AGREEMENT AND PLAN OF REORGANIZATION
This
AGREEMENT AND PLAN OF REORGANIZATION dated as of September 14,
2007 (the “Agreement”), between Downside Up,
Inc .
,
a Colorado corporation (“DUI”), ESP
Resources Inc
. ,
a Delaware corporation (“ESP”) and DUI
Operations, Inc.
, a
wholly-owned Subsidiary of DUI in organization
(“Subsidiary”) and the shareholders of ESP, set forth
on Schedule A hereto (the “ESP Shareholders”). ESP, DUI
and Subsidiary may also be referred to herein as the
“Constituent Corporations” or the
“Parties.”
WHEREAS,
the Parties acknowledge and affirm the following:
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A.
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DUI
is a corporation duly organized and existing under the laws of
the State of Colorado.
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B.
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ESP
is a corporation duly organized and existing under the laws of
the State of Delaware.
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C.
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Subsidiary
is a corporation which is 100% owned by DUI and is duly
organized and existing under the laws of the State of
Delaware.
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D.
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The
Colorado Business Corporation Act and the Delaware General
Corporation Law permit the merger of ESP with and into the
Subsidiary..
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E.
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DUI
and ESP and their respective Boards of Directors declare it
advisable and to the advantage, welfare, and best interests of
said corporations and their respective stockholders to merge
Subsidiary with and into ESP pursuant to the provisions of
their respective state laws upon the terms and conditions
hereinafter set forth.
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F.
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The
respective Boards of Directors of DUI and ESP have approved
this Agreement; and the shareholders of ESP have approved the
merger.
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G.
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For
federal income tax purposes, it is intended that the merger
qualify as a tax free reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended (the
“IRC”).
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ARTICLE 1
THE MERGER
In
accordance with the provisions of this Agreement and
applicable provisions of their respective state laws,
Subsidiary shall be merged with and into ESP (the
“Merger”). Following the Merger, the separate
existence of Subsidiary shall cease and ESP shall be, and is
herein sometimes referred to as, the “Surviving
Corporation.” For the purposes of this Agreement, this
form of transaction may also be referred to herein as a
“reverse triangular merger.”
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1.2
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Filing and Effectiveness.
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The
Merger shall become effective when the following actions shall
have been completed:
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(a)
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This
Agreement and the Merger shall have been adopted and approved
by the shareholders of ESP and DUI in accordance with the
requirements of the Colorado Business Corporation Act and the
Delaware General Corporation Law ;
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(b)
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DUI
shall have formed a wholly-owned subsidiary for the purposes
of this Merger in accordance with the requirements of the DGCL
(the “Subsidiary”);
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(c)
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All
of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly
waived, in writing, by the Party entitled to satisfaction
thereof;
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(d)
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As
soon as practicable following the Closing, the Parties shall
execute a Certificate of Merger meeting the requirements of
the Colorado Business Corporation Act and the Delaware General
Corporation Law and file same with the Secretaries of State of
the States of Colorado and Delaware in substantially the form
attached hereto as Exhibit A; the time the Certificate of
Merger is filed with the Secretary of State of the State of
Colorado is the “Effective Time”; and
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(e)
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The
closing of the transactions described in this Agreement is
herein called the “Closing.” The Parties agree
that the Closing of the transactions identified in this
Agreement shall take place at the offices of Joseph J.
Tomasek, Esq., or at such other place as the Parties may
mutually determine, on or before October 31,
2007.
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(f)
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The
audit of the financial statements of ESP for the period ended
June 30, 2007 shall have been completed with all necessary
data and materials delivered by ESP to DUI.
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1.3
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Effect of the Merger.
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Upon
the Effective Time, hereinafter defined, and upon the terms
and subject to the conditions of this Agreement and in
accordance with applicable state laws, the separate existence
of Subsidiary shall cease and, ESP, as the Surviving
Corporation,: (i) shall continue to possess all of the assets,
rights, powers and property of ESP and Subsidiary as
constituted immediately prior to the Effective Time, and all
debts, liabilities and duties of ESP and Subsidiary shall
become the debts, liabilities and duties of the Surviving
Corporation, all as more fully provided under the applicable
provisions of the applicable state laws.
ARTICLE 2
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
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2.1
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Certificate of Incorporation: ESP.
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Attached
hereto as Exhibit B and made a part hereof is a copy of the
Certificate of Incorporation of ESP as in effect in the State
of Delaware immediately prior to the Closing; and at the
Effective Time said Certificate of Incorporation shall
continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended
in accordance with the provisions thereof and applicable
law.
Attached
hereto as Exhibit C and made a part hereof is a copy of the
Certificate of Incorporation of Subsidiary as in effect
immediately prior to the Closing.
Attached
hereto as Exhibit D and made a part hereof is a copy of the
Bylaws of ESP as in effect immediately prior to the Closing;
and at the Effective Time said Bylaws shall continue in full
force and effect as the Bylaws of the Surviving Corporation
until duly amended in accordance with the provisions thereof
and applicable law.
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2.4
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Directors and Officers.
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The
directors and officers of ESP immediately prior to the Closing
shall be the directors and officers of the Surviving
Corporation until their successors shall have been duly
elected and qualified or until as otherwise provided by law,
the Certificate of Incorporation of the Surviving Corporation
or the Bylaws of the Surviving Corporation. The Board of
Directors of DUI following the Merger shall consist of Michael
Cavaleri of DUI and David Dugas and Anthony Primeaux of ESP
until their successors shall have been duly elected and
qualified.
ARTICLE 3
TERMS OF MERGER, PAYMENT, EXCHANGE OF STOCK AND INVESTMENT
COMMITMENTS
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3.1
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Conversion of ESP Shares.
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Conversion
of Subsidiary Common Stock. At the Effective Time, each
outstanding share of the common stock no par value per share,
of Subsidiary shall, by virtue of the Merger and without any
action on the part of DUI, Subsidiary or ESP, be converted
into one fully paid and non-assessable share of common stock
of the Surviving Corporation.
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(b)
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Each
share of the common stock, $.0001 par value per share, of ESP
(“ESP Common Stock”) issued and outstanding prior
to the Effective Time shall by virtue of the Merger and
without any action on the part of DUI, Subsidiary, ESP or any
holder thereof, be converted into and be exchangeable for the
right to receive newly issued , fully paid and non-assessable
voting common shares, no par value, of DUI ("DUI Shares"),
based upon an exchange ratio (“Exchange Ratio”)
determined in accordance with the provisions
below.
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(c)
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Amount
of DUI Shares to be Exchanged :
Upon the Closing, DUI shall issue and exchange for the ESP
Common Stock with the ESP Shareholders newly issued DUI Shares
at the conversion rate of .608108 DUI Shares for each share of
the common stock of ESP.
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At
the Effective Time, each share of the ESP Common Stock held by
the ESP immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of
Merger Sub or the Company, be canceled, retired and cease to
exist and no payment shall be made with respect
thereto.
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No
Further Ownership Rights in ESP Common Stock. All DUI Shares
issued and exchanged in accordance with the terms of this
Article 3 shall be deemed to have been issued in full
satisfaction of all rights pertaining to the ESP Common
Stock.
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(d)
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Appraisal
Rights: This executed Agreement shall constitute each of the
ESP Stockholders' acknowledgment to decline any appraisal
rights under the statutes and laws of the State of Delaware.
By executing this Agreement, each ESP Stockholder acknowledges
receipt of written notice of appraisal rights and a copy of
the applicable section of the DGCL at least 20 days prior to
the date of executing this Agreement.
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3.2
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Status of DUI Common Shares.
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(a)
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The
DUI Common Shares to be issued to the ESP Shareholders in the
reorganization
will
not be registered under the Securities Act of 1933, as amended (the
"1933 Act") and may not be sold, transferred or otherwise disposed
of except in compliance with the 1933 Act or pursuant to an
exemption from the registration provisions thereof and the
Securities Exchange Act of 1934, as amended (the "1934
Act").
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(b)
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Each
Certificate representing the DUI Common Shares shall bear the
following or substantially similar legend:
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"The
Shares represented by this Certificate have not been
registered under
the
Securities Act of 1933, as amended. These Shares have been
acquired
for
investment purposes and not with a view to distribution or
resale, and
may
not be sold, assigned, pledged, hypothecated or otherwise
transferred
without
an effective Registration Statement for such Shares under
the
Securities
Act of 1933, as amended, or an opinion of counsel to the
effect
that
registration
is not required under such Act."
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ESP AND THE ESP
SHAREHOLDERS
ESP
and the ESP Shareholders represent and warrant to DUI that the
statements contained in this Article 4 are correct and
complete as of the date of this Agreement and will be correct
and complete as of the Closing as though made then and as
though the Closing were substituted for the date of this
Agreement throughout this Article 4, with respect to
itself.
ESP
is duly organized, validly existing, and in good standing
under the laws of Delaware.
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4.2
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Authorization of Transaction.
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(a)
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ESP
has
full corporate power and authority to execute and deliver this
Agreement and to perform his obligations hereunder. This
Agreement constitutes the valid and legally binding obligation
of ESP, enforceable in accordance with its terms and
conditions. Except as expressly contemplated hereby, ESP need
not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement.
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(b)
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The
ESP Shareholders, individually represent and warrant to DUI
that: this Agreement constitutes the legal, valid and binding
obligation of each of the ESP Shareholders and is enforceable
against each of them in accordance with the terms hereof; each
of them own their respective ESP Common Shares free and clear
of any and all liens, claims, pledges, restrictions,
obligations, security interests and encumbrances of any kind;
Attached hereto as Schedule A is an accurate and complete list
of the ESP Common Shares owned by each ESP Shareholder; none
of the ESP Shareholders have issued any calls, puts, options
and/or any other rights in favor of any third party whatsoever
with respect to their ESP Common Shares, and; none of their
respective ESP Common Shares are subject to any voting
agreements, voting trusts, stockholder agreements and/or any
other agreements, obligations or understandings.
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Neither
the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i)
violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court
to which ESP is subject or any provision of its charter or
bylaws; or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to
which ESP is a party or by which it is bound or to which any
of its assets is subject, except for such notices or consents
which have been given or obtained by ESP on or prior to the
Closing.
The
authorized capital stock of ESP consists of 100,000,000 shares
of Class A Common Stock, $.0001 par value per share, of which
29.6 million shares are issued and outstanding; 5,000,000
shares of Class B Common Stock, $.0001 par value per share,
none of which are issued and outstanding, and; 20,000,000
shares of Class A Preferred Stock, $.0001 par value per share
of which none are outstanding. There are no outstanding or
authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts
or commitments that could require ESP to issue, sell, or
otherwise cause to become outstanding any of its capital
stock. There is no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar
rights with respect to ESP’s Common Stock. There are no
voting trusts, proxies, or other agreements or understandings
with respect to the voting of the capital stock of
ESP.
The
ESP Shareholders are not acquiring the Common Shares of DUI
with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act of 1933. ESP
and the ESP Shareholders have had access to all information
concerning DUI and its operations which it required to make
its investment decision.
ESP
has incurred no obligation to pay any commission,
finder’s fee or other charge in connection with the
transactions contemplated in this Agreement for which DUI
could become liable or obligated. ESP and the ESP
Shareholders, jointly and severally, will indemnify and hold
DUI, and the Subsidiary, their respective officers, directors,
employees, accountants and lawyers harmless from and against
any and all liabilities and claims of any nature whatsoever
arising out of or in connection with any commission, fee or
charge so far as any arises by reason of services alleged to
have been rendered to, or at the instance of, ESP and/or the
ESP Shareholders. This
indemnification shall survive the Closing and shall be
included in the terms of indemnification set forth in Article
4.7 of this Agreement.
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4.7
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Events Subsequent to Fiscal Year End.
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Since
the most recent fiscal year end of ESP there has not been any
material adverse change in the business, financial condition,
operations, results of operations, or future prospects of ESP
taken as a whole. ESP and the ESP Shareholders, jointly and
severally, shall indemnify, defend and hold DUI and
Subsidiary, their successors and assigns, harmless from and
against any order, action, cost, claim, damage, disbursement,
expense, liability, loss, deficiency, obligation, penalty,
fine, assessment or settlement of any kind or nature, whether
foreseeable or unforeseeable, including, but not limited to,
any and all attorney’s fees, costs, and other expenses,
directly or indirectly, as a result of, or upon or arising
from (i) any inaccuracy or breach or non-performance of any of
the representations, warranties, covenants or agreements made
by ESP or the ESP Shareholders in or pursuant to this
Agreement, (ii) any order, action, cost, claim, damage,
liability or lien arising out of ESP’s or ESP
Shareholder’s conduct before or after the Closing, (iii)
any third party claims against ESP or the ESP Shareholders,
before or after the Closing that arise from ESP’s or ESP
Shareholder’s conduct, or (iv) any loss or liability the
proximate cause of which is determined to be the result of
ESP’s or ESP Shareholder’s negligence or failure
to comply with their respective obligations under this
Agreement. DUI and/or Subsidiary, as the case may be, their
successors and assigns, shall notify ESP and/or the ESP
Shareholders of any claim for indemnification with reasonable
promptness, and ESP’s or ESP’s legal
representatives or ESP Shareholder’s or their legal
representatives shall have, at their election, the right to
compromise or defend any such matter involving such asserted
liability of ESP and/or the ESP Shareholders through counsel
of their own choosing, at the expense of ESP and the ESP
Shareholders. ESP and the ESP Shareholders shall notify DUI
and the Subsidiary, or their successors or assigns, in writing
promptly of their intention to compromise or defend any claim
and DUI and/or the Subsidiary, or their successors or assigns,
shall cooperate with ESP and the ESP Shareholders, their
respective counsel in compromising or defending any such
claim, in accordance with Article 8 hereof. The terms of this
Article 4.7 shall survive Closing.
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4.8
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Undisclosed Liabilities.
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ESP
has no material liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent,
whether accrued or un-accrued, whether liquidated or
un-liquidated, and whether due or to become due, including any
liability for taxes), except for (i) liabilities set forth on
the ESP Financial Statements; and (ii) liabilities which have
arisen after the date of the ESP Financial Statements in the
ordinary course of business. As used herein, “ESP
Financial Statements” consist of the financial
statements of ESP previously delivered to DUI in the form
attached hereto as Exhibit E.
ESP
has complied with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof), and
no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or
commenced against ESP alleging any failure so to comply,
except where the failure to comply would not have a material
adverse effect on the business, financial condition,
operations, results of operations, or future prospects of
ESP.
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(a)
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ESP
has filed all income tax returns that it has been required to
file. All such income tax returns were correct and complete in
all material respects. All income taxes owed by ESP (whether
or not shown on any income tax return) have been paid. ESP is
not currently the beneficiary of any extension of time within
which to file any income tax return.
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(b)
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There
is no material dispute or claim concerning any income tax
liability of ESP either (i) claimed or raised by any authority
in writing; or (ii) as to which ESP has knowledge based upon
personal contact with any agent of such
authority.
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The
ESP Financial Statements disclose all material contracts of
ESP. Each contract or legal obligation of ESP which is to be
assumed by DUI in connection with the Merger is listed on
Exhibit F hereto. To the extent requested, true and correct
copies of such contracts have been delivered to DUI for due
diligence purposes.
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4.12
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Environmental, Health and Safety
Matters.
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ESP
and its predecessors and affiliates have complied and are in
compliance, in each case in all material respects, with all
Environmental, Health, and Safety Requirements. As used herein
“Environmental, Health & Safety Requirements”
means any Environmental, Health & Safety law or regulation
including air and water quality laws and regulations and other
similar requirements.
The
representations and warranties contained in this Article 4 do
not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the
statements and information contained in this Article 4 not
misleading.
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4.14
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Financial Statements.
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The
ESP Financial Statements are true and correct in all material
respects, have been prepared on a consistent basis, and fairly
represent the business, financial condition, assets and
liabilities of ESP.
There
is no claim, suit, action, proceeding or investigation pending
or, to the knowledge of ESP, pending against ESP or any of its
subsidiaries or assets which, individually or in the
aggregate, could reasonably be expected to have a material
adverse effect on ESP.
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4.16
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Materials Required for Audit
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To
the best of its knowledge, ESP has maintained its records,
data and materials related to the financial accounting of the
business, and have all such data and materials immediately
available, such that an audit may be completed per regulatory
requirements.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF DUI
DUI
represents and warrants to ESP and to the ESP Shareholders
that the statements contained in this Article 5 are correct
and complete as of the date of this Agreement and will be
correct and complete as of the Closing (as though made then
and as though the Closing were substituted for the date of
this Agreement throughout this Article 5).
DUI
is a corporation duly organized, validly existing, and in good
standing under the laws of Colorado. DUI has one subsidiary,
DUI Operations, Inc., the Subsidiary.
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5.2
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Authorization of Transaction.
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DUI
has full corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder, and
no approval of DUI’s shareholders is required under the
laws of Colorado to consummate the Merger and other
transactions contemplated in this Agreement. This Agreement
constitutes the valid and legally binding obligation of DUI,
enforceable in accordance with its terms and conditions.
Except as expressly contemplated hereby, DUI need not give any
notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency
in order to consummate the transactions contemplated by this
Agreement.
Neither
the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i)
violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court
to which DUI is subject or any provision of its charter or
bylaws; or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to
which DUI is a party or by which it is bound or to which any
of its assets is subject, except for such notices or consents
which have been given or obtained by DUI on or prior to the
Closing.
The
authorized capital stock of DUI consists of 20,000,000 shares
of Common Stock, no par value per share, and 5,000,000 shares
of Preferred Stock. As of the date of this Agreement, no
preferred shares are outstanding, 1,230,000 shares of Common
Stock are outstanding and upon the Closing, there shall be
6,000,000 shares of its Common Stock outstanding. There are no
outstanding options, warrants, or other outstanding purchase
rights, subscri
