DUNHILL VENTURE PARTNERS CORP.
15th Floor - HSBC Building, 885 West Georgia Street, Vancouver, BC, V6C 3E8
June 24, 2002
Flight Safety Technologies, Inc.
28 Cottrell Street
Mystic, Connecticut 06355 U.S.A.
AND TO:
The undersigned Principals
of Flight Safety Technologies Inc.
Re: Share Exchange with the Shareholders of Flight Safety Technologies, Inc.
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Reel Staff, Inc. ("Pubco") and Dunhill Venture Partners Corp.
("Dunhill") understand that the shareholders of Flight Safety Technologies, Inc.
(the "Company"), as listed on Schedule "A" to this Agreement (the "Vendors"),
are the registered and beneficial owners of all of the issued and outstanding
shares in the capital of the Company (the "Vendors' Shares"), consisting of
2,796,000 common shares and 606,343 preferred shares in the capital of the
Company. This letter is to confirm our agreement that Dunhill will arrange for
Pubco to issue 8,505,857 common shares (the "Exchange Shares") in the capital of
Pubco as consideration for the exchange of the Vendors' Shares, subject to the
terms and conditions required herein.
Upon the terms and subject to the conditions set forth in this
letter, Samuel Kovnat and Frank Rees (the "Principals"), have agreed to exchange
their Vendors' Shares and will use their best efforts to cause all vendors to
exchange the Vendors' Shares for the Exchange Shares (the "Share Exchange"). All
Vendors who execute Schedule "A" to this Agreement agree to its terms. The
parties covenant and agree each with the others as follows:
1. INTERPRETATION
1.1 In this Letter, except as otherwise expressly provided:
(a) "Agreement" means this Letter Agreement, including the preamble and the
Schedules hereto, as it may from time to time be supplemented or
amended and in effect;
(b) all references in this Agreement to a designated "Section" or other
subdivision or to a Schedule is to the designated Section or other
subdivision of, or Schedule to, this Agreement;
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(c) the words "herein", "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular
Section or other subdivision or Schedule;
(d) the headings are for convenience only and do not form a part of this
Agreement and are not intended to interpret, define, or limit the
scope, extent or intent of this Agreement or any provision hereof;
(e) the singular of any term includes the plural, and vice versa; the use
of any term is equally applicable to any gender and, where applicable,
a body corporate; the word "or" is not exclusive; the word "including"
means including without limitation or prejudice to the generality of
any description, definition, term or phrase preceding that word, and
the word "include" and its derivatives will be construed accordingly;
the expression "to the knowledge of" or any similar expression as
applied to a corporation or individual, refers to, (A) in the case of
an individual, the knowledge as at the relevant date that such
individual had or would have had had he exercised due diligence in
making enquiries in relation to the matter in question from all sources
of information likely to provide him with knowledge of same, and (B) in
the case of a corporate person, the knowledge (as aforementioned) of a
director or officer thereof as at the relevant date;
(f) any accounting term not otherwise defined has the meanings assigned to
it in accordance with generally accepted accounting principles
applicable in the United States;
(g) except as otherwise provided, any dollar amount referred to in this
Agreement means the lawful currency of the United States; and
(h) any other term defined within the text of this Agreement has the
meaning so ascribed.
1.2 The following are the Schedules to this Agreement, form part of this
Agreement and are incorporated herein by reference:
(a) Schedule "A" - Shareholders of the Company;
(b) Schedule "B" - Audited Financial Statements of the Company;
(c) Schedule "C" - List of Assets of the Company;
(d) Schedule "D" - Continuing Contractual Obligations of the Company;
(e) Schedule "E" - Options and Other Rights to Acquire Securities in the
Company;
(f) Schedule "F" - Warranties of the Principals and the Company;
(g) Schedule "G" - Warranties to be provided by Pubco;
(h) Schedule "H" - Claims against the Company;
(i) Schedule "I" - Certificate of Non-U.S. Shareholder;
(j) Schedule "J" - Certificate of U.S. Shareholder;
(k) Schedule "K" - Term Sheet for Private Placement; and
(l) Schedule "L" - Investor Relations Budget.
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2. CLOSING
2.1 The closing (the "Closing") of the transactions contemplated herein will
take place at 4:00 p.m. local time, on the date which is 5 (five) days after the
shareholders of both Pubco and the Company have approved the Share Exchange and
any regulatory requirements are complied with, or such other date as may be
agreed to by the parties hereto (the "Closing Date"). The parties aim to close
the transaction on or before ___________, 2002. The Closing may take place by
exchange of the appropriate solicitor's undertakings, which will involve each
party's solicitors delivering to his or her counterpart all required
consideration and documentation, to be held in trust and not released until all
required closing deliveries have been made and all conditions to closing have
been satisfied or waived by the party which has the benefit of such conditions.
3. SHARE EXCHANGE
3.1 Based on the representations and warranties and subject to the terms
and conditions of this Agreement, the Vendors agree to transfer, assign and sell
to Pubco and Pubco shall purchase from the Vendors all of the Vendors' right,
title and interest in and to the Vendors' Shares.
3.2 The purchase price to be paid by Pubco for the Vendors' Shares shall be
payable to each Vendor on the Closing Date by the allotment and issuance of an
aggregate of 8,505,857 Exchange Shares on the basis 2.5 Exchange Shares for each
of the Vendors' Share.
3.3 On the Closing Date, Pubco shall deliver to such of the Vendors as
shall tender their Vendor's shares pursuant hereto, share certificates
registered in the Vendors' respective names for such number of Exchange Shares
as is set opposite each Vendor's name on Schedule "A" hereto.
3.4 Pubco agrees to issue options to acquire shares of Pubco's common stock
to the holders of share purchase warrants and options of the Company as listed
on Schedule "E" hereto. Such Pubco options shall be exercisable on the basis of:
(a) for each share purchase warrant or option of the Company, the holders
thereof shall receive one option of Pubco for each share purchase
warrant held, exercisable to acquire 2.5 common shares of Pubco for
each option held, at an exercise price of $2.00 per share, for the
exercise period that is applicable to the share purchase warrants and
options of the Company currently held;
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(b) no fractional shares shall be issued by Pubco pursuant to exercise of
the options, with the number of shares issuable to be rounded down to
the next whole share; and
(c) the holders of the options shall agree not to resell any shares
received on the exercise of said options for a period of 12 months from
the Closing Date.
4. RESTRICTED SECURITIES
4.1 The Vendors acknowledge that the Exchange Shares issued on exchange of
the Vendors' Shares, pursuant to the terms and conditions set forth in this
Agreement, will have such hold periods as are required under applicable
securities laws and as a result may not be sold, transferred or otherwise
disposed, except pursuant to an effective registration statement under the
United States Securities Act of 1933, as amended (the "1933 Act"), or pursuant
to an exemption from, or in a transaction not subject to, the registration
requirements of the 1933 Act and in each case only in accordance with applicable
federal, state and provincial securities laws.
4.2 The parties hereto acknowledge that Pubco has advised the Vendors that
Pubco is relying on an exemption from the prospectus requirements of applicable
securities legislation in the United States to issue the Exchange Shares to each
of the Vendors and, as a consequence, certain protections, rights and remedies
provided by such securities legislation including statutory rights of rescission
or damages, will not be available to the Vendors.
4.3 The Vendors acknowledge that resale of any of the Exchange Shares by
the Vendors is restricted except pursuant to an exemption from applicable
securities legislation, or pursuant to an effective registration statement.
4.4 It is understood and agreed by the parties hereto that they will
provide and execute all such representations and collateral agreements as are
reasonably necessary to ensure that the issuance of the Exchange Shares complies
with the requirements of all applicable securities legislation.
4.5 It is understood and agreed that the certificates evidencing the
Exchange Shares will bear the following legends:
"THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE AND HAVE
BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS."
4.6 Pubco acknowledges that the Company is not a reporting issuer in the
United States or in any of the Provinces of Canada and therefore resale of any
of the Vendors' Shares is restricted except pursuant to an exemption from
applicable securities legislation.
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5. ACKNOWLEDGEMENTS OF THE VENDORS
5.1 Each one of the Vendors acknowledges and agrees that:
(a) none of the Exchange Shares have been or will be registered under the
1933 Act, or under any state securities or "blue sky" laws of any state
of the United States, and, unless so registered, may not be offered or
sold in the United States or, directly or indirectly, to U.S. Persons,
as that term is defined in Regulation S under the 1933 Act ("Regulation
S"), except in accordance with the provisions of Regulation S, pursuant
to an effective registration statement under the 1933 Act, or pursuant
to an exemption from, or in a transaction not subject to, the
registration requirements of the 1933 Act; and in each case only in
accordance with applicable state and provincial securities laws;
(b) other than as set out in this Agreement, Pubco has not undertaken, and
will have no obligation, to register any of the Exchange Shares under
the 1933 Act;
(c) each of the Vendors has been advised to consult their own respective
legal, tax and other advisors with respect to the merits and risks of
an investment in the Exchange Shares and, with respect to applicable
resale restrictions, is solely responsible (and Pubco is not in any way
responsible) for compliance with applicable resale restrictions;
(d) none of the Exchange Shares are listed on any stock exchange or
automated dealer quotation system and no representation has been made
to the Principals or the Vendors that any of the Exchange Shares will
become listed on any stock exchange or automated dealer quotation
system, except that currently certain market makers make market in the
common shares of Pubco on the National Association of Securities
Dealers, Inc.'s Over-the-Counter Bulletin Board;
(e) neither the Securities and Exchange Commission (the "SEC") nor any
other securities commission or similar regulatory authority has
reviewed or passed on the merits of the Exchange Shares; and
(f) they irrevocably nominate, constitute and appoint the President of the
Company with full power of substitution, as their respective true and
lawful attorney and agent, with full power and authority in his name,
place and stead and for its use and benefit to execute, swear to,
acknowledge, complete, deliver and file as and where required any and
all of the following:
A. all instruments, declarations and certificates necessary to
reflect any amendment to the Agreement;
B. execute and file with any governmental body or
instrumentality thereof, any documents necessary to be
filed in connection with this Agreement;
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C. execute and deliver all such other documents or instruments
on behalf of and in the name of the Vendor as may be deemed
necessary or desirable by the Company to carry out fully
the provisions of this Agreement; and
D. to complete, amend or modify any of the foregoing or this
Agreement and to complete any missing information or
correct any clerical or other errors in the completion of
this Agreement or any of the foregoing;
(g) the power of attorney granted herein is irrevocable, is a power coupled
with an interest, shall survive the death, disability or other legal
incapacity of the Vendor and shall survive the assignment by the Vendor
of the whole or any part of the interest of the Vendor in the Company
and extends to the heirs, executors, administrators, successors and
assigns of the Vendor and may be exercised by the President of the
Company, on behalf of the Vendor, by executing any instrument with a
single signature as attorney and agent for the Vendor; and
(h) they agrees to be bound by any representations and actions made or
taken in good faith by the President of the Company pursuant to this
power of attorney in accordance with the terms hereof and the Vendor
hereby waives any and all defences which may be available to contest,
negate or disaffirm the action of the President of the Company taken in
good faith under this power of attorney.
6. ACKNOWLEDGEMENTS OF PUBCO
6.1 Pubco acknowledges and agrees that:
(a) none of the Vendors' Shares have been or will be registered under the
1933 Act, or under any state securities or "blue sky" laws of any state
of the United States, and, unless so registered, may not be offered or
sold in the United States or, directly or indirectly, to U.S. Persons,
as that term is defined in Regulation S, except in accordance with the
provisions of Regulation S, pursuant to an effective registration
statement under the 1933 Act, or pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the 1933
Act and in each case only in accordance with applicable state and
provincial securities laws;
(b) Pubco and each of the officers and directors have been advised to
consult their own respective legal, tax and other advisors with respect
to the merits and risks of an investment in the Vendors' Shares and,
with respect to applicable resale restrictions, is solely responsible
(and the Company is not in any way responsible) for compliance with
applicable resale restrictions; and
(c) neither the SEC nor any other securities commission or similar
regulatory authority has reviewed or passed on the merits of the
Vendors' Shares.
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7. COVENANTS
7.1 Between the date hereof and the Closing Date, the Company and the
Principals:
(a) will cause the Company to afford to Dunhill and to Pubco and their
respective authorized representatives access during normal business
hours to all properties, books, contracts, commitments, records of the
Company and furnish such copies (certified if requested) thereof and
other information as such parties may reasonably request, and to permit
Pubco and its respective authorized representatives to make such audit
of the books of account of the Company as Pubco may reasonably see fit,
but without disruption to the business activities of the Company;
(b) will use commercially reasonable efforts to cause all Vendors to
execute this Agreement by June 30, 2002;
(c) will diligently take all reasonable steps to obtain, prior to the
Closing Date, all consents and approvals required to complete the
transactions contemplated herein in accordance with the terms and
conditions hereof and give such assurances as may be required in the
reasonable opinion of Pubco's counsel for more perfectly consummating
the transactions contemplated hereby and referenced herein;
(d) will cause the Company to conduct its business and affairs diligently
and only in the ordinary course, and preserve and maintain the assets
and goodwill of the Company;
(e) will not sell or otherwise in any way alienate or dispose of or
encumber any of the assets of the Company, other than in the ordinary
course of business;
(f) will cause the Company to maintain insurance coverage of the scope and
in the amounts presently held;
(g) will not permit the Company to make or agree to make any payment to any
director, officer, employee or agent of the Company except in the
ordinary course of business and at the regular rates of salary and
commission for such person or as reasonable reimbursement for expenses
incurred by such person in connection with the Company; and
(h) use commercially reasonable efforts to obtain an executed Certificate
of Non-U.S. Shareholder or Certificate of U.S. Shareholder, in the
forms attached hereto as Schedules "I" and "J", respectively, from all
the shareholders of the Company and deliver all such certificates to
Pubco on or before the Closing Date.
7.2 The Company covenants and agrees with Pubco that the Company shall not,
prior to the Closing Date, except with the prior written consent of Pubco:
(a) make or permit to be made any new employment contracts or other
arrangements with any directors, officers, agents, servants or
employees of the Company;
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(b) make or assume or permit to be made or assumed any commitment,
obligation or liability which is outside of the usual and ordinary
course of the business of the Company, and for the purpose of carrying
on the same, but the Company will operate its properties and carry on
its businesses as heretofore and will maintain all of its properties,
rights and assets in good standing, order, and repair;
(c) declare or pay any dividends or make any other distributions or
appropriations of profits or capital;
(d) create or assume any indebtedness other than in the ordinary course of
business or guarantee the obligations of any third party; or
(e) sell or otherwise in any way alienate or dispose of or encumber any of
its assets;
provided however that the Company shall, both before and after the Closing Date,
execute and do all such further deeds, acts, things and give such assurances as
may be required in the reasonable opinion of Pubco's counsel for consummating
the transactions contemplated herein, and shall use commercially reasonable
efforts to obtain any approvals from third parties as may be required to all of
the transactions contemplated hereby and referenced herein.
7.3 On or before the Closing Date, the Company shall take commercially
reasonable steps as shall be necessary to obtain approval of its shareholders
for the Share Exchange.
7.4 On or before and as a condition of the Closing, Pubco will complete a
financing by way of a private placement (the "Private Placement") for gross
proceeds of $2,075,000, consisting of 1,037,500 units at $2.00 per unit (each a
"Unit"), with each Unit consisting of one common share in the capital of Pubco
and one-half of one share purchase warrant (a "Warrant"), with each whole
Warrant entitling the holder thereof to acquire one further common share for a
period of two years from the Closing Date at a price of $2.00 per common share,
as further described on the term sheet attached hereto as Schedule "K".
7.5 A further term of the Private Placement is the requirement that Pubco
commits to spend $575,000 of the proceeds of the Private Placement on an
investor relations program, to be administered by Dunhill, subject to the
approval and oversight of management of the Company and in substantial
accordance with the budget attached hereto as Schedule "L", as the same may be
revised from time to time with the mutual approval of the Company and Dunhill.
The funds for the investor relations program shall be deposited into a joint
account in the names of the Company and Dunhill upon closing of the Private
Placement.
7.6 Pubco further covenants and agrees with the Principals that it will
not, prior to the Closing Date, except with the prior written consent of such of
the Principals as may be designated by the Company:
(a) make or assume any commitment, obligation or liability which is outside
of the usual and ordinary course of the business of Pubco and for the
purpose of carrying on the same, but Pubco will operate its properties
and carry on its business as heretofore and will maintain all of its
properties, rights and assets in good order and repair;
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(b) declare or pay any dividends on its common shares or make any other
distributions or appropriations of profits or capital;
(c) create or assume any indebtedness or guarantee the obligations of any
third party, other than in the ordinary course of its business; or
(d) sell or otherwise in any way alienate or dispose of any of its assets
other than in the ordinary course of business.
7.7 On or before the Closing Date, Pubco shall take commercially reasonable
steps as necessary to obtain the consent of the holders of the majority of its
issued and outstanding shares for the approval of the Share Exchange and the
change of the name of Pubco to "Flight Safety Technologies, Inc.", and the
Company and its counsel shall be given a reasonable opportunity to review,
comment on and approve the documents necessary to give effect to the foregoing
to be filed with the SEC.
8. NON-MERGER
8.1 The representations, warranties, covenants and agreements of the
Company, the Principals and the Vendors contained herein and those contained in
the documents and instruments delivered pursuant hereto will be true at and as
of the Closing Date as though made at the Closing Date and will survive the
Closing Date for a period ending twelve (12) months after Closing Date, and
notwithstanding the completion of the transactions herein contemplated, the
waiver of any condition contained herein (unless such waiver expressly releases
each of the Company, the Subsidiary, the Principals and the Vendors of such
representation, warranty, covenant or agreement), or any investigation by Pubco,
the same will remain in full force and effect for the said same twelve (12)
month period after the Closing Date. The representations, warranties, covenants
and agreements of the Company, the Principals and the Vendors contained herein
related to financial and tax matters will be true at and as of the Closing Date
as though made at the Closing Date and will survive the Closing Date for a
period of three (3) years after the Closing Date.
8.2 The representations, warranties, covenants and agreements of Pubco
contained herein and those contained in the documents and instruments delivered
pursuant hereto will be true at and as of the Closing Date as though made at the
Closing Date and will survive the Closing Date for a period ending twelve (12)
months after the Closing Date, and notwithstanding the completion of the
transactions herein contemplated, the waiver of any condition contained herein
(unless such waiver expressly releases Pubco of such representation, warranty,
covenant or agreement), or any investigation by the Company or the Principals,
the same will remain in full force and effect for the said same twelve (12)
month period after the Closing Date. The representations, warranties, covenants
and agreements of Pubco contained herein related to financial and tax matters
will be true at and as of the Closing Date as though made at the Closing Date
and will survive the Closing Date for a period of three (3) years after the
Closing Date.
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9. CONFIDENTIALITY
9.1 Each party agrees that all information provided to it by another party
(collectively "Confidential Information") shall be held in complete confidence
by it and by its advisors and representatives and shall not, without the prior
written consent of that other party, be disclosed to any other person, nor used
for any other purpose, other than in connection with the evaluation, negotiation
and finalization of the transactions contemplated herein. However, a party's
obligation does not apply to Confidential Information:
(a) which is generally available to the public (unless available as a
result of a breach of this Agreement);
(b) which is lawfully in the possession of a party and which was not
acquired directly or indirectly from another party; or
(c) the disclosure of which is required by any applicable law or by any
supervisory or regulatory body to whose rules a party is subject.
10. CONDITIONS PRECEDENT
10.1 The obligations of Dunhill and Pubco to consummate the transactions
herein contemplated are subject to the fulfilment of each of the following
conditions at the times stipulated:
(a) the Agreement has been executed and the purchase of the Vendors' Shares
has been approved by Vendors holding at least a majority of the
Vendors' Shares on or before the Closing Date;
(b) the acknowledgements, representations and warranties of the Principals,
the Vendors and the Company contained herein are true and correct in
all respects at and as of the Closing Date, except as may be in writing
disclosed to and approved by Pubco;
(c) all covenants, agreements and obligations hereunder on the part of the
Principals, the Vendors and the Company to be performed or complied
with at or prior to the Closing Date, including the Principals', the
Vendors', and the Company's obligations to deliver the documents and
instruments herein provided for, have been performed and complied with
at and as of the Closing Date;
(d) between the date hereof and the Closing Date, the Company shall not
have experienced any event, circumstance or condition or have taken any
action or become subject to any action of any character materially and
adversely affecting the Company, materially reducing the value of the
Company or materially reducing the value of the Vendors' Shares;
(e) on or before the Closing Date, no federal, state, regional or municipal
government of any country applicable to the Company and its business or
any agency thereof will have enacted any statute or regulation,
announced any policy or taken any action that will materially and
adversely affect the Company;
(f) on or before the Closing Date, Dunhill and counsel for Pubco shall have
performed a due diligence review of the Company and its affairs, and
both Dunhill and Pubco shall be satisfied, in their sole discretion, as
to the operations of the Company after completion of their due
diligence investigations thereof;
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(g) all consents, orders, approvals and authorizations, including
regulatory and judicial approvals and orders, required or necessary for
the completion of the Share Exchange, shall have been obtained on terms
and conditions satisfactory to Pubco;
(h) there shall not be in force any order or decree making illegal,
restraining or enjoining the consummation of the transactions
contemplated by this Agreement;
(i) there shall not be more than 35 "non-accredited" Vendors, as that term
is defined in Rule 501 promulgated under the 1933 Act;
(j) each Vendor shall have executed and delivered to Pubco, a Certificate
of U.S. Shareholder or a Certificate of Non-U.S. Shareholder, as
applicable; and
(k) no action, suit or proceeding concerning the Company will be pending or
threatened by or before any court of competent jurisdiction or
governmental entity wherein an unfavourable judgment, order, decree,
stipulation or injunction would affect materially and adversely the
Company, and no such judgment, order, decree stipulation or injunction
will be in effect.
10.2 The conditions set forth in Section 10.1 are for the exclusive benefit
of Pubco and may be waived by Pubco in writing in whole or in part at any time.
10.3 The obligations of the Vendors and the Company to consummate the
transactions herein contemplated are subject to the fulfilment of each of the
following conditions at the times stipulated:
(a) this Agreement and the sale of the Exchange Shares has been approved by
the board of directors of Pubco on or before the Closing Date;
(b) this Agreement, the sale of the Exchange Shares and the approval of the
name change of Pubco to "Flight Safety Technologies, Inc." have been
duly approved by the shareholders of Pubco on or before the Closing
Date;
(c) the acknowledgements, representations and warranties of Pubco contained
herein are true and correct in all material respects at and as of the
Closing Date except as may be in writing disclosed to and approved by
the Principals and the Company;
(d) all covenants, agreements and obligations hereunder on the part of
Pubco to be performed or complied with at or prior to the Closing Date,
including in particular Pubco's obligations to deliver the documents
and instruments herein provided for, have been performed and complied
with as at the Closing Date;
(e) between the date hereof and the Closing Date, Pubco has not experienced
any event, circumstance or condition or has taken any action or become
subject to any action of any character adversely affecting Pubco,
materially reducing the value of Pubco, or materially reducing the
value of the Exchange Shares;
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(f) counsel for the Principals, and the Company shall have performed a due
diligence review of Pubco, and the Principals and the Company shall be
satisfied, in their sole discretion, as to the state of the business
assets and the operations of Pubco after completion of their due
diligence investigation thereof;
(g) Pubco shall have completed the Private Placement before or
contemporaneously with the Closing; and
(h) Pubco shall have completed the Private Placement in a manner that
complies with all applicable state and federal laws and regulations
before or contemporaneously with the Closing on terms and conditions
consistent with the term sheet attached hereto as Schedule "K" and
otherwise approved by the Company and its counsel, such approval not to
be unreasonably withheld;
(i) on or before the Closing Date, no federal, state, regional or municipal
government of any country applicable to Pubco and its business or any
agency thereof will have enacted any statute or regulation, announced
any policy or taken any action that will materially and adversely
affect Pubco;
(j) all consents, orders, approvals and authorizations, including
regulatory and judicial approvals, and orders required or necessary for
the completion of the Share Exchange and, including, without
limitation, conditions precedent thereto, shall have been obtained on
terms and conditions satisfactory to the Company and its counsel;
(k) there shall not be in force any order or decree making illegal,
restraining or enjoining the consummation of the transactions
contemplated by this Agreement;
(l) no action, suit or proceeding concerning Pubco will be pending by or
before any court of competent jurisdiction or governmental entity
wherein an unfavourable judgment, order, decree, stipulation or
injunction would affect materially and adversely Pubco and no such
judgment, order, decree, stipulation or injunction will be in effect;
and
(m) on or before the Closing Date, the Company shall have received a tax
option to the effect that the Share Exchange does not have adverse tax
consequences for the Vendors.
10.4 The conditions set forth in Section 10.3 are for the exclusive benefit
of the Principals and the Company and may be waived by the Principals and the
Company in whole or in part at any time.
10.5 The respective obligations of each party to this Agreement to
consummate the transactions herein contemplated are subject to all consents,
approvals, authorizations, waivers and orders of any regulatory authorities,
shareholders or third parties required or necessary or desirable for the
completion of the transactions contemplated herein having been obtained or
received by the Company, the Vendors, the Principals and Pubco, as applicable.
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11. TRANSACTIONS OF THE VENDORS, THE PRINCIPALS AND THE COMPANY AT THE
CLOSING
11.1 At the Closing, the Vendors, the Principals and the Company will
execute and deliver or cause to be executed and delivered all documents,
instruments, resolutions and share certificates as are necessary to effectively
transfer and assign the Vendors' Shares to Pubco, free and clear of all liens,
including the following:
(a) certified copies of resolutions of the directors of the Company
approving this Agreement and authorizing the Share Exchange and the
transactions contemplated thereby;
(b) executed copies of this Agreement;
(c) share certificates representing the Vendors' Shares in the name of the
Vendors duly endorsed for transfer;
(d) all corporate records and books of account of the Company including,
minute books, share register books, share certificate books and annual
reports;
(e) the corporate seal of the Company, if available;
(f) releases, in form and substance satisfactory to Pubco, acting
reasonably, executed by the Company's officers and directors in favour
of the Company releasing the Company from any and all manner of
actions, causes of action, suits, proceedings, debts, dues, profits,
expenses, contracts, damages, claims, demands and liabilities
whatsoever, in law or equity, which the Principals ever had, now have,
or may have against the Company for or by reason of any matter, cause
or thing whatsoever done or omitted to be done by the Principals up to
the Closing Date other than in respect of obligations of the Company to
the Principals arising in respect of:
(i) earned but unpaid salary and unpaid benefits for the then current
pay period, and
(ii) any obligations pursuant to indemnities granted to the Principals
by the Company in connection with acts as a director of the
Company provided that such indemnities shall be ineffective in
respect of any act or omission which would constitute a default
or breach pursuant to this Agreement or which render any
representation or warranty given hereunder untrue or inaccurate;
(g) a closing warranty and certificate from the Principals and Company
confirming that the conditions to be satisfied by the Vendors, the
Principals and the Company, unless waived, set out in Section 10.1 have
been satisfied at the Closing Date and that all representations and
warranties of the Principals, the Vendors and the Company contained in
this Agreement are true at and as of the Closing Date;
13
(h) an opinion of the Company's counsel addressed to Pubco and its counsel
in a form reasonably satisfactory to such counsel, substantially to the
effect that:
(i) the Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its
jurisdiction of incorporation,
(ii) the authorized and issued share capital of the Company are as
represented and warranted in this Agreement,
(iii) such counsel is not aware of any litigation, proceedings or
investigations pending or threatened against the Company not
disclosed in this Agreement,
(iv) all necessary approvals from the Company have been obtained and
are in full force and effect with respect to the transfer of the
Vendors' Shares to Pubco as contemplated herein; and
(v) on such other matters as the Company and its counsel may
reasonably require.
(i) executed copies of the Certificate of Non-U.S. Shareholders and the
Certificate of U.S. Shareholders, as applicable, for each of the
Vendors; and
(j) all such other documents and instruments as Pubco's solicitors may
reasonably require.
12. TRANSACTIONS OF PUBCO AT THE CLOSING
12.1 Pubco will deliver the following on or before the Closing Date:
(a) share certificates representing the Exchange Shares registered in the
names of the Vendors;
(b) executed copies of this Agreement;
(c) a closing warranty and certificate from Pubco confirming that the
conditions to be satisfied by Pubco, unless waived, set out in Section
10.3 have been satisfied at the Closing and that all representations
and warranties of Pubco contained in this Agreement are true at and as
of the Closing Date;
(d) an opinion of Pubco's counsel authorized to practice law in the United
States, addressed to the Principals and the Company and their
respective counsel in a form reasonably satisfactory to such counsel,
substantially to the effect that:
14
(i) Pubco has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction
of incorporation;
(ii) the authorized and issued share capital of Pubco is as
represented and warranted in this Agreement;
(iii) such counsel is not aware of any litigation, proceedings or
investigations pending or threatened against Pubco not disclosed
in this Agreement;
(iv) all necessary approvals from Pubco has been obtained and are in
full force and effect with respect to the allotment, creation and
issuance of the Exchange Shares as contemplated herein; and
(v) on such other matters as Pubco and its counsel may reasonably
require.
(e) following the appointment of the incoming directors of Pubco in
accordance with Section 13.1, resignations and releases in writing of
any directors, as agreed to by Pubco, the Company and the Principals,
to be effective upon the Closing Date;
(f) certified copies of the resolutions of the directors of Pubco approving
this Agreement and authorizing the Share Exchange;
(g) certified copies of the resolutions of the shareholders of Pubco
authorizing the Share Exchange , the change of the name of Pubco and
transactions contemplated hereby;
(h) releases, in form and substance satisfactory to the Company, acting
reasonably, executed by the principals of Pubco (the "Pubco
Principals") in favour of Pubco releasing Pubco from any and all manner
of actions, causes of action, suits, proceedings, debts, dues, profits,
expenses, contracts, damages, claims, demands and liabilities
whatsoever, in law or equity, which the Pubco Principals ever had, now
have, or may have against Pubco for or by reason of any matter, cause
or thing whatsoever done or omitted to be done by the Pubco Principals
up to the Closing Date;
(i) all tax returns, corporate records and books of account, including
minute books, annual reports and the corporate seal of Pubco, if
available; and
(j) all such other documents and instruments as the Company's and the
Principals' counsel may reasonably require.
13. OTHER CLOSING CONDITIONS
13.1 As at the Closing Date and thereafter, and until otherwise changed as
provided by law, the parties agree that the board of directors of Pubco shall
consist of Samuel Kovnat, Frank Rees, William Cotton, Jackson Kemper, Leonard
Levie, Alan Greene, Sam Vail and Steven Tocco, who shall be appointed by the
current members of Pubco's board of directors on the Closing Date. 13.2 As of
the Closing Date, Pubco shall have completed the change of Pubco's name to
"Flight Safety Technologies, Inc." or such other name chosen by Pubco and the
Vendors (provided the name is acceptable to the applicable corporate registry).
15
14. Indemnification
14.1 The Company will indemnify and hold harmless Public, Dunhill, and their
respective affiliates from any liabilities, costs, claims or damages, including,
without limitation, reasonable attorneys fees, which exceed $100,000 and result
from a breach of any of the covenants, representations or warranties made by the
Company under this Agreement.
14.2 Pubco will indemnify and hold the Company and the Vendors harmless from
any liabilities, costs, claims or damages, including, without limitation,
reasonable attorneys fees, which exceed $100,000 and result from a breach of any
of the covenants, representations and warranties made by Pubco under this
Agreement.
14.3 The Board of Directors of Pubco in good faith shall evaluate any
assertion of any liabilities, costs, claims or damages arising following Closing
under Section 14.2 or 14.2. The Board of Directors may determine in good faith
that there are reasonable grounds to support and confirm the validity of such
costs, claims or damages in excess of $100,000, whereupon it may issue shares of
Pubco to the Vendors or the pre-Closing Pubco shareholders, including the
Private Placement subscribers, as the case may be, in the amount of such
liabilities, costs, claims or damages based upon the fair market value of the
Exchange Shares as determined by the Board of Directors. Such shares shall be
the exclusive remedy to compensate the parties with respect to any such
liabilities, costs, claims or damages. Such shares shall be issued in proportion
to the relative shareholdings of such injured group.
14.4 The indemnification obligations shall expire with respect to any
liability, cost, claim or damages that is not asserted in writing prior to the
expiration of any representation, warranty or covenant pursuant to Sections 8.1
and 8.2 of this Agreement.
15. TERMINATION
15.1 Notwithstanding anything to the contrary contained herein, this
Agreement will terminate if the Closing does not occur on or before July 31,
2002 or such other date as the parties may agree, or by the mutual written
consent of the parties hereto.
15.2 If the Company terminates this Agreement for any reason other than:
(a) Pubco's or Dunhill's failure to perform their respective obligations
contained herein;
(b) the Company is made to obtain approval of a majority of the Vendors'
Shares on or before the Closing Date; or
(c) the Company is not satisfied in its sole discretion with its due
diligence on Pubco; then the Company shall:
16
(i) pay to Dunhill $200,000; and
(ii) reimburse Pubco and Dunhill for their legal fees and expenses
reasonably incurred in connection with this Agreement, in an
aggregate amount not to exceed $50,000.
15.3 The foregoing payments to Pubco and Dunhill under Section 15.2 shall be
the sole remedy of Pubco and Dunhill for termination of this Agreement in
accordance with Section 15.2, and shall be paid to them as liquidated damages in
recognition of the agreement of the parties hereto that said payments represent
a reasonable estimate of the damages suffered by Pubco and Dunhill.
15.4 Notwithstanding Section 15.3 of this Agreement, termination shall not
relieve or have the effect of resulting in relieving any party to this Agreement
in any way from liability for damages incurred or suffered by any of the other
parties as a result of a knowing or intentional breach by such party of any of
its, his or her representations and warranties or any of its, his or her
covenants, conditions or agreements set forth in this Agreement or from acting
in bad faith intended and designed to result in conditions precedent to this
Agreement's completion from being satisfied.
15.5 Termination of this Agreement shall not relieve any of the parties of
their obligations under Section 9 of this Agreement with respect to
confidentiality, which obligations shall survive such termination.
16. Expenses
16.1 Each party to this Agreement will be responsible for all of its own
expenses, legal and other professional fees, disbursements, and all other costs
incurred in connection with the negotiation, preparation, execution, and
delivery of this Agreement and all documents and instruments relating hereto and
the consummation of the transactions contemplated hereby.
17. TIME OF THE ESSENCE
17.1 Time is of the essence of this Agreement.
18. FURTHER ASSURANCES
18.1 The parties will execute and deliver all such further documents and
instruments and do all such acts and things as may be reasonably necessary or
required to carry out the full intent and meaning of this Agreement and to
effect the transactions contemplated by this Agreement.
19. SUCCESSORS AND ASSIGNS
19.1 This Agreement will enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators, successors
and permitted assigns. This Agreement may not be assigned by a party hereto
without the prior written consent of the other parties.
17
20. COUNTERPARTS
20.1 This Agreement may be executed in several counterparts and by fax
transmission, each of which will be deemed to be an original and all of which
will together constitute one and the same instrument. 21. electronic means 21.1
Delivery of an executed copy of this Agreement by electronic facsimile
transmission or other means of electronic communication capable of producing a
printed copy will be deemed to be execution and delivery of this Agreement as of
the date set forth on page one of this Agreement.
22. NOTICE
22.1 Any notice required or permitted to be given under this Agreement will
be validly given if in writing and delivered or sent by pre-paid registered mail
or facsimile transmission, to the following addresses:
(a) If to the Vendors, the Principals and the Company:
Flight Safety Technologies Inc.
28 Cottrell Street
Mystic, Connecticut 06355 U.S.A.
Attention: Samuel Kovnat
------------------------------
Fax: (806) 536-6607
with a copy to:
Joseph J. Selinger Jr.
Tobin, Carberry, O'Malley, Riley & Selinger, P.C.
43 Broad Street
New London, CT 06320
(b) If to Dunhill Venture Partners Corp.:
Suite 1500 - 885 West Georgia Street
Vancouver, British Columbia
V6C 3E8
Attention: Darren Sontowski
---------------------------------
Fax: (604) 684-2302
with a copy to:
18
CLARK, WILSON
Barristers and Solicitors
800 - 885 West Georgia Street
Vancouver, British Columbia
V6C 3H1
Attention: Bernard Pinsky
--------------------------
Fax: (604) 687-6314
or to such other address as any party may specify in writing to the other
parties.
22.2 Any notice delivered on a business day or sent by facsimile
transmission will be deemed conclusively to have been effectively given on the
date notice was delivered or sent by facsimile transmission. 22.3 Any notice
sent by prepaid registered mail will be deemed conclusively to have been
effectively given on the third business day after posting; but if at the time of
posting or between the time of posting and the third business day thereafter
there is a labour disturbance affecting postal service, then the notice will not
be effectively given until actually delivered.
23. ENTIRE AGREEMENT
23.1 This Agreement contains the sole and entire agreement between the
parties and any modifications must be in writing and signed by each party. The
parties will in good faith investigate and negotiate the most tax effective
method of carrying out the intentions of this Agreement.
24. SCHEDULES
24.1 The Schedules attached hereto are hereby incorporated into this
Agreement and form a part hereof. All terms defined in the body of this
Agreement will have the same meaning in the Schedules attached hereto.
25. SEVERABILITY
25.1 If any covenant or other provision of this Agreement is invalid,
illegal, or incapable of being enforced by reason of any rule of law or public
policy, then such covenant or other provision will be severed from and will not
affect any other covenant or other provision of this Agreement, and if such
severance does not impair realization of the material benefits intended to be
conferred upon each of the parties to this Agreement, this Agreement will be
construed as if such invalid, illegal, or unenforceable covenant or provision
had never been contained in this Agreement. All other covenants and provisions
of this Agreement will, nevertheless, remain in full force and effect and no
covenant or provision will be deemed dependent upon any other covenant or
provision unless so expressed herein.
19
26. REMEDIES CUMULATIVE
26.1 The remedies to which any party hereto may resort are cumulative and
not exclusive of any other remedies allowed by law or equity to which such party
may be entitled, and such party will be entitled to pursue any and all of its
remedies concurrently, consecutively, and alternatively.
27. APPLICABLE LAW
27.1 This Agreement will be governed by and construed in accordance with the
law of the state of Delaware, and the parties hereby attorn to the jurisdiction
of the Courts of competent jurisdiction of the state of Delaware in any
proceeding hereunder.
If you agree to the foregoing, please execute below where indicated.
DUNHILL Venture Partners Corp.
Per: /s/ Darren Sontowski
--------------------------------------
Authorized Signatory
REEL STAFF, INC.
Per: /s/ Renee McCracken
--------------------------------------
Authorized Signatory
FLIGHT SAFETY TECHNOLOGIES INC.
Per: /s/ Samuel Kovnat
--------------------------------------
Authorized Signatory
EXECUTED by Samuel Kovnat in the presence of: )
)
- ----------------------------------------------- )
Signature )
)
- ----------------------------------------------- /s/ SAMUEL KOVNAT
Print Name ) --------------------
) SAMUEL KOVNAT
- -----------------------------------------------
Address )
)
- -----------------------------------------------
)
- ----------------------------------------------- )
Occupation )
20
EXECUTED by Frank Rees in the presence of: )
)
)
Signature )
) /s/ FRANK REES
- ----------------------------------------------- --------------------
Print Name ) FRANK REES
)
- -----------------------------------------------
Address )
)
- -----------------------------------------------
)
- ------------------------------------------------ )
Occupation )
21
Schedule A
SHAREHOLDERS OF THE COMPANY
No. of No. of
Vendors' Exchange
Name of Vendor Shares Shares Signature
- -------------- ------- --------- ----------
Common Stock
(24 shareholders)
Sam Kovnat 550,000
-------------------------------------------------
Frank Rees 550,000
-------------------------------------------------
Spencer Trask ICC 500,000
-------------------------------------------------
Advanced Acoustic Concepts 250,000
-------------------------------------------------
E.I. Levie, SEP 225,000
-------------------------------------------------
Alan Greene 100,000
-------------------------------------------------
William Cotton 200,000
-------------------------------------------------
David Tamburro 60,000
-------------------------------------------------
Jackson Kemper 50,000
-------------------------------------------------
Cynthia Martin 50,000
-------------------------------------------------
G. Stewart Hall 50,000
-------------------------------------------------
David Cryer 50,000
-------------------------------------------------
Sonia Esposito 35,000
-------------------------------------------------
Karen Nelligan 30,000
-------------------------------------------------
William Rosenstadt 25,000
-------------------------------------------------
Samuel Nelligan 15,000
-------------------------------------------------
Maurice Nelligan 15,000
-------------------------------------------------
William Von Winkle 10,000
-------------------------------------------------
Robert O'Neill 10,000
-------------------------------------------------
Azizul Quazi 10,000
-------------------------------------------------
Others (4) 11,000
-------------------------------------------------
Total Common Stock 2,796,000
-------------------------------------------------
22
No. of No. of
Vendors' Exchange
Name of Vendor Shares Shares Signature
- -------------- ------- --------- ---------
Preferred Stock
(46 shareholders or contact person)
Jan Arnett 45,454
-------------------------------------------------
Jack Badget 11,363
-------------------------------------------------
James Bonvissuto 7,576
-------------------------------------------------
William Buchanan 4,545
-------------------------------------------------
John Cleary 15,151
-------------------------------------------------
Dennis DeLoach 5,000
-------------------------------------------------
William Dioguardi 45,453
-------------------------------------------------
Robert Durant 15,150
-------------------------------------------------
Keith Evans 3,030
-------------------------------------------------
Joseph Fabiani 7,575
-------------------------------------------------
Donald Farley 10,000
-------------------------------------------------
Elinor Finlayson 3,030
-------------------------------------------------
Walter Gans 7,575
-------------------------------------------------
Alfred Gilbert 4,000
-------------------------------------------------
David Goldsmith 7,575
-------------------------------------------------
Brice Hall 5,769
-------------------------------------------------
Linda Hamilton 100,000
-------------------------------------------------
Dennis Hess 7,575
-------------------------------------------------
Theodore Hodge 15,150
-------------------------------------------------
George Holbrook 10,000
-------------------------------------------------
Joseph Incandela 7,575
-------------------------------------------------
Alexis Kamarowsky 30,303
-------------------------------------------------
Shirley Keys 7,575
-------------------------------------------------
Sam Kovnat 7,575
-------------------------------------------------
Miladen Krescic 7,500
-------------------------------------------------
J. Allen Lamb 15,151
-------------------------------------------------
Tom McClain 4,545
-------------------------------------------------
Clyde McGregor 30,303
-------------------------------------------------
23
No. of No. of
Vendors' Exchange
Name of Vendor Shares Shares Signature
- -------------- ------- --------- ---------
MA McQuade 3,030
-------------------------------------------------
Jerry Mendelson 4,000
-------------------------------------------------
Bob Montgomery 6,000
-------------------------------------------------
Anton Haardt 7,575
-------------------------------------------------
Frank Rees 7,575
-------------------------------------------------
Newton Robinson 7,575
-------------------------------------------------
Specer Trask Securities 9,090
-------------------------------------------------
Steve Rubin 4,000
-------------------------------------------------
Stan Rubin 4,000
-------------------------------------------------
Fredrik Schreuder 30,303
-------------------------------------------------
Nageen Sharma 5,000
-------------------------------------------------
Louis Southworth 5,000
-------------------------------------------------
Jim Soyak 22,727
-------------------------------------------------
Diana Van Ness 3,787
-------------------------------------------------
Larry Warner 7,454
-------------------------------------------------
Paul Weir 7,575
-------------------------------------------------
John Wierda 7,576
-------------------------------------------------
Chris Wierda 7,576
-------------------------------------------------
Don & Sheri Yohe 15,000
-------------------------------------------------
Total Preferred Stock 606,343
-------------------------------------------------
24
Schedule B
FINANCIAL STATEMENTS
OF THE COMPANY
Schedule C
LIST OF ASSETS OF THE COMPANY
1. Patents Issued
Description Patent No. Patent Date
----------- --------- -----------
Collision Avoidance System For Use in US 6211,808 B1 April 3, 2001
Aircraft - (Unicorn)
Inventor: Frank L. Rees
Assignee: Flight Safety Technologies, Inc.
Method of Detecting Weather Conditions US 6,034,760 A March 7, 2000
in the Atmosphere - (Socrates)
Inventor: Frank L. Rees
Assignee: Flight Safety Technologies, Inc.
2. Patent Filings / Pending
Description Countries Application Number
----------- --------- -------------------
Collision Avoidance System For Use in International PCT/US00/04456
Aircraft - (Unicorn) EPO 00913560.9
Japan
Australia
New Zealand
Canada
Method of Detecting Weather Conditions EPO 98953163.7
in the Atmosphere - (Socrates) Norway 20001994
Australia 10606/99
Canada 2308203
Korea 10-2000-7004343
New Zealand 504575
China 98811438
Japan
Turkey
Israel
Saudi Arabia
Austria
25
3. Fixed Assets
MAC 233 PC - M6709LL/B
Stylus 740 Monitor - 867503
Used PC - J. Falcone
HP Pavilon 6470Z - 381078
Sony 19" Trinitron Monitor - 366551
Epson Stylus - 355174
HP Scanjet 5100CSE - 926743
Office Furniture - Various
Fax Machine - HP 900 Series
Used PC - H. Nyberg / MAC-DC Office
Laser System (4-Beam) / LM - Phase I
Laser System (4-Beam) / LM - Phase II
Acoustic Source - (ASEWTS) / Kildare
Scientific PC - Frank Rees - Compusa
Maxtor HD - 60G16
Refrigerator
O'Neill's Used Furniture - Various
Conference Table & (6) Chairs
26
Schedule D
CONTINUING CONTRACTUAL OBLIGATIONS
OF THE COMPANY
1. Teaming Agreement between Flight Safety Technologies, Inc. and Lockheed
Martin Corporation, dated May 1, 1997.
2. Supply contract between Flight Safety Technologies, Inc., and the United
States Department of Transportation, dated August 27, 1999.
3. Task Order from the United States Department of Transportation to Flight
Safety Technologies, Inc., dated May 1, 2001.
4. Employment Agreements between Flight Safety Technologies, Inc. and each of
William Cotton, David Cryer, Samuel Kovnat, and Frank Rees, dated November
3, 2000.
5. Lease Agreement for 28A Cothill Street, Mystic, Connecticut, dated March
15, 2002.
6. Consulting Agreement between Flight Safety Technologies, Inc., and Jack
Ferguson Associates Inc., dated April 17, 2002.
7. Consulting Agreement between Flight Safety Technologies, Inc., and Jackson
Kemper, dated January 1, 2002.
27
Schedule E
OPTIONS AND OTHER RIGHTS TO ACQUIRE
SECURITIES IN THE COMPANY
Outstanding share purchase warrants
Holder # of Warrants
- ------ --------------
William Cotton 175,000
Spencer Trask Brokers 121,269
Jack Ferguson & Associates 100,000
DKS Capital 83,5000
Jackson Kemper 50,000
G. Stewart Hall 50,000
Keith Evans 50,000
Steven Tocco 50,000
Sen. Larry Pressler 50,000
-----------------------------
Associates Investments Corp. 50,000
Total Common Stock Warrants 779,769
729,769 @ $3.30 per common share
28
SCHEDULE F
WARRANTIES AND REPRESENTATIONS OF
THE PRINCIPALS AND THE COMPANY
Each of the Principals and the Company warrant and represent, jointly and
severally, to Pubco with the intent that Pubco will rely thereon in entering
into this Agreement and in concluding the Share Exchange contemplated herein,
that:
(a) the Company is a corporation validly existing and in good standing
under the laws of the State of Delaware and has the power, authority
and capacity to enter into this Agreement and to carry out its terms;
(b) the authorized capital of the Company consists of:
(i) 10,000,000 common shares, with a par value of $0.01, of which
2,796,000 common shares have been validly issued, are outstanding
and are fully paid and non-assessable; and
(ii) 5,000,000 preferred shares, of which 606,343 preferred shares
have been validly issued, are outstanding and are fully paid and
non-assessable.
(c) the Vendors' Shares represent 100% of the issued and outstanding share
capital of the Company;
(d) there shall not be more than 35 "non-accredited" Vendors, as that term
is defined in Rule 501 promulgated under the 1933 Act;
(e) all of the Vendors which are not residents of the U.S.:
(i) are not "U.S. Persons" as such term is defined by Rule 902 of
Regulation S under the 1933 Act (the definition of which
includes, but is not limited to, an individual resident in the
U.S. and an estate or trust of which any executor or
administrator or trust, respectively is a U.S. Person and any
partnership or corporation organized or incorporated under the
laws of the U.S.),
(ii) were all outside the U.S. when the shareholders of the Company
approved of the Share Exchange,
(iii) acknowledge and agree the Exchange Shares are not being acquired,
directly or indirectly, for the account or benefit of a U.S.
Person or a person in the United States,
(iv) acknowledge and agree not to engage in hedging transactions with
regard to the Exchange Shares prior to the expiration of the one
(1) year distribution compliance period set forth in Rule
903(b)(3) of Regulation S under the 1933 Act, and
29
(v) acknowledge and agree with Pubco that Pubco shall refuse to
register any transfer of the Exchange Shares not made in
accordance with the provisions of Regulation S, pursuant to
registration under the 1933 Act, or pursuant to an available
exemption from registration under the 1933 Act.
(f) all alterations, if any, to the respective constating documents of the
Company have been duly approved by the shareholders of the Company;
(g) the execution and delivery of this Agreement and the completion of the
transactions contemplated hereby has been duly and validly authorized
by all necessary corporate action on the part of the Company, and this
Agreement constitutes a legal, valid and binding obligation of the
Company enforceable in accordance with its terms except as limited by
laws of general application affecting the rights of creditors;
(h) each of the Principals does not have any specific information relating
to the Company which is not generally known or which has not been
disclosed to Pubco and which if known could reasonably be expected to
have a material adverse effect on the value of the Vendors' Shares or
on the Company;
(i) neither the Company, nor any of the Principals have made any untrue
statement to Pubco nor has any of them failed to state a material fact
that is required to be stated or that is necessary to prevent a
statement that is made from being materially false or misleading in the
circumstances in which it was made;
(j) to the best of the Principals' knowledge, all of the tangible assets of
the Company are in good working order and contain no latent defects;
(k) except as disclosed in Schedule "H" hereto, neither the Company nor any
of the Principals are aware of any infringement by the Company of any
registered patent, trademark or copyright;
(l) except as disclosed in Schedule "E" hereto, no person has any
agreement, right, option or privilege, consensual or arising by law,
present or future, contingent or absolute, or capable of becoming an
agreement, right or option:
(i) to require the Company to issue any further or other shares in
its respective capital or any other security convertible or
exchangeable into shares in its respective capital or to convert
or exchange any securities into or for shares in the capital of
the Company,
(ii) for the issue or allotment of any of the authorized but unissued
shares in the capital of the Company,
30
(iii) to require the Company to purchase, redeem or otherwise acquire
any of the issued and outstanding shares in the capital of the
Company,
(iv) to purchase or otherwise acquire any shares in the capital of the
Company, or
(v) which is capable of becoming an agreement for the acquisition of
any of the material assets of the Company;
(m) the Company is registered to carry on business in all jurisdictions in
which it currently carries on business;
(n) the making of this Agreement and the completion of the transactions
contemplated hereby and the performance of and compliance with the
terms hereof does not and will not:
(i) conflict with or result in a breach of or violate any of the
terms, conditions, or provisions of the constating documents of
the Company,
(ii) conflict with or result in a breach of or violate any of the
terms, conditions or provisions of any law, judgment, order,
injunction, decree, regulation or ruling of any court or
governmental authority, domestic or foreign, to which any of the
Company or the Vendors are subject or constitute or result in a
default under any agreement, contract or commitment to which any
of the Company or the Vendors are a party,
(iii) subject to obtaining any necessary consents of applicable
regulatory authorities, give to any person any remedy, cause of
action, right of termination, cancellation or acceleration in or
with respect to any agreement, contract, or commitment to which
the Company is a party,
(iv) give to any government or governmental authority, including any
governmental department, commission, bureau, board, or
administrative agency any right of termination, cancellation, or
suspension of, or constitute a breach of or result in a default
under any permit, license, control, or authority issued to the
Company and which is necessary or desirable in connection with
the conduct and operation of the business of the Company as
currently conducted, or
(v) subject to obtaining any necessary consents of applicable
regulatory authorities, constitute a default by the Company or an
event which, with the giving of notice or lapse of time or both,
might constitute an event of default or non-observance under any
agreement, contract, indenture or other instrument relating to
any indebtedness of the Company which would give any person the
right to accelerate the maturity for the payment of any amount
payable under that agreement, contract, indenture, or other
instrument;
31
(o) the audited consolidated financial statements of the Company for the
period ending May 31, 2001 attached as Schedule "B" hereto (the
"Company Financial Statements") were prepared in accordance with United
States generally accepted accounting principles applied on a basis
consistent with prior reporting periods, are true and correct in every
material respect and present fairly and accurately the financial
condition and position of the Company as at the date thereof and the
results of the operations of the Company;
(p) the revenues of the Company as reported in the Company Financial
Statements have been prepared and reported in accordance with United
States generally accepted accounting principles;
(q) after the date of the Company Financial Statements, the Company has not
engaged in any transaction or made any disbursement or assumed or
incurred any liability or obligation or made any commitment, including,
without limitation, any forward purchase commitment or similar
obligation, to make any expenditure which would materially affect its
operations, property, assets or financial condition;
(r) except as disclosed in the Company Financial Statements:
(i) no dividends or other distributions of any kind whatsoever on any
shares in the capital of the Company has been made, declared or
authorized,
(ii) the Company is not indebted to the Vendors or any one of them,
(iii) none of the Vendors or any other officer, director or employee of
the Company is indebted or under obligation to the Company on any
account whatsoever except for:
A. Samuel Kovnat is indebted to the Company in the amount of
$12,165,
B. Frank Rees is indebted to the Company in the amount of
$6,250, and
C. Dave Cryer is indebted to the Company in the amount of
$2,250;
(iv) the Company has not guaranteed or agreed to guarantee any debt,
liability or other obligation of any kind whatsoever of any
person, firm or corporation of any kind whatsoever;
(s) there are no material liabilities of the Company, whether direct,
indirect, absolute, contingent or otherwise, which are not disclosed or
reflected in the Company Financial Statements except those incurred in
the ordinary course of business of the Company since the date of the
Company Financial Statements and such liabilities are recorded in the
books and records of the Company;
32
(t) the accounts receivable of the Company shown on the Company Financial
Statements or recorded in the books and records of the Company are bona
fide, good and collectible without set-off or counterclaim;
(u) the Company has good and marketable title to all of its respective
assets as listed in Schedules "C", and such assets are free and clear
of any financial encumbrances not disclosed in the Company Financial
Statements and all machinery and equipment of any kind whatsoever
comprised in such assets is in reasonable operating condition and in a
state of reasonable maintenance an repair;
(v) with respect to the Company's intellectual property, to the best of the
Principals' and the Company's knowledge:
(i) Schedule "C" hereto contains a complete and accurate list of all:
A. trade-names, trade-marks, service marks, business names,
patents, inventions, know-how, copyright, software, source
code, object code, industrial designs and all other
industrial or intellectual property necessary to conduct
the business of the Company,
B. trade-mark applications and service mark applications, and
C. Internet domain name registrations,
owned by the Company setting out, in detail, the relevant dates,
reference numbers and jurisdictions of each (the "Intellectual
Property"),
(ii) the Company has not licensed any of its Intellectual Property to
any third party on an exclusive basis or otherwise in a manner
which would limit the Company's ability to utilize the
Intellectual Property, and
(iii) neither the entering into of this Agreement nor the completion of
the transactions contemplated hereby constitute or will
constitute a breach of any agreement in respect of the
Intellectual Property;
(w) no person has been granted any interest in or right to use all or any
portion of the Intellectual Property and the Company is not aware of a
claim of any infringement or breach of any industrial or intellectual
property rights of any other person by the Company, nor has the Company
received any notice that the conduct of the business of the Company,
including the use of the Intellectual Property, infringes upon or
breaches any industrial or intellectual property rights of any other
person, and the Company, after due inquiry, does not have any knowledge
of any infringement or violation of any of its rights in the
Intellectual Property;
(x) the conduct of the business of the Company does not infringe upon the
patents, trade marks, licences, trade names, business names, copyright
or other industrial or intellectual property rights, domestic or
foreign, of any other person and the Company is not aware of any state
of facts that casts doubt on the validity or enforceability of any of
the Intellectual Property;
33
(y) other than approvals and filings required under applicable securities
laws, no authorization, approval, order, license, permit or consent of
any governmental authority, regulatory body or court, and no
registration, declaration or filing by of the Company with any such
governmental authority, regulatory body or court is required in order
for the Company to complete the contemplated purchase and sale, to duly
perform and observe the terms and provisions of this Agreement, and to
render this Agreement legal, valid, binding and enforceable in
accordance with its terms;
(z) there is no basis for and there are no actions, suits, judgments,
investigations or proceedings outstanding or pending, or to the
knowledge of the Principals, threatened against or affecting either of
the Company at law or in equity or before or by any court or federal,
state, municipal or other governmental authority, department,
commission, board, tribunal, bureau or agency;
(aa) there is no litigation, proceeding or governmental investigation in
progress, pending, threatened or contemplated against or relating to
the Company, the business of the Company, or the transactions
contemplated by this Agreement;
(bb) the corporate records of the Company, as required to be maintained
under its statute of incorporation and constating documents, are
accurate, complete and up-to-date in all material respects and all
material transactions of the Company have been properly recorded in its
books or filed with their records;
(cc) the Company holds all permits, licenses, consents and authorizations
issued by any governmental authority which are necessary in connection
with the operation of its business and the ownership of its properties
and assets;
(dd) the Company has filed all necessary tax returns and in all
jurisdictions required to be filed by it, all returns affecting workers
compensation with the appropriate agency, incorporation capital tax
returns, if required, and any other material reports and information
required to be filed by the Company with any governmental authority;
(ee) the Company has paid all income, sales and capital taxes payable by it
as when and due; the Company has withheld and remitted to tax
collection authorities such taxes as are required by law to be withheld
and remitted as and when due; the Company has paid all instalments of
corporate taxes due and payable, and there is not presently outstanding
nor does the Company expect to receive any notice of reassessment from
any applicable tax collecting authority;
(ff) the Company nor any employer which is associated, related to or
otherwise connected to the Company, is a party to any collective
agreement relating to the Company's business with any union,
association of employees or bargaining agent, and no part of such
business, or any associated, related or otherwise connected business or
the Company, is bound by any such collective agreement or has been
34
certified as a unit appropriate for collective bargaining and there are
no proceedings or applications for certification which are or could
result in an obligation of or be binding upon the Company or any
employer which is associated, related to or otherwise connected to the
Company;
(gg) to the best of such Company's and the Principals' knowledge, there are
no complaints filed by any of the Company's employees against it nor
are there any facts or circumstances that may give rise to any
complaints claiming that the Company has violated any applicable
employee or human rights or similar legislation in jurisdictions where
the Company's business is conducted or any complaints or proceedings of
any kind involving the Company;
(hh) there are no pension, profit sharing, incentive, bonus, group insurance
or similar plans or other compensation plans affecting the Company;
(ii) the Company has not declared or paid any dividends of any kind or
declared or made any other distributions of any kind whatsoever
including, without limitation, by way of redemption, repurchase or
reduction of its respective authorized capital;
(jj) other than as disclosed in Schedule "D" hereto, the Company has no
outstanding material contractual obligations whatsoever relating to or
affecting the conduct of their businesses or any of its property or
assets or for the purchase, sale or leasing of any property other than
those contracts entered into by the Company in the course of its normal
and ordinary day to day business;
(kk) other than as disclosed in Schedule "D" hereto, there are no management
contracts or consulting contracts to which the Company is a party or by
which it is bound, and save and except as disclosed in the Audited
Financial Statements or the Unaudited Financial Statements, no amount
is payable or has been agreed to be paid by the Company to any person
as remuneration, pension, bonus, share of profits or other similar
benefit and no director, officer or member, or former director, officer
or member, of the Company, nor any associate or affiliate of any such
person, has any claim of any nature against, or is indebted to, either
of the Company;
(ll) there has been no material adverse change in financial condition and
position of the Company and no damage, loss, destruction or other
change in circumstances materially affecting the respective businesses,
property or assets of the Company or its right or capacity to carry on
business since the dates of the Company Financial Statements;
(mm) the Company has not waived or surrendered any right of substantial
value and has not made any gift of money or of any property or assets;
and
(nn) Neither the Company nor the Principals are, or have been, the subject
of any order, determination or investigation by the Securities Exchange
Commission, a state securities regulator or any other regulatory
authority for breach of applicable rules, policies or laws, except
Samuel Kovnat is subject of an investigation by U.S. DOD regarding a
consulting agreement with an unrelated company and activities
thereunder.
35
Schedule G
WARRANTIES AND REPRESENTATIONS OF PUBCO
Pubco warrants and represents to the Vendors and the Company, with the intent
that the Principals and the Company will rely thereon in entering into this
Agreement and in concluding the Share Exchange contemplated herein, that: ]
(a) Pubco is a corporation duly incorporated, validly existing and in good
standing under the laws of Nevada and has the power, authority and
capacity to enter into this Agreement and to carry out its terms; Pubco
was formed on May 21, 2001 and prior to that date did not operate any
type of business in any manner which could be attributed to or be
considered an act of Pubco;
(b) as at the date hereof, the authorized capital of Pubco consists of:
(i) no more than 100,000,000 common shares, with a par value of
$0.001 per share, of which no more than 5,700,000 common shares
have been validly issued, are outstanding and are fully paid and
non-assessable, exclusive of securities issued pursuant to the
Private Placement, and
(ii) a class of preferred shares, of which none have been issued;
(c) the execution and delivery of this Agreement and the completion of the
transactions contemplated hereby has been duly and validly authorized
by all necessary corporate action on the part of Pubco and this
Agreement constitutes a legal, valid and binding obligation of Pubco,
enforceable in accordance with its terms except as limited by laws of
general application affecting the rights of creditors;
(d) no consent, approval, notification, order or authorization of, or
registration, declaration or filing with, any governmental authority is
required by or with respect to Pubco in connection with the execution
and delivery of this Agreement by Pubco or the consummation by Pubco of
the transactions contemplated hereby, except for such consents,
approvals, notifications, orders, authorizations, registrations,
declarations, qualifications or filings as may be required by the
National Association of Securities Dealers and under applicable federal
and state securities laws in connection with the transactions set forth
herein;
(e) since its formation, there has been no litigation, proceeding, customer
complaint or governmental investigation made, taken, threatened or
contemplated against or relating to Pubco, the business of Pubco, or
the transactions contemplated by this Agreement;
(f) the Exchange Shares to be issued hereunder will, when issued, be
validly issued, fully paid and non-assessable;
36
(g) there are no orders ceasing or suspending trading in the securities of
Pubco and, to the best of the knowledge of Pubco, no proceedings for
this purpose have been instituted or are pending, contemplated or
threatened;
(h) on the Closing Date, Pubco shall have no existing or contingent
financial liabilities or outstanding indebtedness, direct or indirect;
(i) Pubco does not have any information relating to Pubco which has not
been disclosed to the Company or the Principals and which if known
could reasonably be expected to have a material adverse effect on the
value of the Exchange Shares or on Pubco;
(j) Pubco has not made any untrue statement to the Company or the Vendors
nor has it failed to state a material fact that is required to be
stated or that is necessary to prevent a statement that is made from
being materially false or misleading in the circumstances in which it
was made;
(k) Pubco is not aware of any infringement by Pubco of any registered
patent, trademark or copyright; except for a Service Mark registered in
California, Pubco does not possess any patent, trademark, service mark,
copyright or other intellectual property; since its formation, Pubco
has not produced nor owns any licensed software products;
(l) Pubco has had adequate opportunity to obtain from representatives of
the Company such information, in addition to the representations set
forth in this Agreement, as is necessary to evaluate the merits and
risks of an investment in the Vendors' Shares and Pubco has sufficient
experience in business, financial and investment matters to be able to
evaluate the risks involved in the acquisition of the Vendors' Shares
to be issued to Pubco pursuant to the terms of this Agreement and to
make informed investment decisions with respect to such investment;
(m) exclusive of securities issued pursuant to the Private Placement, no
person has any agreement, right, option, warrant, pledge, lien,
privilege, right of first refusal, right of first offer, restriction on
transfer, encumbrances, voting trusts, voting proxies, shareholders
agreements, registration or pre-emptive rights agreements, consensual
or arising by law, present or future, contingent or absolute, or
capable of becoming an agreement, right or option:
(i) to require Pubco to issue any further or other shares of its
capital or any other security convertible or exchangeable into
shares of its capital or to convert or exchange any securities
into or for shares of its capital,
(ii) for the issue or allotment of any of the authorized but unissued
shares in the capital of Pubco,
(iii) to require Pubco to purchase, redeem or otherwise acquire any of
the issued and outstanding shares in the capital of Pubco,
37
(iv) to purchase or otherwise acquire any shares in the capital of
Pubco, or
(v) which is capable of becoming an agreement for the acquisition of
any of the material assets of Pubco, and
(vi) there exists no rights of first refusal or first offer or other
restrictions on transfer, pledges, liens and other encumbrances,
voting trusts, voting proxies or other shareholders' or voting
rights agreements, shareholder buy/sell agreements and
registration or pre-emptive rights agreements, other contracts,
arrangements or public or private documents or commitments
relating to the stock of Pubco;
(n) Pubco is registered to carry on business in Nevada and California and
since its formation, has not conducted nor applied to conduct business
in any other state, country or geographical location; Pubco has never
conducted its business under any other assumed name or other name;
(o) the making of this Agreement and the completion of the transactions
contemplated hereby and the performance of and compliance with the
terms hereof does not and will not:
(i) conflict with or result in a breach of or violate any of the
terms, conditions, or provisions of the constating documents of
Pubco,
(ii) conflict with or result in a breach of or violate any of the
terms, conditions or provisions of any law, judgment, order,
injunction, decree, regulation or ruling of any court or
governmental authority, domestic or foreign, to which Pubco is
subject or constitute or result in a default under any agreement,
contract or commitment to which any of Pubco is a party,
(iii) subject to obtaining any necessary consents of applicable
regulatory authorities, give to any person any remedy, cause of
action, right of termination, cancellation or acceleration in or
with respect to any agreement, contract, or commitment to which
Pubco is a party,
(iv) give to any government or governmental authority, including any
governmental department, commission, bureau, board, or
administrative agency any right of termination, cancellation, or
suspension of, or constitute a breach of or result in a default
under any permit, license, control, or authority issued to any of
the entities and which is necessary or desirable in connection
with the conduct and operation of the business of Pubco as
currently conducted, or
(v) subject to obtaining any necessary consents of applicable
regulatory authorities, constitute a default by Pubco or an event
which, with the giving of notice or lapse of time or both, might
constitute an event of default or non-observance under any
agreement, contract, indenture or other instrument relating to
any indebtedness of Pubco which would give any person the right
to accelerate the maturity for the payment of any amount payable
under that agreement, contract, indenture, or other instrument;
38
(p) the audited financial statements of Pubco for the year ending December
31, 2001 filed with the SEC on EDGAR (the "Pubco Financial Statements")
were prepared in accordance with United States generally accepted
accounting principles applied on a basis consistent with prior
reporting periods, are true and correct in every material respect and
present fairly and accurately the financial condition and position of
Pubco as at the date thereof and the results of the operations of
Pubco. Any and all financial statements, records, correspondence,
ledgers, memorandum or budgets relating to Pubco and its operations
have either been submitted to the Company or are on file with the SEC;
there are no communications from Pubco's lawyers to auditors in
connection with the preparation of the financial statements, and no
records relating to accounts receivable ageing reports or accounts
payable aging schedules are maintained or have ever been maintained by
Pubco;
(q) Pubco has good and marketable title to all of its respective assets and
such assets are free and clear of any financial encumbrances not
disclosed in the Pubco Financial Statements; the only real or personal
property owned by Pubco since its formation has been in the form of
currency and/or commercial paper as indicated in its SEC filings. The
only leased property of Pubco has been an office in a building owned
individually by the President of Pubco. No activities conducted or
being conducted upon said leased premises by Pubco would invoke any
federal, state or local building code, zoning or environmental
regulation. Pubco is not a party to any option agreement relating to
any real or material personal property;
(r) Pubco has not guaranteed, or agreed to guarantee, any indebtedness or
other obligation of any person except as described in the Pubco
Financial Statements;
(s) the corporate records of Pubco, as required to be maintained by it
under its statute of incorporation and constating documents, are
accurate, complete and up-to-date in all material respects and all
material transactions of Pubco have been promptly and properly recorded
in its books or filed with its records. Other than Consents of
Directors given May 22, 2001, May 25, 2001, July 15, 2001, November 15,
2001 and October 30, 2001, there are no documents containing minutes of
any meetings of stockholders, Board of Directors, partners, managers,
members, governing board or governing committees;
(t) Pubco holds and has provided copies to the Company of all permits,
licenses, consents certifications, qualifications and authorizations
issued by any governmental authority which are necessary in connection
with the operation of its business and the ownership of its assets; the
only material reports, forms or other documents filed with any
governmental or regulatory authority by Pubco were to the Secretary of
States for California and Nevada, NASD and the SEC and any such
documents have been provided to, or are accessible by, the Company,
Pubco has received no reports, notices or correspondence relating to
any purported violation or infringement of any governmental law, rule,
guideline or regulation. No regulatory actions or investigations have
been taken against Pubco;
39
(u) Pubco has filed, and provided copies to the Company, all necessary tax
returns and in all jurisdictions required to be filed by it, all
returns affecting workers compensation with the appropriate agency,
incorporation capital tax returns, if required, and any other material
reports and information required to be filed by Pubco with any
governmental authority;
(v) Pubco has paid all income, sales and capital taxes payable by it as and
when due; Pubco has withheld and remitted to tax collection authorities
such taxes as are required by law to be withheld and remitted as and
when due; Pubco has paid all instalments of corporate taxes due and
payable and there is not presently outstanding nor does Pubco expect to
receive any notice of reassessment from any applicable tax collecting
authority;
(w) Pubco has no outstanding material contractual obligations whatsoever
relating to or affecting the conduct of its businesses or any of its
assets or for the purchase, sale or leasing of any assets other than
those contracts entered into by Pubco in the course of its normal and
ordinary day-to-day business; Pubco has never entered into any
government contract and has never been subject to any government
debarments or other disqualification to be a government contractor;
(x) there are no employment, management, non-competition, or consulting
contracts or arrangements to which Pubco is a party or by which it is
bound, and save and except as disclosed in the Pubco Financial
Statements. No amount is payable or has been agreed to be paid by Pubco
to any person as remuneration, pension, bonus, share of profits or
other similar benefit and no current or former director, officer,
partner, manager, employee, relative or member of Pubco, nor any
associate or affiliate of any such person has any claim of any nature
against, or indebted to, Pubco. Pubco has granted no written power of
attorney to any individual or entity for that individual or entity to
act on behalf of Pubco;
(y) there has been no material adverse change in the financial condition
and position of Pubco and no damage, loss, destruction or other change
in circumstances materially affecting the business, property or assets
of Pubco or its right or capacity to carry on business since the dates
of the Pubco Financial Statements;
(z) Pubco has not waived or surrendered any right of substantial value and
has not made any gift of money or of any property or assets;
(aa) Pubco understands and agrees that none of the Vendors' Shares have been
or will be registered under the 1933 Act, or under any state securities
or "blue sky" laws of any state of the United States, and, unless so
registered, may not be offered or sold in the United States, or,
directly or indirectly, to U.S. Persons, pursuant to an effective
40
registration statement under the 1933 Act, or pursuant to an exemption
from, or in a transaction not subject to the registration requirements
of the 1933 Act and in each case only in accordance with applicable
state and provincial securities laws;
(bb) Pubco is not a subsidiary of any other entity or organization and Pubco
does not itself possess any subsidiary in any form. Pubco has made no
equity investment nor owns any interest, directly or indirectly in any
corporation, limited liability company, partnership, joint venture or
other entity;
(cc) Pubco has never been party to any agreement relating to any
acquisition, alliance, partnership, joint venture, business combination
or any material acquisition, divestiture or disposition of assets;
(dd) but for Pubco's filings with the SEC and its Private Placement
Memorandum, dated May 25, 2001, no other material information or
documents have been furnished to shareholders or directors which has
not been provided to the Company;
(ee) for its entire existence, Pubco has solely utilized attorneys from the
Stepp Law Group in Newport Beach, California and accountants from
Quitanilla Accountancy Corporation in Laguna Niguel, California. For
its entire existence, Pubco has not utilized any management consultants
or independent business advisors and there exists no appraisals,
reports, recommendations or stock valuations which have not been
provided to the Company;
(ff) all information relating to operational matters of Pubco have been
included in its SEC filings; at no time has Pubco maintained or held
any material type of inventory; there are no outstanding purchase or
service orders. Pubco has entered into no supply, sales, franchise,
distribution, commission, agency or representative contracts since its
formation other than those with Stepp Law Group as its attorneys and
Quitanilla Accountancy Corporation as its accountants;
(gg) Pubco has never had any paid employees and therefore has never offered
any welfare benefit plans (as defined in ERISA) and has not
participated in any tax qualified pension benefit plan (as defined in
ERISA) including, without limitation, pension, profit-sharing, stock
bonus, Section 401(k) and employee stock ownership plans. Pubco has
never offered any welfare benefit plans (as defined in ERISA). Pubco is
not a party to any collective bargaining agreement or confidentiality
agreement;
(hh) Pubco has purchased no liability insurance of any type since its
formation;
(ii) since is formation, Pubco has operated as a service provider and has
not designed, manufactured, contracted for, sold or given away any
product either as a single item or in conjunction with its services;
and
41
(jj) the officers and directors of Pubco have reviewed the sections entitled
"RISK FACTORS', "DIVIDEND POLICY" and "BUSINESS" of the Private
Placement Memorandum dated July 5, 2000 (the "Memorandum") of the
Company and understand the information contained therein and have had
access to the same kind of information which would be available with
respect to the Company or in a registration statement filed by the
Company under the Securities Act, including, without limitation, its
audited Financial Statements for its fiscal year ending May 31, 2001
and its interim unaudited Financial Statements for the quarter ending
February 28, 2002;
(kk) the Memorandum has not been reviewed by an federal, state or other
regulatory authority and neither the Securities and Exchange Commission
nor any State Securities Commission has passed upon or endorsed the
merits of or confirmed the accuracy or determine the adequacy of the
Memorandum;
(ll) all documents, records and books pertaining to the Company have been
made available for inspection by Pubco;
(mm) all of the securities and shares of stock issued to date by Pubco have
been offered and sold by Pubco in compliance with all applicable state
and federal securities laws; Pubco registered 2,423,750 shares of its
issued and outstanding common stock with the SEC under Section 5 of the
1933 Act pursuant to a Form SB-2 dated October 29, 2001 and under
Section 12(g) of the Exchange Act pursuant to a Form 8-A dated November
1, 2001; Pubco has filed with the SEC, all forms, reports, schedules,
statements and other documents required to be filed or furnished by it
under the Exchange Act or the 1933 Act (the "Pubco SEC Documents") and
confirms that:
(i) true and accurate counterparts of all the Pubco SEC Documents are
posted on Edgar,
(ii) the Pubco SEC Documents do not contain any untrue statement of a
material fact or omit 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,
(iii) the Pubco SEC Documents comply in all material respects with the
applicable requirements of the Exchange Act and the 1933 Act, as
the case may be, and the applicable rules and regulations of the
SEC thereunder, and
(iv) the Pubco SEC Documents have not been the subject of any order by
the SEC;
(nn) the officers and directors of Pubco are aware of and have been provided
all documents and information necessary to evaluate the Company and the
Share Exchange, including, without limitation:
42
(i) the Company is in the development stage and has not commenced
significant commercial operations;
(ii) subsequent to this Share Exchange the present shareholders of the
Company are expected as a group to own approximately 55% of the
issued and outstanding shares of Pubco,
(iii) the existing Shareholders of Pubco will own as a group
approximately 37% of the issued and outstanding shares of Pubco
subsequent to the Share Exchange,
(iv) as a condition of the Share Exchange, Pubco will issue
approximately one million (1,000,000) of its shares in a private
placement to new investors in order to raise funding for the
Company and such group of new investors will own approximately 8%
of the issued and outstanding shares of Pubco subsequent to the
Share Exchange,
(v) upon Closing of the Share Exchange, the current Board of
Directors of the Company will replace the current directors of
Pubco, all of whom will resign upon closing of the Share
Exchange, (vi) the new Board of Directors intends to continue the
present management of the Company as the management of Pubco on
terms and conditions substantially similar to their existing
employment agreements with the Company,
(vii) the Board of Directors and management of the Company intend to
continue to carry on the business of the Company as described in
the Memorandum,
(viii) the Board of Directors and management of the Company may merge
or consolidate the Company and Pubco into or with each other and,
until such merger or consolidation is completed, continue such
business of the Company as a subsidiary of Pubco,
(ix) the name of Pubco will be changed to the name of the Company,
(x) the domicile of Pubco may be changed to Delaware, and
(xi) subsequent to the Share Exchange, the Company intends to, and
Pubco may implement, a 401(k) and performance based incentives
for management, subject to the approval of its Board of
Directors.
43
Schedule H
CLAIMS AGAINST THE COMPANY
44
Schedule I
CERTIFICATE OF NON-U.S. SHAREHOLDER
In connection with the issuance of the Exchange Shares by Reel Staff, Inc.
("Pubco") to the undersigned, pursuant to the Share Exchange Agreement, dated
___________________, 2002, among Dunhill, the Company, and certain Principals of
the Company the undersigned hereby acknowledges, agrees, represents and warrants
that:
(a) none of the Exchange Shares have been or will be registered under the
1933 Act, or under any state securities or "blue sky" laws of any state
of the United States, and, unless so registered, may not be offered or
sold in the United States or, directly or indirectly, to U.S. Persons,
as that term is defined in Regulation S under the 1933 Act ("Regulation
S"), except in accordance with the provisions of Regulation S, pursuant
to an effective registration statement under the 1933 Act, or pursuant
to an exemption from, or in a transaction not subject to, the
registration requirements of the 1933 Act, and in each case only in
accordance with applicable state and provincial securities laws;
(b) other than as set out in the Agreement, Pubco has not undertaken, and
will have no obligation, to register any of the Exchange Shares under
the 1933 Act;
(c) Pubco is entitled to rely on the acknowledgements, agreements,
representations and warranties and the statements and answers of the
undersigned contained in the Agreement and this Certificate of Non-U.S.
Shareholder (the "Certificate"), and the undersigned will hold harmless
Pubco from any loss or damage it may suffer as a result of any such
acknowledgements, agreements, representations and/or warranties made by
the undersigned not being true and correct;
(d) the undersigned has been advised to consult their own respective legal,
tax and other advisors with respect to the merits and risks of an
investment in the Exchange Shares and, with respect to applicable
resale restrictions, is solely responsible (and Pubco is not in any way
responsible) for compliance with applicable resale restrictions;
(e) none of the Exchange Shares are listed on any stock exchange or
automated dealer quotation system and no representation has been made
to the undersigned that any of the Exchange Shares will become listed
on any stock exchange or automated dealer quotation system, except that
currently certain market makers make market in the common shares of
Pubco on the National Association of Securities Dealers, Inc.'s
Over-the-Counter Bulletin Board;
(f) neither the Securities and Exchange Commission (the "SEC") nor any
other securities commission or similar regulatory authority has
reviewed or passed on the merits of the Exchange Shares;
45
(g) the undersigned is the sole registered holder and beneficial owner of
such number of common shares (the "Undersigned's Shares") in the
capital of the Company as is set opposite the undersigned's name on
Schedule "A" to the Agreement;
(h) the Undersigned's Shares are free and clear of all liens, any actual,
pending or threatened hold periods, trading restrictions, lien charges,
claims, options, set-offs, encumbrances, voting agreements, voting
trusts, escrow restrictions or other limitations or restrictions of any
nature whatsoever, except as expressly provided for or disclosed
herein;
(i) the undersigned does not have any interest, legal or beneficial, direct
or indirect, in any shares of, or the assets or business of, the
Company other than their ownership of the Undersigned's Shares;
(j) the undersigned has the power and capacity and good and sufficient
right and authority to enter into this Agreement on the terms and
conditions herein set forth and will on the Closing Date have the right
to transfer the legal and beneficial title and ownership of the
Undersigned's Shares to Pubco;
(k) the undersigned has had adequate opportunity to obtain from
representatives of Pubco such information, in addition to the
representations set forth in the Agreement, as is necessary to evaluate
the merits and risks of the undersigned's investment in the Exchange
Shares and the undersigned has sufficient experience in business,
financial and investment matters to be able to evaluate the risks
involved in the acquisition of the Exchange Shares to be issued to the
undersigned pursuant to the terms of the Agreement and to make informed
investment decisions with respect to such investment;
(l) the undersigned is not a U.S. Person;
(m) the undersigned is not acquiring the Exchange Shares for the account or
benefit of, directly or indirectly, any U.S. Person;
(n) the undersigned is outside the United States when receiving and
executing this Certificate and is acquiring the Exchange Shares as
principal for their own account, for investment purposes only, and not
with a view to, or for, resale, distribution or fractionalization
thereof, in whole or in part, and no other person has a direct or
indirect beneficial interest in such Exchange Shares;
(o) the undersigned understands and agrees that the Exchange Shares have
not been and will not be registered under the 1933 Act, or under any
state securities or "blue sky" laws of any state of the United States,
and, unless so registered, may not be offered or sold in the United
States or, directly or indirectly, to U.S. Persons except in accordance
with the provisions of Regulation S, pursuant to an effective
registration statement under the 1933 Act, or pursuant to an exemption
from, or in a transaction not subject to, the registration requirements
of the 1933 Act and in each case only in accordance with applicable
state and provincial securities laws;
46
(p) the undersigned understands and agrees that offers and sales of any of
the Exchange Shares prior to the expiration of the distribution
compliance period (as that term is defined in Regulation S) (the
"Restricted Period") shall only be made in compliance with the safe
harbor provisions set forth in Regulation S, pursuant to the
registration provisions of the 1933 Act or an exemption therefrom, and
that all offers and sales after the Restricted Period shall be made
only in compliance with the registration provisions of the 1933 Act or
an exemption therefrom and in each case only in accordance with
applicable state and provincial securities laws;
(q) the undersigned understands and agrees not to engage in any hedging
transactions involving any of the Exchange Shares unless such
transactions are in compliance with the provisions of the 1933 Act;
(r) the undersigned understands and agrees that Pubco will refuse to
register any transfer of the Exchange Shares not made in accordance
with the provisions of Regulation S, pursuant to an effective
registration statement under the 1933 Act or pursuant to an available
exemption from the registration requirements of the 1933 Act;
(s) the undersigned acknowledges that the undersigned has not acquired the
Exchange Shares as a result of, and will not themselves engage in, any
"directed selling efforts" (as defined in Regulation S) in the United
States in respect of any of the Exchange Shares which would include any
activities undertaken for the purpose of, or that could reasonably be
expected to have the effect of, conditioning the market in the United
States for the resale of any of the Exchange Shares; provided however
that each of the Vendors may sell or otherwise dispose of any the
Exchange Shares pursuant to registration of any of the Exchange Shares
pursuant to the 1933 Act and any applicable state and provincial
securities laws or under an exemption from such registration
requirements and as otherwise provided herein;
(t) the undersigned is acquiring the Exchange Shares under the exemption
from prospectus requirements of the applicable provincial securities
legislation and accordingly such Exchange Shares may only be sold,
disposed or otherwise transferred pursuant to an exemption from
prospectus requirements of such applicable securities laws;
(u) the undersigned is not aware of any advertisement of any of the
Exchange Shares;
(v) no person has made to the undersigned any written or oral
representations:
(i) that any person will resell or repurchase any of the Exchange
Shares;
(ii) that any person will refund the purchase price of any of the
Exchange Shares;
(iii) as to the future price or value of any of the Exchange Shares; or
47
(iv) that any of the Exchange Shares will be listed and posted for
trading on any stock exchange or automated dealer quotation
system or that application has been made to list and post any of
the Exchange Shares on any stock exchange or automated dealer
quotation system; and
(w) the certificate evidencing the Exchange Shares will bear the following
legends:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN OFFERED IN AN OFFSHORE
TRANSACTION TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN)
PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT").
NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER
THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO
REGISTERED, MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE
UNITED STATES OR TO U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS
INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH
THE 1933 ACT. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED BY
REGULATION S UNDER THE 1933 ACT." ;
EXECUTED by )
)
- --------------------------------------
in the presence of: )
)
- --------------------------------------- ) ------------------------------
Signature ) Signature
)
- -------------------------------------- )
Print Name ) Print Name: ------------------
)
- --------------------------------------
Address ) Address: ---------------------
)
- -------------------------------------- ------------------------------
)
- --------------------------------------- )
Occupation )
48
Schedule J
CERTIFICATE OF U.S. SHAREHOLDER
In connection with the issuance of the Exchange Shares by Reel Staff, Inc.
("Pubco") to the undersigned, pursuant to the Share Exchange Agreement, dated
_______________________, 2002, among Pubco, the Company, and certain Principals
of the Company, the undersigned hereby acknowledges, agrees, represents and
warrants that:
(a) none of the Exchange Shares have been or will be registered under the
1933 Act, or under any state securities or "blue sky" laws of any state
of the United States, and, unless so registered, may not be offered or
sold in the United States or, directly or indirectly, to U.S. Persons,
as that term is defined in Regulation S under the 1933 Act ("Regulation
S"), except in accordance with the provisions of Regulation S, pursuant
to an effective registration statement under the 1933 Act, or pursuant
to an exemption from, or in a transaction not subject to, the
registration requirements of the 1933 Act, and in each case only in
accordance with applicable state and provincial securities laws;
(b) other than as set out in the Agreement, Pubco has not undertaken, and
will have no obligation, to register any of the Exchange Shares under
the 1933 Act;
(c) Pubco is entitled to rely on the acknowledgements, agreements,
representations and warranties and the statements and answers of the
undersigned contained in the Agreement and this Certificate of U.S.
Shareholder (the "Certificate"), and the undersigned will hold harmless
Pubco from any loss or damage it may suffer as a result of any such
acknowledgements, agreements, representations and/or warranties made by
the undersigned not being true and correct;
(d) the undersigned has been advised to consult their own respective legal,
tax and other advisors with respect to the merits and risks of an
investment in the Exchange Shares and, with respect to applicable
resale restrictions, is solely responsible (and Pubco is not in any way
responsible) for compliance with applicable resale restrictions;
(e) none of the Exchange Shares are listed on any stock exchange or
automated dealer quotation system and no representation has been made
to the undersigned that any of the Exchange Shares will become listed
on any stock exchange or automated dealer quotation system, except that
currently certain market makers make market in the common shares of
Pubco on the National Association of Securities Dealers, Inc.'s
Over-the-Counter Bulletin Board;
(f) neither the Securities and Exchange Commission (the "SEC") nor any
other securities commission or similar regulatory authority has
reviewed or passed on the merits of the Exchange Shares;
49
(g) the undersigned is the sole registered holder and beneficial owner of
such number of common shares (the "Undersigned's Shares") in the
capital of the Company as is set opposite the undersigned's name on
Schedule "A" to the Agreement;
(h) the Undersigned's Shares are free and clear of all liens, any actual,
pending or threatened hold periods, trading restrictions, lien charges,
claims, options, set-offs, encumbrances, voting agreements, voting
trusts, escrow restrictions or other limitations or restrictions of any
nature whatsoever, except as expressly provided for or disclosed
herein;
(i) the undersigned does not have any interest, legal or beneficial, direct
or indirect, in any shares of, or the assets or business of, the
Company other than their ownership of the Undersigned's Shares;
(j) the undersigned has the power and capacity and good and sufficient
right and authority to enter into this Agreement on the terms and
conditions herein set forth and will on the Closing Date have the right
to transfer the legal and beneficial title and ownership of the
Undersigned's Shares to Pubco;
(k) the undersigned has had adequate opportunity to obtain from
representatives of Pubco such information, in addition to the
representations set forth in the Agreement, as is necessary to evaluate
the merits and risks of the undersigned's investment in the Exchange
Shares and the undersigned has sufficient experience in business,
financial and investment matters to be able to evaluate the risks
involved in the acquisition of the Exchange Shares to be issued to the
undersigned pursuant to the terms of the Agreement and to make informed
investment decisions with respect to such investment;
(l) the undersigned understands and agrees that Pubco will refuse to
register any transfer of the Exchange Shares not made in accordance
with the provisions of Regulation S, pursuant to an effective
registration statement under the 1933 Act or pursuant to an available
exemption from the registration requirements of the 1933 Act;
(m) the undersigned is acquiring the Exchange Shares under the exemption
from prospectus requirements of the applicable provincial securities
legislation and accordingly such Exchange Shares may only be sold,
disposed or otherwise transferred pursuant to an exemption from
prospectus requirements of such applicable securities laws;
(n) the undersigned is not aware of any advertisement of any of the
Exchange Shares;
(o) no person has made to the undersigned any written or oral
representations:
(i) that any person will resell or repurchase any of the Exchange
Shares;
(ii) that any person will refund the purchase price of any of the
Exchange Shares;
50
(iii) as to the future price or value of any of the Exchange Shares; or
(iv) that any of the Exchange Shares will be listed and posted for
trading on any stock exchange or automated dealer quotation
system or that application has been made to list and post any of
the Exchange Shares on any stock exchange or automated dealer
quotation system;
(p) the undersigned is acquiring the Exchange Shares solely for the
undersigned's own account for investment and not with a view to or for
sale or distribution of the Exchange Shares or any portion thereof and
without any present intention of selling, offering to sell or otherwise
disposing of or distributing the Exchange Shares or any portion thereof
in any transaction other than a transaction complying with the
registration requirements of the 1933 Act and applicable state
securities or "blue sky" laws, or pursuant to an exemption therefrom;
(q) the entire legal and beneficial interest of the Exchange Shares that
the undersigned is acquiring is being acquired for, and will be held
for, the undersigned's account only, and neither in whole nor in part
for any other person or entity;
(r) the undersigned has received all such information as the undersigned
deems necessary and appropriate to enable the undersigned to evaluate
the financial risk inherent in making an investment in the Exchange
Shares, including but not limited to Pubco's Form 10-KSB filed with the
U.S. Securities and Exchange Commission, and the documents and
materials included therewith, which includes a description of the risks
inherent in an investment in Pubco (the "Disclosure Documents");
(s) the undersigned realizes that the Exchange Shares involve a high degree
of risk and are a speculative investment, and that the undersigned is
able, without impairing the undersigned's financial condition, to hold
the Exchange Shares for an indefinite period of time;
(t) the undersigned recognizes that there is no assurance of future
profitable operations and that investment in Pubco involves substantial
risks, and that the undersigned has taken full cognizance of and
understands all of the risk factors related to the Exchange Shares;
(u) the financial condition and investment of the undersigned are such that
the undersigned is in a financial position to hold the Exchange Shares
for an indefinite period of time and to bear the economic risk of, and
withstand a complete loss of, the value of the Exchange Shares;
(v) the undersigned alone, or with the assistance of professional advisors,
has such knowledge and experience in financial and business matters
that the undersigned is capable of evaluating the merits and risks of
acquiring the Exchange Shares, or has a pre-existing personal or
business relationship with Pubco or any of its officers, directors, or
controlling persons of a duration and nature that enables the
undersigned to be aware of the character, business acumen and general
business and financial circumstances of Pubco or such other person;
51
(w) the undersigned has carefully read the Disclosure Documents and Pubco
has made available to the undersigned or the undersigned's advisors all
information and documents requested by the undersigned relating to
investment in the Exchange Shares, and has provided answers to the
undersigned's satisfaction to all of the undersigned's questions
concerning Pubco;
(x) if the undersigned is a partnership, trust, corporation or other
entity: (1) it was not organized for the purpose of acquiring the
Exchange Shares (or all of its equity owners are "accredited investors"
as defined in Section 6 below); (2) it has the power and authority to
execute this Certificate and the person executing said document on its
behalf has the necessary power to do so; (3) its principal place of
business and principal office are located within the state set forth in
its address below; and (4) all of its trustees, partners and/or
shareholders, whichever the case may be, are bona fide residents of
said state;
(y) the undersigned has relied solely upon the Disclosure Documents, advice
of his or her representatives, if any, and independent investigations
made by the undersigned and/or the undersigned's representatives, if
any, in making the decision to acquire the Exchange Shares and
acknowledges that no representations or agreements other than those set
forth in the Disclosure Documents have been made to the undersigned in
respect thereto;
(z) all information which the undersigned has provided concerning the
undersigned is correct and complete as of the date set forth below, and
if there should be any material change in such information prior to the
issuance of the Exchange Shares, the undersigned will immediately
provide such information to Pubco;
(aa) the undersigned confirms that the undersigned has received no general
solicitation or general advertisement and has attended no seminar or
meeting (whose attendees have been invited by any general solicitation
or general advertisement) and has received no advertisement in any
newspaper, magazine, or similar media, broadcast on television or radio
regarding acquiring the Exchange Shares;
(bb) the undersigned is an "accredited investor," as defined in Rule 501 of
the 1933 Act. An "accredited investor" is one who meets any of the
requirements set forth below. The undersigned represents and warrants
that the undersigned falls within the category (or categories) marked.
PLEASE INDICATE EACH CATEGORY OF ACCREDITED INVESTOR THAT YOU, THE
UNDERSIGNED, SATISFY, BY PLACING AN "X" ON THE APPROPRIATE LINE BELOW.
52
_____ Category 1. A bank, as defined in Section 3(a)(2)
of the Securities Act, whether acting
in its individual or fiduciary
capacity; or
_____ Category 2. A savings and loan association or
other institution as defined in
Section 3(a) (5) (A) of the
Securities Act, whether acting in its
individual or fiduciary capacity; or
_____ Category 3. A broker or dealer registered
pursuant to Section 15 of the
Securities Exchange Act of 1934; or
_____ Category 4. An insurance company as defined in
Section 2(13) of the Securities Act;
or
_____ Category 5. An investment company registered
under the Investment Company Act of
1940; or
_____ Category 6. A business development company as
defined in Section 2(a) (48) of the
Investment Company Act of 1940; or
_____ Category 7. A small business investment company
licensed by the U.S. Small Business
Administration under Section 301(c)
or (d) of the Small Business
Investment Act of 1958; or
_____ Category 8. A plan established and maintained by
a state, its political subdivision or
any agency or instrumentality of a
state or its political subdivisions,
for the benefit of its employees,
with assets in excess of $5,000,000;
or
_____ Category 9. An employee benefit plan within the
meaning of the Employee Retirement
Income Security Act of 1974 in which
the investment decision is made by a
plan fiduciary, as defined in Section
3(21) of such Act, which is either a
bank, savings and loan association,
insurance company or registered
investment advisor, or an employee
benefit plan with total assets in
excess of $5,000,000 or, if a
self-directed plan, the investment
decisions are made solely by persons
who are accredited investors; or
_____ Category 10. A private business development
company as defined in Section 202(a)
(22) or the Investment Advisers Act
of 1940; or
_____ Category 11. An organization described in Section
501(c)(3) of the Internal Revenue
Code, a corporation, a Massachusetts
or similar business trust, or a
partnership, not formed for the
specific purpose of acquiring the
Interest, with total assets in excess
of $5,000,000; or
_____ Category 12. A director or executive officer of
Pubco; or
_____ Category 13. A natural person whose individual net
worth, or joint net worth with that
person's spouse, at the time of this
purchase exceeds $1,000,000; or
_____ Category 14. A natural person who had an
individual income in excess of
$200,000 in each of the two most
recent years or joint income with
that person's spouse in excess of
$300,000 in each of those years and
has a reasonable expectation of
reaching the same income level in the
current year; or
53
_____ Category 15. A trust, with total assets in excess
of $5,000,000, not formed for the
specific purpose of acquiring the
Interest, whose purchase is directed
by a sophisticated person as
described in SEC Rule 506(b)(2)(ii);
or
_____ Category 16. An entity in which all of the equity
owners are accredited investors;
(cc) the undersigned is not an accredited investor and meets the
requirements set forth below. PLEASE INDICATE THAT YOU, THE
UNDERSIGNED, SATISFY THESE REQUIREMENTS BY PLACING AN "X" ON THE LINE
BELOW:
_____ The undersigned, either alone or with the undersigned's
representative, has such knowledge, skill and experience in
business, financial and investment matters so that the
undersigned is capable of evaluating the merits and risks of an
investment in the Exchange Shares. To the extent necessary, the
undersigned has retained, at the undersigned's own expense, and
relied upon, appropriate professional advice regarding the
investment, tax and legal merits and consequences of owning the
Exchange Shares. In addition, the amount of the undersigned's
investment in the Exchange Shares does not exceed ten percent
(10%) of the undersigned's net worth. The undersigned agrees to
furnish any additional information requested to assure compliance
with applicable federal and state securities laws in connection
with acquiring the Exchange Shares;
(dd) THE EXCHANGE SHARES MAY NOT BE TRANSFERRED, RESOLD OR OTHERWISE
DISPOSED OF EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
THE UNDERSIGNED SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME;
and
(ee) the certificate evidencing the Exchange Shares will bear the following
legend:
NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER
THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO
REGISTERED, MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE
UNITED STATES OR TO U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS
INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH
THE 1933 ACT. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED BY
REGULATION S UNDER THE 1933 ACT."
54
EXECUTED by )
)
- ---------------------------------------
in the presence of: )
)
- --------------------------------------- ) -----------------------------
Signature ) Signature
)
- ---------------------------------------
Print Name ) Print Name: -----------------
)
- ---------------------------------------
Address ) Address: --------------------
)
- ---------------------------------------
)
)
Occupation )
55
Schedule K
Reel Staff, Inc.
----------------
Term Sheet - May, 2002
----------------------
Issuer: Reel Staff, Inc. ("Reel Staff " or the
"Company"), a corporation existing under the
laws of the State of Nevada.
Offering Size: Up to US$2,075,000 (two million,
seventy-five thousand US dollars).
Type of Security: Up to 1,037,500 (one million thirty-seven
thousand five hundred) Units, each Unit
consisting of one Common Share and one-half
of one Warrant to acquire another Common
Share.
Price per Unit: US$2.00 (two dollars).
Use of Proceeds: US$575,000 to be used for an investor
relations program to be administered by
Dunhill Venture Partners Corp., as directed
by the Company, and for payment of the
expenses for the filing of the Registration
Statement (as defined herein). The remainder
to be used for working capital.
Warrant: Each whole Warrant will entitle the holder
to acquire one Common Share on or before two
years from the Closing at US$2.00 per Common
Share, subject to adjustment.
Subscribers: "Offshore Investors" as defined by
Regulation S or "Accredited Investors" as
defined under Rule 501(a) of Regulation D of
the Securities Exchange Commission
promulgated under the Securities
Act of 1933.
Closings: June, 2002, or such other date as
the parties mutually agree.
Anti-Dilution: The Subscribers shall be granted a bonus
warrant (the "Bonus Warrant") to acquire
additional Common Shares in accordance with
the formula below, at a price of US$0.001
per additional Common Share for a period of
one year following Closing, if at any time
the Company shall issue or sell any
additional Common Shares to a third party
other than the Subscriber in exchange for
consideration in an amount per additional
Common Share which is less than US$2.00 per
additional Common Share.
56
The number of additional Common Shares which
the Bonus Warrant holder will be entitled to
acquire upon any such issuance shall be
determined by multiplying the Unit Price by
a fraction:
(i) the numerator of which shall be equal
to the total number Common Shares
originally acquired by the Subscriber,
(ii) the denominator of which shall be
equal to the price per Common Share
for the additional Common Shares, and
(iii) then subtracting the total number of
Shareholder's Shares originally
acquired from the foregoing.
No adjustment of the number of Common Shares
for which the Bonus Warrant shall be granted
upon the issuance of any additional Common
Shares which are issued pursuant to the
exercise of any currently outstanding
warrants or other subscription or purchase
rights, or pursuant to the exercise of any
conversion or exchange rights or pursuant to
the granting or exercise of any incentive
based stock options issued by the Company to
any employees consultants or strategic
partners.
Registration: The Company agrees to file a registration
statement on Form SB-2 (the "Registration
Statement") registering the Units, being
comprised of the Common Shares and the
Common Shares underlying the Warrants,
within one hundred and fifty (150) days of
the Closing Date. The Company will cause the
registration statement to become effective
within five (5) days of SEC clearance to
request acceleration of effectiveness.
Non-Registration Bonus: In the event the Company is unable to
register the Units within the required time,
the Company will issue as a penalty an
additional 10% of the Units purchased by the
Subscriber.
57
SCHEDULE L
Investor Relations Budget
-------------------------