Item 1.01 Entry into a Material Definitive Agreement.
Agreement and Plan of Merger with EllisLab Corp. and EllisLab, Inc.
On November 30, 2018, the Company, entered into an Agreement and Plan of Merger (the “Plan of Merger”) with EllisLab, Inc., an Oregon corporation (“EllisLab”), Rick Ellis (the “EllisLab Shareholder”), and EllisLab Corp., a newly formed Nevada corporation and wholly owned subsidiary of the Company (“Merger Sub”) pursuant to which EllisLab merged with and into Merger Sub (the “Merger”). Pursuant to the terms of the Plan of Merger, the EllisLab Shareholder received thirty six thousand (36,000) shares (the “Stock Consideration”) of the Company’s newly designated Series C Convertible Preferred Stock (the “Series C Preferred Stock”), with a stated value of $100 per share, in exchange for the cancellation of his all of his shares of common stock of EllisLab, which shares represented 100% of the issued and outstanding capital stock of EllisLab.
Pursuant to the Articles of Merger that were filed with the Secretary of State of the State of Nevada and with the Secretary of State of the State of Oregon on November 30, 2018 (the “Effective Time”), the separate legal existence of EllisLab ceased, and Merger Sub became the surviving company in the Merger and shall continue its corporate existence under the laws of the State of Nevada under the name “EllisLab Corp.”
At the Effective Time of the Merger, automatically by virtue of the Merger, each common share of EllisLab that was issued and outstanding immediately prior to the Effective Time was converted, on a pro rata basis, into validly issued, fully paid and nonassessable shares of Series C Preferred Stock representing their pro rata interest in the Company and the Stock Consideration.
Pursuant to the Plan of Merger, the EllisLab Shareholder has agreed to a covenant not to compete subject to the terms and conditions in the Plan of Merger for a period of two (2) years following the Effective Time (the “Non
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Competition Period”). The EllisLab Shareholder further agreed that during the Non-Competition Period, he will not directly or indirectly solicit or agree to service for his benefit or the benefit of any third-party, any of EllisLab’s, the Company’s, or Merger Sub’s customers.
Pursuant to the Plan of Merger, during the period beginning on the Effective Time and ending on the twenty four (24) month anniversary thereof, the EllisLab Shareholder will not directly or indirectly, (i) offer, sell, offer to sell, contract to sell, hedge, pledge, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or sell, or otherwise transfer or dispose of, any portion of the Stock Consideration, or any shares of the Company’s common stock underlying the Stock Consideration (collectively the “Lock
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Up Securities”), beneficially owned, within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended, by such holder on the Effective Date, or hereafter acquired or (ii) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any portion of the Lock-Up Securities.
Each of the parties to the Plan of Merger has made customary representations and warranties in the Plan of Merger.
The Plan of Merger has been included to provide investors and shareholders with information regarding its terms. It is not intended to provide any other factual information about the Company, EllisLab, the EllisLab Shareholder or Merger Sub. The Plan of Merger contains representations and warranties that the parties to the Plan of Merger made to and solely for the benefit of each other, and the assertions embodied in such representations and warranties are qualified by information contained in confidential disclosure schedules that the parties exchanged in connection with signing the Plan of Merger. Accordingly, investors and shareholders should not rely on such representations and warranties as characterizations of the actual state of facts or circumstances, since they were only made as of the date of the Plan of Merger (or such other date as specified therein) and are modified in important part by the underlying disclosure schedules.
The foregoing description of the Plan of Merger does not purport to be complete and is qualified in its entirety by reference to the full text of the Plan of Merger and any Exhibits thereto, which is attached as
Exhibit 2.1
to the Original 8-K and is incorporated herein by reference.
Certificate of Designation of Series C Preferred Stock
As set forth above, the Company issued 36,000 shares of Series C Preferred Stock to the EllisLab Shareholder. The holders of outstanding shares of the Series C Preferred Stock (the “Holders”) shall be entitled to receive dividends pari passu (on a pro rata basis) with the holders of Series B Preferred Stock and Common Stock, except upon a liquidation, dissolution and winding up of the Company. Such dividends shall be paid equally to all outstanding shares of Series C Preferred Stock, Series B Preferred Stock and Common Stock, on an as-if-converted basis with respect to the Series C Preferred Stock and Series B Preferred Stock.
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Holder of each outstanding share of the Series C Preferred Stock shall be entitled to receive, on a pro rata basis with the outstanding Series B Preferred Stock, out of the assets of the Company available for distribution to its shareholders upon such liquidation, whether such assets are capital or surplus of any nature, an amount equal to one hundred dollars ($100.00) for each such share of the Series C Preferred Stock (as adjusted for any combinations. consolidations, stock distributions, stock splits or stock dividends with respect to such shares), plus all dividends, if any, declared and unpaid thereon as of the date of such distribution, before any payment shall be made or any assets distributed to the holders of the Common Stock, and, after such payment, the remaining assets of the Company shall be distributed to the holders of Common Stock.
Each share of Series C Preferred Stock is convertible into twenty thousand (20,000) shares of the Company’s fully paid and nonassessable shares of Common Stock, as adjusted. The Series C Preferred Stock shall contain the respective rights, privileges and designations as are set forth in the Certificate of Designations, Preferences, Rights and Limitations of Series C Preferred Stock appended hereto as
Exhibit 4.1
. The Series C contains a blocker that prevents the Holder from converting the Series C Preferred if such exercise would result in beneficial ownership of re than 4.99% of the outstanding shares of the Company’s stock, without at least 61 days of prior notice. Under the Series C Preferred Stock, the Holder is also subject to the Rule 144 restrictions of an affiliate.
Except as required by law or as specifically provided in the Certificate of Designation, the Holders of Series C Preferred Stock shall not be entitled to vote, as a separate class or otherwise, on any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting); provided, however, that each Holder of outstanding shares of Series C Preferred Stock shall be entitled, on the same basis as holders of Common Stock, to receive notice of such action or meeting.
The foregoing description of the Certificate of Designation of Series C Preferred Stock does not purport to be complete and is qualified in its entirety by reference to the full text of the Certificate of Designation of Series C Preferred Stock, which is attached as
Exhibit 4.1
to the Original 8-K and is incorporated herein by reference.
Option Agreement
On November 30, 2018, in connection with and pursuant to the Merger Agreement, the Company entered into a Nonstatutory Stock Option Agreement (the “Option Agreement”) with Derek Jones (the “Optionee”), whereby the Company issued to the Optionee an option to purchase 100,000,000 shares of the Common stock of the Company, at an exercise price of $0.005, in exchange for his surrender of an option to purchase 10% of the shares of outstanding common stock of EllisLab. The option is vested but may not be exercised for 2 years from the date of the Merger Agreement. The option contains a blocker that prevents the Optionee from exercising the Option if such exercise would result in beneficial ownership of more than 4.99% of the outstanding shares of the Company’s stock, without at least 61 days of prior notice. Under the Option the Optionee is also subject to the Rule 144 restrictions of an affiliate.
The foregoing description of the Option Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Option Agreement, which is attached as
Exhibit 10.1
to the Original 8-K and is incorporated herein by reference.