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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): November 30, 2018
DIGITAL LOCATIONS, INC. |
(Exact name of registrant as specified in its charter) |
Nevada |
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000-54817 |
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20-5451302 |
(State or other jurisdiction of incorporation or organization) |
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(Commission File Number) |
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IRS Employer Identification No.) |
3700 State Street, Suite 350, Santa Santa Barbara, CA |
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93105 |
(Address of Principal Executive Offices) |
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(Zip Code) |
(805) 456-7000
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter)
Emerging Growth Company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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Item 1.01 Entry Into a Material Definitive Agreement.
Agreement and Plan of Merger with EllisLab Corp. and EllisLab, Inc.
On November 30, 2018, Digital Locations, Inc., a Nevada corporation (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 isused 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 share of EllisLab that was issued and outstanding immediately prior to the Effective Time was converted, on a prorata basis, into validly issued, fully paid and nonassessable shares of Series C Preferred Stock representing their pro rata interest in 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 - 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 - 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 this Current Report on Form 8-K and is incorporated herein by reference.
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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 this Current Report on Form 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 this Current Report on Form 8-K and is incorporated herein by reference.
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Item 3.02 Unregistered Sales of Equity Securities.
The information set forth in Item 1.01 is incorporated by reference herein.
On November 30, 2018, the Company issued an aggregate of 36,000 shares of Series C Preferred Stock pursuant to the terms of the Plan of Merger which is described in Item 1.01, which is incorporated by reference, in its entirety, into this Item 3.02. Issuance of the Series C Preferred Stock pursuant to the Plan of Merger was not registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state. These securities were offered and issued in reliance upon the exemption from registration under the Securities Act, afforded by Section 4(a)(2).
In connection with and pursuant to the Merger Agreement, the Company issued an option to purchase 100,000,000 shares of the Common stock of the Company to Derek Jones (the “Optionee”), 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.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
The information set forth in Item 1.01 is incorporated by reference herein.
Pursuant to the Plan of Merger, dated as of November 30, 2018, effective upon the Closing, Rick Ellis was appointed as a director of the Company to serve on the Company’s Board of Directors. Except with respect to the Merger Agreement and the transactions described there in, Mr. Ellis has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
The information set forth in Item 1.01 is incorporated by reference herein.
Certificate of Designation of Series C Preferred Stock
On November 30, 2018, the Company filed the Certificate of Designation of Series C Preferred Stock (the “Series C Certificate of Designation”) with the Secretary of State of the State of Nevada, setting forth the terms of the Series C Preferred Stock. A copy of the Series C Certificate of Designation is appended as Exhibit 4.1 to this Current Report on Form 8-K and is incorporated herein by reference. The foregoing does not purport to be a complete description of the Series C Certificate of Designation and is qualified in its entirety by reference to the full text of the Series C Certificate of Designation.
Item 7.01. Regulation FD Disclosure.
A copy of the press release issued by the Company on December 3, 2018 announcing the completion of the Merger and the Purchase are furnished as Exhibit 99.1 hereto.
The foregoing information in this Item 7.01 (including Exhibit 99.1 hereto) is being furnished under “Item 7.01 Regulation FD Disclosure.” Such information (including Exhibit 99.1 hereto) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act”), nor shall it be deemed incorporated by reference in any filing under the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
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Item 9.01. Financial Statements and Exhibits.
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Financial Statements of Businesses Acquired. |
The Company will file an amendment to this Current Report on Form 8-K containing the financial statements required by Item 9.01(a) not later than seventy-one calendar days after the date that this Current Report on Form 8-K was required to be filed.
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Pro Forma Financial Information. |
The Company will file an amendment to this Current Report on Form 8-K containing the pro forma financial information required by Item 9.01(b) not later than seventy-one calendar days after the date that this Current Report on Form 8-K was required to be filed.
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Exhibits. |
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Certificate of Designation of Series C Convertible Preferred Stock of Digital Locations, Inc. |
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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 thereunto duly authorized.
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DIGITAL LOCATIONS, INC. |
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Date: December 3, 2018 |
By: |
/s/ William E. Beifuss, Jr . |
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Name: |
William E. Beifuss, Jr. |
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Title: |
President |
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the “Agreement”) is made and entered into as of November 30, 2018 by and among EllisLab, Inc., an Oregon corporation (“EllisLab” or the “Seller”), Rick Ellis (“EllisLab Shareholder”), Digital Locations, Inc., a Nevada corporation (the “Buyer” or “Company”), and EllisLab Corp., a Nevada corporation (“Merger Sub”). The Seller, EllisLab Shareholder, Buyer, and Merger Sub are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”
RECITALS
WHEREAS, the EllisLab Shareholder owns 100% of the common stock of Seller;
WHEREAS, Derek Jones (“Jones”) holds an option (the “Jones EllisLab Option”) to purchase 10% of the shares of outstanding common stock of Seller;
WHEREAS, Seller is engaged in the business of providing content management software (the “Business”);
WHEREAS, the Board of Directors of Seller and the Board of Directors of the Merger Sub and Company have determined that an acquisition of Seller by the Buyer is advisable, fair to and in the best interests of their respective companies and stockholders and, accordingly, have each approved the merger of Seller with and into Merger Sub (the “Merger”) upon the terms and subject to the conditions set forth herein and in the Articles of Merger which will be filed with the Secretary of State of the State of Oregon, attached hereto as Exhibit A and the Articles of Merger which will be filed with the Secretary of State of Nevada (“Articles of Merger”), attached hereto as Exhibit B;
WHEREAS, the Parties hereto intend that the reorganization contemplated by this Merger Agreement shall constitute a tax- free reorganization pursuant to Section 368 of the Internal Revenue Code.
AGREEMENT
NOW, THEREFORE , for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by the Parties to this Agreement, and in light of the above recitals to this Agreement, the Parties to this Agreement hereby agree as follows:
1. The Merger.
1.1 The Merger . Subject to the terms and conditions of this Agreement and the Articles of Merger, Seller shall be merged with and into Merger Sub in accordance with applicable provisions of Nevada law and Oregon law. At the Effective Time (as defined below), the separate legal existence of Seller shall cease, and Merger Sub shall be the surviving company in the Merger (sometimes hereinafter referred to as the “ Surviving Company ”).
1.2 Effective Time . The Merger shall become effective upon the filing of the Articles of Merger with the Secretary of State of the State of Nevada and the Articles of Merger with the Secretary of State of Oregon in accordance with applicable law. The time at which the Merger shall become effective as aforesaid is referred to hereinafter as the “Effective Time.”
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1.3 Merger Consideration . The aggregate consideration to be paid by the Buyer to the EllisLab Shareholder in exchange for and in cancellation of their stockholdings in the Seller as a result of the Merger shall be Three Million Sixty Hundred Thousand Dollars ($3,600,000) paid in the form of Thirty Six Thousand (36,000) shares (the “Stock Consideration”) of the Company’s Series C Convertible Preferred Stock (the “Series C Preferred Stock”), with a stated value of $100 per share, which shall have the rights, preferences and privileges as set forth in a Certificate of Designation, in the form attached hereto as Exhibit C (the “Certificate of Designation”), to be filed with the Nevada Secretary of State on or prior to the Effective Time. Each one (1) share of Series C Preferred Stock is convertible into Twenty Thousand (20,000) shares of the Common Stock of the Buyer, subject to the conversion limitation and adjustments set forth in the Certificate of Designation. With respect to the public resale of the Common Stock, the EllisLab Shareholder shall at all times be subject to the restrictions, conditions and requirements applicable to an affiliate of the Buyer, as described in Rule 144 of the Securities Act of 1933, as amended, even if the EllisLab Shareholder or their assignees and successors are not affiliates of the Buyer under the rules and regulations of the Securities and Exchange Commission.
1.4 Conversion of Seller’s Stockholdings . At the Effective Time of the Merger, automatically by virtue of the Merger and without any action on the part of any Person, each share of common stock of the Seller that is issued and outstanding immediately prior to the Effective Time shall by virtue of the Merger shall be converted, on a prorata basis, into validly issued, fully paid and nonassessable shares of Series C Preferred Stock and the Buyer shall issue the EllisLab Shareholder shares of its Series C Preferred Stock in the amounts set forth on Schedule 1.4 attached hereto. Certificates representing the Stock Consideration shall be delivered to the EllisLab Shareholder no later than ten days after the Effective Time of the Merger pursuant to the terms of this Agreement and upon surrender of certificates or other evidence of their ownership interest in Seller. The Jones EllisLab Option shall be surrendered and delivered to the Buyer and shall be void and in exchange for the Jones EllisLab Option Buyer shall issue to Jones an option to purchase 100,000,000 shares of Buyer’s common stock in the form of Exhibit D .
1.5 Articles of Incorporation and Bylaws; Officers and Directors .
(a) At the Effective Time, by virtue of the Merger and without any action on the part of any Party, the Articles of Incorporation of the Surviving Company shall be the Articles of Incorporation of the Merger Sub immediately prior to the Effective Time.
(b) At the Effective Time, by virtue of the Merger and without any action on the part of any Party, the Bylaws of the Surviving Company shall be the Bylaws of the Merger Sub immediately prior to the Effective Time.
1.6 Assets and Liabilities . At the Effective Time, the Surviving Company shall possess all the rights, privileges, powers and franchises of a public as well as of a private nature, and be subject to all the restrictions, disabilities and duties of each of Merger Sub (collectively, the “Constituent Corporations”); and all the rights, privileges, powers and franchises of each of the Constituent Corporations, and all property, real, personal and mixed, and all debts due to any of the Constituent Corporations on whatever account, as well as all other things in action or belonging to each of the Constituent Corporations, shall be vested in the Surviving Company; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectively the property of the Surviving Company as they were of the several and respective Constituent Corporations, and the title to any real estate vested by deed or otherwise in either of such Constituent Corporations shall not revert or be in any way impaired by the Merger; but all rights of creditors and all liens upon any property of any of the Constituent Corporations shall be preserved unimpaired, and all debts, liabilities and duties of the Constituent Corporations shall thenceforth attach to the Surviving Company, and may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by it.
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2. Other Covenants .
2.1 Covenant Not to Compete . As a material inducement for Buyer to enter into this Agreement, the EllisLab Shareholder covenants and agrees that for a period of two (2) years following the Effective Time (the “Non-Competition Period”), he shall not, directly or indirectly own, manage, operate, participate in, produce, represent, distribute and/or otherwise act on behalf of any person, firm, corporation, partnership or other entity which involves in the sale and marketing of content management software systems (the “Competitive Business”) anywhere in the world (collectively, the “Territory”); or hire any employee or former employee of Buyer, the Surviving Company, or Seller to perform services in or involving the Competitive Business, unless the individual hired shall have departed Buyer’s, the Surviving Company’s or Seller’s employment at least twelve (12) months prior to the hiring. The EllisLab Shareholder may hire a former employee within (12) months of former employees’ employment upon written consent of the Company. The EllisLab Shareholder further covenants and agrees that during the Non-Competition Period, he will not directly or indirectly solicit or agree to service for their benefit or the benefit of any third-party, any of Seller’s, Buyer’s, or the Surviving Company’s customers. Notwithstanding the foregoing, nothing in this Section 2.1 shall prohibit the EllisLab Shareholder from owning, managing, operating, participating in the operation of, or advising, consulting or being employed by any entity that is not involved in the Competitive Business, as long as such activities do not affect any responsibilities of employment or consultation at the Company or its subsidiaries, including the Surviving Company. The EllisLab Shareholder acknowledges and agrees that Buyer will expend substantial time, talent, effort and money in marketing, promoting, managing, selling and otherwise exploiting the businesses Buyer and the Surviving Company operate, in part by virtue of Buyer’s acquisition of Seller pursuant to this Agreement, that the EllisLab Shareholder is the only shareholder of Seller, that he are receiving a substantial benefit from the transactions contemplated hereunder and that the benefit received by Buyer and the EllisLab Shareholder in agreeing to be bound by this Section 2.1 are a material part of the consideration for the transactions contemplated by this Agreement. The Parties recognize that this Section 2.1 contains conditions, covenants, and time limitations that are reasonably required for the protection of the business of the Surviving Company and Buyer. If any limitation, covenant or condition shall be deemed to be unreasonable and unenforceable by a court or arbitrator of competent jurisdiction, then this Section 2.1 shall thereupon be deemed to be amended to provide modification of such limitation, covenant and/or condition to such extent as the court or arbitrator (as applicable) shall find to be reasonable and such modification shall not affect the remainder of this Agreement. The EllisLab Shareholder acknowledges that, in the event the EllisLab Shareholder breaches this Agreement, money damages will not be adequate to compensate Buyer for the loss occasioned by such breach. The EllisLab Shareholder therefore consents, in the event of such a breach, to the granting of injunctive or other equitable relief against the EllisLab Shareholder by any court of competent jurisdiction.
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2.2 Lockup of Stock Consideration . For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, during the period beginning on the Effective Time and ending on the twenty-four (24) month anniversary thereof (the “Lockup Period”), 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 announce any offer, sale, offer of sale, contract of sale, hedge, pledge, sale of any option or contract to purchase, purchase of any option or contract of sale, grant of any option, right or warrant to purchase or other sale or disposition), or otherwise transfer or dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future), any portion of the Stock Consideration, or any shares of the Company’s common stock underlying the Stock Consideration (collectively the “Lock-Up Securities”), beneficially owned, within the meaning of Rule 13d-3 under the Exchange Act, 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, whether or not any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of any of the Lock-Up Securities”).
2.3 Cooperation on Tax Matters . The Parties acknowledge and agree that they intend for the transactions set forth in this Agreement to be treated as a tax-free reorganization under IRC § 368. From and after the date of this Agreement, each party shall cooperate fully, as and to the extent reasonably requested by any other party, in connection with the preparation of tax returns, forms and/or documents necessary to ensure that the transactions set forth in this Agreement are treated as a tax-free reorganization under IRC § 368.
2.4 Board of Directors of Digital Locations, Inc . At or prior to the Closing, to be effective on the Closing, the Parties will execute all documents, resolutions, appointments and acceptances in order to cause the appointment of Rick Ellis to the Board of Directors of Digital Locations, Inc. for so long as any shares of the Series C Preferred Stock are issued and outstanding.
3. Closing and Further Acts .
3.1 Time and Place of Closing . Upon satisfaction or waiver of the conditions set forth in this Agreement, the closing of the Transaction (the “Closing”) will take place in Santa Barbara, California at 11:00 a.m. (local time) on the date that the Parties may mutually agree in writing, but in no event later than November 30, 2018 (the “Closing Date”), unless extended by mutual written agreement of the Parties.
3.2 Actions at Closing . At the Closing, the following actions will take place:
(a) Within ten days of the Effective Date and upon the surrender of the EllisLab Shareholders stock certificate representing 100% of issued and outstanding shares of Seller, along with an executed stock power. Buyer will deliver to the EllisLab Shareholder a certificate representing the Stock Consideration as set forth on the attached Schedule 3.2 .
(b) The Parties shall execute and deliver for filing the Articles of Merger for Oregon and Nevada upon the Closing.
(c) Seller will deliver to Buyer copies of necessary resolutions of the EllisLab Shareholder of the Seller authorizing the execution, delivery, and performance of this Agreement and the other agreements contemplated by this Agreement, which resolutions have been certified by an officer or other authorized person of the Seller as being valid and in full force and effect.
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(d) Buyer will deliver to Seller copies of corporate resolutions of the Board of Directors of Buyer authorizing the execution, delivery and performance of this Agreement and the other agreements contemplated by this Agreement, which resolutions have been certified by an officer of Buyer as being valid and in full force and effect.
(e) Seller will deliver to the Buyer true and complete copies of Seller’s Articles of Incorporation, Bylaws and a Certificate of Existence from the Secretary of State of the State of Oregon, which articles and certificate of good standing are dated not more than five (5) days prior to the Closing Date.
(f) Delivery of any additional documents or instruments as a party may reasonably request or as may be necessary to evidence and effect the Merger.
(g) The EllisLab Shareholder will deliver to the Company a certificates representing 100% of the stockholdings of the Seller, along with appropriately endorsed stock powers.
(h) Seller will deliver to Seller copies of corporate resolutions of the Board of Directors of Seller authorizing the execution, delivery and performance of this Agreement and the other agreements contemplated by this Agreement, which resolutions have been certified by an officer of Seller as being valid and in full force and effect.
3.3 Actions Pre-Closing . Seller and the EllisLab Shareholder will at all times prior to and after the Closing cooperate fully with Buyer and Buyer’s officers, directors, representatives, accountants and lawyers to enable Buyer to conduct thorough due diligence of the Seller and to enable Seller to prepare all financial statements deemed necessary by Buyer to comply with all of its reporting obligations with the Securities and Exchange Commission, including without limitation the preparation and filing of a report on Form 8-K within four (4) business days after the Closing.
3.4 Actions Post Closing . The EllisLab Shareholder will at all times after the Closing cooperate fully with Buyer and Buyer’s officers, directors, representatives, accountants and lawyers to complete the preparation of all financial statements of Seller deemed necessary or appropriate by Buyer, and to enable Buyer to comply with all of its reporting obligations with the Securities and Exchange Commission.
4. Representations and Warranties of the EllisLab Shareholder and Seller .
Except as set forth on the Disclosure Schedules, attached hereto as Exhibit E , the EllisLab Shareholder and Seller represent and warrant, jointly and severally, as of the date hereof, to Buyer as follows:
4.1 Power and Authority; Binding Nature of Agreement . The EllisLab Shareholder and Seller have full power and authority to enter into this Agreement and to perform their obligations hereunder. The execution, delivery, and performance of this Agreement by Seller has been duly authorized by all necessary action on its part. Assuming that this Agreement is a valid and binding obligation of each of the other Parties hereto, this Agreement is a valid and binding obligation of the EllisLab Shareholder and Seller, except as may be limited by bankruptcy, moratorium, insolvency or other similar laws generally affecting the enforcement of creditors’ rights, and the effect or availability of rules of law governing specific performance, injunctive relief or other equitable remedies (regardless of whether any such remedy is considered in a proceeding at law or in equity). The execution and delivery of this Agreement, by Seller and the consummation by Seller of the transactions contemplated hereby, including the Merger, have been duly and validly authorized by the board of directors of the Seller and the holder of all the issued and outstanding shares of shares of stock of Seller entitled to vote and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated hereby or to perform its obligations hereunder. The EllisLab Shareholder is the sole stockholders of the Seller and owns 100% of the issued and outstanding shares of the Seller free of any liens, charges, encumbrances or restrictions.
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4.2 Subsidiaries . There is no corporation, general partnership limited partnership, joint venture, association, trust or other entity or organization that Seller directly or indirectly controls or in which Seller directly or indirectly owns any equity or other interest.
4.3 Good Standing . Seller (i) is duly organized, validly existing and in good standing under the laws of the State of Oregon, (ii) has all necessary power and authority to own its assets and to conduct its business as it is currently being conducted, and (iii) to the knowledge of Seller and the EllisLab Shareholder, is duly qualified or licensed to do business and is in good standing in every jurisdiction (both domestic and foreign) where such qualification or licensing is required.
4.4 Financial Statements . Seller has delivered to Buyer the following unaudited financial statements, if applicable, prior to the Closing (the “Seller Financial Statements”): the unaudited statement of operations and balance sheet of Seller from inception through September 30, 2018. Except as stated therein or in the notes thereto, the Seller Financial Statements: (a) present fairly the financial position of Seller as of the respective dates thereof and the results of operations and changes in financial position of Seller for the respective periods covered thereby; and (b) have been prepared in accordance with Seller’s normal business practices applied on a consistent basis throughout the periods covered. Seller will cooperate with Buyer with respect to the preparation of the following audited financial statements, if applicable, prior to the Closing: (i) the audited statement of operations and statement of cash flows for the years ended December 2016 and December 31, 2017. Seller will cooperate with the Buyer with respect to the auditors’ review of unaudited financial statements for the quarters ended March 21, 2017 and March 31, 2018, June 30, 2017 and June 30, 2018 and September 30, 2017 and September 30, 2018. All financial statements shall be prepared in accordance with generally accepted accounting principles, consistently applied. The Seller had revenue of at least $962,690 for the year ended December 31, 2016 and net income of at least $76,297 for the year ended December 31, 2016. Revenue for the year ended December 31, 2017 shall be at least $822,992 and net income shall be at least $142,543.
4.5 Capitalization . The authorized capital structure of Seller consists of Ninety Thousand (90,000) shares of common stock. Except for the Jones EllisLab Option or disclosed on Schedule 4.5, no other shares of common stock of Seller are issued, reserved for issuance or outstanding. All outstanding securities of Seller are duly authorized, validly issued, fully paid and non-assessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the applicable corporate laws of its state of formation, the Seller’s Articles of Incorporation or Bylaws or any contract to which Seller is a party or otherwise bound. There are no bonds, debentures, notes or other indebtedness of Seller having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of common stock may vote (“Voting Company Debt”). Except as otherwise set forth herein or disclosed on Schedule 4.5, as of the date of this Agreement, there are no options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, contracts, arrangements or undertakings of any kind to which Seller is a party or by which Seller is bound (i) obligating Seller to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares or other equity interests in, or any security convertible or exercisable for or exchangeable into any shares or other equity interest in, the Company or any Voting Company Debt, (ii) obligating Seller to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, contract, arrangement or undertaking or (iii) that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights occurring to holders of stockholdings of Seller.
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4.6 Absence of Changes . Except as otherwise set forth on Schedule 4.6 hereto or otherwise disclosed to and acknowledged by Buyer in writing prior to the Closing, since September 30, 2018:
(a) There has not been any material adverse change in the business, condition, assets, operations or prospects of Seller and no event has occurred that is reasonably likely to have a material adverse effect on the business, condition, assets, operations or prospects of Seller.
(b) Seller has not repurchased, redeemed or otherwise reacquired any of its stockholdings or other securities.
(c) Seller has not sold or otherwise issued any of its shares of common stock.
(d) Seller has not amended its articles of incorporation, bylaws or other charter or organizational documents, nor has it effected or been a party to any merger, recapitalization, reorganization or similar transaction.
(e) Seller has not formed any subsidiary or contributed any funds or other assets to any subsidiary.
(f) Seller has not purchased or otherwise acquired any material assets, nor has it leased any assets from any other person, except in the ordinary course of business consistent with past practice.
(g) Seller has not made any capital expenditure outside the ordinary course of business or inconsistent with past practice.
(h) Seller has not sold or otherwise transferred any material assets to any other person, except in the ordinary course of business consistent with past practice and at a price equal to the fair market value of the assets transferred.
(i) There has not been any material loss, damage or destruction to any of the material properties or Assets of Seller (whether or not covered by insurance).
(j) Seller has not written off as uncollectible any indebtedness or accounts receivable, except for write offs that were made in the ordinary course of business consistent with past practice.
(k) Seller has not leased any assets to any other person except in the ordinary course of business consistent with past practice and at a rental rate equal to the fair rental value of the leased assets.
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(l) Seller has not mortgaged, pledged, hypothecated or otherwise encumbered any assets, except in the ordinary course of business consistent with past practice.
(m) Seller has not entered into any contract, or incurred any debt, liability or other obligation (whether absolute, accrued, contingent or otherwise), except for (i) contracts that were entered into in the ordinary course of business consistent with past practice and that have terms of less than six (6) months and do not contemplate payments by or to Seller which will exceed, over the term of the contract, ten thousand dollars ($10,000) in the aggregate, and (ii) current liabilities incurred in the ordinary course of business consistent with the past practice.
(n) Seller has not made any loan or advance to any other person, except for advances that have been made to customers in the ordinary course of business consistent with past practice and that have been properly reflected as “accounts receivables.”
(o) Other than annual raises or bonuses paid or provided consistent with past business practices and not exceeding $2,500.
(p) Seller has not paid any bonus to, or increased the amount of the salary, fringe benefits or other compensation or remuneration payable to, any of the managers, officers or employees of Seller.
(q) No contract or other instrument to which Seller is or was a party or by which Seller or any of its assets are or were bound has been amended or terminated, except in the ordinary course of business consistent with past practice.
(r) Seller has not discharged any lien or discharged or paid any indebtedness, liability or other obligation, except for current liabilities that (i) are reflected in the Seller Financial Statements as of September 30, 2018 or have been incurred since September 30, 2018 in the ordinary course of business consistent with past practice, and (ii) have been discharged or paid in the ordinary course of business consistent with past practice.
(s) Seller has not forgiven any debt or otherwise released or waived any right or claim, except in the ordinary course of business consistent with past practice.
(t) Seller has not changed its methods of accounting or its accounting practices in any respect.
(u) Seller has not entered into any transaction outside the ordinary course of business or inconsistent with past practice.
(v) Seller has not agreed or committed (orally or in writing) to do any of the things described in clauses (b) through (t) of this Section 4.6.
4.7 Absence of Undisclosed Liabilities . Seller has no debt, liability or other obligation of any nature (whether due or to become due and whether absolute, accrued, contingent or otherwise) that is not reflected or reserved against in the Seller Financial Statements as of September 30, 2018, except for obligations incurred since inception in the ordinary and usual course of business consistent with past practice.
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4.8 Seller Assets .
(a) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not result in a breach of the terms and conditions of, or result in a loss of rights under, or result in the creation of any lien, charge or encumbrance upon, any of its assets (the “Assets”).
(b) Seller has good and marketable title to the Assets, free and clear of all mortgages, liens, leases, pledges, charges, encumbrances, equities or claims, except as expressly disclosed in writing by Seller to Buyer prior to the Closing Date.
(c) Except as reflected in Schedule 4.8, the Seller Financial Statements, the Assets are not subject to any material liability, absolute or contingent, which has not been disclosed by Seller to and acknowledged by Buyer in writing prior to the Closing Date.
(d) The EllisLab Shareholder has provided to Buyer in writing an accurate description of all of the assets of Seller or used in the business of Seller.
(e) Seller has provided to Buyer in writing a list of all contracts, agreements, licenses, leases, arrangements, commitments and other undertakings to which Seller is a party or by which it or its property is bound. Except as specified by Seller to and acknowledged by Buyer in writing prior to the Closing Date, all of such contracts, agreements, leases, licenses and commitments are valid, binding and in full force and effect. As soon as practicable after the execution of this Agreement by all Parties, Seller will provide Buyer with copies of all such documents for Buyer’s review.
4.9 Compliance with Laws; Licenses and Permits . To the knowledge of Seller and the EllisLab Shareholder, Seller is not in violation of, nor has it failed to conduct its business in material compliance with, any applicable federal, state, local or foreign laws, regulations, rules, treaties, rulings, orders, directives or decrees. Seller has delivered to Buyer a complete and accurate list and provided Buyer with the right to inspect true and complete copies of all of the licenses, permits, authorizations and franchises to which Seller is subject and all said licenses, permits, authorizations and franchises are valid and in full force and effect. Said licenses, permits, authorizations and franchises constitute all of the licenses, permits, authorizations and franchises reasonably necessary to permit Seller to conduct its business in the manner in which it is now being conducted, and Seller is not in violation or breach of any of the terms, requirements or conditions of any of said licenses, permits, authorizations or franchises.
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4.10 Taxes . Except as disclosed herein, Seller has accurately and completely filed with the appropriate United States state, local and foreign governmental agencies all tax returns and reports required to be filed (subject to permitted extensions applicable to such filings), and has paid or accrued in full all taxes, duties, charges, withholding obligations and other governmental liabilities as well as any interest, penalties, assessments or deficiencies, if any, due to, or claimed to be due by, any governmental authority (including taxes on properties, income, franchises, licenses, sales and payroll). (All such items are collectively referred to herein as “Taxes”). The Seller Financial Statements fully accrue or reserve all current and deferred taxes. Seller is not a party to any pending action or proceeding, nor is any such action or proceeding threatened by any governmental authority for the assessment or collection of Taxes. No liability for taxes has been incurred other than in the ordinary course of business. There are no liens for Taxes except for liens for property taxes not yet delinquent. Seller is not a party to any Tax sharing, Tax allocation, Tax indemnity or statute of limitations extension or waiver agreement and in the past year has not been included on any consolidated combined or unitary return with any entity other than Seller. Seller has duly withheld from each payment made to each person from whom such withholding is required by law the amount of all Taxes or other sums (including but not limited to United States federal income taxes, any applicable state or municipal income tax, disability tax, unemployment insurance contribution and Federal Insurance Contribution Act taxes) required to be withheld therefore and has paid the same to the proper tax authorities prior to the due date thereof. To the extent any Taxes withheld by Seller have not been paid as of the Closing Date because such Taxes were not yet due, such Taxes will be paid to the proper tax authorities in a timely manner. All Tax returns filed by Seller are accurate and comply with and were prepared in accordance with applicable statutes and regulations. The EllisLab Shareholder and Seller will cause Seller to prepare and file all Tax returns and pay all Taxes required prior to the Closing. Such Tax returns will be subject to review and approval by Buyer, which approval will not be unreasonably withheld.
4.11 Environmental Compliance Matters . Seller has at all relevant times with respect to the Business or otherwise been in material compliance with all environmental laws, and has received no potentially responsible party notices or similar notices from any governmental agencies or private parties concerning releases or threatened releases of any “hazardous substance” as that term is defined under 42 U.S.C. 960(1) (14).
4.12 Compensation . Seller has provided Buyer with a full and complete list of all officers, managers, employees and consultants of Seller as of the date hereof, specifying their names and job designations, their respective current wages, salaries or other forms of direct compensation, and the basis of such compensation, whether fixed or commission or a combination thereof.
4.13 No Default .
(a) To the knowledge of Seller and the EllisLab Shareholder, each of the contracts, agreements or other instruments of Seller and each of the standard customer agreements or contracts of Seller is a legal, binding and enforceable obligation by or against Seller, subject to the effect of applicable bankruptcy, insolvency, reorganization, moratorium or other similar federal or state laws affecting the rights of creditors and the effect or availability of rules of law governing specific performance, injunctive relief or other equitable remedies (regardless of whether any such remedy is considered in a proceeding at law or in equity). To the knowledge of Seller and the Ellis Shareholder, no party with whom Seller has an agreement or contract is in default there under or has breached any terms or provisions thereof which is material to the conduct of Seller’s business.
(b) Seller has performed or is now performing the obligations of, and, Seller is not in material default (or would by the elapse of time and/or the giving of notice be in material default) in respect of, any contract, agreement or commitment binding upon it or its assets or properties and material to the conduct of its business. No third party has raised any claim, dispute or controversy with respect to any of the executed contracts of Seller, nor has Seller received notice of warning of alleged nonperformance, delay in delivery or other noncompliance by Seller with respect to its obligations under any of those contracts, nor are there any facts which exist indicating that any of those contracts may be totally or partially terminated or suspended by the other Parties thereto.
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4.14 Product Warranties . Except as otherwise disclosed to and acknowledged by Buyer in the form of a written disclosure schedule prior to the Closing and for warranties under applicable law, (a) there are no warranties, express or implied, written or oral, with respect to the products or projects of Seller, (b) there are no pending or threatened claims with respect to any such warranty and (c) Seller has no, and after the Closing Date, will have no, liability with respect to any such warranty, whether known or unknown, absolute, accrued, contingent, or otherwise and whether due or to become due, other than customary returns in the ordinary course of business that are fully reserved against in the Seller Financial Statements.
4.15 Proprietary Rights .
(a) Seller has provided Buyer in writing a complete and accurate list and provided Buyer with the right to inspect true and complete copies of all software, patents and applications for patents, trademarks, trade names, service marks, and copyrights, and applications therefore, owned or used by Seller or in which it has any rights or licenses, except for software used by Seller and generally available on the commercial market. Seller has provided Buyer with a complete and accurate description of all agreements or provided Buyer with the right to inspect true and complete copies of all agreements of Seller with each officer, employee or consultant of Seller providing Seller with title and ownership to patents, patent applications, trade secrets and inventions developed or used by Seller in its business. All of such agreements are valid, enforceable and legally binding, subject to the effect or availability of rules of law governing specific performance, injunctive relief or other equitable remedies (regardless of whether any such remedy is considered in a proceeding at law or in equity).
(b) Seller owns or possesses licenses or other rights to use all computer software, software programs, patents, patent applications, trademarks, trademark applications, trade secrets, service marks, trade names, copyrights, inventions, drawings, designs, customer lists, propriety know-how or information, or other rights with respect thereto (collectively referred to as “Proprietary Rights”), used in the business of Seller, and the same are sufficient to conduct Seller’s business as it has been and is now being conducted.
(c) To the knowledge of Seller and the EllisLab Shareholder, the operations of Seller do not conflict with or infringe, and no one has asserted to Seller that such operations conflict with or infringe on any Proprietary Rights owned, possessed or used by any third party. There are no claims, disputes, actions, proceedings, suits or appeal pending against Seller with respect to any Proprietary Rights, and none has been threatened against Seller. There are no facts or alleged fact which would reasonably serve as a basis for any claim that Seller does not have the right to use, free of any rights or claims of others, all Proprietary Rights in the development, manufacture, use, sale or other disposition of any or all products or services presently being used, furnished or sold in the conduct of the business of Seller as it has been and is now being conducted.
(d) To the knowledge of Seller and the EllisLab Shareholder, no current employee of Seller is in violation of any term of any employment contract, proprietary information and inventions agreement, non-competition agreement, or any other contract or agreement relating to the relationship of any such employee with Seller or any previous employer.
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4.16 Insurance . Seller has provided Buyer with complete and accurate copies of all policies of insurance and provided Buyer with the right to inspect true and complete copies of all policies of insurance to which Seller is a party or is a beneficiary or named insured as of the Closing Date. Seller has in full force and effect, with all premiums due thereon paid the policies of insurance set forth therein. There were no claims in excess of $5,000 asserted or currently outstanding under any of the insurance policies of Seller in respect of all motor vehicle, general liability, since inception.
4.17 Labor Relations . None of the employees of Seller are represented by any union or are parties to any collective bargaining arrangement, and, to the knowledge of Seller, no attempts are being made to organize or unionize any of Seller’s employees. Except as disclosed in writing to Buyer prior to the Closing, to the knowledge of Seller, there is not presently pending or existing, and there is not presently threatened, any material (a) strike, slowdown, picketing, work stoppage or employee grievance process, or (b) action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) against or affecting Seller relating to the alleged violation of any legal requirement pertaining to labor relations or employment matters. Seller is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment, wages and hours, occupational safety and health and is not engaged in any unfair labor practices. To the knowledge of Seller and the EllisLab Shareholder, Seller is in compliance with the Immigration Reform and Control Act of 1986. Except as disclosed in Schedule 4.17, Seller has no employment agreements.
4.18 Condition of Premises . All real property leased by Seller is in good condition and repair, ordinary wear and tear excepted.
4.19 No Distributor Agreements . Except as disclosed to and acknowledged by Buyer in writing prior to the Closing, Seller is not a party to, nor is the property of Seller bound by, any distributors’ or manufacturer’s representative or agency agreement.
4.20 Conflict of Interest Transactions . No past or present shareholder, director, officer or employee of Seller or any of their affiliates (i) is indebted to, or has any financial, business or contractual relationship or arrangement with Seller, or (ii) has any direct or indirect interest in any property, asset or right which is owned or used by Seller or pertains to the business of Seller .
4.21 Litigation . There is no action, suit, proceeding, dispute, litigation, claim, complaint or, to the knowledge of Seller and the EllisLab Shareholder, investigation by or before any court, tribunal, governmental body, governmental agency or arbitrator pending or threatened against or with respect to Seller which (i) if adversely determined would have a material adverse effect on the business, condition, assets, operations or prospects of Seller, or (ii) challenges or would challenge any of the actions required to be taken by Seller under this Agreement. There exists no basis for any such action, suit, proceeding, dispute, litigation, claim, complaint or investigation.
4.22 Non-Contravention . Neither (a) the execution and delivery of this Agreement, nor (b) the performance of this Agreement will: (i) contravene or result in a violation of any of the provisions of Articles of Incorporation or Bylaws of Seller; (ii) contravene or result in a violation of any resolution adopted by the shareholders or directors of Seller; (iii) result in a violation or breach of, or give any person the right to declare (whether with or without notice or lapse of time) a default under or to terminate, any material agreement or other instrument to which Seller or the EllisLab Shareholder is a party or by which Seller or any of its assets are bound; (iv) give any person the right to accelerate the maturity of any indebtedness or other obligation of Seller; (v) result in the loss of any license or other contractual right of Seller; (vi) result in the loss of, or in a violation of any of the terms, provisions or conditions of, any governmental license, permit, authorization or franchise of Seller; (vii) result in the creation or imposition of any lien, charge, encumbrance or restriction on any of the assets of Seller; (viii) result in the reassessment or revaluation of any property of Seller by any taxing authority or other governmental authority; (ix) result in the imposition of, or subject Seller to any liability for, any conveyance or transfer tax or any similar tax; or (x) result in a violation of any law, rule, regulation, treaty, ruling, directive, order, arbitration award, judgment or decree to which Seller or any of its assets or any limited liability interests are subject.
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4.23 Approvals . Seller has provided Buyer with a complete and accurate list of all jurisdictions in which Seller is authorized to do business along with the documentation evidencing such authorization. No authorization, consent or approval of, or registration or filing with, any governmental authority is required to be obtained or made by Seller in connection with the execution, delivery or performance of this Agreement, including the conveyance to Buyer of the Business.
4.24 Brokers . Neither the EllisLab Shareholder nor the Seller have agreed to pay any brokerage fees, finder’s fees or other fees or commissions with respect to the Transaction, and no person is entitled, or intends to claim that it is entitled, to receive any such fees or commissions in connection with such transaction.
4.25 Special Government Liabilities . Seller has no existing or pending liabilities, obligations or deferred payments due to any federal, state or local government agency or entity in connection with its business or with any program sponsored or funded in whole or in part by any federal, state or local government agency or entity, nor are the Seller or the EllisLab Shareholder aware of any threatened action or claim or any condition that could support an action or claim against Seller or the Business for any of said liabilities, obligations or deferred payments.
4.26 Balance Sheet of Seller . The Balance Sheet of Seller as of the Closing shall be as set forth on Schedule 4.26 (the “Closing Balance Sheet”). In the event that within 120 days of the Closing the Buyer acting reasonably and in good faith, determines that the amount of assets of Seller are less than on the Closing Balance Sheet, the EllisLab Shareholder shall surrender for cancellation to Buyer such number of Series C Preferred Stock as is equal to the percentage difference between what the Buyer acting reasonably and in good faith determines the amount of the assets and the Closing Balance Sheet amount and the EllisLab Shareholder agree to immediately execute any documents and take such further action as is required to cancel such Series C Preferred Stock .
4.27 Net Working Capital . Immediately prior to the Closing, Seller’s Working Capital Deficit, as hereinafter defined, shall be not more than Eighty Thousand Dollars ( $80,000 ). For purposes of this Section 4.27:
i. “ Current Assets ” means the current assets of Seller as determined in accordance with U.S. generally accepted accounting principles.
ii. “ Current Liabilities ” means the current Liabilities of Seller as determined in accordance with U.S. generally accepted accounting principles.
iii. “ Working Capital ” means an amount equal to (a) the amount of the Current Assets, minus (b) the amount of the Current Liabilities. When Working Capital is negative, it is referred to as Working Capital Deficit.
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4.28 Full Disclosure . Neither this Agreement (including the exhibits hereto) nor any statement, certificate or other document delivered to Buyer by or on behalf of Seller or the EllisLab shareholders contains any untrue statement of a material fact or omits to state a material fact necessary to make the representations and other statements contained herein and therein not misleading.
4.29 Tax Advice . The EllisLab Shareholder and Seller hereby represent and warrant that they have sought their own independent tax advice regarding the Transaction and neither the EllisLab Shareholder nor Seller have relied on any representation or statement made by Buyer, Merger Sub, or their representatives regarding the tax implications of such transactions.
4.30 Acknowledgement of Risks . The EllisLab Shareholder hereby represents and warrants that they have conducted a thorough review of Buyer’s public reports and financial statements filed by it with the Securities and Exchange Commission, and have had an opportunity to ask questions of and to receive additional information from representatives of Buyer. The EllisLab Shareholder acknowledges that there are substantial risks associated with owning the Series C Preferred Stock and Buyer’s common stock into which it is convertible, including but not limited to (i) those risk factors contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, a copy of which has been delivered to the EllisLab Shareholder and which the EllisLab Shareholder acknowledges receipt of, (ii) the transferability of Buyer’s common stock is restricted by applicable federal and state securities laws as well as by the terms of this Agreement and the Series C Preferred Stock, and may be impaired by a lack of trading volume, and (iii) those additional risks described in public reports filed by Buyer with the Securities and Exchange Commission. Each EllisLab Shareholder is acquiring the Series C Preferred Stock for investment for his/her own respective accounts only and not with a view to, or for resale in connection with, any distribution thereof. Each EllisLab Shareholder represents and warrants that he or she is sophisticated, knowledgeable and experienced in making investments of this kind and are capable of evaluating the risks and merits of acquiring the Series C Preferred Stock, or have consulted with sophisticated or knowledgeable advisors in these matters. Each EllisLab Shareholder represents and warrants that he or she has no immediate need for liquidity in connection with the Series C Preferred Stock, does not anticipate that he or she will be required to sell the Series C Preferred Stock in the foreseeable future and has the capacity to sustain a complete loss of his investment in the Series C Preferred Stock.
4.31 Restricted Securities . It is understood that the Stock Consideration is characterized as “restricted securities” under the Securities Act of 1933 as amended inasmuch as this Agreement contemplates that, the Stock Consideration is being acquired in a transaction not involving a public offering. It is further understood and acknowledged that if the Stock Consideration is issued to the EllisLab Shareholder in accordance with the provisions of this Agreement, such Stock Consideration may not be resold without registration under the Securities Act or the existence of an exemption therefrom. The EllisLab Shareholder represents that he or she is familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.
4.32 Legends . It is understood that the certificates evidencing Stock Consideration will bear the following legend or another legend that is similar to the following:
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THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
THESE SECURITIES ARE SUBJECT TO THE TERMS OF A LOCK-UP AGREEMENT AND MAY NOT BE TRANSFERRED, SOLD OR ASSIGNED OTHER THAN AS PERMITTED THEREIN, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
THE TERMS OF THE SERIES C CONVERTIBLE PREFERRED STOCK ARE SET FORTH IN THE CERTIFICATE OF DESIGNATION WHICH HAS BEEN FILED WITH THE SECRETARY OF STATE OF THE STATE OF NEVADA A COPY OF WHICH IS AVAILABLE UPON THE WRITTEN REQUEST TO THE COMPANY BY THE HOLDER OF SERIES C CONVERTIBLE PREFERRED
and any legend required by the “blue sky” laws of any state to the extent such laws are applicable to the securities represented by the certificate so legended.
4.33 Representations True on Closing Date . The representations and warranties of the EllisLab Shareholder and Seller set forth in this Agreement are true and correct on the date hereof, and will be true and correct on the Effective Time as though such representations and warranties were made as of the Closing Date.
5. Representations and Warranties of Buyer .
Buyer represents and warrants to the EllisLab Shareholder and Seller as follows:
5.1 Power and Authority; Binding Nature of Agreement . Buyer has full power and authority to enter into this Agreement and to perform its obligations hereunder. The execution, delivery and performance of this Agreement by Buyer have been duly authorized by all necessary action on its part. Assuming that this Agreement is a valid and binding obligation of the other party hereto, this Agreement is a valid and binding obligation of Buyer.
5.2 Approvals . No authorization, consent or approval of, or registration or filing with, any governmental authority or any other person is required to be obtained or made by Buyer in connection with the execution, delivery or performance of this Agreement.
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5.3 Good Standing . Buyer (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized, (ii) has all necessary power and authority to own its assets and to conduct its business as it is currently being conducted, (iii) is duly qualified or licensed to do business and is in good standing in every jurisdiction (both domestic and foreign) where such qualification or licensing is required, (iv) has the full right, corporate power and authority to enter into this Agreement and to perform its obligations hereunder.
5.4 Authority . The execution of this Agreement by the individual whose signature is set forth at the end of this Agreement, and the delivery of this Agreement by Buyer, have been duly authorized by all necessary corporate action on the part of Buyer;
5.5 Representations True on Closing Date . The representations and warranties of Buyer set forth in this Agreement are true and correct on the date hereof, and will be true and correct on the Closing Date as though such representations and warranties were made as of the Closing Date.
5.6 Non-Contravention . The execution, delivery and performance of this Agreement by Buyer will not violate, conflict with, require consent under or result in any breach or default under (i) any of Buyer’s organizational documents (including its Articles of Incorporation and Bylaws), (ii) any applicable law or (iii) with or without notice or lapse of time or both, the provisions of any material contract or agreement to which Buyer is a party or to which any of its material assets are bound (the “Buyer Contracts”).
5.7 Material Compliance . Buyer is in material compliance with all applicable Laws and Buyer Contracts relating to this Agreement, and the operation of its business.
5.8 Capital Structure . The authorized capital stock of the Company consists of: (i) Two Billion (2,000,000,000) shares of Common Stock, par value $0.001 per share of which 38,776,436 shares are issued and outstanding as of the date of this Agreement and (ii) Five Million (5,000,000) shares of preferred stock, par value $0.001 per share, of which (A) One Thousand (1,000) are designated Series A Preferred Stock, zero of which are issued and outstanding as of the date of the this Agreement, (B) Thirty Thousand (30,000) are designated Series B Preferred Stock, Sixteen Thousand One Hundred Fifty-Five (16,155) of which are issued and outstanding as of the date of this Agreement. All of the outstanding shares of capital stock of the Company are, and all shares of capital stock of the Company which may be issued as contemplated or permitted by this Agreement will be, when issued, duly authorized and validly issued, fully paid and non-assessable and not subject to any pre-emptive rights. Prior to the Closing, Buyer will deliver to Seller a schedule describing all convertible instruments such as stock options, warrants, convertible notes, and convertible preferred stock of the Company (the “Convertible Instruments”), along with the aggregate number of shares that could be issued if all Convertible Instruments were converted into shares of Common Stock.
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5.9 Governmental Consents . No consent, approval, order or authorization of, or registration, declaration or filing with, or notice to (any of the foregoing being a “Consent”), any supranational, national, state, municipal, local or foreign government, any instrumentality, subdivision, court, administrative agency or commission or other governmental authority, or any quasi-governmental or private body exercising any regulatory or other governmental or quasi-governmental authority (a “Governmental Entity”) is required to be obtained or made by the Buyer in connection with the execution, delivery and performance by the Company of this Agreement or the consummation by the Buyer of the Merger and other transactions contemplated hereby, except for: (i) the filing of the Articles of Merger with the Secretary of State of the State of Nevada and the Secretary of State of Oregon; (ii) if required by applicable law, the filing of the Buyer Proxy Statement with the Securities and Exchange Commission (“SEC”) in accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and such reports under the Exchange Act as may be required in connection with this Agreement, the Merger and the other transactions contemplated by this Agreement; (iii) such Consents as may be required under (A) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) or (B) any other Laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or significant impediments or lessening of competition or creation or strengthening of a dominant position through merger or acquisition (“Foreign Antitrust Laws” and, together with the HSR Act, the “Antitrust Laws”), in any case that are applicable to the transactions contemplated by this Agreement; (iv) such Consents as may be required under applicable state securities or “blue sky” Laws and the securities Laws of any foreign country; (v) the other Consents of Governmental Entities listed in Schedule 5.9; (vi) such other Consents which if not obtained or made would not reasonably be expected to have, individually or in the aggregate, a material adverse effect and (vii) any required filings with the Securities and Exchange Commission.
5.10 SEC Filings . Except as set forth on Schedule 5.10, Buyer has timely filed with or furnished to, as applicable, the SEC all registration statements, prospectuses, reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated by reference) required to be filed or furnished by it with the SEC since December 31, 2017 (the “Buyer SEC Documents”). Buyer has made available to Seller and EllisLab Shareholder all such Buyer SEC Documents that it has so filed or furnished prior to the date hereof. To the knowledge of Buyer’s management and board of directors, as of their respective filing dates (or, if amended or superseded by a subsequent filing, as of the date of the last such amendment or superseding filing prior to the date hereof), each of the Buyer SEC Documents complied as to form in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act, and the rules and regulations of the SEC thereunder applicable to such Buyer SEC Documents. To the knowledge of Buyer’s management and board of directors, none of the Buyer SEC Documents, including any financial statements, schedules or exhibits included or incorporated by reference therein at the time they were filed (or, if amended or superseded by a subsequent filing, as of the date of the last such amendment or superseding filing prior to the date hereof), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
5.11 Full Disclosure . Neither this Agreement (including the exhibits hereto) nor any statement, certificate or other document delivered to Seller by or on behalf of Buyer contains any untrue statement of a material fact or omits to state a material fact necessary to make the representations and other statements contained herein and therein not misleading.
6. Conditions to Closing .
6.1 Conditions Precedent to Buyer’s Obligation to Close . Buyer’s obligation to close the transaction as contemplated in this Agreement is conditioned upon the occurrence or waiver by Buyer of the following:
(a) The Seller has delivered an updated list of assets and liabilities that is accurate and complete as of not more than five (5) business days prior to the Closing.
(b) All representations and warranties of the EllisLab Shareholder and Seller made in this Agreement or in any exhibit or schedule hereto delivered by the EllisLab Shareholder and Seller shall be true and correct as of the Closing Date with the same force and effect as if made on and as of that date.
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(c) The EllisLab Shareholder and Seller shall have performed and complied with all agreements, covenants and conditions required by this Agreement to be performed or complied with by them prior to or at the Closing Date.
(d) Buyer must be satisfied in its sole and absolute discretion with its due diligence of the EllisLab Shareholder and Seller.
(e) Buyer shall have received a UCC search from the Secretary of State for Oregon showing the existence or absence of liens, financing statements and other encumbrances recorded against any of the Assets, dated not more than five (5) days prior to the Closing, and such report shall be satisfactory to Buyer in its sole and absolute discretion.
(f) From the date hereof until the Closing, except as otherwise provided in this Agreement or consented to in writing by Buyer (which consent shall not be unreasonably withheld or delayed), Seller shall (a) conduct the Business in the ordinary course of business; and (b) use commercially reasonable efforts to maintain and preserve intact its current Business organization, operations and franchise and to preserve the rights, franchises, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having relationships with the Business. From the date hereof until the Closing Date, except as consented to in writing by Buyer (which consent shall not be unreasonably withheld or delayed), Seller shall not take any action that would cause any of the changes, events or conditions described in Section 4.6 to occur.
(g) From the date hereof until the Closing, Seller shall (a) afford Buyer and its representatives reasonable access to and the right to inspect all of the real property, properties, assets, premises, books and records, contracts and other documents and data related to the Business; (b) furnish Buyer and its representatives with such financial, operating and other data and information related to the Business as Buyer or any of its representatives may reasonably request; and (c) instruct the representatives of Seller to cooperate with Buyer in its investigation of the Business; provided, however, that any such investigation shall be conducted during normal business hours upon reasonable advance notice to Seller, under the supervision of Seller’s personnel and in such a manner as not to interfere with the conduct of the Business or any other businesses of Seller. Notwithstanding anything to the contrary in this Agreement, Seller shall not be required to disclose any information to Buyer if such disclosure would, in Seller’s sole discretion: (x) cause significant competitive harm to Seller and its businesses, including the Business, if the transactions contemplated by this Agreement are not consummated; (y) jeopardize any attorney- client or other privilege; or (z) contravene any applicable Law, fiduciary duty or binding agreement entered into prior to the date of this Agreement. Prior to the Closing, without the prior written consent of Seller, which may be withheld for any reason, Buyer shall not contact any suppliers to, or customers of the Business.
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6.2 Conditions Precedent to the EllisLab Shareholder and Seller’s Obligation to Close . The Ellis Shareholder’s and Seller’s obligation to close the transaction as contemplated in this Agreement is conditioned upon the occurrence or waiver by the EllisLab Shareholder of the following:
(a) All representations and warranties of Buyer made in this Agreement or in any exhibit hereto delivered by Buyer shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of that date.
(b) Buyer shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by Buyer prior to or at the Closing Date.
7. Survival of Representations and Warranties .
All representations and warranties made by each of the Parties hereto will survive the Closing for eighteen (18) months after the Closing Date, or longer if expressly and specifically provided in the Agreement. Seller and the EllisLab Shareholder will have joint and several liability under this Agreement, except for the covenant not to compete in Section 2.1 of this Agreement or where otherwise expressly and specifically provided in this Agreement.
8. Indemnification .
8.1 Indemnification by the EllisLab Shareholder . The EllisLab Shareholder agrees to indemnify, defend and hold harmless Buyer and its affiliates, directors, officers, agents and assigns against any and all claims, demands, losses, costs, expenses, obligations, liabilities and damages, including interest, penalties and reasonable attorney’s fees and costs (“Losses”), incurred by Buyer or any of its affiliates arising, resulting from, or relating to any and all liabilities of Seller incurred prior to the Closing Date or relating to the Assets prior the Closing Date, any misrepresentation of a material fact or omission to disclose a material fact made by the EllisLab Shareholder or Seller in this Agreement, in any exhibits or schedules to this Agreement or in any other document furnished or to be furnished by the EllisLab Shareholder or Seller under this Agreement, or any breach of, or failure by the EllisLab Shareholder or Seller to perform, any of their representations, warranties, covenants or agreements in this Agreement or in any exhibit or other document furnished or to be furnished by the EllisLab Shareholder or Seller under this Agreement, provided however and notwithstanding anything to the contrary herein, the maximum aggregate liability of the EllisLab Shareholder pursuant to this Section 8.1 shall be no more than One Hundred Thousand Dollars ($100,000.00) and no claim by Buyer alleging a breach by Seller or the EllisLab Shareholder of any representation or warranty of Seller or the EllisLab Shareholder shall be made, and the EllisLab Shareholder shall not be liable for any claim, unless and until such Losses, either alone or together, is for an aggregate amount in excess of Twenty Thousand Dollars ($20,000.00), and then only to the extent that such Losses exceed such amount.
8.2 Indemnification by Buyer . Buyer agrees to indemnify, defend and hold harmless the EllisLab Shareholder against any and all Losses arising, resulting from, or relating to any misrepresentation of a material fact or omission to disclose a material fact made by the Buyer in this Agreement, in any exhibits or schedules to this Agreement or in any other document furnished or to be furnished by the Buyer under this Agreement, or any breach of, or failure by Buyer to perform, any of its representations, warranties, covenants or agreements in this Agreement or in any exhibit or other document furnished or to be furnished by Buyer under this Agreement, provided however and notwithstanding anything to the contrary herein, the maximum aggregate liability of the Buyer pursuant to this Section 8.2 shall be no more than One Hundred Thousand Dollars ($100,000.00) and no claim by the EllisLab Shareholder alleging a breach by Buyer of any representation or warranty of Buyer shall be made, and Buyer shall not be liable for any claim, unless and until such Losses, either alone or together, is for an aggregate amount in excess of Twenty Thousand Dollars ($20,000.00), and then only to the extent that such Losses exceed such amount.
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8.3 Procedure for Indemnification Claims .
8.3.1 Whenever any parties become aware that a claim (an “Underlying Claim”) has arisen entitling them to seek indemnification under Section 8 of this Agreement, such parties (the “Indemnified Parties”) shall promptly send a notice (“Notice”) to the parties liable for such indemnification (the “Indemnifying Parties”) of the right to indemnification (the “Indemnity Claim”); provided, however, that the failure to so notify the Indemnifying Parties will relieve the Indemnifying Parties from liability under this Agreement with respect to such Indemnity Claim only if, and only to the extent that, such failure to notify the Indemnifying Parties results in the forfeiture by the Indemnifying Parties of rights and defenses otherwise available to the Indemnifying Parties with respect to the Underlying Claim. Any Notice pursuant to this Section 8.3(a) shall set forth in reasonable detail, to the extent then available, the basis for such Indemnity Claim and an estimate of the amount of damages arising therefore.
8.3.2 If an Indemnity Claim does not result from or arise in connection with any Underlying Claim or legal proceedings by a third party, the Indemnifying Parties will have thirty (30) calendar days following receipt of the Notice to issue a written response to the Indemnified Parties, indicating the Indemnifying Parties’ intention to either (i) contest the Indemnity Claim or (ii) accept the Indemnity Claim as valid. The Indemnifying Parties’ failure to provide such a written response within such thirty (30) day period shall be deemed to be an acceptance of the Indemnity Claim as valid. In the event that an Indemnity Claim is accepted as valid, the Indemnifying Parties shall, within fifteen (15) business days thereafter, pay Losses incurred by the Indemnified Parties in respect of the Underlying Claim in cash by wire transfer of immediately available funds to the account or accounts specified by the Indemnified Parties..
8.3.3 In the event an Indemnity Claim results from or arises in connection with any Underlying Claim or legal proceedings by a third party, the Indemnifying Parties shall have fifteen (15) calendar days following receipt of the Notice to send a Notice to the Indemnified Parties of their election to, at their sole cost and expense, assume the defense of any such Underlying Claim or legal proceeding; provided that such Notice of election shall contain a confirmation by the Indemnifying Parties of their obligation to hold harmless the Indemnified Parties with respect to Losses arising from such Underlying Claim. The failure by the Indemnifying Parties to elect to assume the defense of any such Underlying Claim within such fifteen (15) day period shall entitle the Indemnified Parties to undertake control of the defense of the Underlying Claim on behalf of and for the account and risk of the Indemnifying Parties in such manner as the Indemnified Parties may deem appropriate, including, but not limited to, settling the Underlying Claim. The parties controlling the defense of the Underlying Claim shall not, however, settle or compromise such Underlying Claim without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed. The non-controlling parties shall be entitled to participate in (but not control) the defense of any such action, with their own counsel and at their own expense.
8.3.4 The Indemnifying Parties and the Indemnified Parties will cooperate reasonably, fully and in good faith with each other, at the sole expense of the Indemnifying Parties subject to the last sentence of Section 8.3(c) of this Agreement, in connection with the defense, compromise or settlement of any Underlying Claim including, without limitation, by making available to the other parties all pertinent information and witnesses within their reasonable control.
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9 Injunctive Relief .
Each party acknowledges that it would be impossible to measure in money the damages to the other party if there is a failure to comply with any covenants and provisions of this Agreement, and agrees that in the event of any breach of any covenant or provision, the other party to this Agreement will not have an adequate remedy at law.
It is therefore agreed that the other party to this Agreement who is entitled to the benefit of the covenants and provisions of this Agreement which have been breached, in addition to any other rights or remedies which they may have, will be entitled to immediate injunctive relief to enforce such covenants and provisions, and that in the event that any such action or proceeding is brought in equity to enforce them, the defaulting or breaching party will not urge a defense that there is an adequate remedy at law.
10 Further Assurances .
Following the Closing, each Party shall furnish such instruments and other documents as any other Party may reasonably request for the purpose of carrying out or evidencing the transactions contemplated hereby.
11 Fees and Expenses .
Each Party hereto shall pay all fees, costs and expenses that it incurs in connection with the negotiation and preparation of this Agreement and in carrying out the transactions contemplated hereby (including, without limitation, all fees and expenses of its counsel and accountant).
12 Waivers .
If any party at any time waives any rights hereunder resulting from any breach by the other Party of any of the provisions of this Agreement, such waiver is not to be construed as a continuing waiver of other breaches of the same or other provisions of this Agreement. Resort to any remedies referred to herein will not be construed as a waiver of any other rights and remedies to which such Party is entitled under this Agreement or otherwise.
13 Successors and Assigns .
Each covenant and representation of this Agreement will inure to the benefit of and be binding upon each of the Parties, their personal representatives, assigns and other successors in interest.
14 Entire and Sole Agreement .
This Agreement constitutes the entire agreement between the Parties and supersedes all other agreements, representations, warranties, statements, promises and undertakings, whether oral or written, with respect to the subject matter of this Agreement. This Agreement may be modified or amended only by a written agreement signed by all Parties to this Agreement. The Parties acknowledge that as of the date of the execution of this Agreement, any and all other agreements, either written or verbal, regarding the substance of this Agreement will be terminated and be of no further force or effect.
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15 Governing Law .
This Agreement will be governed by the laws of New York without giving effect to applicable conflict of law provisions. With respect to any litigation arising out of or relating to this Agreement, each party agrees that it will be filed in and heard by the state or federal courts with jurisdiction to hear such suits located in New York, New York.
16 Counterparts .
This Agreement may be executed simultaneously in any number of counterparts, each of which counterparts will be deemed to be an original, and such counterparts will constitute but one and the same instrument.
17 Assignment .
Except in the case of an affiliate of Buyer, this Agreement may not be assignable by any party without prior written consent of the other Parties.
18 Remedies .
Except as otherwise expressly provided herein, none of the remedies set forth in this Agreement are intended to be exclusive, and each party will have all other remedies now or hereafter existing at law, in equity, by statute or otherwise. The election of any one or more remedies will not constitute a waiver of the right to pursue other available remedies.
19 Section Headings .
The section headings in this Agreement are included for convenience only, are not a part of this Agreement and will not be used in construing it.
20 Severability .
In the event that any provision or any part of this Agreement is held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability will not affect the validity or enforceability of any other provision or part of this Agreement.
21 Notices .
Each notice or other communication hereunder must be in writing and will be deemed to have been duly given on the earlier of (i) the date on which such notice or other communication is actually received by the intended recipient thereof, or (ii) the date five (5) days after the date such notice or other communication is mailed by registered or certified mail (postage prepaid) to the intended recipient at the following address (or at such other address as the intended recipient will have specified in a written notice given to the other Parties hereto):
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If to the EllisLab Shareholder and Seller :
Rick Ellis
9450 SW Gemini Dr. Ste #63291
Beaverton, OR 97708
Telephone: (307) 314-8946
With a copy to:
Brix Law LLP
Attn: Kyle D. Wuepper
15 SW Colorado Ave., Suite 3
Bend, OR 97702
Telephone: (541) 693-0062
E-mail: kwuepper@brixlaw.com
If to Buyer:
Digital Locations, Inc.
3700 State Street, Suite 350
Santa Barbara, CA 93105
Attention: William E. Beifuss, Jr., President
Telephone: 805-456-7000
Facsimile: 805-681-1300
With a copy to:
Sichenzia Ross Ference LLP
61 Broadway, 32nd floor
New York, NY 10006
Attention: Gregory Sichenzia
Telephone: 212-930-9700
Facsimile: 212-930-9725
E-mail: gsichenzia@srf.law
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22. Public Announcements .
Except as provided for in this Agreement or required by applicable law, each Party shall consult with each other before issuing any press release or otherwise making any public statements (including via social media) about this Agreement or the Transaction. No Party shall issue any such press release or make any such public statement prior to such consultation, except to the extent required by applicable law or SEC requirements, in which case that Party shall use its reasonable best efforts to provide a meaningful opportunity to the other Parties to review and comment upon such press release or other public statement, to consult with the other Party before issuing any such release or making any such public statement and shall give due consideration to all reasonable additions, deletions or changes suggested thereto.
23. Attorneys’ Fees .
If a suit, action, or other proceeding of any nature whatsoever (including any proceeding under the U.S. Bankruptcy Code) is instituted in connection with any controversy arising out of this Agreement or to interpret or enforce any rights hereunder, the prevailing party shall be entitled to recover its attorneys’, paralegals’, accountants’, and other experts’ fees and all other fees, costs, and expenses actually incurred and reasonably necessary in connection therewith, as determined by the court at trial or on any appeal or review, in addition to all other amounts provided by law.
[ SIGNATURE PAGE FOLLOWS ]
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IN WITNESS WHEREOF , this Agreement has been entered into as of the date first above written.
Seller: |
EllisLab, Inc., an Oregon corporation |
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/s/ Rick Ellis |
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Rick Ellis, President | |
EllisLab Shareholder: |
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/s/ Rick Ellis |
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Rick Ellis |
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Company: |
Digital Locations, Inc., a Nevada corporation |
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By: |
/s/ William E. Beifuss, Jr |
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William E. Beifuss, Jr., President | |||
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Merger Sub: |
EllisLab Corp., a Nevada corporation |
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By: |
/s/ William E. Beifuss, Jr |
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William E. Beifuss, Jr., President |
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EXHIBIT A
Articles of Merger
Of the Secretary of State of Oregon
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EXHIBIT B
Articles of Merger
Of the Secretary of State of Nevada
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EXHIBIT C
Certificate of Designation
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EXHIBIT D
Form of Option Agreement
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EXHIBIT E
Disclosure Schedules
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EXHIBIT 4.1
CERTIFICATE OF DESIGNATION
OF
DIGITAL LOCATIONS, INC.
1. The name of the corporation is Digital Locations, Inc., a Nevada corporation (the “Corporation”).
2. By resolution of the board of directors pursuant to a provision in the articles of incorporation of the Corporation, this certificate establishes the following regarding the voting powers, designations, preferences, limitations, restrictions and relative rights of the following class or series of stock.
This series of the Corporation’s Preferred Stock shall be designated “Series C Preferred Stock”. The number of shares constituting the Series C Preferred Stock shall be Thirty Six Thousand (36,000) shares. The total face value of this entire series is Three Million Six Hundred Thousand Dollars ($3,600,000) . Each share of Series C Preferred Stock shall have a stated face value of One Hundred Dollars ($100.00) (“Share Value”), and is convertible into shares of fully paid and non-assessable shares of common stock (“Common Stock”) of the Corporation in accordance with Section 3 below. The Series C Preferred Stock shall have the rights, preferences and privileges set forth below: For avoidance of doubt nothing herein shall create any preference of the Series C Preferred Stock over the outstanding Series B Preferred Stock.
Section 1. Dividends . 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 Corporation, as provided below in Section 2 of this Certificate. 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. The Holders may elect to use the most favorable conversion price, as described in Section 3(a), for the purpose of determining the as-if-converted number of shares.
Section 2. Liquidation Preference . In the event of any liquidation, dissolution or winding up of the Corporation, 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 Corporation 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 Corporation shall be distributed to the holders of Common Stock.
(a) If the assets to be distributed pursuant to this Section 2 to the Holders of the Series C Preferred Stock shall be insufficient to permit the receipt by such Holders of the full preferential amounts aforesaid, then all of such assets shall be distributed among such holders of Series C and B Preferred Stock ratably in accordance with the number of such shares then held by each such Holder.
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Section 3. Conversion . The Series C Preferred Stock shall be subject to conversion into Common Stock upon the following terms and conditions:
(a) Timing and Mechanics of Conversion . After the expiration of the Lock-Up Period in Section 11, the Holder may, at any time, at its election, convert shares of Series C Preferred Stock into shares of Common Stock. The conversion price per share of Series C Preferred Stock shall be $0.005 (the “Conversion Price”), subject to adjustments described in this Section 3. The number of shares of Common Stock receivable upon conversion of one share of Series C Preferred Stock equals the Share Value divided by the Conversion Price, in this case Twenty Thousand (20,000) shares . As a condition to any conversion of shares of the Series C Preferred Stock pursuant to this Section, the Holder of the shares to be converted shall surrender the certificate or certificates therefor, duly endorsed, at the principal office of the Corporation or of any transfer agent for such stock, and shall deliver a written notice to the Secretary of the Corporation at the Corporation’s principal office stating the number of such shares of the Series C Preferred Stock to be converted (the “Conversion Notice”). Promptly thereafter, the Corporation shall issue and deliver to such holder a certificate for the number of shares of the Common Stock to which such holder shall be thereby entitled. In addition, if less than all the shares represented by such certificate(s) are surrendered for conversion, the Corporation shall issue and deliver to such holder a new certificate for the balance of the shares of Series C Preferred Stock not so converted.
(b) Limitation of Conversions . In no event shall the Holder be entitled to convert any Series C Preferred Stock, such that upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Series C Preferred Stock or the unexercised or unconverted portion of any other security of the Corporation subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of Series C Preferred Stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days prior notice to the Corporation, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).
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(c) Adjustment to Conversion Price for Stock Dividends, Consolidations and Subdivisions . In case the Corporation at any time after the first issuance of a share of the Series C Preferred Stock shall declare or pay on the Common Stock any dividend in shares of Common Stock, or effect a subdivision of the outstanding shares of the Common Stock into a greater number of shares of the Common Stock (by reclassification or otherwise than by payment of a dividend payable in shares of the Common Stock), or shall combine or consolidate the outstanding shares of the Common Stock into a lesser number of shares of the Common Stock (by reclassification or otherwise), then, and in each such case, the Conversion Price (as previously adjusted) in effect immediately prior to such declaration, payment, subdivision, combination or consolidation shall, concurrently with the effectiveness of such declaration, payment, subdivision, combination or consolidation, be proportionately adjusted.
(d) Adjustments for Reclassifications and Certain Reorganizations . In case the Corporation at any time after the first issuance of a share of the Series C Preferred Stock shall reclassify or otherwise change the outstanding shares of the Common Stock, whether by capital reorganization, reclassification or otherwise, or shall consolidate with or merge with or into any other corporation where the Corporation is not the surviving corporation but not otherwise, then, and in each such case, each outstanding share of the Series C Preferred Stock shall, immediately after the effectiveness of such reclassification, other change, consolidation or merger, be convertible into the type and amount of stock and other securities or property which the holder of that number of shares of the Common Stock into which such share of the Series C Preferred Stock would have been convertible before the effectiveness of such reclassification, other change, consolidation or merger would be entitled to receive in respect of such shares of the Common Stock as the result of such reclassification, other change, consolidation or merger.
(e) Fractional Shares . No fractional shares of the Common Stock shall be issuable upon the conversion of shares of the Series C Preferred Stock and the Corporation shall pay the cash equivalent of any fractional share upon such conversion.
(f) Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of the Common Stock, solely for the purpose of effecting the conversion of the Series C Preferred Stock, such number of shares of the Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series C Preferred Stock; and if at any time the number of authorized but unissued shares of the Common Stock shall not be sufficient to effect the conversion of all outstanding shares of the Series C Preferred Stock, the Corporation will take such corporate action as is necessary to increase its authorized by unissued shares of the Common Stock to such number of shares as shall be sufficient for such purpose.
(g) Rule 144. With respect to the public resale of the shares of common stock issued upon conversion of the Series C Preferred Stock, the holder shall at all times be subject to the restrictions, conditions and requirements applicable to an affiliate of the Corporation, as described in Rule 144 of the Securities Act of 1933, as amended (“Rule 144”), even if the holder or its assignees and successors are not affiliates (as such term is defined under Rule 144) of the Corporation.
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Section 4. Notices . Any notice required by the provisions of this Certificate of Designation to be given to holders of shares of the Series C Preferred Stock shall be deemed given three days following the date on which mailed by certified mail, return receipt requested, postage prepaid, addressed to such holder at the address last appearing on the books of the Corporation for such holder or given by such holder to the Corporation for the purpose of notice, or if no such address appears or is so given, at the principal office of the Corporation, or upon personal delivery to the aforementioned address.
Section 5. Voting Rights . Except as required by law or as specifically provided herein, 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 Corporation for their action or consideration at any meeting of stockholders of the Corporation (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.
Section 6. Protective Provisions . So long as any shares of the Series C Preferred Stock shall remain outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series C Preferred Stock voting together as one class:
(a) alter or change the rights, preferences or privileges of the shares of the Series C Preferred Stock so as to affect materially and adversely such shares; or
(b) create any new class of shares having preference over the Series C Preferred Stock.
The Corporation hereby covenants and agrees that the Corporation will not, by amendment of its Certificate of Incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Certificate of Designation, and will at all times carry out all the provisions of this Certificate of Designation and take all action as may be required to protect the rights of the Holders.
Section 7. Status of Converted Stock . In the event any shares of the Series C Preferred Stock shall be converted pursuant to Section 3 above, the shares so converted shall be cancelled and shall revert to the Corporation’s authorized but unissued Preferred Stock.
Section 8. Transferability . The Series C Preferred Stock shall not be transferable, provided that in the event of the death of a holder of shares of the Series C Preferred Stock, such shares may be transferred to the heirs or estate of such person.
Section 9. Notices . Any notice required hereby to be given to the holders of shares of the Series C Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his, her or its address appearing on the books of the Corporation for such holder or given by such holder to the Corporation for the purpose of notice, or if no such address appears or is so given, at the principal office of the Corporation, or upon personal delivery to the aforementioned address.
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Section 10. Public Disclosure . The Corporation and the Holder agree not to issue any public statement with respect to the Holder’s investment or proposed investment in the Corporation’s Series C Preferred Stock, or the terms of any agreement or covenant without the other party’s prior written consent, except such disclosures as may be required under applicable law or under any applicable order, rule or regulation.
Section 11. Lock-Up Period . For a period of two (2) years from the date of issuance of the Series C Preferred Stock, the Holder shall not (i) convert any shares of Series C Preferred Stock to Common Stock, or (ii) sell, assign, or otherwise transfer the Series C Preferred Stock to any other party, except for personal estate planning purposes and related transactions.
Section 12. Miscellaneous .
(a) The headings of the various sections and subsections of this Certificate of Designation are for convenience of reference only and shall not affect the interpretation of any of the provisions of this Certificate of Designation.
(b) Whenever possible, each provision of this Certificate of Designation shall be interpreted in a manner as to be effective and valid under applicable law and public policy. If any provision set forth herein is held to be invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions of this Certificate of Designation. No provision herein set forth shall be deemed dependent upon any other provision unless so expressed herein. If a court of competent jurisdiction should determine that a provision of this Certificate of Designation would be valid or enforceable if a period of time were extended or shortened, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law.
(c) Except as may otherwise be required by law, the shares of the Series C Preferred Stock shall not have any powers, designations, preferences or other special rights, other than those specifically set forth in this Certificate of Designation.
IN WITNESS WHEREOF, this Certificate of Designation has been executed by a duly authorized officer of the Corporation on this ___ day of November, 2018.
DIGITAL LOCATIONS, INC. |
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By: |
/s/ William E. Beifuss, Jr. |
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Name: |
William E. Beifuss, Jr. |
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Title: |
President and Chief Executive Officer |
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EXHIBIT 10.1
DIGITAL LOCATIONS, INC. NONSTATUTORY STOCK OPTION AGREEMENT |
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THIS NONSTATUTORY STOCK OPTION AGREEMENT (“ Agreement ”) is made and entered into as of the date set forth below, by and between Digital Locations, Inc., a Nevada corporation (the “ Company ”), and Derek Jones (“ Optionee ”) named in Section 1(b):
In consideration of the covenants herein set forth, the parties hereto agree as follows:
1. Option Information.
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(a) | Date of Option: |
November 30, 2018 |
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(b) | Optionee: |
Derek Jones |
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(c) | Number of Shares: |
100,000,000 |
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(d) | Exercise Price: |
$0.005 |
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2. Acknowledgements.
(a) Optionee is an officer of the Company’s subsidiary, EllisLab Corp.
(b) The Board of Directors (the “ Board ”) has authorized the granting to Optionee of a nonstatutory stock option (“ Option ”) to purchase shares of common stock of the Company (“ Stock ”) upon the terms and conditions hereinafter stated and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “ Securities Act ”) provided by Rule 701 thereunder.
(c) This Option is being granted pursuant to the certain Agreement and Plan of Merger between EllisLab, Inc. (“ Seller ”), Rick Ellis, the sole shareholder of Seller, the Company and Merger Sub, dated as of November 30, 2018 (the “ Merger Agreement ”) Optioinee currently holds an option to purchase 10% of the issued and outstanding shares of EllisLab (the “ EllisLab Option ”). The Optionee acknowledges that as of the date hereof, the Ellis Lab Option is null and void and of no force or effect.
3. Shares; Price. Company hereby grants to Optionee the right to purchase, upon and subject to the terms and conditions herein stated, the number of shares of Stock set forth in Section 1(c) above (the “ Shares ”) for cash or on a cashless basis (or other consideration as is acceptable to the Board of Directors of the Company, in its sole and absolute discretion) at the price per Share set forth in Section 1(d) above (the “ Exercise Price ”).
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4. Term of Option; Continuation of Service. This Option shall expire, and all rights hereunder to purchase the Shares shall terminate ten (10) years from the date hereof. This Option shall terminate earlier subject to Sections 7 and 8 of this Agreement, upon, and as of the date of, the termination of Optionee’s service to the Company such that Optionee no longer has any of the executive management positions or relationships with the Company or the Company’s subsidiaries, thereby creating a “severance”, as defined in Section 422 of the Internal Revenue Code of 1986, as amended: a director, an officer, a consultant, or an employee of the Company. Nothing contained herein shall confer upon Optionee the right to the continuation of his or her service as a director, an officer, a consultant, or an employee of the Company.
5. Vesting of Option. Subject to the provisions of Sections 7 and 8 hereof, this Option shall be fully vested immediately. These vested Options shall become exercisable only after two (2) years from the Date of this Option and is then exercisable for a period of eight (8) years thereafter, unless this Agreement is terminated earlier pursuant to Sections 7 or 8. If the Company experiences a Reorganization as defined in Section 10, then all remaining unvested Options owned by the Optionee will vest immediately and be exercisable in accordance with Section 6 of this Agreement, subject to the consummation of such Reorganization. Any unexercised Options after the Reorganization event shall be forfeited.
6. Exercise. This Option shall be exercised by delivery to the Company of (a) written notice of exercise stating the number of Shares being purchased (in whole shares only) and such other information set forth on the form of Notice of Exercise attached hereto as Appendix A , (b) a check or cash in the amount of the Exercise Price of the Shares covered by the notice (or such other consideration as has been approved by the Board of Directors) and (c) a written investment representation as provided for in Section 13 hereof. Notwithstanding anything to the contrary contained in this Option, this Option may be exercised by presentation and surrender of this Option to the Company at its principal executive offices with a written notice of the holder’s intention to effect a cashless exercise, including a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof (a “ Cashless Exercise ”). In the event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the holder shall surrender this Option for that number of shares of Common Stock determined by multiplying the number of Shares to which it would otherwise be entitled by a fraction, the numerator of which shall be the difference between the then current Market Price per share of the Common Stock and the Exercise Price, and the denominator of which shall be the then current Market Price per share of Common Stock. For example, if the holder is exercising 100,000 Options with a per exercise price of $0.75 per share through a cashless exercise when the Common Stock’s current Market Price per share is $2.00 per share, then upon such Cashless Exercise the holder will receive 62,500 shares of Common Stock. Market Price is defined as the average of the last reported sale prices on the principal trading market for the Common Stock during the five (5) trading days immediately preceding such date. This Option shall not be assignable or transferable, except by will or by the laws of descent and distribution, and shall be exercisable only by Optionee during his or her lifetime, except as provided in Section 8 hereof. With respect to the public resale of the Common Stock received from any exercise of this Option, Optionee shall at all times be subject to the restrictions, conditions and requirements applicable to an affiliate of the Company, as described in Rule 144 of the Securities Act of 1933, as amended, even if the Optionee or Optionee’s assignees and successors are not affiliates of the Company.
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7. Termination of Employment. If Optionee shall cease to serve as an employee of the Company or the Company’s subsidiary for any reason, whether voluntarily or involuntarily, other than by his or her death, Optionee (or if the Optionee shall die after such termination, but prior to such exercise date, Optionee’s personal representative or the person entitled to succeed to the Option) shall have the right at any time within twenty-four (24) months following such termination of service to the Company or the remaining term of this Option, whichever is less, to exercise in whole or in part this Option to the extent, but only to the extent, that this Option was exercisable as of the date of termination of service to the Company and had not previously been exercised. However, if Optionee is terminated “for cause”, this Option shall automatically terminate as to all Shares covered by this Option not exercised prior to termination. For purposes of this Section 7, “for cause” shall mean (i) the commission of, or plea of guilty or no contest to, a felony or a crime involving moral turpitude or the commission of any other act involving willful malfeasance or material fiduciary breach with respect to the Company or an Affiliate; (ii) conduct that results in or is reasonably likely to result in material harm to the reputation or business of the Company or any of its affiliates; (iii) gross negligence or willful misconduct with respect to the Company or an affiliate; or (iv) material violation of state or federal securities laws.
Unless earlier terminated, all rights under this Option shall terminate in any event on the expiration date of this Option as defined in Section 4 hereof.
8. Death of Optionee. If the Optionee shall die while in the employ of the Company, Optionee’s personal representative or the person entitled to Optionee’s rights hereunder may at any time within twenty-four (24) months after the date of Optionee’s death, or during the remaining term of this Option, whichever is the lesser, exercise this Option and purchase Shares to the extent, but only to the extent, that Optionee could have exercised this Option as of the date of Optionee’s death; provided, in any case, that this Option may be so exercised only to the extent that this Option has not previously been exercised by Optionee.
9. No Rights as Shareholder. Optionee shall have no rights as a shareholder with respect to the Shares covered by any installment of this Option until the effective date of issuance of the Shares following exercise of this Option, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificate or certificates are issued except as provided in Section 10 hereof.
10. Recapitalization. Subject to any required action by the shareholders of the Company, the number of Shares covered by this Option, and the Exercise Price thereof, shall be proportionately adjusted for any increase or decrease in the number of issued shares resulting from a subdivision or consolidation of shares, or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company; provided however that the conversion of any convertible securities of the Company shall not be deemed having been “effected without receipt of consideration by the Company”.
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In the event of a proposed dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving entity, or a sale of all or substantially all of the assets or capital stock of the Company (collectively, a “ Reorganization ”), unless otherwise provided by the Board, this Option shall terminate immediately prior to such date as is determined by the Board, which date shall be no later than the consummation of such Reorganization. In such event, if the entity which shall be the surviving entity does not tender to Optionee an offer, for which it has no obligation to do so, to substitute for any unexercised Option a stock option or capital stock of such surviving of such surviving entity, as applicable, which on an equitable basis shall provide the Optionee with substantially the same economic benefit as such unexercised Option, then the Board may grant to such Optionee, in its sole and absolute discretion and without obligation, the right for a period commencing thirty (30) days prior to and ending immediately prior to the date determined by the Board pursuant hereto for termination of the Option or during the remaining term of the Option, whichever is the lesser, to exercise any unexpired Option or Options without regard to the installment provisions of Section 5; provided, however, that such exercise shall be subject to the consummation of such Reorganization.
Subject to any required action by the shareholders of the Company, if the Company shall be the surviving entity in any merger or consolidation, this Option thereafter shall pertain to and apply to the securities to which a holder of Shares equal to the Shares subject to this Option would have been entitled by reason of such merger or consolidation, and the installment provisions of Section 5 shall continue to apply.
In the event of a change in the shares of the Company as presently constituted, which is limited to a change of all of its authorized Stock without par value into the same number of shares of Stock with a par value, the shares resulting from any such change shall be deemed to be the Shares within the meaning of this Option.
To the extent that the foregoing adjustments relate to shares or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as hereinbefore expressly provided, Optionee shall have no rights by reason of any subdivision or consolidation of shares of Stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, and the number and price of Shares subject to this Option shall not be affected by, and no adjustments shall be made by reason of, any dissolution, liquidation, merger, consolidation or sale of assets or capital stock, or any issue by the Company of shares of stock of any class or securities convertible into shares of stock of any class.
The grant of this Option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge, consolidate, dissolve or liquidate or to sell or transfer all or any part of its business or assets.
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11. Taxation upon Exercise of Option. Optionee understands that, upon exercise of this Option, Optionee will recognize income, for Federal and state income tax purposes, in an amount equal to the amount by which the fair market value of the Shares, determined as of the date of exercise, exceeds the Exercise Price. The acceptance of the Shares by Optionee shall constitute an agreement by Optionee to report such income in accordance with then applicable law and to cooperate with Company in establishing the amount of such income and corresponding deduction to the Company for its income tax purposes. Withholding for federal or state income and employment tax purposes will be made, if and as required by law, from Optionee’s then current compensation, or, if such current compensation is insufficient to satisfy withholding tax liability, the Company may require Optionee to make a cash payment to cover such liability as a condition of the exercise of this Option.
12. Modification, Extension and Renewal of Options. The Board of Directors of the Company or a committee designated by the Board of Directors, may modify, extend or renew this Option or accept the surrender thereof (to the extent not theretofore exercised) and authorize the granting of a new option in substitution therefore (to the extent not theretofore exercised). Notwithstanding the foregoing provisions of this Section 12, no modification shall, without the consent of the Optionee, alter to the Optionee’s detriment or impair any rights of Optionee hereunder.
13. Investment Intent; Restrictions on Transfer.
(a) Optionee represents and agrees that if Optionee exercises this Option in whole or in part, Optionee will in each case acquire the Shares upon such exercise for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof; and that upon such exercise of this Option in whole or in part, Optionee (or any person or persons entitled to exercise this Option under the provisions of Sections 7 and 8 hereof) shall furnish to the Company a written statement to such effect, satisfactory to the Company in form and substance. If the Shares represented by this Option are registered under the Securities Act, either before or after the exercise of this Option in whole or in part, the Optionee shall be relieved of the foregoing investment representation and agreement and shall not be required to furnish the Company with the foregoing written statement.
(b) Optionee further represents that Optionee has had access to the financial statements or books and records of the Company, has had the opportunity to ask questions of the Company concerning its business, operations and financial condition, and to obtain additional information reasonably necessary to verify the accuracy of such information.
(c) Unless and until the Shares represented by this Option are registered under the Securities Act, all certificates representing the Shares and any certificates subsequently issued in substitution therefor and any certificate for any securities issued pursuant to any stock split, share reclassification, stock dividend or other similar capital event shall bear legends in substantially the following form:
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THESE SECURITIES HAVE NOT BEEN REGISTERED OR OTHERWISE QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE ‘SECURITIES ACT’) OR UNDER THE APPLICABLE OR SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE SECURITIES LAWS OF ANY STATE, UNLESS PURSUANT TO EXEMPTIONS THEREFROM. |
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and/or such other legend or legends as the Company and its counsel deem necessary or appropriate. Appropriate stop transfer instructions with respect to the Shares have been placed with the Company’s transfer agent.
14. Stand-off Agreement. Optionee agrees that, in connection with any registration of the Company’s securities under the Securities Act, and upon the request of the Company or any underwriter managing an underwritten offering of the Company’s securities, Optionee shall not sell, short any sale of, loan, grant an option for, or otherwise dispose of any of the Shares (other than Shares included in the offering) without the prior written consent of the Company or such managing underwriter, as applicable, for a period of at least one year following the effective date of registration of such offering.
15. Restriction Upon Transfer. The Shares may not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated by the Optionee except as hereinafter provided.
(a) Right of First Refusal. In the event Optionee desires to transfer any Shares during his or her lifetime, Optionee shall first offer to sell such Shares to the Company. Optionee shall deliver to the Company written notice of the intended sale, such notice to specify the number of Shares to be sold, the proposed purchase price and terms of payment, and grant the Company an option for a period of thirty days following receipt of such notice to purchase the offered Shares upon the same terms and conditions. To exercise such option, the Company shall give notice of that fact to Optionee within the thirty (30) day notice period and agree to pay the purchase price in the manner provided in the notice. If the Company does not purchase all of the Shares so offered during foregoing option period, Optionee shall be under no obligation to sell any of the offered Shares to the Company, but may dispose of such Shares in any lawful manner during a period of one hundred and eighty (180) days following the end of such notice period, except that Optionee shall not sell any such Shares to any other person at a lower price or upon more favorable terms than those offered to the Company.
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(b) Acceptance of Restrictions. Acceptance of the Shares shall constitute the Optionee’s agreement to such restrictions and the legending of his certificates with respect thereto. Notwithstanding such restrictions, however, so long as the Optionee is the holder of the Shares, or any portion thereof, he shall be entitled to receive all dividends declared on and to vote the Shares and to all other rights of a shareholder with respect thereto.
(c) Permitted Transfers. Notwithstanding any provisions in this Section 15 to the contrary, the Optionee may transfer Shares subject to this Agreement to his or her parents, spouse, children, or grandchildren, or a trust for the benefit of the Optionee or any such transferee(s); provided, that such permitted transferee(s) shall hold the Shares subject to all the provisions of this Agreement (all references to the Optionee herein shall in such cases refer mutatis mutandis to the permitted transferee, except in the case of clause (iv) of Section 15(a) wherein the permitted transfer shall be deemed to be rescinded); and provided further, that notwithstanding any other provisions in this Agreement, a permitted transferee may not, in turn, make permitted transfers without the written consent of the Optionee and the Company.
16. Covenant Not to Compete . As a material inducement for Optioniee to enter into this Agreement, and issue the Option, the Optionee hereby agrees that for a period of two (2) years following the date hereof (the “Non-Competition Period”), he shall not, directly or indirectly own, manage, operate, participate in, produce, represent, distribute and/or otherwise act on behalf of any person, firm, corporation, partnership or other entity which involves in the sale and marketing of content management software systems (the “Competitive Business”) anywhere in the world (collectively, the “Territory”); or hire any employee or former employee of the Company. Merger Sub, or Seller, Inc. to perform services in or involving the Competitive Business, unless the individual hired shall have departed the Company’s, Seller’s or Merger Sub’s employment at least twelve (12) months prior to the hiring. The Optionee may hire a former employee within (12) months of former employees’ employment upon written consent of the Company. The Optionee further covenants and agrees that during the Non-Competition Period, he will not directly or indirectly solicit or agree to service for their benefit or the benefit of any third-party, any of Seller’s, the Company’s Merger Sub or the Surviving Company’s (as defined in the Merger Agreement) customers. Notwithstanding the foregoing, nothing in this Section shall prohibit the Optionee from owning, managing, operating, participating in the operation of, or advising, consulting or being employed by any entity that is not involved in the Competitive Business, as long as such activities do not affect any responsibilities of employment or consultation at the Company or its subsidiaries, including the Merger Sub or the Surviving Company (as defined in the Merger Agreement). The Optioneee acknowledges and agrees that the Company will expend substantial time, talent, effort and money in marketing, promoting, managing, selling and otherwise exploiting the businesses the Company and the Merger Sub or the Surviving Company operate, in part by virtue of the Company acquisition of Seller pursuant to this Agreement, that he is receiving a substantial benefit from the transactions contemplated by the Merger Agreement and that the benefit received by the Company and the Optionee in agreeing to be bound by this Section is a material part of the consideration for the transactions contemplated by this Agreement. The Optionee recognize that this Section contains conditions, covenants, and time limitations that are reasonably required for the protection of the business of the Merger Sub, Surviving Company (as defined in the Merger Agreement) and the Company. If any limitation, covenant or condition shall be deemed to be unreasonable and unenforceable by a court or arbitrator of competent jurisdiction, then this Section shall thereupon be deemed to be amended to provide modification of such limitation, covenant and/or condition to such extent as the court or arbitrator (as applicable) shall find to be reasonable and such modification shall not affect the remainder of this Agreement. The Optionee acknowledges that, in the event the Optionee breaches this Agreement, money damages will not be adequate to compensate the Company for the loss occasioned by such breach. The Optionee therefore consents, in the event of such a breach, to the granting of injunctive or other equitable relief against the Optionee by any court of competent jurisdiction.
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17. Notices. Any notice required to be given pursuant to this Option shall be in writing and shall be deemed to be delivered upon receipt or, in the case of notices by the Company, five (5) days after deposit in the U.S. mail, postage prepaid, addressed to Optionee at the address last provided by Optionee to the Company.
18. Applicable Law. This Option has been granted, executed and delivered in the State of New York, and the interpretation and enforcement shall be governed by the laws thereof and subject to the exclusive jurisdiction of the courts located in the State of New York.
19. Limitation of Exercises After the Options are exercisable pursuant to Section 5 of this Agreement and notwithstanding anything else to the contrary herein, in no event shall the Optionee be entitled to exercise any portion of this Option, such that upon exercise of which the sum of (1) the number of shares of Stock beneficially owned by the Optioneed its affiliates (other than shares of Stock which may be deemed beneficially owned through the ownership of the unexercised portion of this Option or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Stock issuable upon the exercise of the Option with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Optionee and its affiliates of more than 4.99% of the outstanding shares of Stock (the “Beneficial Ownership Limitation”). For purposes of the proviso of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Optionee upon, at the election of the Optionee , not less than 61 days prior notice to the Company, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Optionee, as may be specified in such notice of waiver).
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In Witness Whereof , the parties hereto have executed this Option as of the date first above written.
COMPANY: |
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Digital Locations, Inc. |
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By: |
/s/ William E. Beifuss, Jr. |
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Name: |
William E. Beifuss, Jr. |
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Title: |
President |
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OPTIONEE: |
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By: |
/s/ Derek Jones |
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( signature ) |
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Name: |
Derek Jones |
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Appendix A
NOTICE OF EXERCISE
DIGITAL LOCATIONS, INC.
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Re: Nonstatutory Stock Option
1) Notice is hereby given pursuant to Section 6 of my Nonstatutory Stock Option Agreement that I elect to purchase the number of shares set forth below at the exercise price set forth in my option agreement:
Nonstatutory Stock Option Agreement dated: ____________
Number of shares being purchased: ____________
Exercise Price: $____________
A check in the amount of the aggregate price of the shares being purchased is attached.
OR
2) I elect a cashless exercise pursuant to Section 6 of my Nonstatutory Stock Option Agreement. The Average Market Price as of _______ was $_____.
I hereby confirm that such shares are being acquired by me for my own account for investment purposes, and not with a view to, or for resale in connection with, any distribution thereof. I will not sell or dispose of my Shares in violation of the Securities Act of 1933, as amended, or any applicable federal or state securities laws. Further, I understand that the exemption from taxable income at the time of exercise is dependent upon my holding such stock for a period of at least one year from the date of exercise and two years from the date of grant of the Option.
I understand that the certificate representing the Option Shares will bear a restrictive legend within the contemplation of the Securities Act and as required by such other state or federal law or regulation applicable to the issuance or delivery of the Option Shares.
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EXHIBIT 99.1
Digital Locations Acquires EllisLab – Creator of ExpressionEngine®
Award winning content management system to serve as the foundation for the Company’s new direction and strategy of using artificial intelligence to create personalized digital content
SANTA BARBARA, Calif., Dec. 03, 2018 (GLOBE NEWSWIRE) -- Digital Locations, Inc. (OTC: DLOC ), developer of an artificial intelligence platform for personalized digital content, today announced the execution of a definitive agreement under which the Company has acquired 100% of the issued and outstanding common stock of EllisLab, Inc., the creator of the popular content management system (“CMS”) ExpressionEngine.
Under continuous development for the past 15 years, ExpressionEngine is one of the most trusted, mature and feature-rich content management systems on the market today. ExpressionEngine has been used to power presidential campaign websites, such as Barack Obama in 2008 and Donald Trump in 2016, as well as websites from global companies such as Starbucks, Toyota, Disney and Nike.
Recently, EllisLab transformed ExpressionEngine into a free and open source software platform (FOSS), following in the footsteps of RedHat Linux, WordPress and other successful open source platforms. Management believes that doing so will increase the user base of ExpressionEngine and service revenue opportunities for EllisLab. From this community of users, the Company intends to collaborate, distill and develop its AI-based content personalization products and services.
Bill Beifuss, President of Digital Locations, commented, “After two years of actively pursuing an acquisition strategy in the information technology space, we are excited to have finally completed our first acquisition. Open source is a proven strategy and ExpressionEngine is a proven CMS. We look forward to working with the EllisLab team to capitalize on the next phase of growth in the content management market.”
Rick Ellis, Founder of EllisLab, added, "Although we've achieved significant market share in the commercial space and built a very loyal user base, the open-source market today is simply too big to ignore. We are extremely excited at the potential of using open source to drive growth for EllisLab and its partners, open doors to global markets previously unavailable to us and serve as a platform to deliver cutting-edge technology such as AI-based content personalization. We are excited to join Digital Locations and gain access to the resources needed to help fuel our future growth."
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About Digital Locations, Inc.
Digital Locations is developing an artificial intelligence (AI) platform to create highly personalized digital content and experiences for each and every person connected to the Internet. By combining AI technologies, such as machine learning and big data analytics, we intend to allow websites, mobile apps, email and other forms of digital communication to dynamically deliver personalized content that is relevant, engaging and motivates the user to action. From the automatic selection of colors and content to a completely personalized look and feel, website owners and marketers can create digital experiences that foster deep and personal connections with their users. This is all part of our bigger vision to ultimately use artificial intelligence to create complete original content that is personalized for everyone. To learn more about Digital Locations, please visit DigitalLocations.com .
About EllisLab, Inc.
Founded 17 years ago, EllisLab Inc. has one mission: to enable people to communicate online. To that end, it continues to lead the development of ExpressionEngine, a powerful and feature-rich content management system that powers hundreds of thousands of sites around the world. EllisLab also offers a range of services to the web industry. For more information, visit ExpressionEngine.com .
Safe Harbor Statement
Matters discussed in this press release contain statements that look forward within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this press release, the words "anticipate," "believe," "estimate," "may," "intend," "expect" and similar expressions identify such statements that look forward. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the statements that look forward contained herein, and while expected, there is no guarantee that we will attain the aforementioned anticipated developmental milestones. These statements that look forward are based largely on the expectations of the Company and are subject to a number of risks and uncertainties. These include, but are not limited to, risks and uncertainties associated with: the impact of economic, competitive and other factors affecting the Company and its operations, markets, product, and distributor performance, the impact on the national and local economies resulting from terrorist actions, and U.S. actions subsequently; and other factors detailed in reports filed by the Company.
Press Contact:
communications@digitallocations.com
(805) 456-7000
Source: Digital Locations, Inc.
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