EXHIBIT 2.1
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AGREEMENT OF MERGER
by and among
Semotus Solutions, Inc.,
Semotus Acquisition Company Ltd.
And
Clickmarks, Inc.
Dated: June 14, 2005
AGREEMENT OF MERGER
This Agreement of Merger (this "Agreement"), dated as of June 14, 2005, is
by and among Semotus Solutions, Inc., a Nevada corporation ("Parent"), Semotus
Acquisition Company Ltd., a Delaware corporation and a wholly-owned subsidiary
of Parent ("Sub") and Clickmarks, Inc., a California corporation (the
"Company"), and, solely with respect to Article XI hereof, ▇▇▇▇▇▇ ▇▇▇▇▇▇
Jurvetson ePlanet Ventures L.P., a principal shareholder of the Company
("Shareholders' Agent").
RECITALS
WHEREAS, the Company is engaged in the business of creating and marketing
computer software to provide a framework for development and delivery of
composite applications on web and portal interfaces (the "Business"); and
WHEREAS, the Boards of Directors of each of Parent, Sub and the Company
determined that it would be advisable and in the respective best interests of
each such corporation and its shareholder(s) that: (i) the Sub be merged with
and into the Company, with the Company as the surviving entity; and (ii) the
issued and outstanding shares of capital stock of the Company (the "Company
Shares") held by the shareholders of the Company (the "Shareholders"), will be
converted into the right to receive a number of shares of Common stock of Parent
(the "Parent Shares") and a number of shares of stock of Verisium, Inc., on a
pro rata basis determined in accordance the provisions of the Articles of
Incorporation of the Company governing the allocation of consideration in the
event of a merger or acquisition of the Company.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Defined Terms. As used herein, the terms below shall have the following
meanings. Any of such terms, unless the context otherwise requires, may be used
in the singular or plural, depending upon the reference.
"Affiliate" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder.
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"Closing Date" shall mean the date one business day following the
satisfaction of all of the conditions to closing under this Agreement or such
other date as Parent, Sub and the Company shall mutually agree upon.
"Contract" shall mean any agreement, contract, note, loan, evidence of
indebtedness, purchase order, letter of credit, franchise agreement,
undertaking, covenant not to compete, employment agreement, license, instrument,
obligation or commitment to which the Company is a party or is bound, whether
oral or written, but excluding all leases.
"Disclosure Schedule" shall mean a schedule executed and delivered by the
Company to Parent and Sub as of the date hereof which sets forth the exceptions
to the representations and warranties contained in Article V hereof and certain
other information called for by this Agreement. Unless otherwise specified, each
reference in this Agreement to any numbered schedule is a reference to that
numbered schedule which is included in the Disclosure Schedule.
"Effective Time" shall mean the date and time of receipt of the Agreement
of Merger for filing with the Secretary of State of the State of Delaware and
with the Secretary of State of the State of California, unless a delayed
effective time is specified therein.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
"Financial Statements" shall mean a) in the case of the Company, its
unaudited balance sheet dated as of March 31, 2005, and its unaudited income
statement for the period ended, March 31, 2005, and (b) in the case of Parent,
its consolidated audited balance sheet dated March 31, 2005, and its
consolidated statements of income, cash flow and changes in financial position
for the twelve month period ended March 31, 2005.
"Material Adverse Effect" or "Material Adverse Change" shall mean any
adverse effect or change in the condition (financial or other), business,
results of operations, assets, liabilities or operations of the Company or
Parent (each taken as a whole, including its subsidiaries), as applicable, or on
the ability of the Company or Parent, as applicable, to consummate the
transactions contemplated hereby, or any event or condition which would, with
the passage of time, constitute a material adverse effect or material adverse
change.
"Parent Average Stock Price" ("PASP") shall mean the simple average of the
closing price per share at which the common stock of Parent has traded on the
American Stock Exchange, for the thirty consecutive market trading days prior to
date of the execution of this Agreement.
"Permits" shall mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state
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or local, or any other person, necessary or desirable for the past, present or
anticipated conduct of, or relating to, the operation of the Business.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Verisium Shares" means the 300,000 shares of common stock of Verisium,
Inc., a California corporation, owned as of the date of this Agreement by the
Company.
1.2 Other Defined Terms. The following terms shall have the meanings set
forth in the indicated Sections. Certain other capitalized terms are defined
elsewhere in this Agreement.
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Term Section
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Action 5.15
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Business Recitals
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Business Plan 5.14
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CGCL 2.1
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Claim Notice 11.3(e)
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Closing 4.1
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Company Preamble
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Company Shares Recitals
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Company Stock Options 2.9
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DGCL 2.1
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Dispute Notice 3.2
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Dissenting Shares 2.10
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Dissenting Shareholder 2.10
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Expiration Date (Initial and Final) 11.1
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Indemnified Party 11.3(d)
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Indemnifying Party 11.3(d)
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Limitation 11.3(g)
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Merger Certificates 2.2
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Merger Consideration 3.1
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Parent Preamble
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Parent Indemnified Parties 11.3(a)
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Parent Shares Recitals
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Proprietary Rights 5.21(a)
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Pro Rata Basis 2.5
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Shareholder Indemnified Parties 11.3(b)
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Shareholders Recitals
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Shareholders' Agent Preamble
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Sub Preamble
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ARTICLE II.
THE MERGER: SHAREHOLDER APPROVAL
2.1 The Merger. Upon the terms and subject to the conditions hereof and in
accordance with the Delaware General Corporation Law (the "DGCL") and the
California General Corporation Law ("CGCL"), Sub shall be merged with and into
the Company (the "Merger") effective upon the filing of the Agreement of Merger
with the Delaware Secretary of State and the California Secretary of State (the
"Effective Time"). Following the Merger, the separate existence of Sub shall
cease, and the Company shall continue as the surviving corporation (the
"Surviving Corporation").
2.2 Effective Time. The parties hereto shall cause the Merger to be
consummated by filing the Agreement of Merger with respect thereto, together
with any related required certificates, with the Secretary of State of the State
of California (the "Agreement of Merger") in the form attached hereto as Exhibit
2.2. The parties shall also promptly cause a Certificate of Merger to be filed
with the Secretary of State of the State of Delaware, in accordance with the
relevant provisions of the DGCL.
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2.3 Effects of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Agreement of Merger and the
applicable provisions of the CGCL and the DGCL, including the effects set forth
in Section 259 of the DGCL and Section 1107 of the CGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, except
as otherwise provided herein, all of the property, rights, privileges, powers
and franchises of the Company and Sub shall rest in the Surviving Corporation,
and all debts, liabilities and duties of the Company and Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
2.4 Articles of Incorporation and By-laws of the Surviving Corporation;
Officers and Directors.
(a) At the Effective Time, Article IV of the Articles of Incorporation
of the Company shall be amended to read in its entirety as follows: "The total
authorized capital stock of the corporation shall be 1,000 shares of Common
Stock." Otherwise, the Articles of Incorporation of the Company shall be the
Articles Certificate of Incorporation for the Surviving Corporation until
thereafter changed or amended.
(b) The Bylaws of the Company, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
(c) From and after the Effective Time, until their successors are duly
elected or appointed and qualified, the officers and the Board of Directors of
Sub shall be the officers and directors, respectively, of the Surviving
Corporation.
2.5 Effect of the Merger on the Company Shares; Allocation of Merger
Consideration. At the Effective Time, by virtue of the Merger and without any
action on the part of the Shareholders, or the Board of Directors of the Parent,
Sub or the Company, i) all of the Company Shares held by the Shareholders (other
than Dissenting Shares) shall be converted into and represent the right to
receive, the Merger Consideration allocated among the Shareholders in accordance
with the Company's Articles of Incorporation, rounded to the nearest whole
share, as follows:
(a) Each share of Series D-1 Preferred Stock of the Company issued and
outstanding immediately prior to the Effective Time (excluding shares to be
cancelled in accordance with Section 2.6 and Dissenting Shares) shall be
converted and exchanged into the right to receive a portion of the Merger
Consideration, allocated pro rata among the such issued and outstanding shares
of Series D-1 Preferred Stock. Certificates representing the Parent Shares
(subject to the withholding and deposit with the Escrow Agent of 15% thereof in
accordance with Section 2.12) and the Verisium Shares included in the Merger
Consideration will be delivered to the Shareholders holding Series D-1 Preferred
Stock of the Company upon surrender to the Parent of valid stock certificates
formerly representing their Series D-1 Preferred Stock.
(b) Each share of Series A Preferred Stock, Series A-1 Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D
Preferred Stock (but not Series D-1
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Preferred Stock) of the Company issued and outstanding immediately prior to the
Effective Time (excluding any Dissenting Shares) shall be extinguished and
cancelled without consideration.
(c) Each share of Common Stock of the Company issued and outstanding
immediately prior to the Effective Time (excluding any Dissenting Shares) shall
be extinguished and cancelled without consideration.
2.6 Cancellation of Company Shares Owned by Parent. At the Effective Time,
each share of capital stock, if any, owned by the Parent or any direct or
indirect wholly owned subsidiary of the Parent, immediately prior to the
Effective Time shall be canceled and extinguished without any consideration.
2.7 Capital Stock of Sub. At the Effective Time, each share of common stock
of Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation. Each stock
certificate of Sub evidencing ownership of any such shares shall continue to
evidence ownership of shares of capital stock of the Surviving Corporation.
2.6 Surrender of Certificates. The procedures for surrendering outstanding
Company Shares for Merger Consideration pursuant to the Merger are as follows:
(a) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Parent shall mail to each Shareholder of record entitled to
share in the Merger Consideration (i) a letter of transmittal in such form and
with such provisions as Parent and the Company may reasonably specify and (ii)
instructions for surrendering the certificates formerly representing such
Company Shares in exchange for the Merger Consideration applicable thereto. Upon
surrender of such stock certificates for cancellation to the Parent, together
with such letter of transmittal, duly executed, the holder of such certificate
shall be entitled to receive the Merger Consideration therefor, and the
certificate so surrendered shall immediately be canceled.
(b) No Further Ownership Rights in the Company Shares. All shares of
Parent's Common Stock and Verisium Common Stock issued and delivered upon the
surrender for exchange of certificates formerly representing Company Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Company Shares, and from and after
the Effective Time there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the Company Shares which
were outstanding immediately prior to the Effective Time.
(c) No Fractional Shares. No certificate or scrip representing
fractional Parent Shares or Verisium Shares shall be issued upon the surrender
for exchange of certificates formerly representing Company Shares, and such
fractional share interest will not entitle the owner thereof to vote or to any
other rights of a stockholder of Parent. Notwithstanding any other provision of
this
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Agreement, each holder of Company Shares exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fraction of a share of a Parent
Share or Verisium Shares (after taking into account all Certificates delivered
by such holder) shall be rounded to the nearest whole Parent Share and the
nearest whole Verisium Share.
(d) Legends on Parent Shares. Certificates representing the Parent's
Shares will bear the following two legends:
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER SAID ACT OR
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
(ii) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER SET FORTH IN THE AGREEMENT AND PLAN OF MERGER
DATED JUNE 14, 2005, A COPY OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF
THE COMPANY. THIS RESTRICTION IS INDEPENDENT OF AND IN ADDITION TO THE
OTHER RESTRICTIONS ON TRANSFER NOTED HEREON."
(e) Legends on Verisium Shares. Certificates representing the shares
of Verisium Common Stock will bear the following legend:
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER SAID ACT OR
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
2.8 Shareholder Approval. The Company and its Board of Directors shall take
all action necessary in accordance with applicable law and the Company's
Articles of Incorporation and Bylaws to, prior to the Closing Date, prepare and
submit to the Shareholders for their approval and execution a written consent
without a meeting for the purpose of consenting to, and approving the principal
terms of (a) this Agreement, (b) the Merger and (c) any other action or
transaction by the Company contemplated by this Agreement that requires approval
of the Shareholders under the Company's Articles of Incorporation, the Company's
Bylaws or the CGCL (the "Merger Proposals"). The Company's Board of Directors
will recommend that the Shareholders vote in favor of approval of the Merger
Proposals and the Company shall use its commercially reasonable efforts to
secure the votes of the Shareholders required by the CGCL, the Company's
Articles of Incorporation and the Company's By-laws to effect the Merger.
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2.9 Treatment of Company Stock Options. The Company has outstanding certain
options and warrants to purchase Company Shares (the "Company Stock Options").
At the Effective Time, all such Company Stock Options shall terminate and
immediately expire, in accordance with the terms of the respective option and
warrant agreements, and the Company's Stock Option Plan. Any holders of Company
Stock Options who decide to exercise their Company Stock Options before the
Effective Date shall become Shareholders, and as such, shall be entitled to
participate in the allocation of the Merger Consideration, and as set forth in
2.5.
2.10 Dissenters' Rights. In the event the Merger becomes effective without
the approval of the holders of 100% of the outstanding Company Shares, any
Company Shares held by shareholders who properly exercise and perfect the
dissenters' rights as set forth in Chapter 13 of the CGCL ("Dissenting Shares")
shall not be converted pursuant to Section 2.5, but shall instead be converted
into the right to receive the fair value of such shares as may be determined to
be due with respect to such Dissenting Shares pursuant to the provisions of the
CGCL. Parent shall have the right to control all negotiations and proceedings
with respect to the determination of the fair value of the Company Shares. The
Company agrees that, without the prior written consent of Parent or as required
under the CGCL, it will not voluntarily make any payment with respect to, or
determine or offer to determine, the fair value of the Company's Common Stock or
Preferred Stock. Each holder of Dissenting Shares (a "Dissenting Shareholder")
who, pursuant to the provisions of the CGCL, becomes entitled to payment of the
fair value of Company Shares shall receive payment therefor (but only after the
fair value therefor shall have been agreed upon or finally determined pursuant
to the provisions of the CGCL). In the event that any holder of Company Shares
fails to make an effective demand for payment or otherwise loses his, her or its
status as a Dissenting Shareholder, Parent shall, as of the later of the
Effective Time or the occurrence of such event, issue and deliver, upon
surrender by such Dissenting Shareholder of his, her or its Certificate(s), the
Merger Consideration without interest thereon to which such Dissenting
Shareholder would have otherwise been entitled under this Agreement, if any.
2.11 Certain Tax Positions. The parties intend the Merger to qualify as a
reorganization under Section 368(a)(1)(A) and 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended (the "Code"). Each party represents and
warrants to the other that it (i) has had an opportunity to consult with its own
tax advisor concerning the execution of this Agreement (and the transactions
contemplated hereby) and (ii) has not relied on the advice or opinion (either
written or oral) of the tax advisor for the other party. Each party agrees that
it shall not take any action (unless provided for in this Agreement) that would
cause the Merger to fail to qualify as a reorganization under Section
368(a)(1)(A) and 368(a)(2)(E) of the Code.
2.12 Escrow. As soon as practicable after the Effective Time, and subject
to and in accordance with the provisions of Section 11.2 hereof, Parent shall
cause to be delivered to the Escrow Agent (as defined in Section 11.2 hereof)
certificates representing 15% of the aggregate number of Parent Shares to be
issued at the Closing (the "Escrow Shares") (which shall be registered in the
names of the respective Shareholders otherwise entitled to such shares). Such
shares shall be beneficially owned by such Shareholders and such shares shall be
held in escrow and shall be available to compensate Parent (and the Parent
Indemnified Parties) for certain Damages as provided in Section 11.3. To the
extent not used for such purposes, such shares shall be released, all as
provided in Section 11.2(d).
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ARTICLE III.
MERGER CONSIDERATION
3.1 Merger Consideration. From and after the Effective Time, each
certificate formerly representing Company Shares shall be deemed to represent
the right to receive, upon the surrender of such certificate, a portion of the
Merger Consideration, allocated among the respective classes and series of
capital stock of the Company as provided in the Company's Articles of
Incorporation, and as specified in Section 2.5 of this Agreement. The aggregate
Merger Consideration to be so allocated among the Shareholders, will be
determined as follows:
(a) 4,107,981 fully paid and non-assessable Parent Shares on the
Closing Date, equal to one million seven hundred fifty thousand dollars
($1,750,000.00) divided by the PASP, but not to exceed a maximum cap of
4,674,579 Parent Shares, plus
(b) 300,000 shares of Common Stock of Verisium, Inc. a California
corporation, currently held by the Company.
3.2 Adjustments to Merger Consideration. The Merger Consideration payable
with respect to the Company Shares shall be adjusted to reflect fully of any
stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Parent Shares), reorganization,
recapitalization or other like change with respect to Parent Shares, Verisium
Shares or the Common Stock or Preferred Stock of the Company occurring after the
date hereof and prior to the Effective Time.
ARTICLE IV.
CLOSING
4.1 Closing Date and Location. The closing of the transactions contemplated
herein (the "Closing") shall be held at 10:00 a.m. local time on the Closing
Date at the offices of Parent (1) on the first business day following the date
on which the last of the conditions set forth in Articles VIII and IX (other
than the filing of the Agreement of Merger) are satisfied or, to the extent
permissible, waived, or (2) on such other date and at such other time or place
as is mutually agreed by the parties hereto.
4.2 Obligations of the Company. At the Closing, the Company shall deliver
to Parent and Sub the following documents:
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(a) A certificate of good standing from the State of California dated
as of a date not more than ten (10) days prior to the Closing Date and
certifying that the Company is duly qualified and in good standing as of the
date of such certificate;
(b) The Officers' Certificate provided for in Section 9.3;
(c) The executed Agreement of Merger substantially in the form of
Exhibit 2.2; and
(d) A certificate of the Secretary of the Company certifying as to the
matters described in Section 9.1.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Sub as follows,
except as otherwise set forth on the Disclosure Schedule, which representations
and warranties are, as of the date hereof, true and correct:
5.1 Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
its properties owned or leased or the nature of its activities make such
qualification necessary, except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect. Copies of the Articles of
Incorporation and Bylaws of the Company, and all amendments thereto, heretofore
delivered to Parent and Sub are accurate and complete as of the date hereof.
Schedule 5.1 contains a true, correct and complete list of all jurisdictions in
which the Company is qualified to do business as a foreign corporation.
5.2 Capitalization. The authorized capital stock of the Company consists of
86,276,595 shares of common stock, $0.001 par value, of which 7,484,873 shares
are outstanding, and 67,132,812 shares of preferred stock of which 45,670,620
shares are outstanding, to be further adjusted for any conversion of Company
Stock Options and Warrants. All of the Company Shares have been validly issued
and are fully paid and non-assessable. No shares of common stock are held by the
Company as treasury stock. Except as set forth on Schedule 5.2, there is no
existing option, warrant, call, commitment or other security or agreement of any
kind to which the Company is a party requiring, and there are no convertible
securities of the Company outstanding which upon conversion would require, the
issuance of any additional shares of capital stock of the Company or other
securities convertible into shares of capital stock or any debt or equity
security of the Company of any kind.
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5.3 Subsidiaries. Except as set forth on Schedule 5.3, the Company does not
have any subsidiaries or any equity interest in another entity.
5.4 Authorization. The Company has all requisite corporate power and
authority, and, except for obtaining shareholder approval and filing the
Agreement of Merger with the California Secretary of State and filing a
Certificate of Merger with the Delaware Secretary of State, as required by law,
has taken all corporate action necessary, to execute and deliver this Agreement,
to consummate the transactions contemplated hereby and to perform its
obligations hereunder. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly approved by the board of directors of the Company. No
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and is a legal,
valid and binding obligation, enforceable against it in accordance with its
terms.
5.5 Employee Benefit Plans. Except as set forth on Schedule 5.5, the
Company does not have any Employee Benefit Plan as defined in the Employee
Retirement Income Security Act of 1974.
5.6 Tax Returns and Payments. The Company has filed all tax returns and
reports as required by law. These returns and reports are true and correct in
all material respects. The Company has paid, or has properly reserved cash for,
all taxes and other assessments due.
5.7 Title to Property and Assets. The Company owns its property and assets
free and clear of all mortgages, liens, loans and encumbrances, except such
encumbrances and liens which arise in the ordinary course of business and do not
materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in material
compliance with such leases and, to its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
5.8 No Adverse Change. Since March 31, 2005, except as set forth on
Schedule 5.8, there has not been
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not had,
in the aggregate, a Material Adverse Effect;
(b) any damage, destruction or loss, whether or not covered by
insurance, that has had a Material Adverse Effect on the business, properties,
prospects, or financial condition of the Company;
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(c) any waiver or compromise by the Company of a valuable right or of
a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or encumbrance
or payment of any obligation by the Company, except in the ordinary course of
business and that is not material to the business, properties, prospects or
financial condition of the Company;
(e) any material change to a material contract or agreement by which
the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or agreement
with any employee, officer, director or shareholder;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets, except for non-exclusive
software licenses to customers in the ordinary course of business;
(h) any resignation or termination of employment of any officer or key
employee of the Company; and the Company is not aware of any impending
resignation or termination of employment of any such officer or key employee;
(i) any 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;
(j) any loans or guarantees made by the Company to or for the benefit
of its employees, officers or directors, or any members of their immediate
families, other than travel advances and other advances made in the ordinary
course of its business;
(k) any declaration, setting aside or 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;
(l) to the Company's knowledge, any other event or condition of any
character that might materially and adversely affect the business, properties or
financial condition of the Company; or
(m) any arrangement or commitment by the Company to do any of the
things described in this Section 5.8.
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5.9 Contracts and Commitments.
(a) Contracts. Schedule 5.9(a) sets forth a complete and accurate list
of all Contracts of the following categories:
(i) Contracts not made in the ordinary course of business;
(ii) Employment contracts and severance agreements;
(iii) Labor or union contracts;
(iv) Distribution, franchise, license, sales, commission,
consulting agency or advertising contracts which are not cancelable on
thirty (30) calendar days notice or les, except for non-exclusive software
licenses to customers in the ordinary course of business s;
(v) Contracts involving expenditures or liabilities, actual or
potential, in excess of $10,000 or otherwise material to the Company, taken
as a whole, and not cancelable (without liability) within thirty (30)
calendar days or less;
(vi) Contracts or commitments relating to commission arrangements
with non-employee third parties;
(vii) Promissory notes, loans, agreements, indentures, evidences
of indebtedness, letters of credit, guarantees, or other instruments
relating to an obligation to pay money, whether the Company shall be the
borrower, lender or guarantor thereunder or whereby any assets are pledged
(excluding credit provided by the Company to its customers in the ordinary
course of business;
(viii) Contracts containing covenants limiting the freedom of the
Company or any officer, director, shareholder or affiliate, to engage in
any line of business or compete with any person;
(ix) Any Contract with the United States, state or local
government or any agency or department thereof;
(x) Leases of real property;
(xi) Leases of personal property not cancelable (without
liability) within thirty (30) calendar days; and
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(xii) Governmental or regulatory Permits or approvals required to
conduct the Business as presently conducted.
The Company has delivered to Sub and Parent true, correct and complete copies of
all of the written Contracts listed on Schedule 5.9, including all amendments
and supplements thereto, and a written summary setting forth the material terms
and conditions of each and every oral Contract listed on Schedule 5.9, including
all amendments and supplements thereto.
(b) Absence of Breaches or Defaults. Except as set forth in Schedule
5.9(b), all of the Contracts are valid and in full force and effect, subject to
the effect of bankruptcy, insolvency, moratorium or other similar laws affecting
the enforcement of creditors' rights generally and except as the availability of
equitable remedies may be limited by general principles of equity, and similar
exceptions. The Company has duly performed all of its obligations under the
Contracts, and no violation of, or default or breach under, any Contracts by the
Company or, to its knowledge, by any other party to such Contracts, has
occurred.
5.10 Permits. The Company has all Permits required to conduct its business
except such Permits the failure of which to obtain would not have a Material
Adverse Effect. All such permits are valid and in full force and effect and are
listed on Schedule 5.10. Except for filing the Agreement of Merger with the
California Secretary of State and a Certificate of Merger with the Delaware
Secretary of State, no notice to, declaration, filing or registration with, or
Permit from, any domestic or foreign governmental or regulatory body or
authority, or any other person or entity, is required to be made or obtained by
the Company or any Shareholder in connection with the execution, delivery or
performance of this Agreement and the consummation of the transactions
contemplated hereby.
5.11 Corporate Documents. The Articles of Incorporation and By-laws of the
Company are in the form provided to counsel for Parent and Sub. The copy of the
minute books of the Company provided to counsel for the Parent and Sub contains
minutes of all meetings of directors and shareholders and all actions by written
consent without a meeting by the directors and shareholders since the date of
incorporation of the Company and reflects all actions by the directors (and any
committee of directors) and shareholders with respect to all transactions
referred to in such minutes accurately in all material respects.
5.12 No Conflict or Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by the Shareholders or the Company with any
of the provisions hereof, will (1) violate or conflict with any provision of the
Company's Articles of Incorporation or By-laws, (2) violate, conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under any of the terms,
Page 14
conditions or provisions of any Contract, agreement, or other instrument or
obligation (a) to which the Company is a party or (b) by which the Company is
bound, or (c) violate any statute, rule, regulation, ordinance, code, order,
judgment, ruling, writ, injunction, decree or award to which the Company is
subject, or (d) impose any encumbrance restriction or charge on the Company or
the Business except in the case of each of clauses (a), (b), and (c) above, for
such violations, conflicts, breaches, defaults, terminations or accelerations
which, in the aggregate would not have a Material Adverse Effect.
5.13 Financial Statements. Except as set forth on Schedule 5.13, the
Financial Statements (1) have been prepared in accordance with generally
accepted accounting principles in the United States of America ("GAAP")
consistently applied throughout the periods covered thereby and (2) fairly and
accurately present the assets, liabilities (including all reserves) and
financial position of the Company as of the respective dates thereof, and the
results of operations and changes in cash flows for the periods then ended,
except that the Financial Statements may omit notes which are required to be
included with audited financial statements prepared in accordance with GAAP. At
the respective dates of the Financial Statements, there were no liabilities of
the Company which, in accordance with GAAP, should have been shown or reflected
in the Financial Statements or the notes thereto, which are not shown or
reflected in the Financial Statements or the notes thereto.
5.14 Disclosure. To the Company's knowledge, the Company has provided
Parent and Sub with substantially all the written information that has been
requested by the Parent's Due Diligence Request letter for deciding whether to
enter into this transaction and all information that the Company believes is
reasonably necessary to enable Parent and Sub to make such a decision, including
the Company's internal projections (the "Business Plan"). No representation or
warranty of the Company contained in this Agreement and the exhibits attached
hereto, any certificate furnished or to be furnished to Parent and Sub at the
Closing (when read together) contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made. The Business Plan was prepared by management of the
Company, and the financial and other projections contained therein were prepared
in good faith.
5.15 Litigation. There is no action, order, writ, injunction, judgment or
decree outstanding or any claim, suit, litigation, proceeding, labor dispute,
arbitral action, governmental audit or investigation (collectively, "Actions")
pending, or, to the Company's knowledge, threatened or anticipated (1) against,
related to or affecting: (a) the Company, or (b) any officers or directors of
the Company, (2) seeking to delay, limit or enjoin the transactions contemplated
by this Agreement, (3) that involve the risk of criminal liability, or (4) in
which the Company is a plaintiff, including any derivative suits. The Company is
not in default with respect to or subject to any judgment, order, writ,
injunction or decree of any court or governmental agency, and there are no
unsatisfied judgments against the Company.
Page 15
5.16 Labor Matters. The Company is not a party to any labor agreement with
any labor organization, union, group or association; there are no employee
unions (nor any other similar labor or employee organizations) under local
statutes, custom or practice; there has not been any attempt by organized labor
or its representatives to make the Company conform to demands of organized labor
relating to its employees or to enter into a binding agreement with organized
labor. There is no labor strike or labor disturbance pending or threatened, nor
is any grievance currently being asserted. The Company is in compliance in all
material respects with all applicable laws respecting employment practices,
employee documentation, terms and conditions of employment and wages and hours
and has not engaged in any unfair labor practice.
5.17 Liabilities. The Company does not have any liabilities, obligations or
commitments of any nature (whether absolute, accrued, contingent or otherwise
and whether matured or unmatured), including without limitation tax liabilities
due or to become due, except (1) liabilities which are reflected and/or reserved
against on the Financial Statements, which have not been paid or discharged
since the date thereof, (2) liabilities arising under Contracts, leases, letters
of credit, purchase orders, licenses, Permits, purchase agreements and other
agreements, business arrangements and commitments described in the Disclosure
Schedule (and under those Contracts which are not required to be disclosed on
the Disclosure Schedule) and (3) liabilities incurred since the date of the
Financial Statements in the ordinary course of business and consistent with past
practice and in accordance with this Agreement (none of which relates to any
breach of Contract, breach of warranty, tort, infringement or violation of law
or arose out of any Action), none of which, individually or in the aggregate,
has or would reasonably be expected to have a Material Adverse Effect.
5.18 Compliance with Law. The Company has not violated and is in compliance
with all laws, statutes, ordinances, regulations, rules and orders of any
foreign, federal, state or local government and any other governmental
department or agency, and any judgment, decision, decree or order of any court
or governmental agency, department or authority, except where the violation or
failure to comply, individually or in the aggregate, would not have a Material
Adverse Effect. The Company has not received any notice to the effect that it is
not in compliance with any such statutes, regulations, rules, judgments,
decrees, orders, ordinances or other laws. The Company has committed no act, and
there has been no omission, which may result in, and there has been no
occurrence which may give rise to, product liability or liability for breach of
warranty (whether covered by insurance or not) on the part of the Company, with
respect to products designed, manufactured, assembled, repaired, maintained,
delivered, shipped or installed or services rendered prior to or on the Closing
Date which, in the aggregate, would have a Material Adverse Effect.
5.19 No Brokers. Neither the Company nor any of its officers, directors,
employees, shareholders or affiliates has employed or made any agreement with
any broker, finder or similar agent or any person or firm which will result in
the obligation of Parent or Sub or any of its affiliates
Page 16
to pay any finder's fee, brokerage fees or commission or similar payment in
connection with the transactions contemplated hereby.
5.20 No Other Agreements. Neither the Company nor its officers, directors
or affiliates have any commitment or legal obligation, absolute or contingent,
to any other person or firm other than Parent and Sub to sell, assign, transfer
or effect a sale of any assets of the Company (other than inventory in the
ordinary course of business), to sell or effect a sale of a majority of the
capital stock of the Company, to effect any merger, consolidation, liquidation,
dissolution or other reorganization of the Company, or to enter into any
agreement or cause the entering into of an agreement with respect to any of the
foregoing.
5.21 Proprietary Rights. With respect to the Company:
(a) Proprietary Rights. Schedule 5.21 lists all of its domestic or
foreign, federal, state and foreign registrations of trademarks and of other
marks, trade names or other trade rights, and all pending applications for any
such registrations, and all of its patents and registered copyrights and all
pending applications therefor, all other registered trademarks and other marks,
trade names and other trade rights in which it has any interest whatsoever. The
copyrights, trade secrets, designs, plans, specifications, technical
information, trademarks or other marks, and other proprietary rights, whether or
not registered, created or used by or on behalf of the Company are,
collectively, "Proprietary Rights".
(b) Ownership and Protection of Proprietary Rights. Except as set
forth on Schedule 5.21, (i) to its knowledge, the Company owns and has the sole
right to use each of the Proprietary Rights and none of the Proprietary Rights
is involved in any pending or threatened litigation, (ii) the Company has not
received any notice of invalidity or infringement of any rights of others with
respect to such Proprietary Rights, and (iii) no other firm, corporation,
association or person (x) has the right to use any such Proprietary Rights, (y)
has notified the Company that it is claiming any ownership of or right to use
such Proprietary Rights, or (z) to its knowledge, is infringing upon any such
Proprietary Rights in any way. To the Company's knowledge, the Company's use of
the Proprietary Rights is not infringing upon or otherwise violating the rights
of any third party in or to such Proprietary Rights. To the Company's knowledge,
all of the Proprietary Rights are valid and enforceable, except where the
failure to be so valid and enforceable would not have a Material Adverse Effect.
5.22 Transactions with Certain Persons. Except as set forth on Schedule
5.22, no officer, director or employee of the Company, nor any member of any
such person's immediate family, is presently a party to any transaction with the
Company, including without limitation, any contract, agreement or other
arrangement(1) providing for the furnishing of services by, (2) providing for
the rental of real or personal property from, or (3) otherwise requiring
payments to (other than for services as officers, directors or employees of the
Company ) any such person or any corporation,
Page 17
partnership, trust or other entity in which any such person has any material
interest as a shareholder, officer, director, trustee or partner.
5.23 Insurance. Schedule 5.23 contains a complete and accurate list of all
policies or binders of fire, liability, title, worker's compensation, product
liability (which list shall be since the Company's inception) and other forms of
insurance (showing as to each policy or binder the carrier, policy number,
coverage limits, expiration dates, annual premiums and a general description of
the type of coverage provided) maintained by the Company. Such insurance
provides, and during such period provided, coverage to the extent required by
law and by any and all Contracts. The Company is not in default under any of
such policies or binders, and has not failed to give any material notice or to
present any material claim under any such policy or binder in a due and timely
fashion. Except as set forth on Schedule 5.23, there are no outstanding unpaid
claims under any such policies or binders. All policies and binders are in full
force and effect on the date hereof and shall be kept in full force and effect
through the Closing Date.
5.24 Accounts Receivable. The accounts receivable set forth in the
Financial Statements, and all accounts receivable arising since the date of the
Financial Statements, represent bona fide claims of the Company against debtors
for sales, services performed or other charges arising on or before the date
hereof, and all the goods delivered and services performed which gave rise to
said accounts were delivered or performed in accordance with the applicable
orders, Contracts or customer requirements.
5.25 Customers, Distributors and Suppliers. Schedule 5.25 sets forth a
complete and accurate list with respect to the Company, of the names and
addresses of (i) its five (5) largest customers during the most recent fiscal
year, and the approximate total sales in dollars by the Company to each such
customer during the most recent fiscal year, and (ii) its five (5) largest
suppliers during the most recent fiscal year, and the approximate total
purchases in dollars from each such supplier during the most recent fiscal year.
To the knowledge of the Company after reasonable inquiry of all sales employees
and other relevant personnel since March 31, 2005, except as disclosed on
Schedule 5.25, there has been no Material Adverse Change in the business
relationship of the Company with any customer or supplier named on Schedule
5.25. The Company has not received any communication from any customer or
supplier named on Schedule 5.25 of any intention to terminate or materially
reduce purchases from or supplies to the Company.
5.26 Material Misstatements Or Omissions. No representations or warranties
by the Company in this Agreement, nor any document, exhibit, written statement,
certificate or schedule heretofore or hereafter furnished to Parent and Sub
pursuant hereto, or in connection with the transactions contemplated hereby,
including without limitation the Disclosure Schedules, contains any untrue
statement of a material fact, or omits to state any material fact necessary to
make the statements or facts contained therein not misleading.
Page 18
5.27 Recommendation of Company Board of the Directors. The Company's Board
of Directors, by vote at meetings duly called and held, has approved this
Agreement and the Merger, determined that the Merger is in the best interest of
the Shareholders, and has adopted resolutions recommending approval and adoption
of this Agreement and the Merger by the Shareholders.
5.28 Vote Required. The only votes of Shareholders required under the CGCL,
the Company's Articles of Incorporation and the Company's By-laws in order to
approve and adopt the Merger Proposals is the affirmative vote of: (i) a
majority of the aggregate voting power of the issued and outstanding Company
Shares, (ii) the affirmative vote of a majority of the aggregate voting power of
the issued and outstanding shares of Common Stock of the Company, voting as a
separate class, (iii) the affirmative vote of a majority of the aggregate voting
power of the issued and outstanding shares of Preferred Stock of the Company,
voting as a separate class, (iv) the affirmative vote of a majority of the
aggregate voting power of the issued and outstanding shares of Series C
Preferred Stock, Series D Preferred Stock and Series D-1 Preferred Stock of the
Company, each voting as a separate class, and no other vote or approval of or
other action of holders of capital stock of the Company is required.
5.29 Dissenter Rights Procedures. The Company has performed and is in
compliance with any and all obligations required of a domestic corporation under
Chapter 13 of the CGCL, and the Company has informed the Parent of any and all
Shareholders who have notified the Company of their intention to exercise
dissenters' rights in accordance with Chapter 13 of the CGCL.
ARTICLE VI.
INTENTIONALLY LEFT BLANK.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub hereby represent and warrant to the Company as follows,
which representations and warranties are, as of the date hereof, true and
correct:
7.1 Organization of Parent and Sub. Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada, and
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware.
7.2 Authorization. Both Parent and Sub have all requisite corporate power
and authority, and have taken all corporate action necessary, to execute and
deliver this Agreement, to consummate the transactions contemplated hereby and
to perform their obligations hereunder. The execution and delivery of this
Agreement by Parent and Sub and the consummation by Parent and Sub of the
Page 19
transactions contemplated hereby have been duly approved by the boards of
directors of Parent and Sub. No other corporate proceedings on the part of
Parent or Sub are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Parent and Sub and is a legal, valid and binding obligation of Parent and Sub,
enforceable against Parent and Sub in accordance with its terms.
Page 20
7.3 No Conflict or Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by Parent or Sub with any of the provisions
hereof, will (1) violate or conflict with any provision of (i) the Articles of
Incorporation or Bylaws of Parent or (ii) the Articles of Incorporation or
Bylaws of any of Parent's subsidiaries, (2) violate, conflict with, or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, any of the terms, conditions or
provisions of any contract, indebtedness, note, bond, indenture, mortgage,
security or pledge agreement, commitment, license, lease, franchise, permit,
agreement, authorization, concession, or other instrument or obligation to which
Parent or any of its subsidiaries is a party, or (3) violate any statute, rule,
regulation, ordinance, code, order, judgment, ruling, writ, injunction, decree
or award except, in the case of each of clauses (a), (b) and (c) above, for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of encumbrances which, in the aggregate, would not have a Material
Adverse Effect on the Parent or its ability to consummate the transactions
contemplated hereby. No consent, approval, order or authorization of or
registration, declaration or filing with any governmental entity is required by
or with respect to Parent or any of its subsidiaries in connection with the
execution and delivery of this Agreement by Parent and Sub or the consummation
by Parent and Sub of the transactions contemplated hereby, except for (a) the
filing of the Agreement of Merger, together with the required officers'
certificates, and the filing of the Certificate of Merger, each as provided in
Section _; (b) the filing of a Form 8-K with the Securities and Exchange
Commission ("SEC") within 4 business days after the Closing Date; (c) such
filings as may be required under applicable federal and state securities laws
and the securities laws of any foreign country after the Effective Time; (d) the
filing with the American Stock Exchange ("AMEX") of a Notification Form for
Listing of Additional Shares with respect to the shares of Parent Common Stock
issuable upon conversion of the Company Shares in the Merger; and (e) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, could not reasonably be expected to have a Material Adverse
Effect on Parent and could not prevent, materially alter or delay any of the
transactions contemplated by this Agreement
7.4 SEC Reports. Parent has timely filed all required reports, statements,
registration statement, proxy statement and documents with the Securities
Exchange Commission (the "Commission"), all of which complied in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act. Parent has made available to the Company true and complete copies of all
forms, reports, statements and documents filed with the Commission and all
reports, statements and other information provided by Parent to its stockholders
(collectively, the "Parent Reports"). All documents required to be filed as
exhibits to the Parent Reports have been so filed, and all material contracts so
filed as exhibits are in full force and effect except those which have expired
in accordance with their terms, and neither Parent nor any of its subsidiaries
is in default thereunder. As of their respective dates, the Parent Reports did
not contain any untrue statement of any material fact or omit to state a
material fact required to be stated therein or necessary to make the
Page 21
statements therein, in light of the circumstances under which they were made,
not misleading.
7.5 Capital Structure. The authorized capital stock of Parent consists of
50,000,000 shares of common stock, $.01 par value, and 5,000,000 shares of
preferred stock, $.01 par value, of which there were issued as of the close of
business on the date hereof, 24,794,144 shares of Common Stock, with 24,603,048
shares of Common Stock outstanding, and no shares of Preferred Stock issued or
outstanding. There are no other outstanding shares of capital stock or voting
securities of Parent. All outstanding shares of Parent have been duly
authorized, validly issued, fully paid and are nonassessable. As of the close of
business on the date hereof, Parent has reserved (a) 5,200,000 shares of Parent
Common Stock for issuance to employees, directors and independent contractors
pursuant to the Parent stock option and stock purchase plan, of which 3,658,818
shares are subject to outstanding, unexercised options. Other than this
Agreement, Schedule 7.5 and the shares subject to reserve as described above,
there are no other options, warrants, calls, rights, commitments or agreements
of any character to which Parent is a party or by which it is bound obligating
Parent to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
Parent or obligating Parent to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement.
7.6 Issuance of Shares. The issuance and delivery of the Parent Shares as
Merger Consideration in accordance with this Agreement shall be, at or prior to
the Effective Time, duly authorized by all necessary corporate action on the
part of Parent, and, when issued at the Effective Time as contemplated hereby,
such Parent Shares will be duly and validly issued, fully paid and
nonassessable. Such Parent Shares, when so issued and delivered in accordance
with the provisions of this Agreement, will be free and clear of all liens and
encumbrances and adverse claims, other than restrictions on transfer created by
applicable securities laws, and will not have been issued in violation of their
respective properties or any preemptive rights or rights of first refusal or
similar rights.
ARTICLE VIII.
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company to consummate the transactions provided for
hereby are subject, in the discretion of the Company, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions, any of which may
be waived by the Company:
8.1 Representations, Warranties and Covenants. All representations and
warranties of Parent and Sub contained in this Agreement shall be true and
correct in all material respects at and as of the date of this Agreement and at
and as of the Closing Date, except to the extent expressly required or permitted
to be changed by the terms hereof, and Parent and Sub shall have performed
Page 22
and satisfied all agreements and covenants required hereby to be performed by
them prior to or on the Closing Date.
8.2 No Proceedings, Litigation or Laws. No Action by any governmental
authority or other person shall have been instituted or threatened against
Parent, Sub, the Company, or the Shareholders which questions the validity or
legality of the transactions contemplated hereby and which, in the reasonable
opinion of the Company, makes it inadvisable to consummate such transaction.
8.3 Approval of the Shareholders. This Agreement and the Merger Proposals
shall have been approved and adopted by the Shareholders, including the separate
vote of each class or series of Company capital stock, as set forth in Section
5.28.
8.4 Certificates. Parent and Sub shall furnish the Company with such
certificates of their officers and others to evidence compliance with the
conditions set forth in this Article VIII as may be reasonably requested by the
Company.
8.5 Corporate Documents. The Company shall have received from Parent and
Sub a certificate of a duly authorized officer of each of Parent and Sub, dated
the Closing Date, setting forth resolutions adopted by the Boards of Directors
of Parent and Sub authorizing the execution and delivery of this Agreement, and
the consummation of the transactions contemplated hereby, and certifying that
such resolutions were duly adopted and have not been rescinded as of the Closing
Date.
8.6 Exchange Listing. The Parent Shares to be issued as Merger
Consideration shall have been authorized for listing on the AMEX, subject to
official notice of issuance.
8.7 No Adverse Change. Since December 31, 2004, except for the acquisition
of Expand Beyond Corporation, there shall not have been any change in the
assets, liabilities, financial condition or operating results of Parent from
that reflected in Parent's consolidated financial statements attached to its
quarterly report on Form 10-QSB dated as of December 31, 2004 ("Parent's
Financial Statements"), except changes in the ordinary course of business that
have not had, in the aggregate, a Material Adverse Effect.
8.8 SEC Reports. Parent shall have timely filed all required reports,
statements and documents with the Securities Exchange Commission (the
"Commission"), all of which shall have complied in all material respects with
all applicable requirements of the Securities Act and the Exchange Act. Parent
shall have made available to the Company true and complete copies of all forms,
reports, statements and documents filed with the Commission and all reports,
statements and other information provided by Parent to its stockholders
(collectively, the "Parent Reports"). As of their respective dates, the Parent
Reports shall not contain any untrue statement of any material fact
Page 23
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.
ARTICLE IX.
CONDITIONS TO PARENT'S AND SUB'S OBLIGATIONS
The obligations of Parent and Sub to consummate the transactions provided
for hereby are subject, in the discretion of Parent, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions, any of which may
be waived by Parent and Sub.
9.1 Representations, Warranties and Covenants. All representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects at and as of the date of this Agreement and at and as
of the Closing Date, except to the extent expressly required or permitted to be
changed by the terms hereof, and the Company shall have performed and satisfied
all agreements and covenants required hereby to be performed by it prior to or
on the Closing Date.
9.2 No Proceedings or Litigation. No Action by any governmental authority
or other person shall have been instituted or threatened against Parent, Sub, or
the Company which questions the validity or legality of the transactions
contemplated hereby and which, in the reasonable opinion of the Parent, makes it
inadvisable to consummate such transaction.
9.3 Certificates. The Company shall furnish Parent and Sub with such
certificates of its officers and others to evidence compliance with the
conditions set forth in this Article IX as may be reasonably requested by Parent
and Sub.
9.4 No Material Adverse Changes. There shall not have been any Material
Adverse Change with respect to the Business or the Company since the date of
this Agreement.
9.6 Corporate Documents. Parent and Sub shall have received a certificate
of a duly authorized officer of the Company, dated the Closing Date, setting
forth resolutions of the Board of Directors of the Company authorizing the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and certifying that such resolutions were duly
adopted and have not been rescinded or amended as of the Closing Date.
9.7 Approval of the Shareholders. This Agreement and the Merger Proposals
shall have been approved and adopted by the Shareholders, including the separate
vote of each class and series of the Company's capital stock, as set forth in
Sections 2.7 and 5.28. Further, Shareholders holding no more than five percent
of the Company Shares shall have notified the Company of their exercise of
dissenters' rights of appraisal in accordance with Chapter 13 of the CGCL.
Page 24
ARTICLE X.
REGISTRATION OF PARENT SHARES AFTER THE CLOSING
10.1 Registration of Parent Shares.
(a) By no later than six (6) months following the Closing, Parent
shall prepare and file with the Securities and Exchange Commission a
registration statement on Form S-3 (the "S-3") containing a form of prospectus
(as amended or supplemented, if applicable) registering under the Securities Act
of 1933, as amended, the Merger Consideration issued to the Shareholders at the
Effective Time. Commencing on the date seven (7) months after the Closing Date,
and as long as the Form S-3 has been declared effective by the SEC and continues
to be effective, the Shareholders may sell, on a pro rata basis, an amount of
shares not to exceed the daily average trading volume of Parent's common stock
in the prior month, per week.
(b) With respect to the Form S-3 filed by Parent hereunder, Parent
shall use its reasonable best efforts to cause such registration statement to
become effective as soon as practicable after filing, and to keep the S-3
effective for so long as Shareholders continue to hold Parent Shares. The S-3
and the prospectus included therein shall be made available to Shareholders
through the website at url, ▇▇▇.▇▇▇▇▇▇▇▇.▇▇▇. Parent does not need to register
or qualify the Parent Shares covered by such S-3 under the securities or Blue
Sky laws of any jurisdictions within the United States because Parent is listed
on the American Stock Exchange, and its common stock is listed for trading.
Furthermore, Parent shall not be required to (i) qualify generally to do
business in any jurisdiction where, but for the requirements of this Section
10.1(b), it would not be obligated to be so qualified, (ii) subject itself to
taxation in any such jurisdiction, or (iii) consent to general service of
process in any such jurisdiction. All expenses incident to Parent's performance
of its obligations under this Section 10.1, including without limitation all
registration and filing fees, fees, including expenses of counsel for Parent and
of Parent's independent certified public accountants shall be borne by Parent.
(c) Indemnification by Parent. Parent and Surviving Company shall
jointly and severally indemnify, to the full extent permitted by law, each
Shareholder and its officers, directors and constituent partners and each person
who controls such Shareholder (within the meaning of the Securities Act and the
Exchange Act) against all losses, claims, damages, liabilities and expenses (or
actions in respect thereof) arising out of or based upon any untrue or alleged
untrue statement of a material fact contained in any registration statement,
prospectus or preliminary prospectus relating to the registration of such
Shareholder's Parent Shares or any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are made in
conformity with any information furnished in writing to Parent by or on behalf
of such Shareholder or other indemnified person expressly for use therein or
caused by such Shareholder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after Parent
has furnished such Shareholder with a sufficient number of copies of the same or
by the breach by any indemnified person of any of
Page 25
its obligations under this Section 10.1. Subject to the provisions of Section
10.1(f), Parent will reimburse each Shareholder and its officers, directors,
constituent partners and controlling persons for any reasonable legal and other
expenses as incurred in connection with investigating or defending any such
losses, claims, damages, liabilities, expenses or actions for which such person
is entitled to indemnification hereunder. In connection with an underwritten
offering, Parent will indemnify the underwriters and their officers, directors,
constituent partners and each person who controls such underwriters (within the
meaning of the Securities Act and the Exchange Act) to the same extent as
provided above with respect to the indemnification of the Shareholders.
(d) Indemnification by Shareholders. Each Shareholder agrees,
severally and not jointly, to indemnify, to the full extent permitted by law,
Parent and Surviving Company and their directors and officers, each person who
controls Parent or Surviving Company (within the meaning of the Securities Act
and the Exchange Act) and all other prospective sellers and their respective
directors, officers, constituent partners and controlling persons (within the
meaning of the Securities Act and the Exchange Act) against all losses, claims,
damages, liabilities and expenses (or actions in respect thereof) arising out of
or based upon any untrue or alleged untrue statement of a material fact
contained in any registration statement, prospectus or preliminary prospectus
relating to the registration of such Shareholder's Parent Shares or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, to the
extent that such untrue statement or omission or alleged untrue statement or
omission relates to such Shareholder and is made in conformity with any written
information or affidavit furnished by or on behalf of such Shareholder for such
registration statement, prospectus or preliminary prospectus and then only to
the extent of the total proceeds received by such Shareholder, and in such
event, subject to the provisions of Section 10.1(f), such Shareholder will
reimburse, to the extent of the total proceeds received by such Shareholder,
Parent, its officers, directors and controlling persons and all other
prospective sellers and their respective directors, officers and controlling
persons for any reasonable legal and other expenses as incurred in connection
with investigating or defending any such losses, claims, damages, liabilities,
expenses or actions.
(e) Conduct of Indemnification Proceedings. Any person entitled to
indemnification under this Section 10.1 will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
(but omission of such notice shall not relieve the indemnifying party from
liability hereunder except to the extent such indemnifying party is actually
prejudiced by such failure to give notice), and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest may exist between the
indemnified and indemnifying parties with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If the indemnifying party so assumes the
defense of such claim, after notice from the indemnifying party to the
indemnified party of its election to so assume the defense thereof, the
indemnifying party will not be liable to the indemnified party for any legal or
other expenses subsequently incurred by the indemnified party in
Page 26
connection with the defense of such claim. If such defense is not assumed by the
indemnifying party, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent will not be
unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of an unconditional release of all indemnified parties from all liability with
respect to such claim or litigation. An indemnifying party who is not entitled
to, or elects not to, assume the defense of a claim (i) will not be obligated to
pay the fees and expenses of more than one counsel for all parties indemnified
by such indemnifying party with respect to such claim, and (ii) shall be
entitled to participate in (at its own cost and expense), but not control, the
defense of such claim.
(f) Contribution. If the indemnification provided for in Section
10.1(d) or Section 10.1(e) is unavailable or insufficient to hold harmless each
of the indemnified parties against any losses, claims, damages, liabilities and
expenses (or actions in respect thereof) referred to therein, then the
indemnifying party shall, in lieu of indemnifying each party entitled to
indemnification hereunder, contribute to the amount paid or payable by such
party as a result of such losses, claims, damages, liabilities or expenses in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified parties on the other in
connection with the statements or omissions or alleged statements or omissions
that resulted in such losses, claims, damages, liabilities or expenses. The
relative fault of such persons shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact, or
omission or alleged omission to state a material fact, relates to information
supplied by or concerning the indemnifying party on the one hand, or by such
indemnified person on the other, and such person's relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 10.1(f) were determined by pro rata
allocation or by any other allocation that does not take into account the
equitable considerations referred to in this Section 10.1(f). No person guilty
of fraudulent misrepresentation within the meaning of the Securities Act shall
be entitled to contribution from any person that is not guilty of such
fraudulent misrepresentation.
ARTICLE XI.
SURVIVAL; ESCROW; INDEMNIFICATION
11.1 Survival of Representations, Etc. All statements contained in the
Disclosure Schedule or in any certificate, schedule, exhibit or instrument or
conveyance delivered by or on behalf of the parties pursuant to this Agreement
or in connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the parties hereunder. The representations,
warranties, covenants and agreements of the Company, Parent, and Sub contained
herein shall survive the consummation of the transactions contemplated hereby
and the Closing Date, without regard to any investigation made by any of the
parties hereto. Except as provided in this sentence, all such representations
and warranties and all claims and causes of action with respect thereto (other
Page 27
than the provisions of Sections 5.6, 5.22 and this Section 11.1, and all claims
and causes of action with respect thereto) shall terminate at the close of
business in California on the twelve month anniversary of the Closing Date
("Initial Expiration Date"). The representations and warranties in Sections 5.6
and 5.22 shall survive until the close of business in California on the twenty
four month anniversary of the Closing Date with respect to the matters addressed
in such sections ("Final Expiration Date"). The representations and warranties
in Section 5.2 shall survive indefinitely. The termination of the
representations and warranties provided herein shall not affect the rights of a
party in respect of any Claim made by such party in a writing received by the
other party (the Parent or the Shareholders' Agent, as the case may be) prior to
the Initial Expiration Date (or, for claims based on Section 5.6 or 5.22, the
Final Expiration Date), and within the applicable survival period provided
herein.
11.2 Escrow Fund.
(a) At the Closing, the certificates representing the Escrow Shares,
determined pro rata based on the holdings of Series D-1 Preferred Stock of the
Company, shall be registered in the names of the respective holders of Series
D-1 Preferred Stock (the "Series D-1 Holders"), and be delivered to ▇▇▇▇ ▇▇▇▇▇▇
(or other person or institution selected by Parent with the reasonable consent
of the Shareholders' Agent) as escrow agent (the "Escrow Agent"), such delivered
shares and any Additional Escrow Shares (as defined in Section 11.2(b) below) to
constitute the "Escrow Fund" and to be governed by the terms set forth herein.
The Escrow Fund shall be available to compensate Parent pursuant to the
indemnification obligations of the Series D-1 Holders. In the event Parent
issues any Additional Escrow Shares, such shares will be likewise issued in the
name of the respective Series D-1 Holders and delivered to the Escrow Agent in
the same manner as the Escrow Shares delivered at the Closing, and will become
part of the Escrow Fund.
(b) Except for dividends paid in stock declared with respect to the
Escrow Shares ("Additional Escrow Shares"), which shall be treated as Escrow
Shares pursuant to Section 11.2(a) hereof, any cash dividends, dividends payable
in securities or other distributions of any kind made in respect of the Escrow
Shares will be delivered to the respective Series D-1 Holders on a pro rata
basis. Each Series D-1 Holder will have voting rights with respect to the Escrow
Shares held by the Escrow Agent with respect to such shareholder so long as such
Escrow Shares are held in escrow, and Parent will take all reasonable steps
necessary to allow the exercise of such rights. While the Escrow Shares remain
in the Escrow Agent's possession pursuant to this Agreement, the Series D-1
Holders will retain and will be able to exercise all other incidents of
ownership of said Escrow Shares which are not inconsistent with the terms and
conditions of this Agreement.
(c) The Escrow Fund shall terminate and be released upon the Final
Expiration Date; provided, however, that a portion of the Escrow Fund that, in
the reasonable judgment of Parent (subject to the objection of the Shareholders'
Agent and the subsequent mediation and arbitration of the matter in the manner
provided in Section 12.11 hereto) is
Page 28
necessary to satisfy any unsatisfied claims specified in any Claim Notice (as
defined in Section 11.3(e) below) delivered to the Shareholders' Agent prior to
the Expiration Date, shall remain in the Escrow Fund until such claims have been
resolved.
(d) Within three (3) business days after the Final Expiration Date
(the "Release Date"), the Escrow Agent shall release from escrow to the Series
D-1 Holders their pro rata portion of the Escrow Shares and Additional Escrow
Shares, less with respect to each such shareholder the number of Escrow Shares
and Additional Shares with a value (as determined pursuant to Section 11.3(h))
equal to the sum of (i) such shareholder's pro rata portion of any liability
with respect to Claim Notices delivered to the Shareholders' Agent in accordance
with Section 11.3(e) as to which the liability has been resolved and (ii) such
shareholder's pro rata portion of any liability described in Claim Notices
delivered to the Shareholders' Agent in accordance with Section 11.3(e) with
respect to any pending but unresolved indemnification claims of Parent
Indemnified Parties. Any Escrow Shares and Additional Escrow Shares held as a
result of clause (ii) shall be released to the Series D-1 Holders or released to
Parent (as appropriate) promptly upon resolution of each specific
indemnification claim involved. Escrow Shares and Additional Escrow Shares shall
be released to the respective Series D-1 Holders in proportion to their
respective shares of the Merger Consideration. Parent will take such action as
may be necessary to cause such certificates to be issued in the names of the
appropriate persons. Certificates representing Escrow Shares and Additional
Escrow Shares so issued that are subject to resale restrictions under applicable
securities laws will bear legends to that effect. No fractional shares shall be
released and delivered from the Escrow Fund to the Series D-1 Holders, and the
number of such shares to be delivered to each such holder shall be rounded to
the nearest whole share.
(e) The Escrow Agent is hereby granted the power to effect any
transfer of Escrow Shares contemplated by this Agreement. Parent will cooperate
with the Escrow Agent in promptly issuing stock certificates to effect such
transfers.
11.3 Indemnification.
(a) By the Series D-1 Holders. Upon and after the Closing, and subject
to the limitations set forth in this Article XI, the Series D-1 Holders
severally (but not jointly, with each such Holder liable pursuant to this
Section 11.3 only to the extent of such Holder's pro rata share of the Escrow
Fund) shall indemnify, save and hold harmless Parent, its affiliates and
subsidiaries, and their respective representatives (the "Parent Indemnified
Parties"), from and against any and all costs, losses (including without
limitation diminution in value), taxes, liabilities, obligations, damages,
lawsuits, deficiencies, claims, demands, and expenses (whether or not arising
out of third-party claims), reasonable attorneys' fees and all amounts paid in
investigation, defense or settlement of any of the foregoing (herein,
"Damages"), incurred in connection with, arising out of, resulting from or
incident to (1) any breach of any representation or warranty or the inaccuracy
of
Page 29
any representation made by the Company in or pursuant to this Agreement, or (2)
any breach of any covenant or agreement made by the Company in or pursuant to
this Agreement; provided, however, that the Parent Indemnified Parties make a
written claim for indemnification against the Series D-1 Holders and deliver
such claim to the Shareholders' Agent on or before the Expiration Date (or, as
to claims for breach of the representations and warranties in Sections 5.2, 5.6,
or 5.22, within the applicable survival period). Parent Indemnified Parties
shall act in good faith and in a commercially reasonable manner to mitigate any
Damages they may suffer. The sole recourse of the Parent Indemnified Parties
shall be against the Escrow Fund, and claims against the Escrow Fund shall be
the sole and exclusive remedy of the Parent Indemnified Parties for Damages
under this Article XI.
(b) By Parent and Sub. Parent and Sub, jointly and severally, shall
indemnify and save and hold harmless the Company and each of their affiliates
and subsidiaries, the Shareholders, and their respective representatives (the
"Shareholder Indemnified Parties") from and against any and all Damages incurred
in connection with, arising out of, resulting from or incident to (1) any breach
of any representation or warranty or the inaccuracy of any representation, made
by Parent or Sub in or pursuant to this Agreement, or (2) any breach of any
covenant or agreement made by Parent or Sub in or pursuant to this Agreement;
provided, however, that the person claiming such indemnification makes a written
claim for indemnification against Parent or Sub within the applicable survival
period.
(c) Damages. The term "Damages" as used in this Article XI is not
limited to matters asserted by third parties against the person seeking or
claiming indemnification (the "Indemnified Party"), but includes Damages
incurred or sustained by such person in the absence of third party claims.
Payments by Parent of amounts for which Parent is indemnified hereunder, and
payments by the Shareholders of amounts for which the Shareholders are
indemnified, shall not be a condition precedent to recovery. The Series D-1
Holder's obligation to indemnify the Parent Indemnified Parties, and Parent's or
Sub' obligation to indemnify the Shareholder Indemnified Parties shall not limit
any other rights, including without limitation rights of contribution which any
such party may have under statute or common law.
(d) Cooperation. The Indemnified Party shall cooperate in all
reasonable respects with the Indemnifying Party and the attorneys defending the
indemnification claims in the investigation, trial and defense of any lawsuit or
action and any appeal arising therefrom; provided, however, that the Indemnified
Party may, at its own cost, participate in the investigation, trial and defense
of such lawsuit or action and any appeal arising therefrom. The parties shall
cooperate with each other in any notifications to insurers.
(e) Claims. If a claim for Damages (a "Claim") is made by an
Indemnified Party against a party obligated under this Article XI to provide
indemnification (the "Indemnifying Party"), the party claiming such
indemnification shall give written notice (a "Claim Notice") to Parent (in the
case that the Indemnified Party is a Shareholder Indemnified Party) or to the
Page 30
Shareholders' Agent (in the case that the Indemnified Party is a Parent
Indemnified Party) as soon as practicable after the Indemnified Party becomes
aware of any fact, condition or event which may give rise to Damages for which
indemnification may be sought under this Section 11.3. Each such Claim Notice
shall state that Damages exist with respect to the indemnification obligations
under this Agreement, and specify in reasonable detail the individual items of
such Damages included in the amount so stated, the date each such item was paid,
or properly accrued or arose, and the nature of the misrepresentation, breach of
warranty, covenant or claim to which such item is related.
(f) Defense of Claims. If any lawsuit or enforcement action is filed
against any party entitled to the benefit of indemnity hereunder, the Claim
Notice thereof shall be given to the representative of the Indemnifying Party as
promptly as practicable (and in any event within thirty (30) calendar days after
the service of the citation or summons). The failure of any Indemnified Party to
give timely notice hereunder shall not affect rights to indemnification
hereunder, except to the extent that the Indemnifying Party demonstrates actual
damage caused by such failure. After such notice, if the Indemnifying Party
shall acknowledge in writing to the Indemnified Party that the Indemnifying
Party shall be obligated under the terms of the indemnification provisions
hereunder in connection with such lawsuit or action, then the Indemnifying Party
shall be entitled, if it so elects, (1) to take control of the defense and
investigation of such lawsuit or action, (2) to employ and engage attorneys of
its own choice to handle and defend the same, at the Indemnifying Party's cost,
risk and expense unless the named parties to such action or proceeding include
both the Indemnifying Party and the Indemnified Party, and the Indemnified Party
has been advised by counsel that there may be one or more legal defenses
available to such Indemnified Party that are different from or additional to
those available to the Indemnifying Party, and (3) to compromise or settle such
claim, which compromise or settlement shall be made only with the written
consent of the Indemnified Party, such consent not to be unreasonably withheld.
If the Indemnifying Party fails to assume the defense of such claim within
fifteen (15) calendar days after receipt of the Claim Notice, the Indemnified
Party against which such claim has been asserted will (upon delivering notice to
such effect to the Indemnifying Party) have the right to undertake, at the
Indemnifying Party's cost and expense, the defense, compromise or settlement of
such claim on behalf of and for the account and risk of the Indemnifying Party.
In the event the Indemnified Party assumes the defense of the claim, the
Indemnified Party will keep the Indemnifying Party reasonably informed of the
progress of any such defense, compromise or settlement. The Indemnifying Party
shall be liable for any settlement of any action effected pursuant to and in
accordance with this Section 11.3 and for any final judgment (subject to any
right of appeal), and the Indemnifying Party agrees to indemnify and hold
harmless an Indemnified Party from and against any Damages by reason of such
settlement or judgment.
(g) Threshold for Claims. No claim for Damages shall be made under
Article XI unless the aggregate of Damages exceeds $10,000 for which claims are
made hereunder by the Parent Indemnified Parties or by the Shareholder
Indemnified Parties, as the case may be, after
Page 31
which such Indemnified Parties shall be entitled to seek compensation for all
Damages without regard to the limitation set forth in this Section 11.3(g) (the
"Limitation").
(h) Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on or
before the Expiration Date of a Claim Notice stating that Damages exist with
respect to the indemnification obligations of the Series D-1 Holders set forth
in Section 11.3(a), the Escrow Agent shall, subject to the provisions of this
Article XI, deliver to Parent out of the Escrow Fund, as promptly as
practicable, Parent Shares or other assets held in the Escrow Fund having a
value equal to such Damages. For the purpose of compensating Parent for its
Damages pursuant to this Agreement, the value of one Parent Share shall be
deemed to be equal to the PASP.
(i) Objections to Claims.
(i) At the time of delivery of any Claim Notice by any Parent
Indemnified Person, a duplicate copy of such Claim Notice shall be
delivered to the Shareholders' Agent. For a period of thirty (30) days
after such delivery, the Escrow Agent shall make no delivery of Parent
Shares or other property pursuant to Section 11.3(h) hereof unless the
Escrow Agent shall have received written authorization from the
Shareholders' Agent to make such delivery. After the expiration of such
thirty (30) day period, the Escrow Agent shall make delivery of the Parent
Shares or other property in the Escrow Fund in accordance with Section
11.3(h) hereof, provided that no such payment or delivery may be made if
the Shareholders' Agent shall object in a written statement to the claim
made in the Claim Notice, and such statement shall have been delivered to
the Escrow Agent and to Parent prior to the expiration of such thirty (30)
day period.
(ii) In case the Shareholders' Agent shall so object in writing
to any claim or claims by Parent made in any Claim Notice, Parent shall
have thirty (30) days to respond in a written statement to the objection of
the Shareholders' Agent. If after such thirty (30) day period there remains
a dispute as to any claims, the Shareholders' Agent and Parent shall
attempt in good faith for sixty (60) days to agree upon the rights of the
respective parties with respect to each of such claims. If the
Shareholders' Agent and Parent should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely
on any such memorandum and shall distribute the Parent Shares or other
property from the Escrow Fund in accordance with the terms thereof.
(j) Limitations on Indemnification by Series D-1 Holders; Satisfaction
of Claims. The parties specifically agree that the maximum aggregate liability
of (i) each Series D-1 Holder for indemnification under this Article XI will not
exceed such holder's pro rata share of the Escrow Fund, and (ii) of all Series
D-1 Holders (and the Shareholders) collectively under this Article XI will not
exceed the amount of the Escrow Fund. Claims by a Parent Indemnified Party for
Damages shall be satisfied solely from the Escrow Amount deposited with the
Escrow Agent.
Page 32
11.4 Shareholders' Agent.
(a) The Shareholders' Agent shall be constituted and appointed as
agent for and on behalf of the Series D-1 Holders to give and receive notices
and communications, to authorize delivery to Parent of the Parent Shares or
other property from the Escrow Fund in satisfaction of claims by Parent
Indemnified Parties, to object to such deliveries, to make claims on behalf of
the Shareholders pursuant to Section 11.3(b), to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
actions necessary or appropriate in the judgment of the Shareholders' Agent for
the accomplishment of the foregoing. Such agency may be changed by the holders
of a majority in interest of the Escrow Fund from time to time upon not less
than 10 days' prior written notice to Parent. No bond shall be required of the
Shareholders' Agent, and the Shareholders' Agent shall receive no compensation
for his or her services. Notices or communications to or from the Shareholders'
Agent shall constitute notice to or from each of the Series D-1 Holders.
(b) The Shareholders' Agent shall not be liable for any act done or
omitted hereunder as Shareholder' Agent while acting in good faith and in the
exercise of reasonable judgment and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The Series
D-1 Holders shall severally indemnify and hold the Shareholders' Agent harmless
against any loss, liability or expense incurred without gross negligence or bad
faith on the part of the Shareholders' Agent and arising out of or in connection
with the acceptance or administration of his duties hereunder.
(c) The Shareholders' Agent shall have reasonable access to
information about the Company and the reasonable assistance of the Company's
officers and employees for purposes of performing his duties and exercising his
rights hereunder, provided that the Shareholders' Agent shall treat
confidentially and not disclose any nonpublic information from or about the
Company to anyone (except on a need to know basis to individuals who agree to
treat such information confidentially).
11.5 Actions of the Shareholders' Agent. A decision, act, consent or
instruction of the Shareholders' Agent shall constitute a decision of all Series
D-1 Holders for whom shares of Parent Shares otherwise issuable to them are
deposited in the Escrow Fund and shall be final, binding and conclusive upon
each such Series D-1 Holders, and the Escrow Agent and Parent may rely upon any
decision, act, consent or instruction of the Shareholders' Agent as being the
decision, act, consent or instruction of each and every such Series D-1 Holder.
The Escrow Agent and Parent are hereby relieved from any liability to any person
for any acts done by them in accordance with such decision, act, consent or
instruction of the Shareholders' Agent.
Page 33
ARTICLE XIII.
MISCELLANEOUS
12.1 Termination.
(a) Termination. This Agreement may be terminated at any time prior to
Closing:
(i) By mutual written consent of Parent, Sub, and the Company;
(ii) By Parent, Sub, or the Company: (i) if the Merger shall not
have been consummated on or before August 15, 2005, provided that the right
to terminate this Agreement pursuant to this clause (a) (ii) shall not be
available to any party whose failure to perform any of its obligations
under this Agreement resulted in, or has been the cause of a or a
substantial cause of, the failure of the Merger to be consummated on or
before such date, and provider further that if the Merger has not been
consummated on or before July 30, 2005 solely or primarily as a result of
the failure of the conditions set forth in Sections 8.2 or 9.2 to be
satisfied or waived, any party, by written notice to each other party, may
extend such date up to September 1, 2005;
(iii) By Parent or Sub if there is a material breach of any
representation or warranty set forth in Articles V and VI hereof or any
covenant or agreement to be complied with or performed by the Company
pursuant to the terms of this Agreement or the material failure of a
condition set forth in Article IX to be satisfied (and such condition is
not waived in writing by Parent or Sub) on or prior to the Closing Date, or
the occurrence of any event which results or would result in the failure of
a condition set forth in Article IX to be satisfied on or prior to the
Closing Date, provided that Parent or Sub may not terminate this Agreement
prior to the Closing Date if the Company or the Shareholders have not had
an adequate opportunity to cure such failure; or
(iv) By the Company if there is a material breach of any
representation or warranty set forth in Article VII hereof or of any
covenant or agreement to be complied with or performed by Parent or Sub
pursuant to the terms of this Agreement or the failure of a condition set
forth in Article VIII to be satisfied or the occurrence of a Material
Adverse Effect upon Parent or Sub (and such condition is not waived in
writing by the Company or the Shareholders) on or prior to the Closing
Date, or the occurrence of any event which results or would result in the
failure of a condition set forth in Article VIII to be satisfied on or
prior to the Closing Date; provided that, the Company and the Shareholders
may not terminate this Agreement prior to the Closing Date if Parent or Sub
has not had an adequate opportunity to cure such failure; or
(v) By Parent or Sub if the holders of more than five percent
(5%) of the issued and outstanding Company Shares exercise their right to
dissent to the Merger in accordance with Chapter 13 of the CGCL.
(b) In the Event of Termination. In the event of termination of this
Agreement:
Page 34
(i) Each party will redeliver all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the
party furnishing the same;
(ii) The provisions of the Mutual Non-Disclosure Agreement (the
"Mutual Non-Disclosure Agreement"), dated as of December 1, 2004, by and
between Parent and the Company shall continue in full force and effect; and
(iii) No party hereto shall have any liability or further
obligation to any other party to this Agreement, except as stated in
subsections (i), (ii) and (iii) of this Section 11.1(b), except for any
willful breach of this Agreement occurring prior to the proper termination
of this Agreement. The foregoing provisions shall not limit or restrict the
availability of specific performance or other injunctive relief to the
extent that specific performance or such other relief would otherwise be
available to a party hereunder.
12.2 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party without the prior written
consent of the other parties. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, and no other person shall have any right,
benefit or obligation under this Agreement as a third party beneficiary or
otherwise.
12.3 Notices. All notices, requests, demands and other communications which
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Federal Express); and
upon receipt if sent by certified or registered mail, return receipt requested.
In each case notice shall be sent to:
If to the Company before the Effective Time, addressed to:
Clickmarks, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇ Jurvetson ePlanet Ventures L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Page 35
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Parent or Sub at any time or the Surviving Corporation,
addressed to:
Semotus Solutions, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇)-▇▇▇-▇▇▇▇
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
12.4 Choice of Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
California (without reference to the choice of law provisions of California
law), except with respect to matters of law concerning the internal corporate
affairs of any corporate entity which is a party to or the subject of this
Agreement, and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern.
12.5 Entire Agreement; Amendments and Waivers. This Agreement, the Mutual
Non-Disclosure Agreement and the Employment Agreement, together with all
exhibits and schedules hereto and thereto (including the Disclosure Schedule)
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto. No amendment, supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided. Notwithstanding the foregoing, if, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Sub, the officers and directors of the
Company, Parent and Sub will take all such lawful and necessary action so long
as such action is consistent with this Agreement.
12.6 Multiple Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The parties hereby agree
that signatures transmitted and received via
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facsimile or other electronic means shall be treated for all purposes of this
Agreement as original signatures and shall be deemed valid, binding and
enforceable by and against both parties.
12.7 . Expenses. Except as otherwise specified in this Agreement, each
party hereto shall pay its own legal, accounting, out-of-pocket and other
expenses incident to this Agreement and to any action taken by such party in
preparation for carrying this Agreement into effect.
12.7 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
12.8 Titles. The titles, captions or headings of the Articles and Sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
12.9 Cumulative Remedies. All rights and remedies of either party hereto
are cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
12.10 Attorneys' Fees. If any party to this Agreement brings an action to
enforce its rights under this Agreement, the prevailing party shall be entitled
to recover its costs and expenses, including without limitation reasonable
attorneys' fees, incurred in connection with such action, including any appeal
of such action.
12.11 Mediation and Arbitration. No party to this Agreement may initiate
litigation or arbitration with regard to any dispute with respect to this
Agreement until after all remedies set forth in this Section have been
exhausted. In the event of any dispute arising over this Agreement, any party
shall have the right by giving written notice to the other parties hereto (the
"Mediation Notice") to initiate non-binding mediation to be conducted by a
mediator mutually agreed to by the parties or, in the event the parties are
unable to reach such agreement within thirty (30) days following the delivery of
the Mediation Notice, by a mediator appointed by the American Arbitration
Association ("Arbitration Association") in accordance with the rules and
regulations of the Arbitration Association, or by any other body mutually agreed
upon by the parties. Mediation shall take place at San Jose, California or any
other location mutually agreeable to the parties. In the event the parties
resolve their dispute in mediation, they shall enter into a written agreement,
which shall be binding on all parties thereto. In the event such dispute has not
been resolved within ninety (90) days after the selection of the mediator
pursuant to this Section, then, any dispute or controversy arising out of or
relating to this Agreement shall
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be settled by final and binding arbitration. Such arbitration shall be conducted
before a single arbitrator and, except as otherwise set forth herein, shall be
conducted in accordance with the then-existing rules of the Arbitration
Association and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof; provided, however, that the
law applicable to any such controversy shall be the law of California,
regardless of its or any jurisdiction's choice of law principle. The arbitration
award shall be specifically enforceable; judgment upon any arbitration award may
be entered in any court with personal jurisdiction over the parties and subject
matter of the disputes. By entering into this provision, it is the parties
intention to expedite, and limit the costs involved in, resolution of any future
dispute, and therefore pre-hearing discovery shall be limited to production of
key documents and, if appropriate, subpoena of not more than two key witnesses,
as determined by the arbitrator, and shall not extend to depositions of parties.
Any award shall be limited to a recovery of foreseeable, contract damages, which
are a direct consequence of a breach of this Agreement. In further limitation
hereof, no arbitrator shall be empowered to award any other damages, including,
but not limited to, consequential, compensatory, or punitive damages. For all
purposes under this Section 12.11, the Shareholders shall act through the
Shareholders Representative.
12.12 No Third Party Beneficiary. Except as provided in this Section 12.12,
nothing express or implied in this Agreement is intended, or shall be construed,
to confirm upon or give any person or entity other than the parties hereto and
the respective successors, assigns or representatives, as applicable, any rights
or remedies under or by reason of this Agreement; provided, however, that the
Shareholders shall be entitled to the rights provided to them under this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalf, by their respective officers thereunto
duly authorized, all as of the day and year first above written.
PARENT:
SEMOTUS SOLUTIONS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: President and CEO
SUB:
SEMOTUS ACQUISITION COMPANY LTD.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: President
COMPANY:
CLICKMARKS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇
Name: ▇▇▇▇▇ ▇▇▇▇
Its: President
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SHAREHOLDERS' AGENT:
▇▇▇▇▇▇ ▇▇▇▇▇▇ Jurvetson ePlanet Ventures L.P.
By: /s/ ▇▇▇▇ ▇▇▇▇▇
Name: ▇▇▇▇ ▇▇▇▇▇
Its: Managing Director
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