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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 14, 2000
NEW VISUAL ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
UTAH 0-21785 95-45453704
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
5920 FRIARS ROAD, SUITE 104
SAN DIEGO, CA 92108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 692-0333
827 BRIGHTON COURT
SAN DIEGO, CA 92109
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 14, 2000, New Visual Entertainment, Inc., a Utah
corporation ("New Visual") acquired New Wheel Technology, Inc., a California
corporation based in Pleasanton, California ("New Wheel"), pursuant to a Plan of
Reorganization and Agreement of Merger (the "Merger Agreement").
In accordance with the Merger Agreement, New Wheel was merged with
Astounding Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of New Visual. In consideration of the merger, the New Wheel
stockholders (the "Stockholders") received 2,000,000 restricted shares of New
Visual common stock. An additional 10,000,000 restricted shares of common stock
have been delivered to an escrow agent and will be released to the Stockholders
only upon the achievement by New Wheel of a technological development milestone
or New Visual's failure to meet certain funding obligations set forth in the
Merger Agreement. Additional compensation will be paid to the Stockholders in
the event New Wheel's high speed digital transmission technology generates
revenues for New Visual in excess of $1 billion, or if (a) there is a sale of
assets or stock or a merger resulting in a change of control of New Visual or
any of its affiliates and (b) the New Wheel technology comprises at least 15% of
the consideration for such change in control. New Visual's Board approved the
terms and conditions of the transaction, which were determined through arm's
length negotiations.
New Wheel is a development stage company formed in February 2000 by
Allan Blevins and Michael Shepperd. It has no prior operating history and no
revenues from operations. New Wheel's principal assets consist of certain
intellectual property rights relating to high speed digital transmission
technology for a variety of applications.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business required.
As permitted by Form 8-K, the required historical financial
statements will be filed by amendment to this Form 8-K no
later than April 28, 2000.
(b) Pro forma financial information.
As permitted by Form 8-K, the required pro forma financial
information will be filed by amendment to this Form 8-K no
later than April 28, 2000.
2
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(c) Exhibits
Exhibit Number Description of Exhibit
-------------- ----------------------
2.1* Agreement and Plan of Merger by and among
New Visual Entertainment, Inc., Astounding
Acquisition Corporation and Allan Blevins,
Michael Shepperd and New Wheel Technology,
Inc., dated February 14, 2000.
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* Pursuant to Item 601(b)(2) of Regulation S-B, the following
schedules to Exhibit 2.1 have been omitted from this Report
and will be provided to the Commission upon request:
(a) Exhibit A - Form of Employment Agreement
(b) Exhibit B - Stock Escrow Agreement among New Visual
Entertainment, Inc., Allan Blevins, Michael Shepperd
and Olde Monmouth Stock Transfer
(c) Exhibit C - Confidential Budget for Development
(d) Exhibit D - Technology Defined
(e) Disclosure Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NEW VISUAL ENTERTAINMENT, INC.
Dated: February 28, 2000 By: /s/ Ray Willenberg, Jr.
--------------------------------
Ray Willenberg, Jr.
PRESIDENT
3
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NEW VISUAL ENTERTAINMENT, INC.,
ASTOUNDING ACQUISITION CORPORATION
AND
ALLAN BLEVINS,
MICHAEL SHEPPERD, AND
NEW WHEEL TECHNOLOGY, INC.
DATED AS OF FEBRUARY 14, 2000
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AGREEMENT AND PLAN OF MERGER
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THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of the 14th day of February, 2000, by and among (1) New Visual
Entertainment, Inc., a Utah corporation ("Parent"), (2) New Wheel Technology,
Inc., a California corporation (the "Company"), (3) Astounding Acquisition
Corporation, a Delaware corporation and wholly-owned subsidiary of Parent
("Merger Sub") and (4) Allan Blevins ("Blevins") and Michael Shepperd
("Shepperd") (collectively the "Shareholders" and individually a "Shareholder").
WITNESSETH:
WHEREAS, the Shareholders own all of the issued and outstanding shares
of capital stock of the Company (the "Shares"); and
WHEREAS, Parent, Merger Sub, the Company and the Shareholders deem it
advisable and in their respective best interests to effect the merger of the
Company with and into Merger Sub and the plan of reorganization described below,
all on the terms and subject to the conditions set forth herein; and
WHEREAS, Parent, Merger Sub, the Company and the Shareholders intend
that this Agreement be approved and adopted by all relevant parties as a plan of
reorganization within the provisions of Sections 368(a)(1)(A) and 368(a)(2)(D)
of the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, for and in consideration of the premises, and the
mutual covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. DEFINITIONS. Unless otherwise stated in this Agreement, the following terms
shall have the following meanings:
"ADDITIONAL SHARES": As defined in Section 2.4(b) hereof.
"AFFILIATE": Any Person that, directly or indirectly, controls, or is
controlled by, or under common control with, another Person. For the purposes of
this definition, "control" (including the terms "controlled by" and "under
common control with"), as used with respect to any Person, means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities or by
contract or otherwise.
"ARBITRATOR": As defined in Section 7.7 hereof.
"BLEVINS": As defined in the Introduction hereto.
"BUDGET": As defined in Section 5.14 hereof.
"BUDGET DEFAULT DATE": As defined in Section 2.4(b) hereof.
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New Visual Entertainment, Inc./New Wheel Technology, Inc.
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"CLOSING": As defined in Section 6.1 hereof.
"CLOSING DATE": As defined in Section 6.1 hereof.
"CODE": The Internal Revenue Code of 1986, as amended.
"COMMON STOCK": As defined in Section 2.4(b) hereof.
"COMPANY": As defined in the Introduction hereto.
"CORPORATE LAWS": As defined in Section 2.1 hereof.
"DAMAGES": As defined in Section 7.2 hereof.
"DEBT": All obligations for borrowed money.
"DISCLOSURE SCHEDULE": The package of disclosure schedules to this
Agreement delivered by the Company to Parent contemporaneously herewith (or as
amended pursuant hereto) and incorporated by reference to the Section of this
Agreement to which each such schedule relates.
"DISPOSITION": As defined in Section 2.6(b) hereof.
"EFFECTIVE DATE": The date of this Agreement as set forth above.
"EMPLOYMENT AGREEMENTS": Those certain Employment Agreements between
Parent and each of Allan Blevins and Michael Shepperd, respectively,
substantially in the form of EXHIBIT A attached hereto.
"ENVIRONMENTAL LAWS": Includes the Comprehensive Environmental Response
Compensation and Liability Act, the Clean Air Act, the Clean Water Act and any
other applicable federal, state, local or foreign environmental, health or
safety law, rule or regulation relating to or imposing liability or standards
concerning or in connection with hazardous, toxic or dangerous waste, substance,
materials, smoke, gas or particulate matter.
"ERISA": Employee Retirement Income Security Act of 1974, as amended.
"ESCROW AGENT": Olde Monmouth Stock Transfer, the escrow agent under
the Escrow Agreement.
"ESCROW AGREEMENT": That certain Escrow Agreement by and between the
Shareholders and Parent substantially in the form of EXHIBIT B attached hereto.
"GOVERNMENTAL BODY": Any court or any federal, state, municipal or
other governmental department, commission, board, bureau, agency, authority or
instrumentality, domestic or foreign.
"GROSS PROFITS": For any Person, gross revenues less cost of goods
sold, overhead and other reasonable expenses.
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New Visual Entertainment, Inc./New Wheel Technology, Inc.
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"HAZARDOUS MATERIALS": Means waste, substance, materials, smoke, gas or
particulate matter designated as hazardous, toxic or dangerous under any
Environmental Law.
"INDEMNIFICATION NOTICE": As defined in Section 7.4 hereof.
"INDEMNITOR": As defined in Section 7.4 hereof.
"INDEPENDENT EVALUATOR": As defined in Section 2.5 hereof.
"INFORMATION": As defined in Section 5.3 hereof.
"INITIAL FUNDS": $750,000 of the Budget, to be allocated and spent by
Parent or an Affiliate of Parent for the purpose of developing the Technology.
"INITIAL FUNDING PERIOD": That period beginning on the Effective Date
and ending on the first to occur of a) that certain date seven (7) months from
the Effective Date; or b) the exhaustion of the Initial Funds as set forth in
the Budget.
"INITIAL SHARES": As defined in Section 2.4(b) hereof.
"LEGAL REQUIREMENT": Any law, rule, regulation, order or ordinance of
any Governmental Body as now or hereinafter in effect.
"LIABILITY": Any liability or obligation whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated and whether due or become due.
"LIEN": All mortgages, deeds of trust, claims, liens, security
interests, pledges, leases, conditional sale contracts, rights of first refusal,
options, charges, liabilities, obligations, agreements, easements,
rights-of-way, powers of attorney, limitations, reservations, restrictions and
other encumbrances of any kind.
"MATERIAL ADVERSE EFFECT": With respect to any Person, any change
(individually or in the aggregate) in the general affairs, management, business,
goodwill, results of operations, condition (financial or otherwise), assets,
liabilities or prospects (whether or not the result thereof would be covered by
insurance) of such Person that will or can reasonably be expected to result in a
cost, expense, charge, liability, loss of revenue or diminution in value equal
to or greater than $10,000.
"MERGER": As defined in Section 2.1 hereof.
"MERGER CONSIDERATION": As defined in Section 2.4(b) hereof.
"MERGER SUB": As defined in the Introduction hereto.
"MILESTONE": As defined in Section 2.5 hereof.
"MILESTONE DATE": As defined in Section 2.3(b) hereof.
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New Visual Entertainment, Inc./New Wheel Technology, Inc.
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"OPERATIVE DOCUMENTS": This Agreement, the Employment Agreements, the
Escrow Agreement and all other agreements, instruments, documents, schedules and
certificates executed and delivered by or on behalf of the Company, the
Shareholders, Merger Sub or Parent pursuant to this Agreement.
"ORDER": Any order, writ, injunction, decree, judgment, award or
determination of any Governmental Body.
"PARENT": As defined in the Introduction hereto.
"PARENT INDEMNITEES": As defined in Section 7.2(a) hereof.
"PERIOD": As defined in Section 2.6 hereof.
"PERMITS": All permits, authorizations, certificates, approvals,
registrations, variances, exemptions, rights-of-way, franchises, privileges,
immunities, grants, ordinances, licenses and other rights of every kind and
character (a) under any (1) federal, state, local or foreign statute, ordinance
or regulation, (2) Order or (3) contract with any Governmental Body or (b)
granted by any Governmental Body.
"PERSON": An individual, partnership, joint venture, corporation,
company, limited liability company, bank, trust, unincorporated organization,
Governmental Body or other entity or group.
"PROCEEDING": Any action, order, claim, suit, proceeding, litigation,
investigation, inquiry, review or notice.
"PROOF OF CONCEPT": As defined in Section 2.5 hereof.
"PROPRIETARY RIGHTS": As defined in Section 3.11 hereof.
"SHAREHOLDER" AND "SHAREHOLDERS": As defined in the Introduction
hereto.
"SHAREHOLDER INDEMNITEES": As defined in Section 7.5 hereof.
"SHARES": As defined in the Introduction hereto.
"SHEPPERD": As defined in the Introduction hereto.
"SUBSIDIARY" or "SUBSIDIARIES" with respect to any corporation shall
mean any other corporation of which at least a majority of the securities having
by their terms ordinary voting power to elect a majority of the Board of
Directors of such other corporation is at the time directly or indirectly owned
or controlled by such first corporation, or by such first corporation and one or
more of its Subsidiaries.
"SURVIVING CORPORATION": As defined in Section 2.1 hereof.
"TAXES": Any federal, state, local or foreign income, sales, use,
excise, real or personal property or other taxes, assessments, fees, levies,
imposts, duties, deductions or other charges of any nature whatsoever
(including, without limitation, interest and penalties) imposed by any law, rule
or regulation.
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AGREEMENT AND PLAN OF MERGER-Page 4
New Visual Entertainment, Inc./New Wheel Technology, Inc.
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"TAX OBLIGATIONS": Any Taxes which are attributable or related to the
Assets for any periods ending on or before the Closing Date or which may be
applicable because of the Transactions.
"TAX REPORTS": As defined in Section 3.10 hereof.
"TECHNOLOGY": As defined in EXHIBIT D attached hereto.
"TERMINATION DATE": As defined in Section 2.4(b) hereof.
"THIRD PARTY CONSENTS": As defined in Section 5.4 hereof.
"THREATENED": Any matter or thing will be deemed to have been
Threatened when used herein with respect to any party if that party (or anyone
in such party's organization) has received notice, in writing or otherwise, from
the Person to whom the threat is attributable, or such Person's agents, which
makes reference to and identifies the matter or thing being threatened.
"TRANSACTION" OR "TRANSACTIONS": The consummation of the Merger and the
performance of the other covenants and transactions described in this Agreement.
"TRANSACTION EXPENSES": The expenses incurred in connection with the
preparation, negotiation, execution and performance of this Agreement and the
Transactions, including all fees and expenses of counsel and representatives.
Other terms shall have the meanings ascribed to elsewhere herein.
2. THE MERGER
2.1 THE MERGER. At the Effective Time, as defined in SECTION 6.1
hereof, upon the terms and subject to the conditions set forth herein, and in
accordance with the corporate laws of the states of incorporation of Merger Sub
and the Company (the "Corporate Laws,") the Company shall be merged with and
into Merger Sub, the separate existence of the Company shall cease, and Merger
Sub shall continue as the surviving corporation (the "Merger"). Merger Sub after
the Merger is sometimes hereafter referred to as the "Surviving Corporation."
2.2 EFFECT OF THE MERGER. At the Effective Time, the Surviving
Corporation shall continue its corporate existence under the Laws of its state
of incorporation and shall succeed to all rights, privileges, immunities,
franchises and powers including, without limitation, all rights of the Company
and/or the Shareholders to the Technology, and be subject to all duties,
liabilities, debts and obligations, of the Company in accordance with the
provisions of the Corporate Laws.
2.3 THE SURVIVING CORPORATION
(a) CERTIFICATE. The Certificate of Incorporation of Merger
Sub as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until
thereafter amended in accordance with applicable law and such
Certificate of Incorporation.
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AGREEMENT AND PLAN OF MERGER-Page 5
New Visual Entertainment, Inc./New Wheel Technology, Inc.
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(b) BYLAWS. The bylaws of Merger Sub as in effect immediately
prior to the Effective Time shall be the bylaws of the Surviving
Corporation until thereafter amended in accordance with applicable law,
the articles of incorporation of such Surviving Corporation and such
bylaws.
(c) BOARD OF DIRECTORS. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial board of
directors of the Surviving Corporation, each of such persons to serve
until his or her successor is duly elected and qualified.
(d) OFFICERS. The officers of Merger Sub immediately prior to
the Effective Time shall be the initial officers of the Surviving
Corporation, each of such officers to serve until his or her successor
is duly qualified.
2.4 MERGER CONSIDERATION; CONVERSION
(a) COMPANY SHARES.
(1) At the Effective Time, by virtue of the Merger,
and without any action on the part of the Shareholders, all of
the Shares issued and outstanding immediately prior to the
Effective Date shall be canceled, retired and converted into
and become the right to receive the Merger Consideration
described in this Section 2.4.
(2) At the Closing, as defined in Section 6.1, the
Shareholders shall surrender the certificates representing the
Shares, accompanied by blank stock powers and all necessary
transfer taxes and other revenue stamps, to Merger Sub, and
Merger Sub shall deliver the Merger Consideration to the
Shareholders. The Shares immediately prior to the Effective
Time shall thereafter not evidence any interest in the Company
but, until surrendered as provided for in paragraph (a) of
this Section, subject to the provisions of paragraph (b) of
this Section, shall evidence ownership of the number of shares
of Common Stock into which the shares of the Company
theretofore represented thereby shall have been converted in
the Merger.
(3) After the Effective Time, each former holder of
Shares of which have been converted into shares of Common
Stock in the Merger, upon surrender in proper form to the
Parent for cancellation of the certificate or certificates
that prior to the Effective Time represented such holder's
Shares, shall be entitled to receive one or more certificates
representing the shares of Common Stock into which the Shares
previously represented by the surrendered certificate or
certificates shall have been so converted. No fractional
shares of Common Stock shall be issued.
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AGREEMENT AND PLAN OF MERGER-Page 6
New Visual Entertainment, Inc./New Wheel Technology, Inc.
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(4) After the Effective Time, no former holder of
Shares shall be entitled to receive any dividend or other
distribution payable to holders of shares of Common Stock
until such holder surrenders to the Parent, as provided in
paragraph (b) of this Section, the certificate or certificates
which prior to the Effective Time represented such holder's
Shares; provided, however, that upon surrender of such
certificate or certificates, there shall be paid to the holder
of record of each certificate representing Common Stock issued
upon such surrender the amount of dividends or other
distributions (without interest) which theretofore have become
payable and have not been paid with respect to the number of
shares of Common Stock represented by that certificate.
(5) Each share of common stock of Merger Sub issued
and outstanding immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of
the holder thereof, Parent, Merger Sub or the Company be
converted into and become one fully paid and nonassessable
share of common stock of the Surviving Company.
(b) MERGER CONSIDERATION. The "Merger Consideration" shall
consist of:
(1) an aggregate of 2,000,000 fully paid and
non-assessable restricted shares of common stock (the "Common
Stock"), par value $.001 per share, of Parent (the "Initial
Shares"); and
(2) an aggregate of 10,000,000 fully paid and
non-assessable shares of Common Stock of Parent (the
"Additional Shares"); PROVIDED, HOWEVER, that the Additional
Shares shall be issued to and held in escrow by the Escrow
Agent pursuant to the terms and conditions set forth in the
Escrow Agreement until the first to occur of the following:
(a) the occurrence of the Milestone on a
date (the "Milestone Date") prior to the Termination
Date (as defined below); or
(b) that certain date upon which Parent
fails to provide the Initial Funds as set forth in
the Budget during the Initial Funding Period (the
"Budget Default Date"); or
(c) that certain date (the "Termination
Date") which is the first to occur of (i) that
certain date seven (7) months from the Effective
Date, or (ii) that certain date upon which the
Initial Funds have been spent.
If either the Milestone Date or the Budget Date is the first
of these dates to occur, the Escrow Agent shall immediately release the
Additional Shares to the Shareholders. If, however, the Termination
Date is the first of these dates to occur, the Escrow Agent shall
immediately release the Additional Shares to Parent to be held as
treasury shares of Parent subject to immediate cancellation.
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New Visual Entertainment, Inc./New Wheel Technology, Inc.
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2.5 MILESTONE.
The term "Milestone" means the Proof of Concept for that certain
metallic high-speed transmission technology at the initial performance speed of
51 Mbps on two wires of 26-gauge copper for a distance of 8,500 feet, as
verified by the Independent Evaluator. As used herein, "Proof of Concept" means
the ability to demonstrate to the Independent Evaluator that signals have been
transmitted and received in sufficient detail that signals are being transferred
at 51 Mbps on two 26-gauge copper wires for a distance of 8,500 feet. As used
herein, "Independent Evaluator" means an engineer and/or engineering consulting
organization trained in the art of transmission and/or data communications, to
be mutually agreed upon by Parent and the Shareholders within thirty (30) days
of the Effective Date. The Independent Evaluator shall not be associated with
any of Parent, Merger Sub, the Company or the Shareholders or any of their
Subsidiaries or Affiliates.
2.6 RATCHET CLAUSE.
(a) If, during that period (the "Period") commencing with the
Milestone Date and ending on that certain date ten (10) years from the
Milestone Date, Parent or any of its Affiliates or subsidiaries
generates or receives aggregate gross revenues exceeding $1,000,000,000
deriving directly from the license or sale of products utilizing the
Technology, Parent (or, as applicable, such subsidiary) hereby agrees
to pay compensation in cash to the Shareholders, in the aggregate,
equal to 10% of Gross Profits as soon as practicable after the license
or sale of such products;
(b) If, during the Period, Parent or any of its Affiliates or
subsidiaries commences any (i) asset sale, or (ii) stock sale, merger
or consolidation in which a change of control occurs in Parent or such
subsidiary(each a "Disposition") in which the Technology constitutes at
least a material part (at least 15% or more) of the consideration for
such Disposition, Parent (or, as applicable, such subsidiary) hereby
agrees to pay compensation to the Shareholders, in the aggregate, equal
to 10% of the consideration received by Parent or such Subsidiary from
each such Disposition, with such compensation to be in the same form as
the consideration for such Disposition;
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
The Company, Blevins and Shepperd hereby represent and warrant to
Parent and Merger Sub that the following are true and correct as of the date of
this Agreement and will be true and correct (without limitation) through the
Closing Date, regardless of what investigations, if any, Parent or Merger Sub
shall have made prior hereto or prior to the Closing:
3.1 ORGANIZATION; QUALIFICATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
The Company has full corporate power and authority to own and lease all of the
properties and assets it now owns and leases and to carry on its business as it
is now being conducted. The Company is duly qualified as a foreign corporation
and is in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification necessary, except where the failure to so qualify
would not have a Material Adverse Effect on the Company.
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New Visual Entertainment, Inc./New Wheel Technology, Inc.
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3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company and the Shareholders have
full power and authority (corporate and otherwise) to execute, deliver and
perform this Agreement (including, without limitation, execution, delivery and
performance of the Operative Documents to which any is a party) and to
consummate the Transactions. The execution and delivery by the Company of this
Agreement, and the consummation of the Transactions, have been duly and validly
authorized by the Board of Directors of the Company and the Shareholders and no
other corporate proceedings on the part of the Company are necessary with
respect thereto. This Agreement has been duly and validly executed and delivered
by the Company, and constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms. The
Company will take all corporate action that is necessary for the Company to
complete the Transactions to be completed by the Company pursuant to this
Agreement.
3.3 CONSENTS AND APPROVALS; PERMITS. Except as set forth in or otherwise
required by this Agreement or the Operative Documents, the execution, delivery
and performance by the Company of this Agreement and the consummation of the
Transactions by it does not (a) require the consent, approval, order or
authorization of, action by or in respect of, or registration or filing with,
any Governmental Body or any other Person, or (b) impose any other term,
condition or restriction on Merger Sub or the Surviving Corporation pursuant to
any business combination or takeover law. The Company possesses all franchises,
certificates, licenses, permits and other authorizations from Governmental
Bodies and self-regulatory organizations, free from burdensome restrictions,
that are necessary for the ownership, maintenance and operation of its
properties and assets and the conduct of its business, and the Company is not in
violation of any thereof in any material respect.
3.4 CAPACITY; NO VIOLATIONS.
The execution, delivery and performance of this Agreement by the
Company and the Shareholders , the consummation by the Company of the
Transactions and compliance by the Company with any of the provisions hereof
does not and will not (a) conflict with or result in any breach or violation of
any provision of the Articles of Incorporation or Bylaws of the Company except
as described on SCHEDULE 3.4, (b) result in a default, or give rise to any right
of termination, cancellation or acceleration or loss of any material benefit or
require the consent, approval, waiver or other action of any Person under the
provisions of any note, bond, mortgage, indenture, license, trust, agreement,
lease or other instrument or obligation to which either the Company or any
Shareholder is a party or may be bound, (c) result in the creation or imposition
of any Lien on any of the Technology, (d) violate any Order, statute, rule or
regulation applicable to the Company or (e) violate any territorial restriction
on the business of the Company or any noncompetition or similar arrangement to
which either the Company or any Shareholder is a party or may be bound. This
Agreement and the Operative Documents to which either the Company or any
Shareholder is a party have been duly and validly executed and delivered by such
party and constitute the valid and legally binding obligations thereof.
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AGREEMENT AND PLAN OF MERGER-Page 9
New Visual Entertainment, Inc./New Wheel Technology, Inc.
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3.5 OWNERSHIP OF SHARES; SUBSIDIARIES.
The Company has a total authorized share capital as set forth in
SECTION 3.5 of the Disclosure Schedule; all of the issued and outstanding Shares
are owned of record and beneficially by the Shareholders as set forth therein.
All of the Shares are duly authorized, validly issued, fully paid and
nonassessable and were authorized, offered, issued and sold in accordance with
all applicable securities and other Corporate Laws and all rights of the
Shareholders and other Persons. The articles of incorporation of the Company do
not provide for preemptive rights in favor of any person. There are no
outstanding securities convertible into the share capital or rights to subscribe
for or to purchase, or any options for the purchase of, or any agreements or
arrangements providing for the issuance (contingent or otherwise) of, or any
actions relating to, the share capital of the Company. There are no voting
trusts, proxies or other agreements or understanding with respect to the voting
of the share capital of the Company. The Company is not subject to any
obligation to repurchase or otherwise acquire or retire any of its share
capital, and the Company has no liability for dividends declared or accrued, but
unpaid, with respect to its share capital. The Company has not purchased or
redeemed any of its share capital.
The Company does not own and has no interest, direct or indirect, or
any commitment to purchase or otherwise acquire, any share capital or other
equity interest, direct or indirect, in any other Person, except as set forth in
SECTION 3.5 of the Disclosure Memorandum. All such interests so set forth are
owned of record and beneficially by the Company and are duly authorized, validly
issued, fully paid and nonassessable, and were authorized, offered, issued and
sold in accordance with all applicable securities and other Corporate Laws.
The Shareholders are the owners of the Shares, and the Company is the
owner of all investments required to be disclosed hereunder, free and clear of
any and all Liens of any kind whatsoever. There are no outstanding contracts,
demands, commitments or other agreements or arrangements under which
Shareholders or the Company are or may become obligated to sell, transfer or
assign any of the Shares or such investments.
3.6 TITLE TO AND CONDITION OF TECHNOLOGY.
(a) Except as specifically set forth in SCHEDULE 3.6 of the
Disclosure Schedule, the Company has and will transfer good and
marketable title (in fee simple) to all of the Technology and such
Technology is free and clear of all Liens, none of which Liens impair
the current use or diminish the value of the Technology to any material
extent. The Company has not sold, transferred, leased, distributed or
otherwise disposed of any of the Technology, or agreed to do so except
for the disposition of immaterial assets in the ordinary course of
business or which in the reasonable judgment of management are not
necessary or advisable to the efficient use of the Technology. Upon
consummation of the Transactions, Merger Sub will own the Technology
free and clear of all Liens. Without limiting the generality of the
foregoing, neither the Shareholders nor any other of the Company's
Affiliates will have any right, title or interest in or to the
Technology after the Closing.
(b) The Company has no Liability.
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AGREEMENT AND PLAN OF MERGER-Page 10
New Visual Entertainment, Inc./New Wheel Technology, Inc.
<PAGE>
3.7 NO REAL PROPERTY. The Company neither owns nor leases any real property or
has any interest therein.
3.8 INVESTIGATION OR LITIGATION; COMPLIANCE WITH LAWS. Except as set forth on
SCHEDULE 3.8 of the Disclosure Schedule, there is no material Proceeding pending
or Threatened against, relating to or affecting the Company. The Company is not
subject to any currently existing Proceeding by any Governmental Body. There is
no basis for the assertion of any Proceeding by any Governmental Body or any
Person regarding any violation of the Environmental Laws, federal or state
securities laws or any other Legal Requirement which, if determined adversely to
the Company, could have a Material Adverse Effect on the Company. The Company
has complied with all applicable Legal Requirements (including with respect to
its business, assets, business practices, products and services).
3.9 ABSENCE OF CHANGES. The Company has not (a) suffered or permitted to have
occurred any event which had or could have had a Material Adverse Effect on the
Company; (b) incurred any Lien, obligation or liability on the Technology,
absolute, accrued, contingent or otherwise, whether due or to become due, except
current liabilities for trade or business obligations incurred in connection
with the purchase of goods or services in the ordinary course of business
consistent with prior practice, none of which Liens or liabilities, in any case
or in the aggregate could have a Material Adverse Effect on the Company; (c)
sold, transferred, leased to others or otherwise disposed of any of the
Technology, except for inventory sold in the ordinary course of business, or
canceled or compromised any Debt or claim, or waived or released any right of
substantial value; (d) received any notice of termination of any contract, lease
or other agreement or suffered any damage, destruction or loss (whether or not
covered by insurance) which, in any case or in the aggregate, has had or could
have had a Material Adverse Effect on the Company; or (e) taken any action or
admitted to take any action that would result in the occurrence of any of the
foregoing.
3.10 TAXES. All Taxes that are due and payable by the Company, other than those
presently payable without penalty or interest, have been timely paid, and the
Company has timely filed (and, through the Closing Date, will timely file) all
Tax reports and returns (collectively, "Tax Reports") required by law to be
filed by it. All such Tax Reports are true, complete and correct in all respects
with regard to the Company for the periods covered thereby. The Company is not
delinquent in the payment of any Tax which relate to the Technology. There is no
Tax deficiency asserted against the Company, and there is no unpaid assessment,
proposal for additional Taxes, deficiency or delinquency in the payment of any
of the Taxes of the Company or any violation of any Tax law that could be
asserted by any taxing authority. There are no Liens with respect to Taxes upon
the Technology or any other properties or assets of the Company, nor has notice
been given of any event which could lead to any such Lien which relate to the
Technology. Consummation of the Transactions will not result in any Tax
Obligations on the Technology.
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AGREEMENT AND PLAN OF MERGER-Page 11
New Visual Entertainment, Inc./New Wheel Technology, Inc.
<PAGE>
3.11 PROPRIETARY RIGHTS. Prior to the Closing Date and without payment of any
license fee, royalty or similar charge, the Company owns the right to use all
technology, proprietary information, know-how, ideas (patented or unpatented),
data, licenses, customer lists, processes, formulas, trade secrets, telephone
numbers, designs, inventions, trademarks, trademark registrations and
applications therefor, registered and common law copyrights, and registered
copyright applications, trade names (whether or not registered or registrable),
service marks, service mark registrations and applications therefor
(collectively, the "Proprietary Rights") necessary to the ownership and
development of the Technology. Set forth on SCHEDULE 3.11 is a complete and
accurate list of all Proprietary Rights. Except as reflected on SCHEDULE 3.11,
no consent or approval of any third party will be required for the use of the
Proprietary Rights by Parent after the consummation of the Transactions
contemplated hereby and the Transactions hereunder will not result in any breach
of any agreement relating to any Proprietary Rights. The Proprietary Rights
owned by the Company are owned free and clear of all Liens. To the best of
Shareholder's knowledge, Parent's use of the Proprietary Rights will not, and
the previous ownership by the Company and/or the Shareholders of the Technology
did not, infringe on or violate the rights of any other Person. There is no
confidential information, trade secret, proprietary process or know-how material
to the use of the Technology which is used under license from others or in which
the Company has granted any rights to others. No Proceedings have been
instituted, are pending or are, to the knowledge of the Company, threatened
which challenge or oppose the rights of the Company with respect to any of the
Proprietary Rights. The Company has received no notice or inquiry from any
Person of any alleged infringement by either of them of any intellectual
property right. Also set forth on SCHEDULE 3.11 is a true and correct list of
all confidentiality agreements and all other contracts, royalty agreements,
licenses or other understandings or arrangements entered into relating to the
Proprietary Rights and all such contracts are in full force and effect.
3.12 NO BROKERS. Neither the Company nor the Shareholders have employed any
broker, agent or finder or incurred any liability for any brokerage fees,
commissions or finders' fees in connection with the Transactions.
3.13 INSURANCE. All the insurance policies maintained by the Company are listed
on SCHEDULE 3.13 of the Disclosure Schedule and are in full force and effect,
all insurance premiums have been timely paid to date, and no such policy will be
canceled prior to Closing. Such insurance policies provide adequate coverage,
less deductibles, against the risks involved in the operation of the Technology.
3.14 PRODUCT AND SERVICE WARRANTIES. There exists no pending or Threatened claim
against the Company on account of product or service warranties or with respect
to the manufacture, sale or lease of products or performance of services, and
there is no basis for any such claim on account of products heretofore
manufactured, sold or leased or services performed.
3.15 CONTRACTS; ORAL COMMITMENTS; DEFAULTS. SCHEDULE 3.15 of the Disclosure
Schedule sets forth a true and correct list of all contracts of the Company (or
summaries of all oral commitments) that are material to the Company or that
involve the payment or receipt of more than $10,000 during the remaining term
thereof. There exists no breach or default under any of such contracts. Except
as separately identified on SCHEDULE 3.15 of the Disclosure Schedule, no
approval or consent of any Person is needed in order that the contracts listed
on SCHEDULE 3.15 continue in full force and effect immediately following the
consummation of the Transactions.
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AGREEMENT AND PLAN OF MERGER-Page 12
New Visual Entertainment, Inc./New Wheel Technology, Inc.
<PAGE>
3.16 INVESTMENTS IN COMPETITORS. Except as set forth in SCHEDULE 3.16, no
Affiliate of the Company (including, without limitation, the current officers
and directors of the Company) owns directly or indirectly any interest or has
any investment in any Person that is a competitor or potential competitor of, or
which otherwise directly or indirectly does business with, the Company.
3.17 ENVIRONMENTAL COMPLIANCE. No Hazardous Materials exist in any structure
located on, or exist on or under the surface of, any real property, including
the Real Property, owned, leased or otherwise used by the Company, the
Shareholders, any predecessor to the Company or any Affiliate of the Company or
the Shareholders, in its business (collectively, "Company Properties"). The
Company has never been in violation of any Environmental Law. The Company has
utilized, handled, stored, delivered for disposal, disposed of and transported
all wastes, whether Hazardous Materials or not, in full compliance with all
Legal Requirements, including requirements of Environmental Law so as not to
contaminate any of the Company Properties or any other properties and so as not
to give rise to any reporting, remediation or clean-up obligation under any
Legal Requirement. The Company has never received notice of any past, present or
future events, conditions, facts or circumstances that may cause the owner of
the Technology to be in violation of any Environmental Law. There are no, and
there never have been, any underground storage tanks, pits, sumps or
impoundments (as defined under Environmental Laws) located on or under the
Company Properties.
3.18 EMPLOYEE MATTERS. No employee, agent, consultant or independent contractor
performs services on a regular basis for the Company. The Company is not a party
to any agreement of any kind which deals with wages, conditions of employment,
benefits or other matters affecting the employer/employee relationship with any
union, labor organization or employee group. There are no controversies pending,
or threatened between the Company and any union, labor organization or employee
group representing, or seeking to represent, any of its employees, and there has
been no attempt by any union, labor organization or employee group to organize
any of the Company's employees at any time in the past five years. The Company
has substantially complied with all applicable laws relating to wages, hours,
health and safety, payment of social security withholding and other taxes,
maintenance of workers' compensation insurance, labor and employment relations
and employment discrimination. The Company is not obligated to provide, directly
or indirectly, any benefits for employees, including pension, bonus, medical,
insurance, profit sharing or any other employee benefits, under any practice,
commitment, arrangement, agreement or Law. Except as set forth in the Disclosure
Memorandum, the Company does not, and has never, sponsored, maintained or
contributed to any employee pension benefit plan, within the meaning of Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). The Company is not required to contribute, and has never been
required to contribute, to any multi-employer plan within the meaning of Section
3(37)(A) of ERISA. The Company does not sponsor or contribute to any employee
welfare benefit plan within the meaning of Section 3(1) of ERISA. The
consummation of the transactions contemplated by this Agreement will not (i)
entitle any current or former employee or officer of the Company to severance
pay, unemployment compensation or any other payment, or (ii) accelerate the time
of payment or vesting, or increase the amount of compensation or benefits due
any such employee or officer of the Company.
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AGREEMENT AND PLAN OF MERGER-Page 13
New Visual Entertainment, Inc./New Wheel Technology, Inc.
<PAGE>
3.19 INVESTMENT IN MERGER CONSIDERATION. Each of the Shareholders represents
that, at Closing, he is acquiring the Merger Consideration for investment,
without any view to the sale or further distribution of any part thereof. Each
of Blevins and Shepperd recognizes that the Merger Consideration is highly
speculative and that the risk of loss of all or a portion of any investment
therein is high. Each of Blevins and Shepperd represents that he has adequate
means for providing for current and future contingencies, has no need for
liquidity with regard to investment in the Merger Consideration and is able to
bear the economic risk of the investment therein including, but not limited to,
complete loss of such investment or possible adverse tax consequences. There
shall be placed on all certificates representing the shares of Common Stock
issued to the Shareholders pursuant to this Merger Agreement all appropriate
restrictive legends referencing the restrictions imposed by applicable
securities laws. Each Shareholder hereby acknowledges and agrees that the Common
Stock shall be subject to volume limitations or other restrictions provided in
Rule 144 (or any successor provision thereto) promulgated under the Securities
Act of 1933, as amended (the "Securities Act"). Each of Blevins and Shepperd
represents, warrants and covenants that he will not dispose of any of the Merger
Consideration being acquired pursuant to the Transactions unless and until (i)
he has delivered to Parent an opinion of counsel in form and substance, and from
counsel reasonably acceptable to counsel for Parent, to the effect that the
contemplated transfer of the Merger Consideration is exempt from the
registration requirements of and otherwise in compliance with the Securities Act
and any applicable state securities laws or (ii) the shares of Common Stock
representing such Merger Consideration have been validly registered with the SEC
and any and all applicable state securities boards.
3.20 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company nor any officer,
employee or agent of the Company, nor any other person acting on behalf of the
Company, has, directly or indirectly, within the past five years, given or
agreed to give any gift or similar benefit to any Person who is or may be in a
position to help or hinder the Company's business (or assist the Company in
connection with any actual or proposed transaction) which (a) might subject the
Company or the Surviving Corporation to any material damage or penalty in any
Action or which might have a material effect on the Company or its assets and
properties, (b) if not given in the past, might have had a material effect on
the Company's business or its assets and properties, or (c) if not continued in
the future, might have a material effect on the Company or which might subject
the Company or the Surviving Corporation to suit or penalty in any action.
3.21 DISCLOSURE.
(a) The Company has delivered or made available to Parent
complete and accurate copies of all documents listed on the Disclosure
Schedule delivered as a part hereof and all other information requested
for deciding whether to consummate the Transactions hereby. No
representation or warranty of the Company contained in this Agreement
or statement in the schedules hereto contains any untrue statement. No
representation or warranty of the Company, Blevins or Shepperd
contained in this Agreement or statement in the schedules hereto omits
to state a material fact necessary in order to make the statements
herein or therein, in light of the circumstances under which they were
made, not misleading.
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AGREEMENT AND PLAN OF MERGER-Page 14
New Visual Entertainment, Inc./New Wheel Technology, Inc.
<PAGE>
(b) There is no fact known to the Company or the Shareholders
which has specific application to Parent and which could have a
Material Adverse Effect on the Company but which has not been set forth
in this Agreement or the Disclosure Schedule.
(c) In the event of any inconsistency between the statements
in the body of this Agreement and those in the Disclosure Schedule
(other than an exception expressly set forth as such in the schedules
in relation to a specifically identified representation or warranty),
those in this Agreement shall control.
4. REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to the Company and the
Shareholders that the following are true and correct as of the date of this
Agreement and will be true and correct (without limitation) through the Closing
Date, regardless of what investigations, if any, the Company shall have made
prior hereto or prior to the Closing:
4.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Utah. Merger Sub is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware.
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Merger Sub and Parent
has full power and authority (corporate and otherwise) to execute, deliver and
perform this Agreement (including, without limitation, execution, delivery and
performance of the Operative Documents to which it is a party) and to consummate
the Transactions. The execution and delivery by Parent and Merger Sub of this
Agreement, and the consummation of the Transactions, have been duly and validly
authorized by the respective Boards of Directors of Parent and Merger Sub and no
other corporate proceedings on the part of either Parent or Merger Sub are
necessary with respect thereto.
4.3 CONSENTS AND APPROVALS. Except as set forth in or otherwise
required by this Agreement or the Operative Documents, the execution, delivery
and performance by Parent and Merger Sub of this Agreement and the consummation
of the Transactions by them requires no consent, approval, order or
authorization of, action by or in respect of, or registration or filing with,
any Governmental Body or other Person.
4.4 NO BROKERS. Neither Parent nor Merger Sub has employed any broker,
agent or finder or incurred any liability for any brokerage fees, commissions or
finders' fees in connection with the Transactions.
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AGREEMENT AND PLAN OF MERGER-Page 15
New Visual Entertainment, Inc./New Wheel Technology, Inc.
<PAGE>
4.5 CAPITALIZATION. The authorized capital stock of Parent consists of
(i) 100,000,000 shares of Common Stock, of which as of January 31, 2000 ,
69,693,529 shares of Common Stock are validly issued, fully paid and
non-assessable, and (ii) 200,000,000 shares of preferred stock, par value $30.00
per share, of which no shares are outstanding. As of the date hereof, there are
no shares of Common Stock held in the treasury of Parent. Except as disclosed on
SCHEDULE 4.5 hereto, there is no voting trust, shareholder's agreement or other
voting arrangement between Parent and any of its shareholders. Except as
disclosed on Schedule 4.5 hereto, or pursuant to the laws of Utah applicable to
corporations generally, there are no restrictions, including, but not limited
to, self-imposed restrictions, on the retained earnings of Parent or upon the
ability of Parent to pay and declare dividends. As of the date hereof, Parent
has issued stock options which, if exercised on the date hereof, would result in
the issuance of an additional 400,000 shares of Common Stock. Parent intends to
issue additional shares of Common Stock in the future without obtaining
shareholder approval.
4.6 INITIAL SHARES. The Initial Shares ( and, if applicable, the
Additional Shares) to be issued to the Shareholders upon closing are validly
issued and outstanding, fully paid and non-assessable. Parent has taken all
corporate action that is necessary for Parent to complete the Transactions. The
Initial Shares ( and if applicable, the Additional Shares) will be "restricted
securities" as such term is defined in Rule 144 promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), and will not be registered with
the Securities and Exchange Commission under the Securities Act.
4.7 COMPLIANCE WITH FEDERAL AND STATE SECURITY AND TAX LAWS. Parent
represents and warrants that as required it will satisfy all federal and state
securities and tax regulations and/or laws, including but not limited to the
filing of all necessary documents to effect or complete the Transactions.
4.8 NO VIOLATIONS. The execution, delivery and performance of this
Agreement by Parent, the consummation by Parent of the Transactions and
compliance by Parent with any of the provisions hereof does not and will not (a)
conflict with or result in any breach or violation of any provisions of the
Articles of Incorporation or Bylaws of Parent, (b) result in a default, or give
rise to any right of termination, cancellation or acceleration or loss of any
material benefit or require the consent, approval, waiver or other action of any
Person under the provisions of any note, bond, mortgage, indenture, license,
trust, agreement, lease or other instrument or obligation to which Parent is a
party or by which Parent may be bound, (c) result in the creation or imposition
of any Lien on any of the Assets, (d) violate any Order, statute, rule or
regulation applicable to Parent or (e) violate any territorial restriction on
the business of Parent or any noncompetition or similar arrangement.
4.9 INVESTIGATION OR LITIGATION; COMPLIANCE WITH LAWS. There is no
material Proceeding pending or threatened against, relating to or affecting
Parent. Parent is not subject to any currently existing proceeding by any
Governmental Body. To Parent's knowledge, there is no basis for the assertion of
any Proceeding by any Governmental Body or any Person regarding any violation of
the Environmental Laws, federal or state securities laws, tax laws or other
legal requirement which, if determined adversely to Parent, could have a
Material Adverse Effect on Parent. Parent has complied with all applicable legal
requirements.
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AGREEMENT AND PLAN OF MERGER-Page 16
New Visual Entertainment, Inc./New Wheel Technology, Inc.
<PAGE>
4.10 ABSENCE OF CHANGES. Since the filing of Parent's most recent
report on Form 10-K, Parent has not (a) suffered or permitted to have occurred
any event which had or could have had a material adverse effect that has not
been disclosed or is public information; (b) incurred any Lien or liability,
absolute, accrued, contingent or otherwise, whether due or to become due, except
current liabilities for trade or business obligations incurred in connection
with the purchase of goods or services in the ordinary course of business
consistent with prior practice, none of which Liens or liabilities, in any case
or in the aggregate could have a material adverse effect on Parent or its stock
value; (c) canceled or compromised any Debt or claim, or waived or released any
right of substantial value; or (d) received any notice of termination of any
contract, lease or other agreement or suffered any damage, destruction or loss
(whether or not covered by insurance) which, in any cause or in the aggregate,
has had or could have had a material adverse effect.
5. ADDITIONAL AGREEMENTS
5.1 LITIGATION SUPPORT. In the event and for so long as any party
hereto is actively contesting or defending any action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand of third parties
after the Closing in connection with (i) any transaction contemplated by this
Agreement or (ii) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act or
transaction on or prior to the Closing related to the Technology, each of the
other parties shall cooperate in the defense or contest, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the defense or contest, all at the sole
cost and expense of the contesting or defending party (unless the contesting or
defending party is entitled to indemnification therefore hereunder).
5.2 PUBLIC ANNOUNCEMENTS. The parties hereto agree to consult with each
other prior to making any public announcement or other public disclosure
concerning the Transactions, including to the existence of discussions regarding
possible transactions and any of terms and conditions of such. Except as
otherwise required by applicable law, neither party shall and shall not permit
any of its respective Affiliates, agents or representatives, to make directly or
indirectly a public announcement regarding the Transactions without the prior
written consent of the other party, which consent shall not be unreasonably
withheld. If a party is required by law to make any such disclosure, it must
provide notice of such requirement, as soon as practicable, to the other party.
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AGREEMENT AND PLAN OF MERGER-Page 17
New Visual Entertainment, Inc./New Wheel Technology, Inc.
<PAGE>
5.3 CONFIDENTIALITY. Each party hereto agrees with respect to all
technical, commercial and other information that is furnished or disclosed by
the other parties, including, but not limited to, information regarding such
party's (and its Affiliates') organization, personnel, business activities,
customers, policies, assets, finances, costs, sales, revenues, technology,
rights, obligations, liabilities and strategies (the "Information"), that (a)
such Information is confidential and/or proprietary to the furnishing/disclosing
party and entitled to and shall receive treatment as such by the receiving
party; (b) the receiving party will hold in confidence and not disclose or use
(except in respect of the Transactions) any such Information, treating such
Information with the same degree of care and confidentiality as it accords its
own confidential and proprietary information; PROVIDED, HOWEVER, that the
receiving party shall not have any restrictive obligation with respect to any
Information that (i) is contained in a printed publication available to the
general public, (ii) is or becomes publicly known through no wrongful act or
omission of the receiving party, or (iii) is known by the receiving party
without any proprietary restrictions by the furnishing/disclosing party at the
time of receipt of such Information; and (c) all such Information furnished to a
party by another, unless otherwise specified in writing, shall remain the
property of the furnishing/disclosing party unless acquired as an Asset in
accordance herewith and, in the event this Agreement is terminated, shall be
returned to it, together with any and all copies made thereof, upon request for
such return by it (except for documents submitted to a Governmental Body with
the consent of the furnishing/disclosing party or upon subpoena and that cannot
be retrieved with reasonable effort), and each party shall confirm in writing to
the others compliance with any such request. Each party hereto acknowledges that
the remedy at law for any breach by a party of its obligations under this
Section is inadequate and that the other parties shall be entitled to equitable
remedies, including injunctive relief, in the event of breach by any other
party.
5.4 APPROVAL OF THIRD PARTIES. As soon as practicable after the
execution of this Agreement, the Company will use its best efforts to obtain all
necessary approvals and consents of all third parties required on the part of
the Company for the consummation of the Transactions (the "Third Party
Consents"). Parent will reasonably cooperate with the Company in securing any
necessary consents from, or in making any filings with or giving any notice to
any third parties necessary for the Company to comply with this Section 5.4.
Notwithstanding any other provision of this Agreement, to the extent that the
assignment by the Company of any Asset to be assigned hereunder shall require
the consent or approval of another party thereto, the consummation of the
Transactions shall not constitute an assignment or attempt at an assignment
thereof if such assignment or attempted assignment would constitute a breach
thereof. If any Third Party Consent with respect to any one or more Asset is not
obtained at or prior to Closing, each party hereto agrees to take whatever
action may be necessary to provide Parent with the uninhibited benefits of such
Asset, subject to the assumption by Parent of the Company's obligations
thereunder.
5.5 [RESERVED].
5.6 NOTICE. The Company shall promptly give notice to Parent upon
becoming aware of the occurrence or failure to occur, or the impending or
threatened occurrence or failure to occur, of any event that would cause or
constitute (or could reasonably be deemed to cause or constitute), any of their
representations or warranties being or becoming untrue.
5.7 [RESERVED].
5.8 INFORMATION FOR TAX RETURNS. The Shareholders and Parent each agree
to cooperate with the other after the Closing by providing the other, without
any additional consideration, promptly upon request, such records and other
information regarding the Transactions as may reasonably be requested from time
to time by Parent in connection with the preparation or audit of its federal,
state and local income and other Tax Returns, and audits, disputes, refund
claims or litigation relating thereto. In such connection, each of the
Shareholders and Parent will afford the other's representatives, including
independent tax advisers and others, access to books and records or relating to
the Transactions.
5.9 [RESERVED]
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AGREEMENT AND PLAN OF MERGER-Page 18
New Visual Entertainment, Inc./New Wheel Technology, Inc.
<PAGE>
5.10 ADDITIONAL SHARES. Each of the Shareholders hereby agrees that he
shall not dispose of any of the Additional Shares until the LATER to occur of
(a) that certain date one (1) year from the date the Additional Shares are
released to the Shareholders by the Escrow Agent, and (b) the earliest date that
any of the Additional Shares may be disposed of under the exemption provided by
Rule 144 promulgated under the Securities Act; PROVIDED, HOWEVER, that upon the
occurrence of the Budget Default Date, the Shareholders may dispose of any or
all of the Additional Shares on the earliest date that any of the Additional
Shares may be disposed of under the exemption provided by Rule 144 promulgated
under the Securities Act.
5.11 MAIL. Parent and the Shareholders each agree to promptly deliver
to the other the original of any mail or other communication received by such
party after the Closing Date which should properly be the property of the other.
Parent and the Shareholders each further agree from and after the Closing Date
to promptly deliver to the other any monies, checks or other instruments of
payment to which the other party is entitled hereunder, together with a
reasonable accounting therefor.
5.12 EMPLOYMENT AGREEMENTS. Blevins and Shepperd have entered into
Employment Agreements in substantially the form attached hereto as EXHIBIT A.
5.13 GENERAL CONDITIONS.
(a) NO INJUNCTION. No court having jurisdiction shall have
issued, to the knowledge of Parent or the Company, an injunction
preventing the consummation of the Transactions that shall not have
been stayed or dissolved at the Closing Date.
(b) PROCEEDINGS. All proceedings taken or to be taken in
connection with the Transactions, and all documents incident thereto
shall be reasonably satisfactory in form and substance to the parties
and their counsel, and the parties and their counsel shall have
received all such counterpart originals or certified or other copies of
such documents as the parties or their counsel may reasonably request.
5.14 DEVELOPMENT BUDGET. Parent hereby agrees that either it, Merger
Sub or one of its other Subsidiaries shall provide a development budget (the
"Budget") of $1,500,000 for the continuation of the development of the
Technology in the manner set forth on EXHIBIT C attached hereto, and Parent
hereby represents and warrants that the Initial Funds are currently available to
be utilized in accordance with the Budget. In the event that the Milestone Date
is a date on or prior to the Termination Date, Parent hereby agrees that it
shall provide an additional $750,000 to be allocated and spent in accordance
with the Budget for the purpose of developing the Technology.
5.15 BOARD SEAT. In the event that the Milestone Date is a date on or
prior to the Termination Date, Parent hereby agrees to cause its Board of
Directors to (a) increase the number of directors on its Board of Directors by
at least one (1) director, and (b) nominate and appoint one designee of the
Shareholders (the "Designee") to Parent's Board of Directors to serve until the
Company's next annual meeting of stockholders. Thereafter, Parent agrees to
cause its Board of Directors to nominate and recommend the Designee for election
to Parent's Board of Directors at each successive annual meeting of Parent's
shareholders, so long as the Shareholders own, in the aggregate, at least
6,000,000 shares of Common Stock (to be increased or decreased as required to
make adjustments as a result of any stock dividends, stock splits, share
combinations, exchanges for other shares of the Parent, recapitalizations or
similar events necessitating a proportionate increase or reduction in such
number so as to offset any effect of any of the foregoing events which causes a
change in the Parent's capitalization).
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AGREEMENT AND PLAN OF MERGER-Page 19
New Visual Entertainment, Inc./New Wheel Technology, Inc.
<PAGE>
6. CLOSING.
6.1 CLOSING DATE. The closing for the transactions contemplated by this
Agreement (the "Closing") shall take place at the office of Secore & Waller,
L.L.P., 13355 Noel Road, Suite 2290, Dallas, Texas 75240, or at such other time
and place as the parties hereto shall specify, concurrently with the execution
hereof (the "Closing Date"). On Closing Date, the Company and Merger Sub shall
file the documents required by the Corporate Laws to effect the Merger. The
Merger shall become effective at the close of business on the date of the
Closing (the "Effective Time").
6.2 COMPANY DELIVERIES. At the Closing, the Company and the
Shareholders shall have delivered to Parent each of the following:
(a) COMPANY'S OFFICER'S CERTIFICATE. The Company shall have
delivered to Parent an Officer's Certificate dated the Closing Date
signed by an officer of the Company certifying to the due adoption by
the Company's Board of Directors of the attached resolutions approving
the execution and delivery of this Agreement and the consummation of
the Transaction.
(b) CERTIFICATE OF GOOD STANDING. The Company shall cause to
be delivered to the Company a currently effective Certificate of Good
Standing from the Secretary of State of the State of California.
(c) OTHER MATTERS. The Company and the Shareholder shall have
delivered to Parent, in form and substance reasonably satisfactory to
counsel for Parent, such certificates and other evidence as Parent may
reasonably request as to the satisfaction of the terms and conditions
of this Agreement, including, but not limited to, (i) the surrender of
properly endorsed certificates representing the Shares, (ii) executed
copies of Employment Agreements from each of the Shareholders, and
(iii) a copy of the Escrow Agreement executed by each of the
Shareholders.
6.3 PARENT DELIVERIES. At the Closing, Parent shall have delivered each
of the following:
(a) PARENT'S OFFICER'S CERTIFICATE. Parent shall have
delivered to the Company an Officer's Certificate dated the Closing
Date signed by an officer of Parent certifying to the due adoption by
Parent's Board of Directors of the attached resolutions approving the
execution and delivery of this Agreement and the consummation of the
Transaction.
(b) MERGER CONSIDERATION. As set forth in Section 2.4, Parent
shall cause its transfer agent to deliver the Initial Shares to the
Shareholders and the Additional Shares to the Escrow Agent within five
(5) days of the closing.
(c) CERTIFICATE OF GOOD STANDING. Parent shall cause to be
delivered to the Company a currently effective Certificate of Good
Standing from the Secretary of State of the State of Utah with respect
to Parent.
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<PAGE>
(d) OTHER MATTERS. Parent shall have delivered to the Company,
in form and substance reasonably satisfactory to counsel for the
Company, such certificates and other evidence as the Company may
reasonably request as to the satisfaction of the terms and conditions
of this Agreement contained in this Section 6.3.
7. SURVIVAL AND INDEMNIFICATION; ARBITRATION
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements made by each party in this
Agreement or in any attachment, exhibit, the Disclosure Schedule, certificate,
document or list delivered by any such party pursuant hereto shall survive the
Closing for a period of (and claims based upon or arising out of such
representations, warranties, covenants and agreements may be asserted at any
time before the date which shall be) two (2) years following the Closing Date,
except with respect to the representations and warranties set forth in Section
3.19, which shall survive until the expiration of the applicable statue of
limitations (with extensions) with respect to the matters addressed in such
sections, and except with respect to the representations and warranties set
forth in Section 3.19, which shall survive indefinitely. Each party hereto shall
be entitled to rely upon the representations and warranties of the other party
set forth in this Agreement. The termination of the representations and
warranties provided herein shall not affect the rights of a party in respect of
any Claim made by such party in a writing received by the other party prior to
the expiration of the applicable survival period provided herein.
7.2 INDEMNITY.
(a) Each of the Shareholders hereby agree to indemnify and
hold Parent, its respective direct and indirect subsidiary corporations
(including, but not limited to, Merger Sub) and each of their
respective officers, directors, agents, attorneys and accountants
("Parent Indemnitees") harmless from any and all damages, losses (which
shall include any diminution in value), liabilities (joint or several),
payments, obligations, penalties, claims, litigation, demands,
defenses, judgments, suits, proceedings, costs, disbursements or
expenses (including without limitation, reasonable fees, disbursements
and expenses of attorneys, accountants and other professional advisors
and of expert witnesses and costs of investigation and preparation) of
any kind or nature whatsoever (collectively "Damages"), directly or
indirectly resulting from, relating to or arising out of:
(i) any breach or nonperformance (partial or total)
of or inaccuracy in any representation or warranty or covenant
or agreement of any of the Company or the Shareholders
contained in any Operative Document;
(ii) the Transaction Expenses incurred by either the
Company or the Shareholders; and
(iii) any and all actions, Orders, assessments, fees
and expenses incident to any of the foregoing or incurred in
investigating or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnification.
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<PAGE>
(b) the foregoing agreement to indemnify shall be in addition
to any liability any Indemnitor (as hereinafter defined) may otherwise
have, including liabilities arising under this Agreement.
7.3 NO THIRD PARTY BENEFICIARIES. The foregoing indemnification is
given solely for the purpose of protecting Parent Indemnitees and shall not be
deemed extended to, or interpreted in a manner to confer any benefit, right or
cause of action upon, any other Person.
7.4 [RESERVED]
7.5 INDEMNIFICATION BY PARENT AND MERGER SUB.
(a) Parent and Merger Sub expressly and unequivocally agree to
indemnify and hold harmless Shareholders and Company, its officers,
directors, advisors, agents, attorneys and accountants ("Shareholder
Indemnitees") harmless from any and all Damages, as defined in 7.2(a),
directly or indirectly resulting from, relating to or arising out of,
howsoever caused, regardless of responsibility or negligence, as
follows:
(i) any breach or nonperformance (partial or total)
of or inaccuracy in any representation or warranty or covenant
or agreement of any of the Parent or Merger Sub;
(ii) any claim by any Person, including Jack Robinson
and/or Astounding.com, including, but not limited to claims
for brokerage or finder's fees or commissions or similar
payments based upon any agreement or understanding alleged to
have been made by such Person with Parent (or any Person
acting on its behalf) or Shareholders in connection with any
of the Transactions, PROVIDED, HOWEVER, that notwithstanding
anything herein to the contrary, no Person shall be
indemnified hereunder for any breach of any representation or
warranty made in any of the Operative Documents;
(iii) the Transaction Expenses incurred by either the
Parent or Merger Sub;
(iv) any claim by Parent's shareholders or other
Person regarding the Transaction resulting from the
requirements of Parent and/or Merger Sub, their agents,
attorneys or advisors, relating to either Merger Sub's
acquisition of the Technology or the form of Company's
previous acquisition of the Technology from the Shareholders;
(v) any liability, claim, demand, tax, fee, cost,
assessment and/or penalty levied by a governmental agency
related to the transaction, except Shareholder's personal tax
liabilities;
(vi) any and all actions, Orders, assessments, fees
and expenses incident to any of the foregoing or incurred in
investigating or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnification.
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<PAGE>
(b) the foregoing agreement to indemnify shall be in addition
to any liability any Indemnitor (as hereinafter defined) may otherwise
have, including liabilities arising under this Agreement.
7.6 PROCEDURE FOR INDEMNIFICATION. Promptly after receipt by an
indemnified party under Article 7 of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party under this Article 7, give notice (each an
"Indemnification Notice") to the indemnifying party of the commencement thereof,
but the failure so to notify the indemnifying party shall not relieve it of any
liability that it may have to any indemnified party except to the extent the
indemnifying party demonstrates that the defense of such action is prejudiced
thereby. In case any such action shall be brought against an indemnified party
and it shall give an Indemnification Notice to the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and to the extent that it shall wish, to assume the defense thereof with
counsel satisfactory to such indemnified party and, after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under such Section for any fees of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation. If an
indemnifying party assumes the defense of such an action, (a) no compromise or
settlement thereof may be effected by the indemnifying party without the
indemnified party's consent (which shall not be unreasonably withheld) unless
(i) there is no finding or admission of any violation of law or any violation of
the rights of any Person and no effect on any other claims that may be made
against the indemnified party and (ii) the sole relief provided is monetary
damages that are paid in full by the indemnifying party and (b) the indemnifying
party shall have no liability with respect to any compromise or settlement
thereof effected without its consent (which shall not be unreasonably withheld).
If notice is given to an indemnifying party of the commencement of any action
and it does not, within ten days after the indemnified party's notice is given,
give notice to the indemnified party of its election to assume the defense
thereof, the indemnifying party shall be bound by any determination made in such
action or any compromise or settlement thereof effected by the indemnified
party. Notwithstanding the foregoing, if an indemnified party determines in good
faith that there is a reasonable probability that an action may adversely affect
it or its affiliates other than as a result of monetary damages, such
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise or settle such action, but the indemnifying party
shall not be bound by any determination of an action so defended or any
compromise or settlement thereof effected without its consent (which shall not
be unreasonably withheld).
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<PAGE>
7.7 ARBITRATION.
(a) It is understood and agreed between the parties hereto
that any and all claims, grievances, demands, controversies, causes of
action or disputes of any nature whatsoever (including, but not limited
to, tort and contract claims, and claims upon any law, statute, order
or regulation) (hereinafter "Transaction Claims") arising out of, in
connection with or in relation to (i) the interpretation, performance
or breach of this Agreement, (ii) the arbitrability of any Transaction
Claims under this Agreement, or (iii) any relationship before, at the
time of entering into, during the term of or upon or after expiration
or termination of this Agreement, between the parties hereto, shall be
resolved by final and binding arbitration administered by a single
arbitrator to be agreed upon by the parties or, if the parties cannot
agree upon an arbitrator within five (5) days, a single arbitrator
which shall be appointed by the American Arbitration Association (in
either case, the "Arbitrator").
(b) All Transaction Claims shall be filed before the
Arbitrator. Neither party nor the Arbitrator shall disclose the
existence, content or results of any arbitration hereunder without the
prior written consent of all parties. Except as provided herein, the
Federal Arbitration Act shall govern the interpretation, enforcement
and all proceedings pursuant to this Section 7.7. The Arbitrator shall
apply the substantive law (and the law of remedies, if applicable) of
the State of California, or federal law, or both, as applicable. The
Arbitrator is without jurisdiction to apply any different substantive
law. The Arbitrator shall have the authority to entertain a motion to
dismiss and/or a motion for summary judgment by any party and shall
apply the standards governing such motions under the Federal Rules of
Civil Procedure. The Arbitrator shall render an award and a written,
reasoned opinion in support thereof. Such award shall include
reasonable attorneys' fees to the prevailing party. Judgment upon the
award may be entered in any court having jurisdiction thereof.
(c) Adherence to this dispute resolution process shall not
limit the parties' rights to obtain any provisional remedy, including
without limitation, injunctive or similar relief, from any court of
competent jurisdiction as may be necessary to protect their rights and
interests. Notwithstanding the foregoing sentence, this dispute
resolution procedure is intended to be the exclusive method of
resolving any Transaction Claims arising out of or relating to this
Agreement.
(d) This dispute resolution process shall survive the
termination of this Agreement. If any provision in this Section 7.7 is
adjudged to be void or otherwise unenforceable, in whole or in part,
such adjudication shall not affect the validity of the remainder of
this Section. The parties expressly acknowledge that by signing this
Agreement, they are giving up their respective rights to a jury trial.
8. GENERAL PROVISIONS AND OTHER AGREEMENTS
8.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if and when delivered personally or sent by a
recognized next business day courier to the following persons at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to Parent:
New Visual Entertainment, Inc.
827 Brighton Court
San Diego, CA 92109
Attention: Ray Willenberg, Jr.
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<PAGE>
with a copy to:
Secore & Waller, L.L.P.
13355 Noel Road, Suite 2290
Dallas, Texas 75240
Attention: Matthew O. Haltom
(b) If to the Company:
New Wheel Technology, Inc.
1811 Santa Rita Road, #216
Pleasanton, California 94566
(c) If to the Shareholders:
Alan Blevins
1207 Soda Canyon Road
Napa, California 94558
Michael Shepperd
1811 Santa Rita Road, #216
Pleasanton, California 94566
with a copy to:
Hal Reiland, Esq.
Reiland & Reiland
4713 First Street, Suite 205
Pleasanton, CA 94566
8.2 FEES AND EXPENSES. Each of the Shareholders, the Company, Merger
Sub and Parent shall each pay all of its own fees, costs and expenses (including
without limitation, those of accountants and appraisers) incurred in connection
with or related to the preparation, negotiation, execution, delivery,
satisfaction, compliance and consummation of this Agreement and the Transactions
contemplated hereby and the closing conditions hereunder.
8.3 INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement. Terms such as "herein," "hereof," "hereinafter" refer to this
Agreement as a whole and not to the particular sentence or paragraph where they
appear, unless the context otherwise requires. Terms used in the plural include
the singular, and vice versa, unless the context otherwise requires.
8.4 COUNTERPARTS. This Agreement may be executed by facsimile in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
8.5 PARENT. Parent may, at its option, cause any wholly owned
subsidiary of Parent to perform each of the other obligations of Parent
hereunder upon written notice to such effect to the Company prior to Closing. No
such assignment shall relieve Parent of its obligations hereunder.
8.6 CONSENT OF SHEPPERD AND BLEVINS. By their execution of this
Agreement, Blevins and Shepperd, in their capacities as the Shareholders of New
Wheel Technology, Inc., consent and agree to each of the transactions
contemplated herein. To the extent that either Blevins or Shepperd has retained
any right, title or interest in the Technology, each hereby assigns such right,
title or interest to the Surviving Corporation.
8.7 MISCELLANEOUS. This Agreement (a) constitutes the entire agreement
and supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof; (b) is not intended to and shall not confer upon any other person any
rights or remedies hereunder or otherwise with respect to the subject matter
hereof, except for rights that may expressly arise as a consequence of the
Transactions; (c) may not be assigned by operation of law or otherwise; (d) has
been drafted by all of the parties to this Agreement and should not be construed
against any of the parties hereto; and (e) shall be governed in all respects,
including validity, interpretation and effect by the substantive laws of the
State of California without regard to conflict of law provisions.
8.8 INVALIDITY. In the event that any one or more of the provisions
contained in this Agreement or in any other document or instrument referred to
herein shall, for any reason, be held to be invalid, illegal or unenforceable in
any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such document or instrument.
8.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, notwithstanding the choice
of law principles thereof.
8.10 CONSTRUCTION. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
questions of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
8.11 FUTURE ACTIONS. Each of the Shareholders agree that at any time
and from time to time they will promptly execute and deliver to Parent all
further instruments and documents and take all further action that may be
reasonably necessary, or that Parent may reasonably request, in order to carry
out the purpose and intent of this Agreement and the Operative Documents.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers.
NEW VISUAL ENTERTAINMENT, INC.
By: /S/ RAY WILLENBERG, JR.
-------------------------------
Name: Ray Willenberg, Jr.
Title: President
ASTOUNDING ACQUISITION CORPORATION
By: /S/ RAY WILLENBERG, JR.
-------------------------------
Name: Ray Willenberg, Jr.
Title: President
NEW WHEEL TECHNOLOGY, INC.
By: /S/ ALLAN BLEVINS
-------------------------------
Name: Allan Blevins
Title: President
/S/ ALLAN BLEVINS
------------------------------------
ALLAN BLEVINS, Individually
/S/ MICHAEL SHEPPERD
-------------------------------------
MICHAEL SHEPPERD, Individually
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