Agreement of Merger
This Agreement of Merger ("Agreement") dated as of May 14, 2002, among
MetaSource Systems, a Delaware company, hereinafter called "MSS"; Digit, a
United Kingdom corporation, hereinafter called the "Acquired Company"; and the
Acquired Company's stockholders, hereinafter called the "Stockholders", as
listed in Appendix A.
1. Agreement of Merger. All of the Acquired Company's shares shall be acquired
by MSS in exchange solely for an amount of common stock of MSS as
hereinafter defined in Article Two. Within 60 days of the date MSS begins
trading as a listed security on a nationally recognized market, such as the
Nasdaq, Over the Counter Bulletin Board, or other stock exchange, the
shares of MSS will be issued to the Acquired Company's stockholders on a
pro rata basis of share ownership of the Company. Until such date MSS
shares will not be exchanged
2. Exchange of Shares. MSS and the Stockholders agree that all of the shares
of the Acquired Company shall be exchanged with MSS for shares of MSS
common stock based on the following formula: the average of 5 times April
1, 2001 through March 31, 2002 pro forma earnings of the Acquired Company
plus 5 times April 1, 2002 through March 31, 2003 earnings of the Acquired
Company, where pro forma earnings are calculated in a method acceptable to
the MSS auditor, based on the average trading price (defined hereinafter)
of MSS common stock on the first twenty days of public trading of MSS
shares after MSS merges with an already public company. The average trading
price of MSS shares will be calculated as the sum of high and low prices of
each day as reported on finance.yahoo.com during the first twenty business
days of trading divided by forty. Within 60 days of March 31, 2003,
additional shares will be added according to the formula above if April 1,
2002 through March 31, 2003 Acquired Company earnings are greater than
April 1, 2001 through March 31, 2002 Acquired Company pro forma earnings.
If April1, 2002 through March 31, 2003 Acquired Company earnings are less
than April 1, 2001 to March 31, 2002 Acquired Company pro forma earnings,
the appropriate shares will be subtracted according to the formula above.
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3. Delivery of Shares. On the Closing Date, the Stockholders will deliver to
MSS certificates representing their Acquired Company shares duly endorsed
with signatures guaranteed and with documentary stamps affixed at the
Stockholders' expense so as to make MSS the sole owner thereof, free and
clear of all claims and encumbrances. Delivery will be made at 21 Denbigh
St, London, England. The MSS shares to be issued to Stockholders will be
held in escrow by MSS for a period of one year from the closing date or
until the current debts of Digit are paid off, whichever is longer. Shares
held in escrow by MSS will secure and indemnify MSS against a breach of
warranties detailed hereinafter in Article Four of this Agreement. In the
event of an alleged breach of the warranties detailed in Article Four, MSS
and the Stockholders will negotiate in a timely manner a reduction in the
number of shares which are to be issued to Stockholders as compensation for
such breach. In the event such negotiations do not produce an agreed upon
reduction in the number of shares, MSS and the Stockholders agree to submit
the dispute to the American Arbitration Association (AAA) no later than one
year from the date the breach was discovered. At the end of one year from
the Closing Date, the Stockholders will be fully vested in the MSS shares
less any amount forfeited, disputed, agreed upon or resolved by the AAA for
forfeiture due to alleged breach of warranties described in Article four.
Resolution of claims by the AAA will be binding on MSS, the Acquired
Company and the Stockholders.
4. Representations of Stockholders and the Acquired Company. The Stockholders
and the Acquired Company represent and warrant as follows:
a) Schedule 4 attached to this Agreement lists all debt and liabilities of
Acquired Company. Except as otherwise specified in Schedule 4 attached
hereto, Acquired Company has no other debt or liabilities.
b) Acquired Company has been granted the authority by the certain of
Acquired Company's officers who are owners of record of property
located in Hoxton Square, London, England to represent and warrant that
when such property is sold, leased or mortgaged or otherwise
transferred for consideration, all of the net proceeds, after paying
bank mortgages off, but totaling at least 100,000 British Pounds - will
be applied to satisfy Acquired Company's debt and liabilities as
specified in Schedule 4 attached hereto. Acquired Company will provide
MSS with written notice of any transfer or sale of property no later
than 10 days from such sale or transfer and the net proceeds shall be
applied to satisfy Acquired Company's debt no later than 10 days from
the receipt of such funds.
c) As of the Closing Date the Stockholders will be the sole owners of the
Acquired Company shares appearing of record in their names; such shares
will be free from claims, liens or other encumbrances.
d) The Acquired Company shares will constitute validly issued shares of
the Acquired Company which are fully paid and nonassessable.
e) As of the Closing Date, there will be 1,025,000 shares of Acquired
Company's stock issued and outstanding. There are no options, warrants,
convertible or other securities, calls, commitments, conversion
privileges, preemptive rights or other rights or agreements outstanding
to purchase or otherwise acquire (whether directly or indirectly) any
of the Acquired Company's share capital or any security convertible
into or exchangeable for any shares of the Acquired Company's capital
stock or obligating the Acquired Company to grant, issue, extend, or
enter into, any such option, warrant, convertible or other security,
call, commitment, conversion privilege, preemptive right or other right
or agreement ("Interests"). The Company has no liability for any
dividends accrued but unpaid. No Acquired Company shares are reserved
for issuance under any stock purchase, stock option or other benefit
plan.
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f) The financial statements of the Acquired Company, as of March 31, 2002,
which will be delivered to MSS prior to the Closing Date, are true and
complete statements of the financial condition of the Acquired Company
as of that date; there are no material liabilities, either fixed or
contingent, not reflected in such financial statements other than
contracts of obligations in the usual course of business; and no such
contracts or obligations in the usual course of business are liens or
other liabilities which, if disclosed, would alter substantially the
financial condition of the Acquired Company as reflected in such
financial statements.
g) Since March 30, 2002, there have not been, and prior to the Closing
Date there will not be, any material changes in the financial condition
of the Acquired Company, except changes arising in the ordinary course
of business.
h) The Acquired Company owns, or has the irrevocable right to use, sell or
license all of its Intellectual Property Rights (as defined below, the
"IP Rights"), necessary or required for the conduct of its business as
presently conducted, and such rights to use, sell, or license are
sufficient for such conduct of its business. Further, the Acquired
Company is the legal and beneficial owner of all its IP Rights. Any and
all intellectual property held by the Acquired Company is owned
outright, free and clear of any claims, liens, security interests,
mortgages, encumbrances or obligations by the Acquired Company. The
Acquired Company is currently taking reasonable and practicable steps
designed to protect, preserve, and maintain the secrecy and
confidentiality of all material Acquired Company IP Rights and all of
Acquired Company's proprietary rights therein. All officers, employees,
agents, and consultants of the Acquired Company having access to
proprietary information agree not to disclose such information to any
third parties. IP Rights, as used herein, means, collectively, all
worldwide industrial and intellectual property rights, including but
not limited to patents, patent applications, patent rights, trademarks,
trademark applications, trade names, trade dress, service marks,
service mark applications, copyrights, copyright applications,
franchises, licenses, inventions, trade secrets, know-how, customer
lists, proprietary processes and formulae, manuals, memoranda and
records.
i) The Acquired Company is not involved in any pending litigation or
governmental investigation or proceeding not reflected in the Acquired
Company's financial statements or otherwise disclosed in writing to
MSS, and to the knowledge of the Acquired Company or the Stockholders,
no litigation or governmental investigation or proceeding is threatened
against the Acquired Company.
j) As of the Closing Date, the Acquired Company will be in good standing
as a United Kingdom Company.
k) As of the Closing Date, the Acquired Company will have in effect all
fire, casualty and liability and other relevant insurance policies.
l) There will be no dividends of the Acquired Company declared and unpaid
on any shares of any class of capital stock as of the Closing Date.
m) Prior to the Closing Date, the Acquired Company warrants that it will
not make or become a party to any contract or commitment, or renew,
extend, amend or modify any contract or commitment, except in the
ordinary course of business.
n) The Acquired Company and the Stockholders are duly authorized to
execute this agreement.
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5. Representations of MSS. MSS represents and warrants as follows:
a) As of the Closing Date, the MSS shares to be delivered to the
Stockholders will constitute valid and legally issued shares of MSS,
fully paid and nonassessable.
b) The officers of MSS are duly authorized to execute this agreement.
c) MSS is not involved in any pending litigation or governmental
investigation or proceeding not reflected in such financial statements
or otherwise disclosed in writing to the Stockholders.
d) As of the Closing Date, MSS will be in good standing as a Delaware
corporation.
6. Closing Date. The Closing Date shall be May 14, 2002.
7. Prohibited Acts. From the date this agreement is executed to the Closing
Date, the Acquired Company agrees not to do any of the following:
a) Declare or pay any dividends or other distributions on its stock or
purchase or redeem any of its stock;
b) Issue any stock or other securities, including any right or option to
purchase or otherwise acquire any of its stock, or issue any notes or
other evidences of indebtedness not in the usual course of business.
c) Make capital expenditures in excess of that made in the normal course
of business, except with the consent of MSS.
8. Delivery of Records. The Stockholders agree that on or before the Closing
Date they will cause to be delivered to MSS such corporate records or other
documents as MSS may request in order to effectuate the transaction
contemplated by this agreement.
9. Dilution of Shares. The Acquired Company consents and acknowledges that MSS
may authorize and/or issue additional common shares, preferred shares, or
warrants to purchase common shares of MSS prior to, at or subsequent to the
Closing Date. The Acquired Company and Stockholders acknowledge that the
MSS common shares held by the Stockholders may experience a dilution in
their percentage of ownership in MSS as a result of issuance by MSS of
additional shares.
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10. Tax-Free Reorganization. The transactions contemplated herein shall be
treated as a tax-free plan of reorganization under Section 368(a) of the
Internal Revenue Code, the MSS shares issued in this transaction will be
issued solely in exchange for the shares held by the Stockholders, and no
other transaction shall be an adjustment to the consideration between the
parties to this agreement for the transactions contemplated hereby.
Further, no consideration which would constitute "other property" within
the meaning of Section 356(a) of the Internal Revenue Code is being
transferred by the parties as consideration pursuant to this agreement. The
parties shall not take a position on any tax return or before any taxing
authority that is inconsistent with this Article 9, unless otherwise
required by a final and binding judicial or governmental determination of
competent jurisdiction. Neither MSS nor the Acquired Company represents or
warrants that the transactions contemplated herein will qualify as a
reorganization under the Internal Revenue Code.
11. Good and Marketable Title. After acquiring the Acquired Company, MSS shall
have good and marketable title and/or licenses or rights to use all of the
Acquired Company's tangible and intangible assets including, but not
limited to, intellectual properties necessary or required to successfully
develop and commercially exploit the Acquired Company's business.
12. Acquisition Intent of Shareholders. Stockholders are acquiring the MSS
shares for their own accounts and not with an intention of distribution
within the meaning of Section 2(11) of the Securities Act of 1933, as
amended ("Securities Act"). Each of the Stockholders represents and
confirms to MSS that he or she (i) is an accredited investor within the
meaning of Rule 501(a) pursuant to the Securities Act or, if not such an
accredited investor, has, alone or together with a purchaser representative
within the meaning of Rule 501(h) pursuant to the Securities Act, such
knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of an investment in the Buyer's
securities; (ii) is aware of the limits on resale of the MSS shares imposed
because of the nature of the transactions contemplated herein, including,
but not limited to, restrictions specified by Rule 144 promulgated by the
Securities and Exchange Commission; and (iii) is receiving the MSS shares
without registration pursuant to the Securities Act, in reliance on the
exemption from registration specified in Section 4(2) of the Securities Act
for investment, and without any intent to sell, resell, or otherwise
distribute the MSS shares in any manner that is in violation of the
Securities Act. The certificates representing the MSS shares, when
delivered to the Stockholders, may have appropriate orders restricting
transfer placed against them on the records of the transfer agent for such
securities, and may have placed upon them the following legend:
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"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION PURSUANT TO THE SECURITIES ACT OF 1933. THOSE SECURITIES
MAY NOT BE TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF,
UNLESS THE TRANSFEROR FIRST SATISFIES THE ISSUER AND ITS COUNSEL THAT THE
PROPOSED TRANSFER, IN THE MANNER PROPOSED, DOES NOT VIOLATE THE
REGISTRATION REQUIREMENTS OF THAT ACT."
Each Stockholder who is not a United States Citizen acknowledges that their
MSS stock certificates will be affixed with the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) BY
ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE")
WHICH IS ONE YEAR AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE
LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER
OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE
ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) PURSUANT TO OFFERS AND SALES THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER
THE SECURITIES ACT, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN
THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT
THAT IS AN INSTITUTIONAL INVESTOR ACQUIRING THE SECURITY FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR,
FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN
CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (E)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT, SUBJECT TO THE SURVIVING CORPORATION'S RIGHTS PRIOR
TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (C), (D) OR (E) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO THE SURVIVING CORPORATION AND IN THE CASE OF
THE FOREGOING CLAUSE (D), A CERTIFICATE OF TRANSFER (A FORM OF WHICH MAY BE
OBTAINED FROM THE SURVIVING CORPORATION) COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE SURVIVING CORPORATION. HEDGING TRANSACTIONS WITH REGARD
TO THIS SECURITY MAY NOT BE CONDUCTED BY THE HOLDER HEREOF UNLESS IN
COMPLIANCE WITH THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT.
Each Stockholder agrees not to attempt any transfer of any of the MSS
shares without first complying with the substance of that legend and agrees
that the satisfaction of MSS may, if MSS so requests, depend in large part
upon an opinion of counsel acceptable in form and substance to MSS, a
no-action letter of the United States Securities and Exchange Commission,
or equivalent evidence. Each of the Stockholders acknowledges, without
limitation, that the foregoing agreement and representation shall apply to
the MSS shares issued to such Stockholders.
13. Notices. Any notice which any of the parties hereto may desire to serve
upon any of the other parties hereto shall be in writing and shall be
conclusively deemed to have been received by the party to whom addressed,
if mailed, postage prepaid, united states certified mail, to the following
addresses:
If to MSS:
MetaSource Systems, Inc.
40 Exchange Place, Suite 1607
New York, NY 10005
Attention of Courtney Smith, President
If to Digit or its Stockholders:
54-55 Hoxton Square
London, England N1 6PB
Andy Chambers
54-55 Hoxton Square
London, England N1 6PB
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14. Successors. This agreement shall be binding upon and inure to the benefit
of the heirs, personal representatives, successors, and assigns of the
parties.
15. Indemnification. The Acquired Company shall save MSS harmless from and
against and shall indemnify MSS for any liability, loss, costs, expenses,
or damages howsoever caused by reason of any injury (whether to body,
property, or personal or business character or reputation) sustained by any
person or to property by reason of any act, neglect, default or omission of
Acquired Company or any of Acquired Company's agents, employees, or other
representatives, committed prior to the subject acquisition, and Acquired
Company shall pay all amounts to be paid or discharged in case of an action
or any such damages or injuries. If MSS is sued in any court for damages by
reason of any of the acts of Acquired Company, Acquired Company or such
other party shall defend the resulting action (or cause same to be
defended) at Acquired Company's expense and shall pay and discharge any
judgment that may be rendered in any such action; if Acquired Company fails
or neglects to so defend in such action, MSS may defend such action and any
expenses, including reasonable attorneys' fees, which MSS may pay or incur
in defending such action and the amount of any judgment which MSS may be
required to pay shall be promptly reimbursed by Acquired Company upon
demand by MSS.
16. Governing Law. This agreement shall be construed and interpreted in
accordance with the laws of the State of New York without regard to its
provisions concerning choice of laws or choice of forum. The parties hereby
irrevocably submit themselves to the non-exclusive jurisdiction of the
state and federal courts sitting in New York and agree and consent that
services of process may be made upon it in any legal proceedings relating
hereto by any means allowed under state or federal law.
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Executed in multiple counterparts, each of which shall be deemed a
duplicate original, as of the date first above written.
MetaSource Systems, Inc. by: /s/ Courtney Smith
--------------------------------
Courtney Smith
Digit by: /s/ Andrew Chambers
--------------------------------
Andrew Chambers
by: /s/ D Singh
--------------------------------
Daljit Singh (Co.Secretary)
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Appendix A
Shares Outstanding of Company: 1,025,000
Shares Held in Treasury: 0
Stockholders of Record:
Name: Andrew Chambers Shares Owned: 500,000
Name: Daljit Singh Shares Owned: 500,000
Name: Nick Cristea Shares Owned: 12,500
Name: Simon Sankarayya Shares Owned: 12,500