EXHIBIT 2.1
AGREEMENT OF MERGER
by and among
Semotus Solutions, Inc.,
ADA Acquisition, Inc.,
Application Design Associates, Inc.,
And
Xxxx Xxxxxx
Dated: April 30, 2001
AGREEMENT OF MERGER
This Agreement of Merger (this "Agreement"), dated as of April 30, 2001, is
by and among Semotus Solutions, Inc., a Nevada corporation ("Parent"), ADA
Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Sub"), Application Design Associates, Inc. a Colorado corporation (the
"Company") and Xxxx Xxxxxx (the "Shareholder").
RECITALS
WHEREAS, the Company is engaged in the business of Application Development
and Sales of Customer Service and Asset Management Software to the Field Service
Industry and provides turn-key solutions including server hardware, operating
system software, proprietary application software, training, conversion,
support, legacy system integration services and remote handheld hardware and
data acquisition software, custom application development and professional
services (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 Company be merged
with and into Sub, with Sub as the surviving entity (the "Surviving
Corporation"); and (ii) the Shareholder of the Company, who currently owns all
of the issued and outstanding shares of capital stock of the Company (the
"Company Shares"), will have the right to receive that certain number of shares
of common stock of Parent (the "Parent Shares") as provided in Section III
below.
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
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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
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Exchange Act of 1934, as amended, and the rules and regulations thereunder.
"Closing Date" shall mean the date of this Agreement or such other
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date as Parent, Sub and the Company shall mutually agree upon.
"Contract" shall mean any agreement, contract, note, loan, evidence of
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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
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the Company to Parent and Sub as of the date hereof which sets forth the
exceptions to the representations and warranties contained in Articles V and VI
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
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Certificate of Merger for filing by the Secretary of State of the State of
Delaware and the Secretary of State of the State of Colorado, unless a delayed
effective time is specified therein.
"Financial Statements" shall mean the compiled balance sheet dated
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April 30, 2001 and the related statement of income of the Company for the four
months ended April 30, 2001.
"Gross Revenues" shall mean total revenues (as determined in
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accordance with the generally accepted accounting principles) of the Surviving
Corporation (including any products or services of Parent or its affiliates that
are sold through the Surviving Corporation).
"Material Adverse Effect" or "Material Adverse Change" shall mean any
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adverse effect or change in the condition (financial or other), business,
results of operations, prospects, assets, liabilities or operations of the
Company, taken as a whole, or on the ability of the Company 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 Capital Investment" shall mean the dollar amount of the funds
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invested by Parent into the Surviving Corporation.
"Parent MFN Rates" shall mean rates at least as favorable as rates
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charged by Parent at such time to any third party for substantially similar
services.
"Permits" shall mean all licenses, permits, franchises, approvals,
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authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state 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.
"Year Period" shall mean, the First Year Period, the Second Year
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Period or the Third Year Period, as applicable.
1.2 Other Defined Terms. The following terms shall have the meanings
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defined for such terms in the indicated Sections set forth below. 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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Capitalization Representations 10.4
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CBCA 2.1
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Certificate of Merger 2.2
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Claim 10.3(f)
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Claim Notice 10.3(f)
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Closing 4.1
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Company Shares Recitals
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Damages 10.3
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DGCL 2.1
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Expiration Date 10.2
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First Year Base 3.1(b)
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First Year Period 3.1(b)
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First Year Shares 3.1(b)
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Merger Consideration 3.1
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Parent Preamble
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Parent CFO 3.2
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Parent Services 3.3
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Term Section
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Parent Shares Recitals
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Proprietary Rights 5.21(a)
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Second Year Base 3.1(c)
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Second Year Period 3.1(c)
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Second Year Shares 3.1(c)
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Shareholder Preamble
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Sub Preamble
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Surviving Corporation 2.1
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Third Year Base 3.1(d)
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Third Year Period 3.1(d)
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Third Year Shares 3.1(d)
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Year End Statement 3.3
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ARTICLE II.
THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions hereof and
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in accordance with the Delaware General Corporation Law (the "DGCL") and the
Colorado Business Corporation Act (the "CBCA"), the Company shall be merged with
and into Sub (the "Merger") at the Effective Time. Following the Merger, the
separate existence of the Company shall cease, and Sub shall continue as the
surviving corporation (the "Surviving Corporation"), and shall succeed to and
assume all the rights and obligations of the Company.
2.2 Effective Time. The parties hereto shall cause the Merger to be
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consummated by filing immediately after the Closing Date a Certificate of Merger
with respect thereto with each of the Secretary of State of the State of
Delaware and with the Secretary of State of the State of Colorado (the
"Certificate of Merger") in the forms attached hereto as Exhibit 2.2.
2.3 Effects of the Merger. The Merger shall have the effects set forth
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in Section 259 of the DGCL and Section 0-000-000 of the CBCA. 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 Certificate of Incorporation and By-laws of the Surviving Corporation;
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Officers and Directors. The Certificate of Incorporation of Sub shall be the
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Certificate of Incorporation for the Surviving Corporation until thereafter
changed or amended, and the By-laws of Sub shall be the By-laws of the Surviving
Corporation until thereafter changed or amended. 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. Hibben will be elected as President
and as a director of the Surviving Corporation immediately after the Closing and
shall be entitled to serve in those positions from the closing through the Third
Year Period.
2.5 Effect of the Merger on Company Shares. At the Effective Time, by
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virtue of the Merger and without any action on the part of the Shareholder, or
the Board of Directors of the Parent, Sub or the Company, all of the Company
Shares held by the Shareholder shall be converted into the right to receive the
Merger Consideration (as defined below).
2.6 Cancellation of Company Shares; Delivery of Merger Consideration.
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On the Closing Date, the Shareholder shall surrender to Sub the certificates
representing 100% of the issued and outstanding Company Shares, and such
certificate shall thereafter be cancelled and will cease to represent any
interest in the Company. On the Closing Date, Parent shall deliver (or cause
its transfer agent to deliver) to the Shareholder, in exchange for the
certificate representing the Company Shares, the Merger Consideration (as
defined below).
ARTICLE III.
MERGER CONSIDERATION
3.1 Merger Consideration. The Shareholder shall transfer to Sub all of
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the Company Shares owned by the Shareholder (which shall equal 100% of the
issued and outstanding common stock of the Company), in exchange for the Parent
Shares in (a), (b), (c) and (d) below (as may be adjusted in accordance with
Section 3.2 below) (the "Merger Consideration"). The Merger Consideration shall
be payable to the Shareholder as follows:
(a) 250,000 Parent Shares on the Closing Date;
(b) if the Surviving Corporation generates Gross Revenues of at least
$2,045,515 (the "First Year Base") during the twelve (12) months beginning May
1, 2001 and ending April 30, 2002 (the "First Year Period"), then the
Shareholder shall receive, on a pro rata basis, 1.22 additional Parent Shares
for each $1.00 of Gross Revenues generated above the First Year Base during the
First Year Period, up to a maximum cap of $2,250,067, which is 110% of the First
Year Base, and
250,000 additional Parent Shares (the "First Year Shares");
(c) The Second Year Base shall be the lower of the First Year Period's
Gross Revenues (but not less than $2,045,515) and $2,250,067. If the Surviving
Corporation generates Gross Revenues of at least the Second Year Base during the
twelve (12) months beginning May 1, 2002 and ending April 30, 2003 (the "Second
Year Period"), then the Shareholder shall receive, on a pro rata basis,
additional Parent Shares for each $1.00 of Gross Revenues generated above the
Second Year Base during the Second Year Period, up to a maximum cap of 120% of
the Second Year Base and 250,000 additional Parent Shares (the "Second Year
Shares"); and
(d) The Third Year Base shall be the lower of the Second Year Period's
Gross Revenues (but not less than $2,045,515) and $2,700,800. If the Surviving
Corporation generates Gross Revenues of at least the Third Year Base during the
twelve (12) months beginning May 1, 2003 and ending April 30, 2004 (the "Third
Year Period"), then the Shareholder shall receive, on a pro rata basis,
additional Parent Shares for each $1.00 of Gross Revenues generated above the
Third Year Base during the Third Year Period, up to a maximum cap of 130% of the
Third Year Base, and 250,000 additional Parent Shares (the "Third Year Shares").
(e) Notwithstanding the foregoing, if the Shareholder is not entitled
to receive the maximum of 250,000 First Year Shares or the maximum of 250,000
Second Year Shares, the maximum of 250,000 Second Year Shares and/or the maximum
of 250,000 Third Year Shares shall be increased based on Gross Revenues
generated above the Second Year Base and the Third Year Base, as the case may
be, subject to the limitation that the total number of Parent Shares that may be
issued to the Shareholder pursuant to Section 3.1(b)-(e) shall be 750,000.
For example, if the Gross Revenues were $2,150,000 in the First
Year Period, the Shareholder would be entitled to receive 127,472 additional
Parent Shares, the Second Year Base would be $2,150,000, the maximum cap in the
Second Year Period would be $2,580,000 and pursuant to Section 3.1(c), the
Shareholder would be entitled to receive, on a pro rata basis, 0.58 additional
Parent Shares for each $1.00 of Gross Revenues generated above the Second Year
Base during the Second Year Period up to a maximum cap of 250,000 additional
Parent Shares. However, if Gross Revenues in the Second Year Period were in
excess of $2,580,000, then pursuant to this Section 3.1(e), the Shareholder
would be entitled to receive Second Year Shares in an amount greater than the
additional 250,000 Parent Shares for the Second Year Period because he earned
fewer than the maximum number of First Year Shares.
(f) Parent shall (or cause its transfer agent to) issue any Parent
Shares due to the Shareholder in accordance with clauses (b), (c), (d) and (e)
of this Section 3.1, within fifteen (15) business days after the Shareholders'
receipt of a Year End Statement.
3.2 Issuance of Additional Parent Shares to the Shareholder. As
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additional Merger Consideration, the Shareholder shall also be entitled to
receive additional Parent Shares (the "Additional Parent Shares") if the average
Closing Price of the Parent's common stock for the 20 Trading Days immediately
preceding the last calendar day of any of First Year Period, Second Year Period
or Third Year Periods (the "Trading Price") is below $5.00 per share. The term
"Closing Price" means the closing price on the principal securities exchange or
trading market where the Parent's common stock is listed or traded as reported
by Bloomberg, L.P. ("Bloomberg"), or if Bloomberg is unavailable for any reason,
by a well recognized reporting service. "Trading Day" means any day on which the
Parent's common stock is traded for any period on the principal securities
exchange or trading market on which the Parent's common stock is then being
traded. The number of such Additional Parent Shares shall be determined based
upon the Trading Price, and calculated as follows:
(a) If the Trading Price is equal to or less than $2.50 per share at
the end of the First Year Period, then the Shareholder shall receive 250,000
Additional Parent Shares.
(b) If the Trading Price is equal to or less than $2.50 per share at
the end of the First Year Period, then the Shareholder shall receive Additional
Parent Shares, the amount of which shall be equal to that number of Parent
Shares received by the Shareholder pursuant to Section 3.1 which relates to the
First Year Period.
(c) If the Trading Price is equal to or less than $2.50 per share at
the end of the Second Year Period, then the Shareholder shall receive Additional
Parent Shares, the amount of which shall be equal to that number of Parent
Shares received by the Shareholder pursuant to Section 3.1 which relates to the
Second Year Period.
(d) If the Trading Price is equal to or less than $2.50 per share at
the end of the Third Year Period, then the Shareholder shall receive Additional
Parent Shares, the amount of which shall be equal to that number of Parent
Shares received by the Shareholder pursuant to Section 3.1 which relates to the
Third Year Period.
(e) If the Trading Price at the end of the First Year Period is
greater than $2.50 per share, but less than $5.00 per share, then the
Shareholder shall receive Additional Parent Shares determined as follows: For
every $.01 that the Trading Price is below $5.00 per share, the Shareholder
shall receive 1,000 Additional Parent Shares.
(f) If the Trading Price at the end of the First Year Period is
greater than $2.50 per share, but less than $5.00 per share, then the
Shareholder shall receive Additional Parent Shares determined as follows: For
every $.01 that the Trading Price is below $5.00 per share, the Shareholder
shall receive the number of Parent Shares received by the Shareholder pursuant
to
Section 3.1 which relates to the First Year Period multiplied by .004, the
product of which shall be multiplied by the number which equals the difference
between $5.00 and the Trading Price.
(g) If the Trading Price at the end of the Second Year Period is
greater than $2.50 per share, but less than $5.00 per share, then the
Shareholder shall receive Additional Parent Shares determined as follows: For
every $.01 that the Trading Price is below $5.00 per share, the Shareholder
shall receive the number of Parent Shares received by the Shareholder pursuant
to Section 3.1 which relates to the Second Year Period multiplied by .004, the
product of which shall be multiplied by the number which equals the difference
between $5.00 and the Trading Price.
(h) If the Trading Price at the end of the Third Year Period is
greater than $2.50 per share, but less than $5.00 per share, then the
Shareholder shall receive Additional Parent Shares determined as follows: For
every $.01 that the Trading Price is below $5.00 per share, the Shareholder
shall receive the number of Parent Shares received by the Shareholder pursuant
to Section 3.1 which relates to the Third Year Period multiplied by .004, the
product of which shall be multiplied by the number which equals the difference
between $5.00 and the Trading Price.
(i) If the Trading Price is equal to or greater than Five Dollars
($5.00) per share in the applicable Year Period, then the Shareholder is not
entitled to receive any Additional Parent Shares for that applicable Year
Period. The total number of Additional Parent Shares that may be received by
the Shareholder pursuant to Section 3.2 shall be 1,000,000.
For example, if the Shareholder received 100,000 Parent Shares pursuant to
Section 3.1 which relates to the First Year Period, then 100,000 would be
multiplied by .004 for a product of 400, and if the Trading Price were $3.75,
then 400 would be multiplied by 125 for a product of 50,000 Additional Parent
Shares.
Parent shall issue any Additional Parent Shares that are due in accordance
with this Section 3.2 and shall deliver, or cause its transfer agent to deliver
to the Shareholder the certificate representing such Additional Parent Shares,
within 15 business days following the end of the applicable Year Period.
3.3 Parent Services.
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(a) Parent shall make certain non-monetary contributions, in the form
of technical support services, to migrate the Surviving Corporation's
proprietary software products to an ASP/Internet platform, and to assist in the
integration of wireless communication protocols into these application software
products. Parent recognizes that the migration to an internet platform is a
prerequisite to the Surviving Corporation's ability to achieve the revenue
targets set forth above. A detailed schedule or project plan, outlining a time
line on Parent's manpower commitment, will
be developed by Parent and the Shareholder, and mutually agreed upon within
ninety days of the Close.
(b) Parent will also use commercially reasonable efforts to extend to
the Surviving Corporation, for the benefit of the Surviving Corporation, other
non-monetary contributions in the form of sales, marketing, engineering and
technical support services (including personnel) to assist the Surviving
Corporation during any Year Period (the "Parent Services"). Each request for
Parent Services must be included in the Budget for the respective Year Period.
All Parent Services rendered in accordance with this Section 3.3 shall be
provided at Parent MFN Rates.
3.4 Determination of Gross Revenue. The Chief Financial Officer of the
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Parent (the "Parent CFO") shall provide to the Shareholder a statement which
shall disclose the Gross Revenues for the preceding Year Period (a "Year End
Statement"). The statement shall be provided by the Parent CFO no later than
fifteen (15) days after the end of the preceding Year Period. The Surviving
Corporation agrees to provide any and all information, as reasonably requested
by the Parent CFO, necessary to calculate the Gross Revenues for any given Year
Period.
(a) Disputed Gross Revenue Amount. If the Shareholder disagrees with
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the Year End Statement, he must notify Parent of such disagreement in writing,
specifying the particulars of such disagreement, within fifteen (15) days after
the Shareholder's receipt of the Year End Statement. To the extent that any
portion of the Year End Statement is not in dispute, within fifteen (15)
business days after the Shareholder's receipt of the Year End Statement, Parent
shall (or cause its transfer agent to) issue to the Shareholder those Parent
Shares which have become issuable with respect to that portion of the Year End
Statement which is not in dispute.
(b) Resolution of Disputed Gross Revenue Amount. Parent and
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Shareholder will use their best efforts for a period of thirty (30) days after
the Shareholder's delivery of such notice to resolve any disagreements with
respect to the Year End Statement. If, at the end of such period, Parent and
the Shareholder are unable to resolve such disagreements, the independent
auditor of Parent shall resolve any remaining disagreements. The determination
by Parent's independent auditor shall be final, binding and conclusive on the
parties. Parent shall use its best efforts to cause the independent auditor to
make its determination within thirty (30) calendar days of accepting the matter.
Within fifteen (15) days after the date of determination of Parent's independent
auditor, Parent shall (or cause its transfer agent to) issue Parent Shares as
are due in accordance with Section 3.1 above. The fees and expenses of the
independent auditor retained to settle Year End Statement disputes shall be
borne by (i) the Parent, if the result of the auditor's resolution of such
disagreement is to increase the number of Parent Shares issued to the
Shareholder by five percent (5%) or more of what was originally issued in that
Year Period, or otherwise, (ii) the Shareholder.
3.5 Changes in Parent Shares. If the Parent Shares shall be recapitalized
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or reclassified or Parent shall effect any stock dividend, stock split, or
reverse stock split of Parent Shares, then the shares of Parent Shares to be
issued as Merger Consideration under this Agreement, shall be proportionately
and equitably adjusted to reflect any increase or decrease in the number of
shares of Parent Shares resulting from such corporate event.
ARTICLE IV.
CLOSING
4.1 Closing Date and Location. The closing of the transactions
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contemplated herein (the "Closing") shall be held at 10:00 a.m. local time on
the Closing Date at the offices of Semotus Solutions, Inc., 0000 Xxxxxxxxxx
Xxxxx, Xxxxx 000, Xxx Xxxx, Xxxxxxxxxx 00000 on May 7, 2001, or 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
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deliver to Parent and Sub the following documents:
(a) A certificate of good standing from the State of Colorado dated as
of a date not more than four (4) business 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 9.4; and
(c) At Parent's option, the Company shall retire the Company's Long
Term Business Note with Arapahoe Bank and Trust.
4.3 Obligation of the Shareholder. At the Closing, the Shareholder
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shall deliver to Parent and Sub the certificate evidencing all of the issued and
outstanding shares of the Company, duly endorsed in blank for transfer or
accompanied by a stock power duly executed in blank in a form reasonably
requested by Sub to evidence the acknowledgment of and consent to the sale of
the Company Shares.
4.4 Obligations of Parent and Sub. At the Closing, the Parent and Sub
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shall deliver to Shareholder an officers' certificate provided for in Section
8.3.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES AS TO COMPANY
Each of the Company and the Shareholder, jointly and severally, 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, and will be, as of the Closing Date, true and correct:
5.1 Organization and Good Standing. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Colorado. 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 on the Company or the
Business. 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
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of 50,000 shares of common stock, of which 10,000 shares are outstanding. 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.
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.
5.3 Subsidiaries. The Company does not have any subsidiaries or any
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equity interest in another entity.
5.4 Authorization. The Company has all requisite corporate power and
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authority, and 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 and the
Shareholder 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, subject to bankruptcy and creditors' rights and
general principles of equity.
5.5 Employee Benefit Plans. Except as set forth on Schedule 5.5, the
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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
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reports as required by law. These returns and reports are true and correct in
all material respects. The Company has paid all taxes and other assessments
due.
5.7 Title to Property and Assets. The Company owns its property and
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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
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 April 30, 2001, there has not been
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(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
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company;
(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;
(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,
prospects 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.
5.9 Contracts and Commitments.
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(a) Contracts. Schedule 5.9 sets forth a complete and accurate
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list of all Contracts of the following categories:
(1) Contracts not made in the ordinary course of business;
(2) Employment contracts and severance agreements;
(3) Labor or union contracts;
(4) Distribution, franchise, license, sales, commission,
consulting agency or advertising contracts which are not cancelable on thirty
(30) calendar days notice;
(5) Contracts involving expenditures or liabilities, actual or
potential, in excess of $15,000, taken as a whole, and not cancelable (without
liability) within thirty (30) calendar days;
(6) Contracts or commitments relating to commission arrangements
with others;
(7) 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 purchasers in the ordinary course of business;
(8) 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;
(9) Any Contract with the United States, state or local
government or any agency or department thereof;
(10) Leases of real property;
(11) Leases of personal property not cancelable (without
liability) within thirty (30) calendar days; and
(12) 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. To the Company's knowledge,
-------------------------------
all of the Contracts are valid and in full force and effect. The Company has
duly performed all of its obligations under the Contracts, and no violation of,
or default or breach under any Contracts has accrued, except for violations,
defaults or breaches that would not have a Material Adverse Effect.
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. 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 Bylaws 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 Parent and Sub' counsel 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 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 shareholder 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 Bylaws, (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, agreement, or other instrument or
obligation (1) to which the Company is a party or (2) by which the Company is
bound, (3) violate any statute, rule, regulation, ordinance, code, order,
judgment, ruling, writ, injunction, decree or award, or (4) 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. The Financial Statements (1) are in accordance
--------------------
with the books and records of the Company, and (2) fairly 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. Financial Statements have been compiled by the
Company. At the respective dates of the Financial Statements, there were no
liabilities of the Company, which, in accordance with generally accepted
accounting principles, 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, except for liabilities that would not
have a Material Adverse Effect.
5.14 Disclosure. To the Company's knowledge, the Company has fully
----------
provided Parent and Sub with all the information that has been requested by
Parent and Sub 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 projections described in the business plan (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, or the Business Plan (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. To the extent the
Business Plan was prepared by management of the Company, the Business Plan and
the financial and other projections 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, threatened or anticipated (1) against, related to or affecting: (1) the
Company, (2) any officers or directors of the Company, or (3) the Shareholder,
(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.
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 reserved
against on the Financial Statement, 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 Statement 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) which, individually or in the aggregate, has or would 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 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 Shareholder nor the Company, 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 copyrights and all pending
applications therefor, all other trademarks and other marks, trade names and
other trade rights or in which it has any interest whatsoever, and all other
trade secrets, designs, plans, specifications, technical information and other
proprietary rights, whether or not registered, created or used by or on behalf
of it (collectively, "Proprietary Rights"). The Proprietary Rights listed in
the Disclosure Schedule are all those used by the Company in connection with the
Business.
(b) Ownership and Protection of Proprietary Rights. It owns and
----------------------------------------------
has the sole right to use each of the Proprietary Rights which if it did not own
or have the right to use would have a Material Adverse Effect. None of the
Proprietary Rights is involved in any pending or threatened litigation. It has
not received any notice of invalidity or infringement of any rights of others
with respect to such trademarks. To the Company's knowledge, no other firm,
corporation, association or person (1) has the right to use any such trademarks,
(2) has notified the Company that it is claiming any ownership of or right to
use such Proprietary Rights, or (3) is infringing upon any such Proprietary
Rights in any way. Its use of the Proprietary Rights is not infringing upon or
otherwise violating the rights of any third party in or to such Proprietary
Rights. 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 corporation, partnership, trust or other entity in
which any such person has an 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 for five (5) years) 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. To the Company's knowledge, 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 Statement, and all accounts receivable arising since the date of the
Financial Statement, 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 the (1) five (5) largest customers, distributors and other agents
and representatives, showing the approximate total sales in dollars by the
Company to each such customer during such fiscal year; and (2) five (5) largest
suppliers, showing the approximate total purchases in dollars from each such
supplier during such fiscal year. To the knowledge of the Company and the
Shareholder after thorough inquiry of all sales people and other relevant
personnel since April 30, 2001, except as disclosed on Schedule 5.25, there has
been no material adverse change in the business relationship of the Company with
any customer, distributor or supplier named on Schedule 5.25. The Company has
not received any communication from any customer, distributor 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 or the Shareholder in this Agreement, nor any document, exhibit,
statement, certificate or schedule heretofore or hereafter furnished to the
Parent and Sub pursuant hereto, or in connection with the transactions
contemplated hereby, including without limitation the Disclosure Schedule,
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.
5.27 Company Loans. The value of the Company's Line of Credit is zero, and
-------------
the value of the Company's Long Term Business Note with Arapahoe Bank and Trust
is not greater than one hundred and forty-two thousand dollars ($142,000), and
there are Certificates of Deposit in the aggregate amount of one hundred and
sixty thousand dollars ($160,000).
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
The Shareholder hereby represents and warrants to Parent and Sub that the
following representations and warranties are, as of the date hereof, and will
be, as of the Closing Date, true and correct:
6.1 Title. Except as set forth on Schedule 6.1, the Shareholder holds of
-----
record and holds beneficially 100% of the issued and outstanding shares of
common stock of the Company, free and clear of any and all encumbrances or other
restrictions on transfer. Other than this Agreement, the Shareholder is not a
party to any voting trust, proxy or other agreement or understanding with
respect to any capital stock of the Company.
6.2 Execution and Effect of Agreement. The Shareholder has the full
---------------------------------
right, power and authority to execute and deliver this Agreement and to perform
his obligations hereunder, and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Shareholder, and the consummation by the shareholder of
the transactions contemplated hereby have been duly authorized by all necessary
action (corporate or otherwise) and no other proceeding on the part of the
Shareholder is necessary to authorize the execution, delivery and performance of
this Agreement and the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Shareholder and constitutes the legal, valid
and binding obligation of Shareholder, enforceable against the Shareholder in
accordance with its terms, subject to bankruptcy and creditors' rights and
general principles of equity.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub hereby represent and warrant to the Company and the
Shareholder as follows, which representations and warranties are, as of the date
hereof, and will be, as of the Closing Date, 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 thereunder. The execution and delivery of this
Agreement by Parent and Sub and the consummation by Parent and Sub of the
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.
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 Bylaw
of Sub, (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, security or pledge agreement, commitment,
license, lease, franchise, permit, agreement, authorization, concession, or
other instrument or obligation to which Parent or Sub 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 Business or its
ability to consummate the transactions contemplated hereby.
7.4 SEC Reports. Parent has timely filed all required reports, statements
-----------
and documents with the Securities and Exchange Commission (the "Commission"),
all of which have complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act. Parent has made
available to the Company and the Shareholder 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 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
statements therein, in light of the circumstances under which they were made,
not misleading.
7.5 Material Misstatements or Omissions. No representations or warranties
-----------------------------------
by the Parent or Sub in this Agreement nor any document, exhibit, statement,
certificate of schedule heretofore or hereafter furnished to the Company or the
Shareholder pursuant hereto, or in connection with the transactions contemplated
hereby, 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.
ARTICLE VIII.
CONDITIONS TO THE SHAREHOLDER'S OBLIGATIONS
The obligations of the Shareholder to consummate the transactions provided
for hereby are subject, in the discretion of the Shareholder, to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by the Shareholder and 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 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 the
Parent, Sub, the Company or the Shareholder which questions the validity or
legality of the transactions contemplated hereby and
which, in the reasonable opinion of the Shareholder, makes it inadvisable to
consummate such transaction.
8.3 Certificates. Parent and Sub shall furnish the Shareholder 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 and the Shareholder.
8.4 Corporate Documents. The Company and the Shareholder shall have
-------------------
received a certificate of a duly authorized officer of each of the Parent and
the Sub, dated the Closing Date, setting forth resolutions of the Board of
Directors of each of the Parent and the 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 or amended as of the Closing Date.
8.5 Exchange Listing. The Parent Shares to be issued as Merger
----------------
Consideration shall have been authorized for listing on either (i) the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation System or (ii) the American Stock Exchange, subject to office notice
of issuance.
8.6 Material Changes. There shall not have been any material adverse
----------------
change with respect to the Parent or Sub since the date of this Agreement.
8.7 Employment Agreement. The Shareholder shall have received from the
--------------------
Sub an Employment Agreement in form and substance satisfactory to the
Shareholder.
8.8 Registration Rights and Lock-Up Agreement. The Shareholder shall
-----------------------------------------
have received from the Parent a Registration Rights and Lock-Up Agreement in
form and substance satisfactory to the Shareholder.
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 and Sub, 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 and the Shareholder 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
and the Shareholder shall have performed and satisfied all agreements and
covenants required hereby to be performed by them 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,
the Company or the Shareholder which questions the validity or legality of the
transactions contemplated hereby and which, in the reasonable opinion of the
Parent and Sub, 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 Material Changes. There shall not have been any material adverse
----------------
change with respect to the Business or the Company since the date of this
Agreement.
9.5 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.
9.6 Due Diligence Review. Parent and Sub and their representatives shall
--------------------
have conducted a due diligence review of the Company's books and records,
financial statements, and other records and accounts of the Company, and in the
sole discretion of Parent and Sub, Parent and Sub shall be satisfied on the
basis of such review that there has been no breach of the representations and
warranties or the pre-closing covenants of the Company or the Shareholder made
pursuant to this Agreement. Such review shall have no effect whatsoever on the
liability of the Company or the Shareholder to Parent or Sub under this
Agreement or otherwise for breach of any representations, warranties, or
covenants of the Company or the shareholder hereunder.
ARTICLE X.
ACTIONS BY PARTIES AFTER THE CLOSING
10.1 Company Loans. Parent shall
-------------
(a) facilitate the Company's current Line of Credit Loan with Arapahoe
Bank and Trust, as long as the value of this Line of Credit equals zero at
Closing;
(b) assume the Company's Long Term Business Note with Arapahoe Bank
and
Trust, as long as the value is not greater than one hundred and fifty thousand
dollars ($150,000), and there is a Certificate of Deposit in the amount of one
hundred and fifty thousand dollars ($150,000) at Closing; at Parent's option,
the Company shall retire the Note with this Certificate of Deposit;
(c) "pass through" the monthly payments for a period of three years
from the Closing, within a commercially reasonable amount (which shall not
deviate materially from the current monthly payment), to the Shareholder for the
Partnership Buyout Note secured by the Shareholder and the Company with Arapahoe
Bank and Trust. At the end of the three year period, Shareholder shall pay back
to Parent all principal (but not interest) payments made by Parent on the
Partnership Buyout Note, net of any income taxes the Shareholder owes on the
principal paid; the Shareholder may satisfy this obligation by selling his
Parent Shares back to Parent, such shares to be valued at its then current
market value.
10.2 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, the shareholder, 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 than the provisions of Sections 5.6, 5.22, 5.26 and this
Section 10.2, and all claims and causes of action with respect thereto) shall
terminate upon expiration of five (5) years after the Closing Date ("Expiration
Date"). The representations and warranties in Sections 5.6, 5.22, and 5.26
shall survive until the expiration of the applicable statute of limitations
(with extensions) with respect to the matters addressed in such sections. The
representations and warranties in Sections 5.2, 6.1 and 6.2 (the "Capitalization
Representations") 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 prior to the expiration of the applicable survival period provided
herein.
10.3 Indemnifications.
----------------
(a) By the Shareholder. The Shareholder shall indemnify, save and
------------------
hold harmless Parent and Sub, their affiliates and subsidiaries, and their
respective representatives, 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 any representation made by the Company or the
Shareholder in or pursuant to this Agreement, or (2) any breach of any covenant
or agreement made by the Company or the Shareholder in or pursuant to this
Agreement; provided, however, that Parent and Sub makes a written claim for
-------- -------
indemnification against the Shareholder within the applicable survival period.
Notwithstanding the foregoing, under no circumstances shall the liability of the
Shareholder in the aggregate pursuant to this Agreement exceed the Merger
Consideration actually received by the Shareholder pursuant to this Agreement,
or the fair market value of the Merger Consideration actually received, if and
for any Parent Shares that the Shareholder has already sold.
(b) Tax Indemnity. The shareholder, shall indemnify, save and hold
-------------
harmless Parent and Sub, their affiliates and subsidiaries, and their respective
representatives, from and against any and all Damages incurred in connection
with, arising out of, resulting from or incident to (1) any taxes of the Company
with respect to any tax year or portion thereof ending on or before the Closing
Date and (2) for the unpaid taxes of any person (other than the Company) under
Treasury Regulations Section 1.1502-6 (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract, or otherwise.
(c) By Parent and Sub. Parent and Sub, jointly and severally, shall
-----------------
indemnify and save and hold harmless the Company, the Shareholder and each of
their affiliates and subsidiaries, and their respective representatives 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, (2) any breach of any covenant or agreement made by Parent or
Sub in or pursuant to this Agreement; or (3) operation of the Business of the
Company from and after the Closing Date; provided, however, that the Shareholder
-------- -------
make a written claim for indemnification against Parent or Sub within the
applicable survival period.
(d) Damages. The term "Damages" as used in this Section 10.3 is
-------
not limited to matters asserted by third parties against the Company, the
Shareholder, Parent or Sub, but includes Damages incurred or sustained by the
Company, the Shareholder, Parent or Sub in the absence of third party claims.
Payments by Parent or Sub of amounts for which Parent or Sub is indemnified
hereunder, and payments by the Company or the shareholder of amounts for which
the Company or the shareholder are indemnified, shall not be a condition
precedent to recovery. The Company's or the Shareholder's obligation to
indemnify Parent or Sub, and Parent's or Sub' obligation to indemnify the
Company or the Shareholder, shall not limit any other rights, including without
limitation rights of contribution which either party may have under statute or
common law.
(e) Cooperation. The indemnified party shall cooperate in all
-----------
reasonable respects with the indemnifying party and such attorneys in the
investigation, trial and defense of such 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.
(f) Defense of Claims. If a claim for Damages (a "Claim") is to be
-----------------
made by a party entitled to indemnification hereunder against the indemnifying
party, the party claiming such indemnification shall give written notice (a
"Claim Notice") to the indemnifying party as soon as practicable after the party
entitled to indemnification becomes aware of any fact, condition or event which
may give rise to Damages for which indemnification may be sought under this
Section 10.3. If any lawsuit or enforcement action is filed against any party
entitled to the benefit of indemnity hereunder, written notice thereof shall be
given to 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 its indemnity 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 in writing 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 10.5 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) Product and Warranty Liability. The provisions of this Section
------------------------------
10.3 shall cover, without limitation, all obligations and liabilities of
whatsoever kind, nature or description relating, directly or indirectly, to
product liability, litigation or claims against Parent, Sub or the
Surviving Corporation in connection with, arising out of, or relating to
products developed or sold by Parent, Sub or the Surviving Corporation in
connection with the Business.
(h) Brokers and Finders. Pursuant to the provisions of this Section
-------------------
10.3, each of Parent, Sub, the Company and the Shareholder shall indemnify, hold
harmless and defend the other party from the payment of any and all broker's and
finder's expenses, commissions, fees or other forms of compensation which may be
due or payable from or by the indemnifying party, or may have been earned by any
third party acting on behalf of the indemnifying party in connection with the
negotiation and execution hereof and the consummation of the transactions
contemplated hereby.
(i) Parent's Right of Offset. Anything in this Agreement to the
------------------------------
contrary notwithstanding, Parent may withhold and set off against any Merger
Consideration otherwise due to the Shareholder, any amount as to which the
Shareholder is obligated to indemnify Parent or Sub pursuant to any provision of
this Section 10.3.
10.4 Extraordinary Transaction. In the event that Parent files a petition
-------------------------
under bankruptcy or other document seeking relief under any United States or
foreign bankruptcy, insolvency or similar law, and the same is not discharged
within sixty (60) days following written notice, the Shareholder shall have a
right to repurchase the Company for a commercially reasonable amount, to be
mutually agreed upon by the parties.
ARTICLE XI.
MISCELLANEOUS
11.1 Termination.
-----------
(a) Termination . This Agreement may be terminated at any time
-----------
prior to Closing:
(1) By mutual written consent of Parent, Sub, the Company and the
Shareholder;
(2) By Parent, Sub, the Company or the Shareholder: (i) if the
Merger shall not have been consummated on or before May 15, 2001, 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 May
15, 2001 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 May 31, 2001;
(3) 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 or the Shareholder
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 Shareholder has not had an adequate opportunity to cure such
failure; or
(4) By the Company or the Shareholder 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 (and such condition is not waived in writing by
the Company or the shareholder) 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 Shareholder may not terminate this
Agreement prior to the Closing Date if Parent or Sub has not had an adequate
opportunity to cure such failure.
(b) In the Event of Termination. In the event of termination of this
---------------------------
Agreement:
(1) 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;
(2) The provisions of the Mutual Non-Disclosure Agreement (the
"Mutual Non-Disclosure Agreement"), dated as of January 19, 2001, by and between
Parent and the Company shall continue in full force and effect; and
(3) 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.
11.2 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.
11.3 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:
Xx. Xxxx Xxxxxx
President and CEO
Application Design Associates, Inc.
0000 Xxxxx Xxxxxxxx Xxx, Xxxxx 000
Xxxxxxxxx, XX 00000-0000
Facsimile: (000) 000-0000
With a copy to:
Xxxxxx Xxxxx, LLP
0000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
If to Parent or Sub at any time or the Surviving
Corporation, addressed to:
Semotus Solutions, Inc.
0000 Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx, Esq.
Facsimile: 000-000-0000
Xxxxxxxxx Glusker Fields Claman & Machtinger LLP
0000 Xxxxxx xx xxx Xxxxx, Xxxxx 0000
Xxx Xxxxxxx, XX 00000-0000
Attention: Xxxxx Xxxxxxx Xxxxxx, Esq.
Facsimile: (000) 000-0000
If to Shareholder:
Xxxx Xxxxxx
----------------------------------------------------------------------
----------------------------------------------------------------------
0000 Xxxx Xxxxxxx Xxxxx
Xxxxxxxxx Xxxxx, Xxxxxxxx 00000
000-000-0000
With a copy to:
Xxxxxx Xxxxx, LLP
0000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
11.4 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.
11.5 Entire Agreement; Amendments and Waivers. This Agreement, the
----------------------------------------
Mutual Non-Disclosure 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.
11.6 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.
11.7 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.
11.8 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.
11.9 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.
11.10 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.
11.11 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.
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/ Xxxxxxx X. XxXxxx
Name: Xxxxxxx X. XxXxxx
Its: President and CEO
SUB:
ADA ACQUISITION, INC.
By: /s/ Xxxxxxx X. XxXxxx
Name: Xxxxxxx X. XxXxxx
Its: CEO
COMPANY:
APPLICATION DESIGN ASSOCIATES, INC.
By: /s/ Xxxx Xxxxxx
Name: Xxxx Xxxxxx
Its: President
SHAREHOLDER:
By: /s/ Xxxx Xxxxxx
Name: Xxxx Xxxxxx
Exhibit 2.2
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Merger Certificate
Disclosure Schedules
--------------------
