirming that the conditions
set forth in Sections 6.1, 6.2, 6.3, 6.5, 6.6 and 6.7 have
been duly satisfied;
(b) Exhibits A, B and C executed by Members
representing in excess of 80% of the issued and outstanding
voting securities of the Company; and
(c) a certificate of good standing of the Company
from the state of California and any other states where the
Company is qualified to do business, as of the most recent
practicable date.
6.5 ADVERSE CHANGES. No material adverse change will have
occurred in the business, financial condition, prospects, assets or operations
of the Company since December 31, 2003.
6.6 NO PROCEEDING OR LITIGATION. No suit, action,
investigation, inquiry or other proceeding by any Authority or other person or
entity will have been instituted or threatened which delays or questions the
validity or legality of the transactions contemplated hereby or which, if
successfully asserted, would, in the reasonable judgment of Drilling,
individually or in the aggregate, otherwise have a Material Adverse Effect on
the Company's business, financial condition, prospects, assets or operations or
prevent or delay the consummation of the transactions contemplated by this
Agreement.
6.7 LEGISLATION. No Law will have been enacted which
prohibits, restricts or delays the consummation of the transactions contemplated
hereby or any of the conditions to the consummation of such transaction.
6.8 APPROPRIATE DOCUMENTATION. Drilling will have received, in
a form and substance reasonably satisfactory to Drilling, dated the Initial
Closing Date, all certificates and other documents, instruments and writings to
evidence the fulfillment of the conditions set forth in this Article 6 as
Drilling may reasonably request.
18
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF THE COMPANY AND MEMBERS
Notwithstanding anything in this Agreement to the contrary, the
obligations of the Company and Members to effect the transactions contemplated
herein will be subject to the satisfaction at or prior to the Closing, or waiver
by the Company only, of each of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of Drilling contained in this Agreement will be true, complete
and accurate in all material respects as of the date when made and at and as of
the Closing, as though such representations and warranties were made at and as
of such time, except for changes permitted or contemplated in this Agreement,
and except insofar as the representations and warranties relate expressly and
solely to a particular date or period, in which case they will be true and
correct at the Closing with respect to such date or period.
7.2 PERFORMANCE. Drilling will have performed and complied in
all material respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by Drilling at or
prior to the Closing, including the obligations of the pre-Initial Closing
officers and directors of Drilling set forth in Section 5.8.
7.3 REQUIRED APPROVALS AND CONSENTS.
(a) All action required by law and otherwise to be
taken by the directors and stockholders of the Drilling to
authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated hereby will have been duly and validly taken.
(b) All Consents of or from all Authorities required
hereunder to consummate the transactions contemplated herein,
will have been delivered, made or obtained, and the Company
will have received copies thereof.
7.4 AGREEMENTS AND DOCUMENTS. The Company will have received
the following agreements and documents, each of which will be in full force and
effect:
(a) a certificate executed on behalf of Drilling by
its Chief Executive Officer confirming that the conditions set
forth in Sections 7.1, 7.2, 7.3, 7.5, 7.6 and 7.7 have been
duly satisfied;
(b) resolutions of the board of directors of
Drilling, certified by the secretary of Drilling, approving
the transactions contemplated by this Agreement, including the
issuance of the Drilling Shares and the matters referred to in
Sections 5.8 and 5.9 of this Agreement;
(c) Exhibits A, B and C executed by Members who,
immediately following the Reorganization, will beneficially
own at least eighty percent (80%) of the outstanding capital
stock of Drilling.
(d) certificates representing the Drilling Shares
registered in the names of the Members who have executed
Exhibits A, B or C, as applicable;
19
(e) a certified list of the record holders of
Drilling Common Stock as of the most recent practicable date
evidencing all of the shares of Drilling Common Stock issued
and outstanding; and
(f) a certificate of good standing of Drilling from
the State of Nevada and any other states where Drilling is
qualified to do business, as of the most recent practicable
date.
7.5 ADVERSE CHANGES. No material adverse change will have
occurred in the business, financial condition, prospects, assets or operations
of Drilling since December 31, 2003.
7.6 NO PROCEEDING OR LITIGATION. No suit, action,
investigation, inquiry or other proceeding by any Authority or other person or
entity will have been instituted or threatened which delays or questions the
validity or legality of the transactions contemplated hereby or which, if
successfully asserted, would, in the reasonable judgment of the Company,
individually or in the aggregate, otherwise have a Material Adverse Effect on
Drilling's business, financial condition, prospects, assets or operations or
prevent or delay the consummation of the transactions contemplated by this
Agreement.
7.7 LEGISLATION. No Law will have been enacted which
prohibits, restricts or delays the consummation of the transactions contemplated
hereby or any of the conditions to the consummation of such transaction.
7.8 APPROPRIATE DOCUMENTATION. The Company will have received,
in a form and substance reasonably satisfactory to Company, dated the Closing
Date, all certificates and other documents, instruments and writings to evidence
the fulfillment of the conditions set forth in this Article 7 as the Company may
reasonably request.
ARTICLE 8
TERMINATION AND ABANDONMENT
8.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to the Initial Closing by the written consent of
the Company and Drilling.
8.2 TERMINATION BY EITHER THE COMPANY OR DRILLING. This
Agreement may be terminated by either the Company or Drilling if the Initial
Closing is not consummated by March 31, 2004 (provided that the right to
terminate this Agreement under this Section 8.2 will not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Initial Closing to occur on or before
such date).
8.3 PROCEDURE AND EFFECT OF TERMINATION. In the event of
termination of this Agreement and abandonment of the transactions contemplated
hereby by the Company or Drilling pursuant to this Article 8, written notice
thereof will be given to all other parties and this Agreement will terminate and
the transactions contemplated hereby will be abandoned, without further action
by any of the parties hereto. If this Agreement is terminated as provided
herein:
20
(a) Each of the parties will, upon request, redeliver
all documents, work papers and other material of the other
parties relating to the transactions contemplated hereby,
whether obtained before or after the execution hereof, to the
party furnishing the same;
(b) No party will have any liability for a breach of
any representation, warranty, agreement, covenant or the
provision of this Agreement, unless such breach was due to a
willful or bad faith action or omission of such party or any
representative, agent, employee or independent contractor
thereof; and
(c) All filings, applications and other submissions
made pursuant to the terms of this Agreement will, to the
extent practicable, be withdrawn from the agency or other
person to which made.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 EXPENSES. Drilling and the Company will each bear their
own costs and expenses relating to the transactions contemplated hereby,
including without limitation, fees and expenses of legal counsel, accountants,
investment bankers, brokers or finders, printers, copiers, consultants or other
representatives for the services used, hired or connected with the transactions
contemplated hereby.
9.2 AMENDMENT AND MODIFICATION. Subject to applicable Law,
this Agreement may be amended or modified by the Company and Drilling at any
time without the consent of the Members except as hereinafter provided. In the
event that the Agreement is proposed to be amended to (i) change the Exchange
Ratio by more than fifteen percent (15%), or (ii) initiate or increase any
liability or obligation on the part of any Member, then the amendment must be
approved by the Drilling, the Company and the Members representing at least a
majority in interest of the outstanding Company Membership Interests. All such
amendments and modifications to this Agreement must be in writing duly executed
by all of the parties hereto.
9.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party to
comply with any obligation, covenant, agreement or condition herein may be
expressly waived in writing by Drilling or the Company, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition will not operate as a waiver of, or estoppel with respect
to, any subsequent or other failure. No single or partial exercise of a right or
remedy will preclude any other or further exercise thereof or of any other right
or remedy hereunder. Whenever this Agreement requires or permits the consent by
or on behalf of a party, such consent will be given in writing in the same
manner as for waivers of compliance.
9.4 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
will entitle any person or entity (other than a party hereto and his, her or its
respective successors and assigns permitted hereby) to any claim, cause of
action, remedy or right of any kind.
9.5 NOTICES. All notices, requests, demands and other
communications required or permitted hereunder will be made in writing and will
be deemed to have been duly given and effective: (i) on the date of delivery, if
delivered personally; (ii) on the earlier of the fourth (4th) day after mailing
or the date of the return receipt acknowledgement, if mailed, postage prepaid,
by certified or registered mail, return receipt requested; or (iii) on the date
of transmission, if sent by facsimile, telecopy, telegraph, telex or other
similar telegraphic communications equipment, or to such other person or address
as a party will furnish to the other parties hereto in writing in accordance
with this subsection.
21
If to the Company: With a copy to:
Pivx Solutions, LLC Xxxxxxx Xxxxx & Xxxxx LLP
24 Corporate Plaza 0000 Xxxx Xxxxxx, Xxxxx 000
Xxxxx 000 Xxxxxx, Xxxxxxxxxx 00000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000 Attn: Xxxxxx X. Xxxxxxx
Attn: Xxx Xxxxxxx, Chief Executive Officer Fax: (000) 000-0000
Fax: (000) 000-0000
or to such other person or address as the Company will furnish to the other
parties hereto in writing in accordance with this subsection.
If to any Majority Member, to the address set forth on EXHIBIT A
attached hereto. If to any Member other than a Majority Member, to the address
set forth on the signature page of the Investor Subscription Agreement or
Current Member Subscription Agreement, as the case may be.
If to the Company: With a copy to:
Drilling, Inc. Xxxxxx X. Xxxxxxxxx, Esq.
0000 Xxxx Xxxxxx Xxxxxxx Xxxx, Xxxxxxxx at Law
Xxxx Xxxx Xxxx, Xxxx 00000 0 Xxxx Xxxxxxxx, Xxxxx 000
Attn: Xxxxx Xxxxxxx, President Xxxx Xxxx Xxxx, Xxxx 00000
Fax: (000) 000-0000
or to such other person or address as Drilling will furnish to the other parties
hereto in writing in accordance with this subsection.
9.6 ASSIGNMENT. This Agreement and all of the provisions
hereof will be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder will be assigned
(whether voluntarily, involuntarily, by operation of law or otherwise) by any of
the parties hereto without the prior written consent of the other parties.
9.7 GOVERNING LAW. This Agreement and the legal relations
among the parties hereto will be governed by and construed in accordance with
the internal substantive laws of the State of California (without regard to the
laws of conflict that might otherwise apply) as to all matters, including
without limitation matters of validity, construction, effect, performance and
remedies.
9.8 COUNTERPARTS. This Agreement may be executed
simultaneously in one or more counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same instrument.
9.9 HEADINGS. The table of contents and the headings of the
sections and subsections of this Agreement are inserted for convenience only and
will not constitute a part hereof.
22
9.10 ENTIRE AGREEMENT. This Agreement, the Disclosure
Schedules and the exhibits and other writings referred to in this Agreement or
in the Disclosure Schedules or any such exhibit or other writing are part of
this Agreement, together they embody the entire agreement and understanding of
the parties hereto in respect of the transactions contemplated by this Agreement
and together they are referred to as this "Agreement" or the "Agreement." There
are no restrictions, promises, warranties, agreements, covenants or
undertakings, other than those expressly set forth or referred to in this
Agreement. This Agreement supersedes all prior agreements and understandings
between the parties with respect to the transaction or transactions contemplated
by this Agreement. Provisions of this Agreement will be interpreted to be valid
and enforceable under applicable Law to the extent that such interpretation does
not materially alter this Agreement; provided, however, that if any such
provision becomes invalid or unenforceable under applicable Law such provision
will be stricken to the extent necessary and the remainder of such provisions
and the remainder of this Agreement will continue in full force and effect.
9.11 REMEDIES AND INJUNCTIVE RELIEF. It is expressly agreed
among the parties hereto that monetary damages would be inadequate to compensate
a party hereto for any breach by any other party of its covenants in Article 5
hereof. Accordingly, the parties agree and acknowledge that any such violation
or threatened violation will cause irreparable injury to the other and that, in
addition to any other remedies which may be available, such party will be
entitled to injunctive relief against the threatened breach of Article 5 hereof
or the continuation of any such breach without the necessity of proving actual
damages and may seek to specifically enforce the terms thereof.
9.12 DEFINITION OF MATERIAL ADVERSE EFFECT. "MATERIAL ADVERSE
EFFECT" with respect to a party means a material adverse change in or effect on
the business, operations, financial condition, properties or liabilities of the
party taken as a whole; provided, however, that a Material Adverse Effect will
not be deemed to include (i) changes as a result of the announcement of this
transaction, (ii) events or conditions arising from changes in general business
or economic conditions or (iii) changes in generally accepted accounting
principles.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
DRILLING, INC. PIVX SOLUTIONS, LLC
By: /s/ Xxxxx Xxxxxxx By: /s/ Xxx Xxxxxxx
------------------------ ------------------------------------
Xxxxx Xxxxxxx, President Xxx Xxxxxxx, Chief Executive Officer
"MAJORITY MEMBERS"
Signatures Appear on Exhibit A
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT AND PLAN OF REORGANIZATION
23
EXHIBIT A
---------
MAJORITY MEMBER SIGNATURE PAGE
-------------------------- --------------------- -------------------------------
NUMBER OF COMPANY
NAME AND ADDRESS OF MEMBERSHIP INTERESTS
MAJORITY MEMBER OWNED BY MEMBER SIGNATURE
-------------------------- --------------------- -------------------------------
Xxx Xxxxxxx 4,096,318 /s/ Xxx Xxxxxxx
000 Xxxxxxx Xxxxxx -------------------------
Xxxxxx, Xxxxxxxxxx 00000 Xxx Xxxxxxx
-------------------------- --------------------- -------------------------------
Xxxxx Xxxxxxx 2,760,000 /s/ Xxxxx Xxxxxxx
000 X XxxxxXxxxx, Xxx #X -------------------------
Xxxxxx, Xxxxxxxxxx 00000 Xxxxx Xxxxxxx
-------------------------- --------------------- -------------------------------
Xxxxxxx Xxxx 400,000 /s/ Xxxxxxx Xxxx
29 Mountain Laurel -------------------------
Dove Canyon, California Xxxxxxx Xxxx
92679
-------------------------- --------------------- -------------------------------
Xxx Xxxxxxx 300,000 /s/ Xxx Xxxxxxx
000 Xxxxxxx Xxxxxx -------------------------
Xxxxxx, Xxxxxxxxxx 00000 Xxx Xxxxxxx
-------------------------- --------------------- -------------------------------
