THE CHILDREN’S INTERNET, INC. DEFINITIVE STOCK PURCHASE AGREEMENT
Exhibit
1
THE
CHILDREN’S INTERNET, INC.
This
Definitive Stock Purchase Agreement (this
“Agreement”)
is
made and entered into as of October 19, 2007, by and between The
Children’s Internet, Inc.,
a
Nevada corporation (the “Company”),
Shadrack
Films, Inc.,
a
California corporation (“Shadrack”
and,
together with the Company, the “Sellers)
and
The
Children’s Internet Holding Company, LLC,
a
Delaware limited liability company (“Purchaser”)
and,
solely for purposes of Section 7.1(k) hereof, ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇
(“▇▇▇▇▇”)
and
▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ (“▇▇▇▇▇▇▇▇”)
.
Recitals
Whereas,
the
Company and Purchaser have entered into that certain Definitive Interim Stock
Purchase Agreement dated as of June 15, 2007, as amended (the “Interim
Agreement”)
and
pursuant to the terms of the Interim Agreement, desire to enter into this
Agreement, which will replace in its entirety the Interim Agreement; and
Whereas,
the
Company has authorized the sale and issuance of an aggregate of One Hundred
Twenty Million (120,000,000) shares of the Company’s common stock (the
“Company Shares”);
Whereas,
Shadrack desires to sell to Purchaser 8,040,988 shares of the Company’s common
stock (the “Shadrack
Shares”
and
together with the Company Shares, the “Shares”);
Whereas,
the parties have entered into that certain Escrow Agreement (the “Escrow
Agreement”),
dated July 13, 2007 and amended August 8, 2007, by and among the Company,
Purchaser, and U.S. Bank National Association, a national banking association,
as escrow agent (the “Escrow
Agent”)
under which the Company has deposited Four Million Five Hundred Thousand
(4,500,000) shares of its authorized and issued Common Stock (the “Escrowed
Shares”);
and
Whereas,
on
August 9, 2007 Purchaser paid to the Company as an advance deposit to be applied
towards the purchase price of the Company Shares the aggregate amount of
$150,000 (the “Deposit”).
Whereas,
on
August 17, 2007, Purchaser loaned to the Company an amount of $11,000 which
was
memorialized by an unsecured note to Purchaser for the principal and accrued
interest at an 8% annum interest rate, to be paid on or about November 17,
2007.
Agreement
Now,
Therefore,
in
consideration of the foregoing recitals and the mutual promises,
representations, warranties, and covenants hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1.
Agreement
To Sell And Purchase.
1.1 Authorization
of Shares.
The
Company has authorized the sale and issuance to Purchaser of the Shares.
1.2 Sale
and Purchase of Company Shares.
At the
Closing (as hereinafter defined), the Company hereby agrees to issue and sell
to
Purchaser, and Purchaser agrees to purchase from the Company, One Hundred Twenty
Million (120,000,000) Shares for an aggregate purchase price of Seven Million
Five Hundred Thousand Dollars ($7,500,000) (the “Company
Shares Purchase Price”).
1.3 Sale
and Purchase of Shadrack Shares.
At the
Closing (as hereinafter defined), Shadrack hereby agrees to sell to Purchaser,
and Purchaser agrees to purchase from Shadrack, the Shadrack Shares for an
aggregate purchase price of Five Hundred Thousand Dollars ($500,000) (the
“Shadrack
Shares Purchase Price”).
1.4 Termination
of Interim Agreement.
Upon
execution of this Agreement, the Interim Agreement will be terminated and be
of
no further effect.
2.
Closings,
Delivery and Payments.
2.1 Closing.
The
closing of the sale and purchase of Company Shares under Section 1.2 and the
Shadrack Shares under Section 1.3 of this Agreement (the “Closing”)
shall
take place sixty (60) days from the date hereof or upon all conditions being
satisfied under Section 6 of this Agreement, whichever occurs first (the
“Closing
Date”),
or at
such other date as may be agreed to by the Parties, at a time and place to
be
agreed.
2.2 Delivery.
(a) At
the
Closing, subject to the terms and conditions hereof, the stock certificates
representing the number of Company Shares to be purchased by Purchaser shall
be
delivered to Purchaser as follows: (i) the Company and Purchaser shall authorize
the Escrow Agent to release the stock certificate representing the Escrowed
Shares to Purchaser; and (ii) the Company shall deliver to Purchaser stock
certificates representing that number of shares equal to the number of Company
Shares minus the number of Escrowed Shares.
(b) At
the
Closing, subject to the terms and conditions hereof, the
Company Shares Purchase Price shall be paid as follows: (i) the amount of
$1,300,000 (or such lesser amount as may be agreed to) will be delivered to
the
Securities and Exchange Commission as provided in the consent and final judgment
or other documentation entered into or to be entered into in connection with
the
settlement of the SEC Litigation ( as defined below)(the “SEC
Payment”)
and (ii) an amount (the “Company
Proceeds”)
equal to (A) the Company Shares Purchase Price minus (B) the SEC Payment, the
Deposit and any amounts hereafter paid by Purchaser for operations of the
Company between the date hereof and the Closing, shall be paid by Purchaser
to
the Company in cash, by check or wire transfer.
(c) At
the Closing, subject to the terms and conditions hereof, Shadrack will deliver
to Purchaser a certificate representing the Shadrack Shares, free and clear
of
any lien or encumbrance, duly endorsed for transfer. Purchaser shall, as full
payment for the Shadrack Shares, deliver the Shadrack Shares Purchase Price
to
the Securities and Exchange Commission as provided in the consent and final
judgment or other documentation entered into or to be entered into in connection
with the settlement of the SEC Litigation .
(d) At
the
Closing, Purchaser shall pay $200,000 (or such greater amount as may be agreed
to in the event of a change in amount noted in Section 2.2(b)(i) above) towards
third party creditors of the Company who are not affiliated with Shadrack,
Two
Dog (as defined below) or any of their affiliates or any officers or directors
of the Company, as set forth in Exhibit G attached hereto.
(e) At
the
Closing, the Company shall provide Purchaser with copies of the non-competition
covenants in the form attached hereto as Exhibit H, executed by those parties
as
requested by Purchaser.
|
3.
|
Representations
And Warranties Of The Company.
|
Except
as
set forth in the Company’s Disclosure Schedule delivered to Purchaser on the
date hereof (the “Disclosure
Schedule”)
and
attached hereto as Exhibit D, the Company hereby represents and warrants to
Purchaser as of the date hereof as set forth below. The Disclosure Schedule
shall be organized in sections corresponding to the sections below.
3.1 Organization
and Good Standing: Articles of Incorporation and Bylaws.
The
Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of the state of its organization and (ii) has all
requisite corporate power and authority to carry on its business as now
conducted and proposed to be conducted. The Company (i) is duly qualified to
conduct business as a foreign corporation, and (ii) is in good standing as
a
foreign corporation in all jurisdictions where the properties owned, leased
or
operated by it are located or where its business is conducted, except where
the
failure to so qualify or be in good standing (a) is not reasonably likely to
have a material adverse effect on its business, condition, results of
operations, assets or liabilities, (b) will not impede in any material respect
the Company’s ability to perform its obligations under this Agreement, and (c)
will not render the Shares not to be validly issued (a “Material
Adverse Effect”).
3.2 Subsidiaries.
The
Company does not presently own or control, directly or indirectly, any equity
interest in any other corporation, partnership, trust, joint venture,
association or other entity.
3.3 Corporate
Power.
The
Company has all requisite legal and corporate power to enter into, execute,
deliver and perform its obligations under this Agreement. When executed and
delivered by the Company, and assuming due execution and delivery by the other
parties thereto, this Agreement is a valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors’ rights and remedies generally.
3.4 Authorization,
Etc.
(a) Corporate
Action.
All
corporate and legal action on the part of the Company, its officers, directors
and stockholders necessary for the execution and delivery of this Agreement,
the
authorization, sale and issuance of the Shares, and the performance of the
Company’s obligations hereunder and thereunder, has been taken, including
approval by the Company’s Board of Directors.
(b) Valid
Issuance.
The
Shares, when issued against payment in compliance with the provisions of this
Agreement, will be validly issued and will be fully-paid and nonassessable
and
delivered to Purchaser free and clear of any liens or other
encumbrances.
(c) No
Preemptive Rights.
No
person or entity has any right of first refusal or any preemptive or similar
rights in connection with the issuance of the Company Shares, or the issuance
of
any other securities by the Company.
(d) No
Voting Rights.
There
are no agreements to which the Company is a party with respect to the voting
or
transfer of any securities of the Company.
3.5 Noncontravention.
Neither
the execution, delivery and performance of and compliance with this Agreement
nor the issuance of any of the Company Shares will result in or constitute
any
breach, default or violation of or cause any acceleration of any obligation
under (i) any agreement, contract, lease, license, instrument or commitment
(oral or written) to which the Company is a party or is bound or (ii) any law,
rule, regulation, statute or order applicable to the Company, or result in
the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company.
3.6 Consents,
Etc.
No
consent, approval, order or authorization of, or designation, registration,
declaration or filing with, any federal, state, local or provincial or other
governmental authority or other person or entity on the part of the Company
is
required in connection with the valid execution, delivery and performance of
this Agreement or the offer, sale or issuance of the Shares other than
(i) those filings required under Regulation D under the Securities Act of
1933, as amended (the “Securities
Act”),
(ii)
if required, filings or qualifications under applicable state securities laws,
which filings or qualifications, if required, will be timely filed or obtained
by the Company and (iii) the consents, approvals, orders or authorizations
referred to in the conditions to this Agreement.
3.7 Offering.
Subject
to the accuracy of and in reliance upon Purchaser’s representations in Section 5
hereof, the offer, sale and issuance of the Company Shares in conformity with
the terms of this Agreement constitutes or will constitute at the time of their
offer, sale and issuance transactions exempt from the registration requirements
of Section 5 of the Securities Act, and the qualification or registration
requirements of any applicable state securities laws. The Company nor any person
acting on its or their behalf has taken or will undertake any action (including,
without limitation, any offering of any securities of the Company under
circumstances which would require the integration of such offering with the
offering of any securities under the Securities Act and the rules and
regulations of the Securities and Exchange Commission (the “SEC”)
thereunder) which might subject the offering, issuance or sale of such
securities to the registration requirements of Section 5 of the Securities
Act.
3.8 Capitalization.
(a) Schedule
3.8 hereof sets forth the authorized, issued and outstanding capitalization
of
the Company as of the date hereof, and all of the issued and outstanding shares
of capital stock reflected therein have been duly authorized and validly issued,
and are fully paid and nonassessable and have been offered, issued, sold and
delivered by the Company in compliance with all applicable federal and state
securities laws.
(b) Schedule
3.8 hereof sets forth all outstanding options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from either the Company or any of its subsidiaries of their shares of capital
stock or any securities convertible into or ultimately exchangeable or
exercisable for any shares of their capital stock. Except as contemplated by
this Agreement, neither the Company nor any of its subsidiaries is obligated
in
any manner to issue any shares of its capital stock or any other
securities.
(c) Following
the Closing, the rights, preferences and privileges of the Shares will be as
set
forth in the Articles.
3.9 SEC
Documents; Financial Information.
Within
the 12 month period preceding the date hereof, the Company has made all filings
with the SEC required under the Securities Exchange Act of 1934, as amended
(the
“Exchange
Act”).
The
Company has previously made available to Purchaser through the SEC’s ▇▇▇▇▇
system complete and accurate copies, as amended or supplemented through the
date
hereof, of the following forms filed with the SEC: (i) Form 10-KSB
under the Exchange Act for the fiscal year ended December 31, 2006;
(ii) Form 10-QSB under the Exchange Act for each of the periods ended March
31, 2007; and June 30, 2007 (iii) each Form 8-K filed by the Company during
fiscal year 2007 (such reports are collectively referred to herein as the
“Company
Reports”).
As of
their respective dates, the Company Reports complied as to form in all material
respects with the SEC’s requirements and did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under
which they were made, not misleading. The audited financial statements and
unaudited interim financial statements of the Company included in the Company
Reports (i) comply as to form in all material respects with applicable
accounting requirements and published rules and regulations of the SEC with
respect thereto, (ii) have been prepared in accordance with United States
generally accepted accounting principles (“GAAP”)
applied on a consistent basis throughout the periods covered thereby (except
as
may be indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by Form 10-QSB under the Exchange Act),
and
(iii) fairly presented in all material respects (subject, in the case of
the unaudited interim financial statements, to normal, year-end audit
adjustments, none of which will be material) the consolidated financial
condition, results of operations and cash flows of the Company as of the
respective dates thereof and for the periods referred to therein.
3.10 Indebtedness.
Attached
hereto on Schedule 3.10 is a complete and accurate listing of all the Company’s
current and long-term liabilities and all Indebtedness of the Company as of
September 15, 2007 (under the captions “Long Term Indebtedness” and “Short-Term
Indebtedness”. Except as set forth on Schedule 3.10, the Company has no
liabilities or Indebtedness, contingent or otherwise, other than liabilities
incurred in the ordinary course of business subsequent to September 15, 2007.
“Indebtedness”
with
respect to any Person means at any date, without duplication and without regard
to whether matured or unmatured, absolute or contingent: (i) all obligations
for
borrowed money; (ii) all obligations evidenced by bonds, debentures, notes,
or
other similar instruments; (iii) all obligations to pay the deferred purchase
price of property or services, except trade accounts payable arising in the
ordinary course of business; (iv) all obligations as lessee under capital
leases; (v) all obligations to reimburse or prepay any bank or other person
in
respect of amounts paid under a letter of credit, banker's acceptance, or
similar instrument, whether drawn or undrawn; (vi) all obligations to purchase
securities which arise out of or in connection with the sale of the same or
substantially similar securities; (vii) all obligations to purchase, redeem,
exchange, convert or otherwise acquire for value any capital stock any warrants,
rights or options to acquire such capital stock, now or hereafter outstanding,
(viii) all obligations to repurchase assets previously sold (including any
obligation to repurchase any accounts or chattel paper under any factoring,
receivables purchase, or similar arrangement); (ix) obligations under interest
rate swap, cap, collar or similar hedging arrangements; and (x) all obligations
of others of any type described in clause (i) through clause (x) above
guaranteed by such Person.
“Long
Term Indebtedness”
shall
mean any Indebtedness pursuant to which it is contemplated and/or currently
scheduled, pursuant to the terms of the agreement(s) of such Indebtedness,
that
there will remain outstanding financial obligations on or after the date that
is
one-year after the Closing Date.
“Short
Term Indebtedness”
shall
mean any Indebtedness pursuant to which it is contemplated and/or currently
scheduled, pursuant to the terms of the agreement(s) of such Indebtedness,
that
all outstanding financial obligations will be satisfied and paid in full before
the date that is one-year after the Closing Date.
3.11 Judgments,
Etc.
Except
as set forth on Schedule 3.11 hereof, neither the Company nor any of its
subsidiaries is subject to the terms or provisions of any material judgment,
decree, order, writ or injunction of any court, governmental department,
commission, agency, instrumentality or arbitrator.
3.12 Proprietary
Assets.
(a) At
the
Closing, the Company (A) will own or have sufficient rights to all Proprietary
Assets (as defined in Section 3.12(e) below) used in The Children’s
Internet®”
business as currently conducted, including the Proprietary Assets currently
used
in Version 9.4 and 9.5 of The Children’s Internet software/online service, free
and clear of all liens and other encumbrances, and (B) will have taken
reasonable and customary measures and precautions necessary to protect and
maintain the confidentiality and secrecy of all its Proprietary Assets (except
the Proprietary Assets whose value would be unimpaired by public disclosure)
and
otherwise to maintain and protect the value of all its Proprietary
Assets.
(b) To
the
Company’s knowledge, the Company is not infringing, misappropriating or making
any unlawful use of or has at any time infringed, misappropriated or made any
unlawful use of, any Proprietary Asset owned or used by any other person or
entity. No claims or notices (in writing or otherwise) with respect to
Proprietary Assets have been communicated to the Company (A) to the effect
that the manufacture, sale, license or use of any Proprietary Assets as now
used
or currently offered or proposed for use or sale by the Company or any of its
subsidiaries infringes or potentially infringes, or constitutes a
misappropriation or unlawful use of, any copyright, patent, trade secret or
other intellectual property right of a third party, or (B) challenging the
ownership or validity of any of the rights of either the Company or any of
its
subsidiaries to or interest in such Proprietary Assets. The Company has not
received notice to the effect that any patents or registered trademarks, service
marks or registered copyrights held by them are invalid or not subsisting except
for failures to be valid and subsisting that could not reasonably be expected
to
have a Material Adverse Effect. To the Company’s knowledge, no other person or
entity is infringing, misappropriating or making any unlawful use of, and no
Proprietary Asset owned or used by any other person or entity infringes or
conflicts with, any Proprietary Asset used in or pertaining to the business
of
the Company or any of its subsidiaries.
(c) At
the
Closing, the Proprietary Assets used in or pertaining to the business of the
Company will be sufficient in the Company’s reasonable judgment to enable the
Company to conduct its business in the manner in which such business has been
and is being conducted and, to the Company’s knowledge, free from liabilities or
valid claims of infringement or misappropriation by third parties. The Company
has not licensed any of its Proprietary Assets to any person or entity on an
exclusive basis and they have not entered into any covenant not to compete
or
contract limiting their ability to sell their products in any market or
geographical area or with any person or entity other than restrictions in a
license agreement that are typical of those granted in the ordinary course
of
business in its industry.
(d) All
current and former employees of the Company and all current and former
consultants and independent contractors to the Company providing technical
services relating to the Company’s Proprietary Assets have executed and
delivered to the Company an agreement , the material provisions of which are
in
substance as protective to the Company as the terms of the form of Company
standard Mutual Non-Disclosure Agreement attached hereto as Exhibit E. Too
the
Company’s knowledge, no employee, officer or consultant of the Company is in
violation of any such agreement with the Company and all such agreements are
currently in effect. To the Company’s knowledge, no employee of the Company is
in violation of any term of any employment contract, patent disclosure agreement
or any other contract or agreement relating to the right of any such employee
to
be employed by the Company because of the nature of the business conducted
or to
be conducted by the Company or for any other reason and, to the Company’s
knowledge, the continued employment by the Company of its present employees
will
not result in any such violations.
(e) As
used
herein, “Proprietary
Assets”
means:
(A) any patent, patent application, trademark (whether registered or
unregistered), trademark application, trade name, fictitious business name,
service ▇▇▇▇ (whether registered or unregistered), service ▇▇▇▇ application,
mascot, costume, copyright (whether registered or unregistered), copyright
application, maskwork, maskwork application, trade secret, know-how, franchise,
system, computer software, computer program, source code, invention, design,
blueprint, engineering drawing, proprietary product, technology, proprietary
right or other intellectual property right or intangible asset ;
and (B)
any right to use or exploit any of the foregoing, but shall not include
Proprietary Assets of Two Dog Net, Inc. that were retained by Two Dog under
the
agreement referred to in Section 6.1(c) hereof.
3.13
Contracts.
(a) Schedule
3.13 hereof identifies each Material Contract (as defined below), other than
those Material Contracts filed with the SEC and listed as Exhibits on the
Company’s Form 10-KSB for the fiscal year ended December 31, 2006.
(b) The
Company has made available to Purchaser (in part via the SEC’s ▇▇▇▇▇ system)
accurate and complete copies of all Material Contracts, including all amendments
thereto. Neither the Company nor any of its subsidiaries has entered into any
oral Material Contracts. Each Material Contract or Other Contract (as defined
below) is valid and in full force and effect, is enforceable by either the
Company or its subsidiaries in accordance with its terms, and will continue
to
be so immediately following the Closing Date. Except as set forth on Schedule
3.13 hereof, no Material Contract, other Contract, agreement or instrument
contains any liquidated damages, penalty or similar provision that, if enforced
against the Company, would have a Material Adverse Effect. To the Company’s
knowledge, no party to any such contract, agreement or instrument intends to
cancel (prior to its scheduled termination), withdraw, modify or amend such
contract, agreement or instrument.
(c) Except
as
set forth on Schedule 3.13 hereof, the Company has not violated or breached,
or
committed any default under, any Material Contract, or any agreement, lease
or
other instrument involving payments to the Company or its subsidiaries of more
than $20,000 (“Other
Contracts”),
in any
material respect, and, to the Company’s knowledge, no other person or entity has
violated or breached, or committed any default under, any Material Contract
or
Other Contract in any material respect.
(d) Except
as
set forth on Schedule 3.13 hereof, to the Company’s knowledge, no event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time) will, or could reasonably be expected to, (a) result in a
violation or breach of any of the provisions of any Material Contract or Other
Contract, which individually or taken as a whole, would either result in a
loss
or liability in excess of $20,000 individually or $100,000 in the aggregate
or
otherwise have a Material Adverse Effect, (b) give any person or entity the
right to declare a default or exercise any remedy under any Material Contract
or
Other Contract, (c) give any person or entity the right to accelerate the
maturity or performance of any Material Contract or Other Contract, or (d)
give
any person or entity the right to cancel, terminate or materially modify any
Material Contract or Other Contract.
(e) None
of
the Material Contracts or Other Contracts contain any provision which would
require the consent of third parties to the sale and issuance of the Shares
or
any of the other transactions as contemplated hereunder or which would be
altered as a result of such transaction.
(f) For
purposes of this Agreement “Material
Contracts”
means
(i) all of the Company’s contracts, agreements, leases or other instruments
to which the Company is a party or by which the Company, its subsidiaries or
its
properties are bound, which involve prospective fixed and/or contingent payments
or expenditures by the Company of more than $50,000 or in excess of the normal
ordinary and usual requirements of its business or which extend for a term
of
more than a year from the date hereof, (ii) all of the Company’s and its
subsidiaries’ loans or advances to any person or entity, and all loan
agreements, bank lines of credit agreements, indentures, mortgages, deeds of
trust, pledge and security agreements, factoring agreements, conditional sales
contracts, letters of credit or other debt instruments to which the Company
is a
party, (iii) any guarantees by the Company, (iv) all material
operating or capital leases for equipment to which the Company is a party,
(v) all non-competition and similar agreements to which the Company is a
party, including any agreements restricting or affecting the development,
manufacturing or distribution of the Company’s products or services,
(vi) all contracts for the employment of any officer or employee,
(vii) all contracts, agreements or commitments with any agent, independent
contractor, advisor or dealer that are not cancelable by it on notice of not
longer than 30 days, (viii) all consulting agreements, (ix) all
distributor and sales agency agreements, (x) any collective bargaining or
union agreements, contracts or commitments, and (xi) all other contracts
filed, or required to be filed by the Company as an exhibit to the Company
Reports pursuant to Item 601 of Regulation S-B promulgated pursuant to the
Securities Act.
3.14 Registration
Rights.
Except
as set forth on Schedule 3.14 hereof, the Company has not agreed to grant to
any
person or entity any rights (including piggyback registration rights) to have
any securities of the Company registered with the SEC under the Securities
Act
or with any other governmental authority.
3.15 Absence
of Certain Changes.
Except
as set forth on Schedules 3.10 and 3.15 hereof, since December 31, 2006 there
has been no event or condition of any character which has had a Material Adverse
Effect on the Company including, but not limited to:
(a) any
damage, destruction, or loss, whether or not covered by insurance, materially
and adversely affecting the assets, financial condition, properties, operating
results or business of the Company;
(b) any
change or amendment to a Material Contract or Other Contract;
(c) any
satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by the Company, except a satisfaction, discharge or payment made
in
the ordinary course of business that it is not material to the assets,
properties, financial condition, operating results or business of the
Company;
(d) any
sale,
assignment or transfer of Proprietary Assets or other intangible assets, except
a sale, assignment or transfer made in the ordinary course of business that
is
not material to the assets, properties, financial condition, operating results
or business of the Company;
(e) any
resignation or termination of employment of any key officer of the Company;
(f) any
sale,
disposition, mortgage, pledge, transfer of a security interest in, or lien,
created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(g) any
declaration, setting aside a payment or other distribution in respect to any
of
the Company’s capital stock, or any direct or indirect redemption, purchase or
other acquisition of any of such stock by the Company;
(h) any
material change in accounting methods or practices the Company follows, whether
for general financial or tax purposes, or any change in depreciation or
amortization policies or rates;
(i) any
waiver by the Company of a material right or of a material debt owed to
it;
(j) any
creation, incurrence or assumption of any Indebtedness exceeding
$25,000;
(k) receipt
of notice that there has been a loss of, or material order cancellation by,
any
major customer of the Company; or any arrangement or commitment by the Company
to do any of the foregoing.
3.16 Taxes.
The
Company has timely filed or has obtained presently effective extensions with
respect to all federal, state, county, local and foreign tax returns which
are
required to be filed by it. Except as set forth on Schedule 3.16 hereof all
filed returns are true and correct in all material respects and all taxes shown
thereon to be due have been timely paid with exceptions not material to the
Company. None of the Company’s federal income tax returns have been audited by
the Internal Revenue Service, and no controversy with respect to taxes of any
type paid or payable by the Company is pending or, to the best of the Company’s
knowledge, threatened. Since its formation, the Company has made adequate
provisions on its books of account for all taxes, assessments and governmental
charges with respect to its business, properties and operations for such period.
The Company has withheld or collected from each payment made to each of its
employees the amount of all taxes required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositaries.
3.17 Property
and Assets.
Except
as set forth on Schedule 3.17 hereof, the Company has good and marketable title
to all of its material properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, security interest,
lease, charge or encumbrance, other than liens resulting from taxes which have
not yet become delinquent and liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or materially
impair the operations of the Company, and which have not arisen otherwise than
in the ordinary course of business.
3.18 Insurance.
The
Company has no insurance with respect to its properties, management, employees
and business.
3.19 Insolvency.
No
order has been made or petition presented or resolution passed for the winding
up of the Company nor has any action been taken to repossess goods in the
possession of the Company. No steps have been taken for the appointment of
an
administrator or receiver of any part of the property of the Company. To the
Company’s knowledge the Company has not been party to a transaction pursuant to
or as a result of which an asset owned, purportedly owned or otherwise held
by
it is liable to be transferred or re-transferred to another person or which
gives or may give rise to a right of compensation or other payment in favor
of
another person under the provisions of relevant bankruptcy or insolvency
law.
3.20 Compliance
with Corporate Instruments and Laws.
Except
as set forth on Schedule 3.20 hereof, the Company is not in violation of any
provisions of its Articles or Bylaws as currently in effect. The Company and
each of its subsidiaries is in compliance in all material respects with all
applicable laws, statutes, rules, and regulations of all governmental and
regulatory authorities. The Company and each of its subsidiaries is currently
in
compliance in all material respects with all applicable federal, state and
foreign laws, rules, regulations, proclamations and orders relating to the
importation or exportation of its products. All licenses, franchises, permits
and other governmental authorizations held by the Company and its subsidiaries
and which are necessary to their businesses are valid and sufficient in all
material respects for the businesses presently carried on by them.
The
Company is not in default in any material respect under any of such licenses,
franchises, permits or other governmental authorizations.
3.21 Litigation.
Except
as set forth on Schedule 3.21 hereof, there is no suit, action, proceeding,
claim or investigation pending or, to the Company’s knowledge, threatened
against the Company before any court or administrative agency which could have
a
Material Adverse Effect or which questions or challenges the validity of this
Agreement.
3.22 Corporate
Documents.
The
Company has made available to Purchaser and its counsel for their examination
true and complete copies of the Articles and Bylaws of the Company, each as
currently in effect and all resolutions adopted by the Company’s Board of
Directors. The Company also has made available to Purchaser and its counsel
for
their examination true and complete copies of all material permits, orders,
and
consents issued by any regulatory agency with respect to the Company, its
subsidiaries, or any securities of the Company, and all applications for such
permits, orders, and consents.
3.23 No
Brokers.
Neither
the Company, nor to the Company’s knowledge any of its shareholders, is
obligated for the payment of fees or expenses of any broker or finder in
connection with the origination, negotiation or execution of this Agreement,
or
in connection with any transaction contemplated hereby or thereby.
3.24 Related
Party Transactions.
(a) Except
as
provided on Schedule 3.24 hereof, none of the Company’s or any of its
affiliates, officers, directors, shareholders or employees, or any affiliate
of
any of such person, or to the knowledge of the Company, any supplier,
distributor or customer of the Company, has any material interest in any
property, real or personal, tangible or intangible, including Proprietary Assets
used in or pertaining to the business of the Company, except for the normal
rights of a stockholder.
(b) Except
as
provided on Schedule 3.24 hereof, there are no agreements, understandings or
proposed transactions between either the Company or any of its subsidiaries
and
any of its officers, directors, employees, affiliates, or, to the Company’s
knowledge, any affiliate thereof.
(c) Except
as
provided on Schedule 3.24 hereof, to the best of the Company’s knowledge, no
executive officer or director of the Company has any direct or indirect
ownership interest in any firm or corporation with which the Company has a
material business relationship, or any firm or corporation that competes in
any
material respect with the Company or any of its subsidiaries, except that
executive officers or directors of the Company may own stock in publicly traded
companies that may compete with the Company. Except as provided on Schedule
3.24
hereof, to the Company’s knowledge, no member of the immediate family of any
executive officer or director of the Company or any of its subsidiaries is
directly or indirectly interested in any Material Contract or Other Contract.
3.25 Anti-Dilution
and Other Shares.
The
issuance of the Shares will not result in the triggering of any anti-dilution
or
similar rights contained in any options, warrants, debentures or other
securities or agreements of the Company.
3.26 No
Material Adverse Effect.
Except
as described in the Company Reports, no event has occurred since
December 31, 2006 that has had or could be reasonably expected to have a
Material Adverse Effect.
3.27 Full
Disclosure. The
statements made by the Company contained in this Agreement and all other
documents delivered by the Company to Purchaser or Purchaser’s agents in
connection therewith, taken as a whole, do not contain any untrue statement
of a
material fact or omit to state a material fact necessary in order to make the
statements therein not misleading in light of the circumstances under which
such
statements were made.
3.28 No
Manipulation of Stock Price.
The
Company has not taken any action specifically designed to, or that might
reasonably be expected to (other than actions taken in the ordinary course
of
business), cause or result in an unlawful manipulation of the price of the
Common Stock.
4.
Representations
And Warranties Of Shadrack.
Shadrack
hereby represent and warrant to Purchaser as of the date hereof as set forth
below.
4.1 Organization
and Good Standing.
Shadrack (i) is corporations duly organized, validly existing and in good
standing under the laws of the state of its organization and (ii) has all
requisite corporate power and authority to carry on its business as now
conducted and proposed to be conducted.
4.2 Requisite
Power and Authority.
Shadrack has all necessary power and authority to execute and deliver this
Agreement and to carry out its provisions. All action on Shadrack’s part
required for the lawful execution and delivery of this Agreement has been taken.
Upon its execution and delivery, this Agreement will be a valid and binding
obligation of Shadrack, enforceable in accordance with its terms, except
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors’ rights and (b) as limited by general principles of equity that
restrict the availability of equitable remedies.
4.3 Conflicts
Under Contracts.
At
Closing, Shadrack will not be a party to, or bound by, any unexpired,
undischarged or unsatisfied written or oral contract, agreement, indenture,
mortgage, debenture, note or other instruments under the terms of which the
execution, delivery and performance by Shadrack of this Agreement and the
consummation of the transactions contemplated hereby will require a consent,
approval, or notice or result in a lien of the Shadrack Shares.
4.4 Title
to Shares.
Shadrack owns the Shadrack Shares free and clear of any charge, claim, community
property interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
4.5 Indebtedness.
Attached hereto on Schedule 4.5 is a complete and accurate listing of all
Shadrack’s Indebtedness as of the date hereof.
5. Representations
And Warranties Of Purchaser.
Purchaser
hereby represents and warrants to the Company as follows (provided that such
representations and warranties do not lessen or obviate the representations
and
warranties of the Company and Shadrack set forth in this
Agreement):
5.1 Organization
and Good Standing.
Purchaser (i) is a limited liability company duly organized, validly existing
and in good standing under the laws of the state of its organization and (ii)
has all requisite corporate power and authority to carry on its business as
now
conducted and proposed to be conducted.
5.2 Requisite
Power and Authority.
Purchaser has all necessary power and authority to execute and deliver this
Agreement and to carry out its provisions. All action on Purchaser’s part
required for the lawful execution and delivery of this Agreement has been taken.
Upon its execution and delivery, this Agreement will be a valid and binding
obligation of Purchaser, enforceable in accordance with its terms, except
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors’ rights and (b) as limited by general principles of equity that
restrict the availability of equitable remedies.
5.3 Investment
Representations.
Purchaser understands that the Shares have not been registered under the
Securities Act. Purchaser also understands that the Shares are being offered
and
sold pursuant to an exemption from registration contained in the Securities
Act
based in part upon Purchaser’s representations contained in the Agreement.
Purchaser hereby represents and warrants as follows:
(a) Purchaser
Bears Economic Risk.
Purchaser has substantial experience in evaluating and investing in private
placement transactions of securities in companies similar to the Company so
that
it is capable of evaluating the merits and risks of its investment in the
Company and has the capacity to protect its own interests. Purchaser must bear
the economic risk of this investment indefinitely unless the Shares are
registered pursuant to the Securities Act, or an exemption from registration
is
available. Purchaser understands that the Company has no present intention
of
registering the Shares. Purchaser also understands that there is no assurance
that any exemption from registration under the Securities Act will be available
and that, even if available, such exemption may not allow Purchaser to transfer
all or any portion of the Shares under the circumstances, in the amounts or
at
the times Purchaser might propose.
(b) Acquisition
for Own Account. Purchaser
is acquiring the Shares for Purchaser’s own account for investment only, and not
with a view towards their distribution.
(c) Purchaser
Can Protect Its Interest.
Purchaser represents that by reason of its, or of its management’s, business or
financial experience, Purchaser has the capacity to protect its own interests
in
connection with the transactions contemplated in this Agreement. Further,
Purchaser is aware of no publication of any advertisement in connection with
the
transactions contemplated in the Agreement.
(d) Accredited
Investor. Purchaser
represents that it is an accredited investor within the meaning of Regulation
D
under the Securities Act.
(e) Company
Information.
Purchaser has received and read the Company Reports and has had an opportunity
to discuss the Company’s business, management and financial affairs with
directors, officers and management of the Company and has had the opportunity
to
review the Company’s operations and facilities. Purchaser has also had the
opportunity to ask questions of and receive answers from, the Company and its
management regarding the terms and conditions of this investment.
(f) Rule
144. Purchaser
acknowledges and agrees that the Shares are “restricted securities” as defined
in Rule 144 promulgated under the Securities Act as in effect from time to
time
and must be held indefinitely unless they are subsequently registered under
the
Securities Act or an exemption from such registration is available. Purchaser
has been advised or is aware of the provisions of Rule 144, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: (A) the
availability of certain current public information about the Company; (B) the
resale occurring following the required holding period under Rule 144; and
(C)
the number of shares being sold during any three month period not exceeding
specified limitations.
5.4 Transfer
Restrictions.
(a) Purchaser
agrees not to make any disposition of all or any part of the Shares in any
event
unless and until:
(i) The
Company shall have received a letter secured by Purchaser from the SEC stating
that no action will be recommended to the SEC with respect to the proposed
disposition;
(ii) There
is
then in effect a registration statement under the Securities Act covering such
proposed disposition and such disposition is made in accordance with said
registration statement; or
(iii) Purchaser
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement setting forth the relevant circumstances
surrounding the proposed disposition, and if reasonably requested by the
Company, Purchaser shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, for Purchaser to the effect that such
disposition will not require registration of such Shares under the Act or any
applicable state securities laws. Notwithstanding the foregoing, no opinion
of
counsel shall be required in connection with a transfer made by gift, will
or
intestate succession, or in connection with a transfer by (A) a partnership
to its partners or former partners in accordance with partnership interests,
(B) a corporation to a wholly-owned subsidiary or a parent corporation that
owns all of the capital stock of Purchaser, or (C) a limited liability
company to its members or former members in accordance with their interest
in
the limited liability company; provided
that in
each case the transferee will agree in writing to be subject to the terms of
this Agreement to the same extent as if it were the original Purchaser
hereunder.
(b) Purchaser
understands and agrees that all certificates evidencing the shares to be issued
to Purchaser may bear the following legend:
THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”).
THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
5.5 No
Brokers.
Purchaser has not obligated itself or the Company for the payment of fees or
expenses of any broker or finder in connection with the origination, negotiation
or execution of this Agreement, or in connection with any transaction
contemplated hereby or thereby.
5.6 No
Manipulation of Stock Price.
Purchaser has not taken any action specifically designed to, or that might
reasonably be expected to, cause or result in an unlawful manipulation of the
price of the Common Stock.
6.
Conditions
To Closing.
6.1 Conditions
to Purchaser’s Obligations at Closing.
Purchaser’s obligations to purchase Shares are subject to the satisfaction (or
waiver by Purchaser), at or prior to the Closing Date, of the following
conditions:
(a) Consents,
Permits, and Waivers.
The
Company shall have obtained any and all consents, permits and waivers necessary
or appropriate for consummation of the transactions contemplated by the
Agreement (including any filing required to comply with the ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
Antitrust Improvements Act of 1976, and except for such as may be properly
obtained subsequent to the Closing).
(b) Resignation
of Officers and Directors.
Each of
the officers and each member of the Board of Directors of the Company, in each
case as designated by the Purchaser in its sole discretion, shall have resigned
from their officer and/or director positions, as applicable, with the Company,
effective as of the Closing, and Purchaser shall have received letters of
resignation in form and substance satisfactory to Purchaser from such
persons.
(c) Transfer
of Two Dog Proprietary Assets to the Company.
The
Company and Two Dog Net, Inc., a Utah corporation, (“Two
Dog”)
shall
have entered into an Assignment and Royalty Agreement, substantially in the
form
attached hereto as Exhibit
A, as of the date hereof and such Assignment and Royalty Agreement shall be
in
full force and effect as of the Closing .
(d) Corporate
Documents.
The
Company shall have delivered to Purchaser or its counsel, copies of all
corporate documents of the Company as Purchaser shall reasonably request,
including but not limited to resolutions of the Company’s Board of Directors
approving this Agreement and the transactions contemplated hereby and the
appointment of the directors designated by the Purchaser under paragraph (m)
below to the Board of Directors effective as of the Closing.
(e) Compliance
Certificate.
The
Company shall have delivered to Purchaser a Compliance Certificate, executed
by
the CEO of the Company, dated as of such Closing Date, to the effect that the
conditions specified in subsections (a), (b) and (g) of this Section 6.1
have been satisfied.
(f) Legal
Opinion.
Purchaser shall have received from legal counsel to the Company an opinion
addressed to it, dated as of the Closing, in substantially the form attached
hereto as Exhibit B.
(g) Representations
and Warranties True; Performance of Obligations.
The
representations and warranties made by the Company in Section 3 hereof
shall have been true and correct as of the date hereof and true and correct
in
all material respects as of the Closing (without giving effect to any
materiality or similar qualifications contained in such representations and
warranties), and the Company shall have performed all obligations and conditions
herein required to be performed or observed by it on or prior to the
Closing.
(h) SEC
Litigation Settlement.
(i) The
Company shall have received a proposed consent and final judgment with respect
to the SEC Litigation from the staff of Securities and Exchange Commission
(the
“Staff”)
reasonably satisfactory to the Purchaser containing substantially the terms
and
conditions set forth in Schedule 6.1(h) hereof; (ii) the Staff shall have
indicated that such proposed consent decree is being reviewed by the Commission
and (iii) there is a reasonable likelihood that such consent decree will be
approved by the Commission on substantially the terms set forth in Schedule
6.1(h) hereof. The “SEC
Litigation”
means
the litigation matter entitled Securities
and Exchange Commission vs. the Children’s Internet, Inc., ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇, and Two Dog Net,
Inc.,
in the
United States District Court, Northern District of California (Case No.
4:06-cv-06003-CW), or any other action or claim substantially similar to the
actions and claims described therein in which the Company is named as a
defendant.
(i) Amended
Articles.
The
Company shall have filed Amended and Restated Articles of Incorporation
substantially in the form attached hereto as Exhibit
C and
taken
all actions required under all applicable federal and state securities laws
in
connection with such Amended and Restated Articles of
Incorporation.
(j) Satisfaction
of Indebtedness.
The
Company shall have received evidence sufficient in Purchaser’s sole discretion
as to the matters set forth in Schedule 6.1(j).
(k) Waiver
of Indemnification. The
Company shall have received from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and any other person who may
be
entitled to indemnification from the Company with respect to the SEC Litigation
(as defined above), an agreement waiving any right to receive any such
indemnification after the Closing, including costs of defense, to the fullest
extent permitted under applicable law, which agreement shall provide, among
other things, that any amounts to be paid by or on behalf of ▇▇. ▇▇▇▇▇▇▇▇
pursuant to the Consent and Final Judgment entered into in the SEC Litigation
shall not be paid or reimbursed by the Company.
(l) Due
Diligence.
Purchaser will have completed its due diligence review of the Company and
indicated satisfaction with the results of such review in all respects no later
than twenty (20) business days from the date of this Agreement (the
“Final
Due Diligence Period”)
provided
that such Final Due Diligence Period shall be extended during such time as
the
Company is in violation of this Agreement.
(m) Appointment
of Directors.
The
persons designated by Purchaser shall be appointed to the Company’s Board of
Directors concurrent with the Closing. The persons designated by Purchaser
shall
have been appointed to the Board of Directors of the Company and all filings
and
notices required und applicable securities laws in connection therewith shall
have been made.
(n) Material
Adverse Effect.
Except
as set forth on Schedule 6.1(n) hereof, no event has occurred since
December 31, 2006 that has had or could be reasonably expected to have a
Material Adverse Effect.
(o) Deposit.
The
deposit into escrow of the Company Shares and the Shadrack Shares (as defined
above) within no later than sixty (60) days from the date of this Agreement
or
at such other date as may be agreed to by the Parties, at a time and place
to be
agreed.
(p) Noncompetition
Agreements.
The
Company shall have entered into Noncompetition Agreements with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, substantially in the form attached hereto as Exhibit H,
as
of the date hereof and such Noncompetition Agreements shall be in full force
and
effect as of the Closing.
6.2 Conditions
to Obligations of the Company.
The
Company’s obligation to issue and sell Shares at the Closing is subject to the
satisfaction (or waiver by the Company), on or prior to the Closing Date, of
the
following conditions:
(a) Deposit.
The
deposit into escrow of the Company Shares Purchase Price and Shadrack Shares
Purchase Price (as defined above) within no later than sixty (60) days from
the
date of this Agreement or at such other date as may be agreed to by the Parties,
at a time and place to be agreed.
(b) Representations
and Warranties True.
The
representations and warranties made by Purchaser in Section 4 hereof shall
have been true and correct as of the date hereof and true and correct in all
material respects as of the Closing (without giving effect to any materiality
or
similar qualifications contained in such representations and
warranties),.
(c) Performance
of Obligations.
Purchaser shall have performed and complied with all agreements and conditions
herein required to be performed or complied with by Purchaser on or before
the
Closing.
(d) SEC
Litigation Settlement.
(i) The
Company shall have received a proposed consent and final judgment with respect
to the SEC Litigation from the Staff reasonably satisfactory to the Company
and
its Board of Directors containing substantially the terms and conditions set
forth in Schedule 6.1(h) hereof; (ii) the Staff shall have indicated that such
proposed consent and final judgment is being reviewed by the Commission and
(iii) there is a reasonable likelihood that such consent and final judgment
will
be approved by the Commission on substantially the terms set forth in Schedule
6.1(h) hereof.
6.3 Conditions
to Obligations of Shadrack.
Shadracks’s obligation to sell Shares at the Closing is subject to the
satisfaction (or waiver by the Company), on or prior to the Closing Date, of
the
following conditions:
(a) Representations
and Warranties True.
The
representations and warranties in Section 4 made by Purchaser shall be true
and correct on the Closing Date, with the same force and effect as if they
had
been made on and as of said date.
(b) Performance
of Obligations.
Purchaser shall have performed and complied with all agreements and conditions
herein required to be performed or complied with by Purchaser on or before
the
Closing.
7.
Covenants.
7.1 Covenants
of the Company. The
Company covenants and agrees to perform as follows:
(a) Listing.
The
Company shall comply with all requirements of the OTC Bulletin Board with
respect to the issuance of the Company Shares and the listing of the Company
Shares.
(b) Non
Solicitation.
Prior to
the Closing, neither the Company, nor any of its officers, directors, employees
or agents shall solicit, discuss, negotiate or enter into any agreement or
understanding with any third party relating to a sale, merger or acquisition
of
the Company, or the sale of a material portion of the Company’s assets, without
the prior written consent of Purchaser.
(c) No
Manipulation of Stock.
The
Company shall not take any action designed to or that might reasonably be
expected to cause or result in unlawful manipulation of the price of the Common
Stock.
(d) Operation
of Business.
Excepting the obligations of the Company under the terms of this Agreement,
during the period for the date hereof until Closing, the Company shall operate
its business in the ordinary course consistent with reasonable and customary
business practices. Without limiting the foregoing, the Company will not,
without consent of the Board of Directors and ▇▇▇▇▇▇▇ ▇▇▇▇▇, which consent
shall
be timely and not unreasonably withheld.:
(i) change
or
amend any contract to which the Company is a party or enter into any
contract;
(ii) satisfy
or discharge any lien, claim or encumbrance or payment of any obligation by
the
Company, except a satisfaction, discharge or payment made in the ordinary course
of business that it is not material to the assets, properties, financial
condition, operating results or business of the Company;
(iii) sell,
assign or transfer any Proprietary Assets or other intangible assets, except
a
sale, assignment or transfer made in the ordinary course of business that is
not
material to the assets, properties, financial condition, operating results
or
business of the Company or the transfer of any Proprietary Assets contemplated
under this Agreement;
(iv) increase
the compensation of any officer, director or consultant of the Company;
(v) sell,
dispose of, mortgage, pledge, create a security interest in, or lien on any
of
its properties or assets, except liens for taxes not yet due or
payable;
(vi) declare
or set aside a payment or other distribution in respect to any of the Company’s
capital stock, or effect any direct or indirect redemption, purchase or other
acquisition of any of such stock by the Company;
(vii)
change
the accounting methods or practices the Company follows, whether for general
financial or tax purposes, or change any depreciation or amortization policies
or rates;
(viii) waiver
of
any material right or of any material debt owed to it;
(ix) create,
incur or assume any Indebtedness or materially increase any accounts payable;
(x) issue
or
agree to issue any shares of its capital stock or any options, warrants, rights
or agreements for the purchase or acquisition of any capital stock;
(xi) remove
any server or other material asset or equipment currently being used by the
Company or its related parties provided that the Company continues to comply
with the terms of use of such asset or equipment including as necessary payment
to Two Dog for the use and maintenance of such asset or equipment consistent
with past operations; or
(xii) engage
in
any action or transaction that materially alters the business or prospects
of
the Company.
(e) SEC
Filings.
The
Company shall file all filings with the SEC required in connection with the
execution of this Agreement and the transactions contemplated thereby and all
such filings shall be accurate and complete in all respects.
(f) Publicity.
Except
as may be required by applicable law, the Company shall make no public
announcements relating to the execution of this Agreement and the transactions
contemplated thereby without Purchaser’s prior express written consent, which
consent shall be timely and not unreasonably withheld.
(g) Notice
of Event of Default.
The
Company will promptly notify Purchaser of the occurrence of an Event of Default
under Section 8.2 hereof.
(h) Anti-Dilution.
For a
period of two years from the date hereof (the “Antidilution
Period”),
the
Company will not raise additional capital or offer excessive stock options,
rights offerings, cram downs and any other action designed to artificially
limit
or reduce minority shareholder rights and interests. Provided, however, that
during the Antidilution Period, the Company may raise additional capital or
issue stock options (including the promulgation of an employee stock option
plan) as long as the proposed capital raise or stock options issuances is
reasonable and customary to the industry.
(i) Maintenance
of Company Data.
The
Company shall maintain all Company data and shall ensure that any such material
data that may be stored on equipment owned by a third party or otherwise stored
off the Company premises shall be accessible to company personnel or returned
to
company premises.
(j) Access
to Due Diligence Materials.
During
the Final Due Diligence Period, the Company shall provide Purchaser with full
and complete access to all assets owned or used by the Company, including but
not limited to software source code, and all Company records, provided that
the
Company may require reasonable assurances that access to confidential
information be restricted to Purchaser personnel or consultants who have
executed a confidentiality and nondisclosure agreement in a form reasonably
acceptable to the Company and Purchaser. Any delay in delivery or execution
of
such confidentiality and nondisclosure agreement created by the Company shall
extend the due diligence period by the number of days delayed.
(k) Resignation
of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ as CEO and CFO and Appointment of ▇▇▇▇▇▇▇ ▇▇▇▇▇ as Acting
CEO
and Acting CFO.
(i) Upon
execution of this Agreement, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall resign as an officer of
the
Company (but shall remain on the Board of Directors) and the Board shall appoint
▇▇▇▇▇▇▇ ▇▇▇▇▇ as Acting Chief Executive Officer and Acting Chief Financial
Officer of the Company. The Board shall delegate day-to-day operating duties
for
the conduct of the Company’s business to ▇▇. ▇▇▇▇▇ to the fullest extent
provided in Nevada law, and ▇▇. ▇▇▇▇▇ will be free to discharge such duties
within the scope delegated by the Board.
(ii) ▇▇.
▇▇▇▇▇
shall consult regularly with the Board from time to time and shall seek Board
approval for all corporate actions which require Board approval under Nevada
law. Notwithstanding the foregoing, in the event the performance of ▇▇. ▇▇▇▇▇’▇
duties for the Company would place him in a conflict of interest with Purchaser,
▇▇. ▇▇▇▇▇ shall delegate such Company duties to the Board, who shall appoint
a
member or a committee of their members to act on behalf of the Company. ▇▇.
▇▇▇▇▇ shall be entitled to all of the rights and privileges afforded to the
chief executive officer and chief financial officer of a corporation under
Nevada law, including the right of access to all records of the Company and
the
right of indemnification as provided in the Company’s articles of incorporation
and bylaws. The Company shall cause ▇▇. ▇▇▇▇▇▇▇▇ to be available to regularly
consult with ▇▇. ▇▇▇▇▇ and his designees on all corporate operational matters
to
ensure an effective transition. ▇▇. ▇▇▇▇▇ will execute the Company’s standard
form of non-disclosure agreement in the form attached to this Agreement as
Exhibit E.
(iii) Prior
to
the Closing or earlier termination of this Agreement, the Company may not
terminate ▇▇. ▇▇▇▇▇ except for intentional misconduct to the material detriment
of the Company or his conviction of a crime of moral turpitude. In the event
of
termination of this Agreement prior to Closing, ▇▇. ▇▇▇▇▇ shall immediately
resign as acting chief executive officer and acting chief financial
officer.
(iv) In
addition to the foregoing, upon execution of this Agreement the Board shall
represent the Company with respect to the transactions described in this
Agreement, and the Company acknowledges that ▇▇. ▇▇▇▇▇ will continue to
represent Purchaser in connection with such transactions.
7.2 Covenants
of Purchaser. Purchaser
covenants and agrees to perform as follows:
(a) Purchaser will
not
directly or indirectly modify, change, or otherwise use the Company’s products,
trademarks, trade names or other assets without the express written consent
of
the Company. Purchaser further covenants that during the period for the date
hereof until Closing, it will make payments for all Company operations incurred
in the ordinary course of business and consistent with reasonable and customary
business practices.
(b) Purchaser will
not
use, disclose, transfer or make available any confidential information of the
Company except to its agents, attorneys, advisors and investors, as required
and
necessary to consummate this Agreement and the actions contemplated hereby.
If
the Agreement is not consummated for any reason, Purchaser agrees and will
return all Proprietary Assets in their original and modified forms to Company,
and agrees to safeguard and not disclose to anyone outside the Company any
proprietary or confidential information acquired during due diligence and up
until the Close. If the Agreement is not consummated for any reason, Purchaser
will provide executed Non-Disclosure Agreements from any and all employees,
agents, attorneys, advisors and investors who have had access to the Proprietary
Assets in the form as set forth in Exhibit E.
(c) Purchaser will
not
represent to any person, including the public, third parties, or governmental
agencies, that it has any authority to act on behalf of the Company prior to
the
Closing and shall not take any action or make any decision on behalf of the
Company prior to the Closing.
(d) Purchaser has
been
granted the right to use the term "The Children's Internet”, a registered
trademark licensed to the Company under an agreement with Two Dog, for the
sole
purposes of establishing an entity to consummate this Agreement. If this
Agreement is not consummated for any reason, Purchaser will immediately change
its name so that the name does not include the Company’s trademark. Purchaser
further agrees that Purchaser will not have acquired and will not claim any
right or interest in the trademark or trade name resulting from
Purchaser’s use
of
the trademark.
(e) Notice
of Event of Default.
Purchaser will promptly notify the Company of the occurrence of an Event of
Default under Section 8.1 hereof.
(f) Continuing
Litigation. Following
Closing, the Company will continue prosecution in the name of the Company the
complaint against Stonefield ▇▇▇▇▇▇▇▇▇ entitled The Children’s Internet, Inc. ▇.
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, et. al., Superior Court of Alameda, Case No. VG06206054
and the cross-complaint against ▇▇▇▇▇▇ & Yap entitled The Children’s
Internet, Inc. ▇. ▇▇▇▇▇▇ & ▇▇▇ et. al., Superior Court, County of Orange,
Case No. 04CC11623, under the terms and conditions as set forth in Exhibit
F.
8.
Events
of Default.
Upon
the
occurrence of a default by the Company or Purchaser (as applicable, the
“Defaulting
Party”),
the
obligations of the non-Defaulting Party shall be suspended until such Default
is
cured or is otherwise waived in writing by the non-Defaulting Party.
A
“Default”
shall
mean:
8.1 In
the
case of Purchaser:
(a) the
material breach by Purchaser of any covenant made by Purchaser under this
Agreement,
(b) a
material inaccuracy in or a material breach of any representation or warranty
made by Purchaser under this Agreement,
(c) the
Company is ready to proceed with the transactions contemplated hereby at
Closing, and Purchaser unreasonably elects to not proceed with such
transactions.
8.2 In
the
case of the Company:
(a) the
material breach by the Company of any covenant made by the Company under this
Agreement,
(b) a
material inaccuracy in or a material breach of any representation or warranty
made by the Company under this Agreement,
(c) Purchaser
is ready to proceed with the transactions contemplated hereby at Closing, and
the Company unreasonably elects to not proceed with such
transactions.
9.
Termination
9.1 Termination.
(a) This
Agreement may be terminated (whether before or after the execution of this
Agreement)
(i) by
mutual written consent of the Company and Purchaser, (ii) by the Company in
the
event of an Event of Default by Purchaser under Section 8.1 that remains uncured
for a period of ten (10) Business Days after notice of such Event of Default
and
(iii) by Purchaser in the event of an Event of Default by the Company under
Section 8.2 that remains uncured for a period of ten (10) Business Days after
notice of such Event of Default.
(b) Either
party may terminate this agreement if the Closing shall not have occurred on
or
before December 31, 2007 (unless the failure to close by such date shall be
due
to the action or failure to act of the party seeking to terminate).
9.2 Effect
of Termination.
In the
event of the termination of this Agreement as provided in Section 9.1, this
Agreement shall be of no further force or effect; provided,
however,
that the
termination of this Agreement shall not relieve either party from any liability
for a breach of its obligations hereunder prior to such termination.
9.3 Liquidated
Damages.
(a) In
the
event of termination by the Company under Section 9.1(a)(ii) hereof, the
Company’s sole remedy hereunder shall be retention of the Deposit as liquidated
damages and return of the Escrowed Shares, which shall be the sum total of
Company’s recovery, and Company shall not be entitled to recover any other
damages, fees or penalties of any kind or receive other payments or compensation
from the Purchaser pertaining to or resulting from said Event of
Default
(b) In
the
event of termination by Purchaser under Section 9.1(a)(iii) hereof, Purchaser’s
sole remedy hereunder shall be receipt of the Escrowed Shares and repayment
of
the Deposit as liquidated damages, which shall be the sum total of Purchaser’s
recovery, and Purchaser shall not be entitled to recover any other damages,
fees
or penalties of any kind or receive other payments or compensation from the
Company pertaining to or resulting from said Event of Default.
(c) In
the
event of termination under Sections 9.l (a)(i) or 9.1(b), all Escrowed Shares
will be returned to the Company and the Deposit and all other amounts advanced
to the Company by Purchaser for Company operations shall be repaid by the
Company.
10.
Miscellaneous.
10.1 Governing
Law.
This
Agreement shall be governed by and construed under the laws of the State of
California in all respects as such laws are applied to agreements among
California residents entered into and performed entirely within California.
The
parties agree that any action brought by either party under or in relation
to
this Agreement, including without limitation to interpret or enforce any
provision of this Agreement, shall be brought in, and each party agrees to
and
does hereby submit to the jurisdiction and venue of, any state or federal court
located in the County of Alameda, California.
10.2 Successors
and Assigns.
Except
as otherwise expressly provided herein, the provisions hereof shall inure to
the
benefit of, and be binding upon the parties hereto and their respective
successors, assigns, heirs, executors and administrators and shall inure to
the
benefit of and be enforceable by each person who shall be a holder of the Shares
from time to time; provided,
however,
that
prior to the receipt by the Company of adequate written notice of the transfer
of any Shares specifying the full name and address of the transferee, the
Company may deem and treat the person listed as the holder of such Shares in
its
records as the absolute owner and holder of such Shares for all
purposes.
10.3 Entire
Agreement.
This
Agreement, the exhibits and schedules hereto, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any oral or written
representations, warranties, covenants and agreements except as specifically
set
forth herein and therein. Each party expressly represents and warrants that
it
is not relying on any oral or written representations, warranties, covenants
or
agreements outside of the Agreement.
10.4 Severability.
In the
event one or more of the provisions of this Agreement should, for any reason,
be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal
or
unenforceable provision had never been contained herein.
10.5 Amendment
and Waiver.
Unless
otherwise provided, any provision of this Agreement may be amended, waived
or
modified upon the written consent of the Company, Shadrack and
Purchaser.
10.6 Delays
or Omissions.
It is
agreed that no delay or omission to exercise any right, power or remedy accruing
to any party, upon any breach, default or noncompliance by another party under
this Agreement or the Articles, shall impair any such right, power or remedy,
nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character on any party’s part
of any breach, default or noncompliance under this Agreement or under the
Articles or any waiver on such party’s part of any provisions or conditions of
the Agreement or the Articles must be in writing and shall be effective only
to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or the Articles, by law, or otherwise afforded to any party,
shall be cumulative and not alternative.
10.7 Notices.
All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given: (a) upon personal delivery to the party to be notified,
(b) when sent by confirmed electronic mail, telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five (5) days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one (1) day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be
sent
to the Company and Purchaser at the respective address as set forth on the
signature page hereof, or at such other address as the Company or Purchaser
may
designate by ten (10) days advance written notice to the other parties
hereto.
10.8 Expenses.
Each
party shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of the Agreement.
10.9 Titles
and Subtitles.
The
titles of the sections and subsections of the Agreement are for convenience
of
reference only and are not to be considered in construing this
Agreement.
10.10 Counterparts.
This
Agreement may be executed in any number of counterparts, each of which shall
be
an original, but all of which together shall constitute one
instrument.
10.11 Pronouns.
All
pronouns contained herein, and any variations thereof, shall be deemed to refer
to the masculine, feminine or neutral, singular or plural, as to the identity
of
the parties hereto may require.
10.12 California
Corporate Securities Law.
THE
SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
AND
THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN
EXEMPTION FROM SUCH QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH
CONSIDERATION BY THE COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION
FROM SUCH QUALIFICATION BEING AVAILABLE.
In
Witness Whereof,
the
parties hereto have executed this Agreement
as of
the date set forth in the first paragraph hereof.
| COMPANY: | PURCHASER: |
| The Childrens Internet, Inc. | The Children’s Internet Holding Company, LLC |
|
Signature: /s/
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Print
Name:▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
Title:
CEO
|
Signature:
/s/
▇▇▇▇▇▇▇ ▇▇▇▇▇
Print
Name:▇▇▇▇▇▇▇
▇▇▇▇▇
Title:Managing
Member
|
| SHADRACK: | ▇▇▇▇▇▇▇▇ (for purposes of Section 7.1 (k) only): |
| Shadrack Films, Inc. | ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ |
|
Signature: /s/
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Print
Name:▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
Title:
President
|
Signature: /s/
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
|
| ▇▇▇▇▇ (for purposes of Section 7.1 (k) only): | |
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇
Signature:
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
|
[Definitive
Stock Purchase Agreement Signature Page]
List
Of Exhibits
|
Assignment
and Royalty Agreement
|
Exhibit
A
|
|
Legal
Opinion
|
Exhibit
B
|
|
Amended
Articles
|
Exhibit
C
|
|
Disclosure
Schedule
|
Exhibit D
|
|
Mutual
Non-Disclosure Agreement
|
Exhibit
E
|
| Continuing Litigation Agreements | Exhibit F |
| Third Party Debt | Exhibit G |
|
Noncompetition
Agreements
|
Exhibit
H
|
Exhibit
A
to
ASSIGNMENT
AND ROYALTY AGREEMENT
October
19, 2007
FOR
GOOD
AND VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby
acknowledged, Two Dog Net, Inc., a
Utah
corporation (“Transferor”)
does
hereby sell, convey, assign, transfer, vest and deliver to The Childrens
Internet, Inc., a Nevada corporation (the “Company”),
its
successors and assigns, any and all of its rights, title, and interest in and
to
the assets as described in Appendix
I
hereto
(the “Assets”),
(the
“Assignment
and Transfer”).
The
Assignment and Transfer shall be effective as of the closing date (the
“Closing
Date”)
set
forth in that certain Definitive Stock Purchase Agreement of even date herewith
(the “Purchase
Agreement”)
without any further action by either party. This Agreement shall terminate
and
be void and of no legal effect in the event of termination of the Purchase
Agreement in accordance with its terms prior to the Closing Date. The Company
shall take no action perfecting the Assets transferred hereby until after the
Closing Date.
1. Royalties.
Transferor and the Company hereby agree that the Company shall pay to
Transferor, for the duration of the Royalty Period, and as additional
consideration for the transfer of the Assets, a one time payment, per
subscriber, of One Dollar ($1.00) for each subscriber of The Children’s Internet
secure online service that becomes a subscriber during the Royalty Period (the
“Royalty
Payment”).
The
“Royalty
Period”
shall
mean the two year period beginning on the Closing Date hereof and ending on
the
two year anniversary of the Closing Date hereof. Each Royalty Payment will
accrue upon receipt by the Company of its first monthly user fee (the
“Initial
User Fee”)
from
each such subscriber. Accrued Royalty Payments shall be paid within thirty
(30)
days after the end of the calendar quarter in which it accrues.
Each
Royalty Payment shall be accompanied by a corresponding royalty report setting
forth the number new subscribers received during the calendar quarter in which
the applicable royalties accrued, and the total Royalty Payment due. The Company
shall keep records in sufficient detail to permit the determination of Royalty
Payments payable hereunder and at the request and expense of Transferor will
permit Transferor to examine, upon thirty (30) days written notice to the
Company, during ordinary business hours once in each calendar year, such records
and other materials as may be reasonably necessary to verify or determine
royalties paid or payable under this Agreement. If no request for examination
of
such records and materials for a particular calendar month has been made by
Transferor within one (1) year after the end of said period, the right to
examine such records and materials for said period, and the obligation to keep
such records and materials for said period shall terminate. In the event that
any such examination reveals an underpayment by the Company, Transferor shall
notify the Company in writing of the total amount owing.
In
the
event that the Company agrees with such discrepancy, it shall pay the amount
equal to such underpayment promptly. In the event the Company disagrees with
such discrepancy and the parties are unable, after diligent effort, to resolve
the matter, the parties shall submit the matter to an independent accountant
reasonably agreed to by the parties who shall make a final determination as
to
the correct royalty payment owed. The fees and expenses of such independent
accountant shall be paid by the party who’s position does not prevail and was
determined to be incorrect by such accountant. Such fees shall be paid promptly
and within industry standards for services performed.
2.
Cancellation
of Stock Option and Company Stock Purchase Opportunity.
a. Cancellation
of Stock Option.
Transferor and the Company agree that on the Closing Date, the option to
purchase up to 18,000,000 shares of the Company’s common stock dated February
15, 2005 held by Transferor (the “Option”) will be cancelled without any further
action or any payment by the parties. Transferor further agrees not to exercise,
transfer or otherwise modify the Option in whole or in part on or prior to
the
Closing Date.
b. Company
Stock Purchase Opportunity.
After
the Closing Date, the Company shall set aside from its authorized and unissued
shares an aggregate of 12,857,142 shares of its common stock (the “Shares”)
solely for the purpose of offering such Shares to certain stockholders of
Transferor at a price of $0.07 per share, as further described below (the
“Offering”). The Shares will be made available only to stockholders of
Transferor who receive cash payments from the Securities and Exchange Commission
(the “SEC”) from an escrow fund of $900,000 set aside for such stockholders
under a final judgment entered into in connection with the SEC Litigation (as
defined in the Purchase Agreement) and only to the extent of such payments.
The
Offering will be held open for a period of ninety (90) days following the date
of the cash distribution by the SEC. The Shares will be offered under SEC
Regulation D.
3.
Representations
and Warranties.
a. Transferor
is a corporation duly organized, validly existing and in good standing under
the
laws of the state of Utah and has all requisite corporate power and authority
to
carry on their business as now conducted and proposed to be
conducted.
b. Transferor
has all necessary power and authority to execute and deliver this Agreement
and
to carry out its provisions. All action on Transferor’s part required for the
lawful execution and delivery of this Agreement (including approval of its
board
of directors and stockholders, if necessary) has been taken. Upon its execution
and delivery, this Agreement will be a valid and binding obligation of
Transferor, enforceable in accordance with its terms, except (a) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditors’ rights and
(b) as limited by general principles of equity that restrict the
availability of equitable remedies.
c. Transferor
is not be a party to, or bound by, any unexpired, undischarged or unsatisfied
written or oral contract, agreement, indenture, mortgage, debenture, note or
other instruments under the terms of which the execution, delivery and
performance by Transferor of this Agreement and the consummation of the
transactions contemplated hereby will require a consent, approval, or notice
or
result in a lien on any of the Assets.
d. Attached
hereto on Schedule A is a complete and accurate listing of all Transferor’s
Indebtedness (as defined in the Purchase Agreement) as of the date
thereof.
e. Transferor
warrants that it is the sole owner of the entirety of the Assets, “The
Children’s Internet” product and the “Safe-Zone Technology,” including all
intellectual property related thereto, free and clear of any and all liens,
encumbrances, pledges, security interests, claims (including but not limited
to
creditor claims), agreements, promises or third party rights of any nature
whatsoever. Use of the Assets does not infringe, misappropriate or make any
unlawful use of or has at any time infringed, misappropriated or made any
unlawful use of, any Proprietary Asset ( as defined in the Purchase Agreement)
owned or used by any other person or entity. No claims or notices (in writing
or
otherwise) with respect to the Assets have been communicated to Transferor
(A) to the effect that the manufacture, sale, license or use of any Assets
infringes or potentially infringes, or constitutes a misappropriation or
unlawful use of, any copyright, patent, trade secret or other intellectual
property right of a third party, or (B) challenging the ownership or
validity of any of the rights of Transferor to or interest in the Assets.
Transferor has not received notice to the effect that any Assets are invalid
or
not subsisting. No other person or entity is infringing, misappropriating or
making any unlawful use of, and no Proprietary Asset owned or used by any other
person or entity infringes or conflicts with, any Asset.
f. Transferor
warrants that it has the right to enter into and perform each of the acts and
obligations described in this Agreement without violating any rights of any
third party. Transferor represents and warrants that the Assets and the proposed
use thereof by the Company consistent with its past practices do not and will
not violate the rights of any other party, and that the Assets are being
delivered in good working order without defects and fit for the use to which
the
Company is currently putting such Assets.
g. All
current and former employees of Transferor all current and former consultants
and independent contractors to Transferor who provided or are providing
technical services relating to the Assets have executed and delivered to
Transferor an agreement, the material provisions of which are in substance
as
protective to Transferor as the terms of the form of the Mutual Non-Disclosure
Agreement attached to the Purchase Agreement as Exhibit E. To Transferor’s
knowledge, no employee, officer or consultant of Transferor is in violation
of
any such agreement and all such agreements are currently in effect.
4. Use
of
Non-transferred Names and Trademarks.
Prior
to the Closing, Transferor shall cause the Company to remove from its software,
websites, printed materials and any other documents, programs or materials,
the
terms “Two Dog Net” and “Safe Zone Technology.”
5. General.
a. This
Assignment and Royalty Agreement shall be governed by and construed in
accordance with the internal laws of the State of California regardless of
the
laws that might otherwise govern under principles of conflict of laws applicable
thereto.
b. Transferor
agrees to reasonably cooperate with the Company to register or otherwise perfect
the Company’s interest in the assets assigned hereby.
c. Transferor
understands and acknowledges that the assignment of Assets effected hereby
is
for the purpose of investing in the Company the exclusive right to hold such
Assets for use in the Business and Transferor (for itself and its affiliates)
hereby agrees not to use the Assets or otherwise compete with the Company in
the
Business.
d. This
Assignment and Royalty Agreement supersedes and shall operate to terminate
all
prior license and other agreements relating to the subject matter hereof between
the parties hereto.
IN
WITNESS WHEREOF, the Company and Transferor have executed this Assignment and
Royalty Agreement effective as of the date first above written.
| “TRANSFEROR” | “COMPANY” |
| TWO DOG NET, INC. | THE CHILDRENS INTERNET, INC. |
|
By:
/s/
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Name:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title:
CEO
|
By:
/s/
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Name:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title:
CEO
|
APPENDIX
I
DESCRIPTION
OF ASSETS
The
“Assets” include the following:
1.
All of
Two Dog Net, Inc.’s right, title, and interest in and to the children's oriented
global computer network programming and internet service, including all previous
versions and any discontinued or disconnected functionality of that product,
currently being used and sold in Version 9.4 and 9.5 of The Children’s Internet
software/online service , including but not limited to the monitor program,
proxy service, flash animations (copyrighted or otherwise),search engine
service, browser program, secure e-mail software and services, education and
entertainment portals, and all its proprietary characters and content (including
costumes and mascots), web pages, manuals, Two Dog Net copyrights, other written
materials and home rooms and all trade secrets and other Proprietary Assets
relating thereto and including discontinued or disconnected features (the “The
Children’s Internet Technology”) as used in the business of selling,
distributing, marketing, manufacturing, building, designing, writing, installing
or creating children’s secured content based internet software (the
“Business”);
2.
Two
Dog Net, Inc.’s right, title, and interest in that certain software technology
known as Safe Zone Technology (the “Safe Zone Technology”) as used in the
Business;
3.
All of
Two Dog Net, Inc.’s right, title, and interest in and to the trademark
“Children's Internet” (the “The Children’s Internet ▇▇▇▇”), and any other
trademarks or trademark registrations related to the foregoing ▇▇▇▇ or The
Children’s Internet Technology
4.
All of
Two Dog Net, Inc.’s right, title, and interest in and to the url “Two Dog Home”
and any registrations related to the foregoing and any trademarks, service
marks
or trademark registrations relating to any of the Two Dog characters, costumes
or mascots.
5.
All
of
Two Dog Net, Inc.’s right, title, interest
in the promotional website content and domain names
▇▇▇.▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇,
▇▇▇.▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, ▇▇▇.▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ and ▇▇▇.▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇.
The
“Assets” do not include the following:
1.
Two
Dog Net, Inc.’s right, title, and interest in the Safe Zone Technology as used
in businesses or applications other than the Business; and
2.
Two
Dog Net Inc.’s right, title and interest in the Two Dog Net name and any
trademarks or trademark registrations relating to the Safe Zone Technology
name.