-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UrJ1xlxzv0RfsHSk/feKtBsX2B/HRO5CFLir6F9NzwTis9/sTGVCoelLnCTzxh1O uKRwSA+mFb+UxyRkX/vGAA== 0001072613-05-000800.txt : 20050330 0001072613-05-000800.hdr.sgml : 20050330 20050330141545 ACCESSION NUMBER: 0001072613-05-000800 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050330 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Unregistered Sales of Equity Securities ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050330 DATE AS OF CHANGE: 20050330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEMOTUS SOLUTIONS INC CENTRAL INDEX KEY: 0000832370 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 954599440 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15569 FILM NUMBER: 05713348 BUSINESS ADDRESS: STREET 1: 16400 LARK AVE STREET 2: SUITE 230 CITY: LOS GATOS STATE: CA ZIP: 95032 BUSINESS PHONE: 4083587100 MAIL ADDRESS: STREET 1: 16400 LARK AVE STREET 2: SUITE 230 CITY: LOS GATOS STATE: CA ZIP: 95032 FORMER COMPANY: FORMER CONFORMED NAME: DATALINK NET INC DATE OF NAME CHANGE: 19990707 FORMER COMPANY: FORMER CONFORMED NAME: DATALINK SYSTEMS CORP /CA/ DATE OF NAME CHANGE: 19960723 FORMER COMPANY: FORMER CONFORMED NAME: LORD ABBOTT INC DATE OF NAME CHANGE: 19920703 8-K 1 form8-k_13383.txt SEMOTUS SOLUTIONS, INC. FORM 8-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): March 28, 2005 SEMOTUS SOLUTIONS, INC. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (Exact Name of Registrant as Specified in its Charter) NEVADA 0-21069 36-3574355 ------ ------- ---------- (State or other jurisdiction of (Commission (I.R.S. Employer incorporation or organization) File Number) Identification No.) 16400 Lark Ave., Suite 230 Los Gatos, CA 95032 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (408) 358-7100 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, including area code) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13c-4(c) under the Exchange Act (17 CFR 240.13e- 4(c)) ================================================================================ ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT See Item 2.01 below for a discussion of the Merger Agreement entered into on March 24, 2005 among Semotus Solutions, Inc., Semotus Acquisition Corp. and Expand Beyond Corporation relating to the acquisition of Expand Beyond by Semotus. ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS Semotus Solutions, Inc. acquired 100% of the issued and outstanding capital stock of Expand Beyond Corporation for 1,910,955 shares of Semotus Solutions' common stock on March 28, 2005 pursuant to a Merger Agreement entered into on March 24, 2005. Semotus may also issue additional shares over the following two years, pursuant to an earn-out arrangement as defined in the Merger Agreement attached hereto as Exhibit 2.1. As part of the acquisition, Semotus hired Expand Beyond Corporation's CEO, Ari Kaplan, as President of the wholly owned subsidiary of Semotus, Expand Beyond Corporation, and granted Mr. Kaplan warrants to purchase up to 400,000 shares of Semotus common stock at an exercise price equal to $0.37 per share, which was the closing price on his date of hire, March 28, 2005, vesting over a three year period and having a ten year term. In connection with the acquisition, Semotus paid a finder's fee to Bathgate Capital Partners, LLC of $45,786, of which $10,000 was paid in cash and the balance was paid by the issuance of 42,944 shares of common stock. Bathgate Capital Partners, LLC was retained by Semotus on May 27, 2004 as a financial advisor to assist Semotus in seeking and evaluating potential business combinations, and was granted warrants to purchase up to 45,000 shares of Semotus common stock immediately exercisable at an exercise price of $0.34 per share, the closing price on May 27, 2004, with a five year term and containing certain registration rights. As part of the acquisition, Semotus has agreed to file a registration statement with the Securities and Exchange Commission by no later than July 30, 2005 to qualify the resale of the 1,910,955 shares of common stock issued to the Expand Beyond Shareholders and the 42,944 shares of common stock issued to Bathgate Capital Partners, LLC. The warrants to purchase up to 45,000 shares of Semotus common stock issued to Bathgate Capital Partners, LLC will also be included in this registration statement. The securities issued in connection with this acquisition have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements of the Securities Act of 1933. Expand Beyond Corporation is engaged in the business of developing, selling and supporting mobile and web applications, software products, application extension technologies and services related to each of the foregoing. On March 29, 2005, Semotus issued a press release with respect to this acquisition. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES See Item 2.01 above, as it relates to the issuance of common stock to Expand Beyond Corporation's shareholders and Bathgate Capital Partners, LLC, and the issuance of warrants to Bathgate Capital Partners, LLC and Ari Kaplan. With respect to these transactions, Semotus relied on Section 4(2) of the Securities Act of 1933, as amended. The investors were given complete information concerning Semotus and represented that the shares were being acquired for investment purposes. The issuances were made without general solicitation or advertising. The appropriate restrictive legend was placed on the certificates and stop transfer instructions were issued to the transfer agent. ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of business acquired. The required financial statements will be filed as soon as practicable, but not later than 71 calendar days after the date by which this report on Form 8-K must be filed. (b) Pro forma financial information. The required pro forma financial information will be filed as soon as practicable, but not later than 71 calendar days after the date by which this report on Form 8-K must be filed. (c) Exhibits. The following exhibits are filed with this report: Exhibit Number Description -------------- --------------- 2.1 Merger Agreement by and among Semotus Solutions, Inc., Expand Beyond Corporation and Semotus Acquisition, Corp. dated March 24, 2005. 4.1 Warrant to purchase up to 400,000 shares of Semotus Solutions, Inc. common stock issued to Ari Kaplan dated March 28, 2005. 4.2 Warrant to purchase up to 45,000 shares of Semotus Solutions, Inc. common stock issued to Bathgate Capital Partners, LLC dated May 27, 2004. 99.1 Press release of Semotus Solutions, Inc. dated March 29, 2005. SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized. SEMOTUS SOLUTIONS, INC. Date: March 30, 2005 By: /s/ Anthony N. LaPine ------------------------------------- Anthony N. LaPine, President and Chief Executive Officer EX-2.1 2 exhibit2-1_13383.txt MERGER AGREEMENT EXHIBIT 2.1 ----------- AGREEMENT OF MERGER by and among Semotus Solutions, Inc., Semotus Acquisition Corp. and Expand Beyond Corporation Dated: March 24, 2005 AGREEMENT OF MERGER This Agreement of Merger (this "Agreement"), dated as of March 24, 2005, is by and among Semotus Solutions, Inc., a Nevada corporation ("Parent"), Semotus Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent ("Sub"), and Expand Beyond Corporation, a Delaware corporation (the "Company"). RECITALS WHEREAS, the Company is engaged in the business of developing, selling and supporting mobile and web application, software products, application extension technologies and services related to each of the foregoing (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 Sub, with the Company as the surviving entity; and (ii) the shareholders of the Company (the "Shareholders"), who, together own 100% 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, as appropriately adjusted for any stock splits, stock dividends or similar recapitalization (the "Parent Shares") on a pro rata basis determined as set forth in Schedule 2.5, and as provided in Article 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 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. "Closing Date" shall mean the date of 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 Page 1 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. Matters disclosed in any one such schedule shall be deemed disclosed for purposes of any other schedule where such matters are reasonably related to the information addressed in such other schedule. "Effective Date" shall mean the date and time of receipt of the Certificates of Merger for filing with the Secretary of State of the State of Delaware, 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 December 31, 2004, and its unaudited income statement for the period ended December 31, 2004, and (b) in the case of Parent, (i) its consolidated audited balance sheet dated March 31, 2004, and its consolidated statements of income, cash flow and changes in financial position for the twelve month period ended March 31, 2004, (ii) its reviewed consolidated balance sheet dated, and its reviewed consolidated statements of income, cash flow and changes in financial position for the three month period ending December 31, 2004. The definition of Financial Statements shall also include an updated balance sheet and income statement of the Company as of February 28, 2005. "Gross Business Expenses" shall mean any and all costs (as determined in accordance with generally accepted accounting principles) incurred by the Surviving Corporation in connection with the operation of the Business. "Material Adverse Effect" or "Material Adverse Change" shall mean any adverse effect on or change in the financial condition, results of operations, assets, liabilities or operations of the Company or Parent (including its subsidiaries, taken as a whole), 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, solely with the passage of time, constitute such a material adverse effect or material adverse change. "Parent Average Stock Price" ("PASP") shall mean the average price per share (as determined by the closing sales price for the common stock of Parent) that the common stock of Parent has traded on the American Stock Exchange, or any other established stock exchange, Page 2 automated quotation system or bulletin board, for the thirty consecutive market trading days prior to the Closing Date. "Parent MFN Rates" shall mean rates at least as favorable as rates charged by Parent at such time to any third party for substantially similar services. "Parent Capital Investment" shall mean the dollar amount of the funds invested by Parent into the Surviving Corporation. "Permits" shall mean all licenses, permits, franchises, approvals, 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. "Recognized Revenues" shall mean total revenues allowed to be recognized as determined in accordance with the generally accepted accounting principles of the Surviving Corporation that were earned by, or generated from, the Business (including any and all products or services of Parent or its Affiliates that are either sold through the Business or that are based on or derivatives of the Company's technology in existence as of the Closing, including without limitation the Company's XBanywhere technology), any profit gained from sales of any of the Surviving Corporation's assets (including without limitation any patents), as well as revenues attributed to the Business that are developed in conjunction with the Parent or any other subsidiaries of Parent, and that those subsidiaries may also count as revenue for their financial statements. "Securities Act" shall mean the Securities Act of 1933, as amended. "Shareholders Representative" shall mean Ari Kaplan, or such replacement representative as a majority of the outstanding Parent Shares then held by the Shareholders may designate in writing from time to time. "Year Period" shall mean the First Year Period, or the Second Year Period, as applicable. The First Year Period and the Second Year Period shall collectively be referred to as the "Year Periods". 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. - -------------------------------------------------------------------------------- Term Section - ---- ------- - -------------------------------------------------------------------------------- Action 5.15 - -------------------------------------------------------------------------------- Budget 10.2 - -------------------------------------------------------------------------------- Page 3 - -------------------------------------------------------------------------------- Term Section - ---- ------- - -------------------------------------------------------------------------------- Business Recitals - -------------------------------------------------------------------------------- Business Plan 5.14 - -------------------------------------------------------------------------------- Claim Notice 10.5(d) - -------------------------------------------------------------------------------- Closing 4.1 - -------------------------------------------------------------------------------- Company Preamble - -------------------------------------------------------------------------------- Company Shares Recitals - -------------------------------------------------------------------------------- Company Stock Options 2.8 - -------------------------------------------------------------------------------- DGCL 2.1 - -------------------------------------------------------------------------------- Dispute Notice 3.2 - -------------------------------------------------------------------------------- Dissenting Shares 2.9 - -------------------------------------------------------------------------------- Dissenting Shareholder 2.9 - -------------------------------------------------------------------------------- Expiration Date 10.4 - -------------------------------------------------------------------------------- First Year Base 3.1(b) - -------------------------------------------------------------------------------- First Year Period 3.1(b) - -------------------------------------------------------------------------------- First Year Shares 3.1(b) - -------------------------------------------------------------------------------- Indemnified Party 10.5 - -------------------------------------------------------------------------------- Indemnifying Party 10.5 - -------------------------------------------------------------------------------- Initial Stock Consideration 3.1(a) - -------------------------------------------------------------------------------- Merger Certificates 2.2 - -------------------------------------------------------------------------------- Merger Consideration 3.1 - -------------------------------------------------------------------------------- Parent Preamble - -------------------------------------------------------------------------------- Parent CFO 3.3 - -------------------------------------------------------------------------------- Parent Services 10.3 - -------------------------------------------------------------------------------- Parent Shares Recitals - -------------------------------------------------------------------------------- Page 4 - -------------------------------------------------------------------------------- Term Section - ---- ------- - -------------------------------------------------------------------------------- Proprietary Rights 5.21(a) - -------------------------------------------------------------------------------- Pro Rata Basis 2.5 - -------------------------------------------------------------------------------- Second Year Base 3.1(c) - -------------------------------------------------------------------------------- Second Year Period 3.1(c) - -------------------------------------------------------------------------------- Second Year Shares 3.1(c) - -------------------------------------------------------------------------------- Set Off Rights 10.5 - -------------------------------------------------------------------------------- Shareholders Recitals - -------------------------------------------------------------------------------- Special Meeting 2.7 - -------------------------------------------------------------------------------- Sub Preamble - -------------------------------------------------------------------------------- Year End Statement 3.3 - -------------------------------------------------------------------------------- ARTICLE II. THE MERGER: SPECIAL MEETING 2.1 The Merger. Upon the terms and subject to the conditions hereof and in accordance with the Delaware General Corporation Law (the "DGCL"), the Company shall be merged with Sub (the "Merger") effective upon the filing of the Certificate of Merger with the Delaware Secretary of State (the "Effective Time"). Following the Merger, the separate existence of the 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 Certificate of Merger with respect thereto with the Secretary of State of the State of Delaware (the "Certificate of Merger") in the form attached hereto as Exhibit 2.2. 2.3 Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL. 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; Directors. The Certificate of Incorporation of the Sub shall be the Certificate of Incorporation for the Surviving Page 5 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. Immediately prior to the Effective Time, all directors of the Company shall resign, except Ari Kaplan, and Mr. Kaplan shall take all necessary action to fill the resulting vacancies on the Board of Directors of the Company by electing Anthony N. LaPine to the Board of Directors, and such directors shall be the directors of the Surviving Corporation at the Effective Time. Such directors will hold office until their respective successors are duly elected or appointed and qualify in the manner provided in the Certificate of Incorporation and bylaws of the Surviving Corporation, or as otherwise provided by applicable law. 2.5 Effect of the Merger on Capital Stock. 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, on a pro rata basis as set forth in Schedule 2.5 (the "Pro Rata Basis"), the Merger Consideration, rounded to the nearest whole share, and ii) all shares of Common Stock and Series A Preferred Stock and Series B Preferred Stock of the Company that are owned by the Company as treasury stock shall be canceled and retired and shall cease to exist and no Merger Consideration shall be delivered in exchange therefore. Certificates representing the Parent Shares will be delivered to the Shareholders upon surrender to the Parent of valid stock certificates representing their Company Shares. 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 (a) a letter of transmittal in such form and with such provisions as Parent and the Company may reasonably specify and (b) instructions for surrendering the certificates 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 therefore, and the certificate so surrendered shall immediately be canceled. (b) No Further Ownership Rights in The Company Common Stock. All shares of Parent's Common Stock issued upon the surrender for exchange of Company Share certificates 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 Shares which were outstanding immediately prior to the Effective Time. (c) No Fractional Shares. No certificate or scrip representing fractional Parent Shares shall be issued upon the surrender for exchange of 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 Agreement, each holder of Shares exchanged Page 6 pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of a Parent Share (after taking into account all Certificates delivered by such holder) shall be rounded to the nearest whole Parent Share. (d) Certificates representing the Parent's Shares of Common Stock 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 ----, A COPY OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF THE COMPANY. THE SHARES MAY NOT BE SOLD OR OTHERWISE DISPOSED OF PRIOR TO -------------. THIS RESTRICTION IS INDEPENDENT OF AND IN ADDITION TO THE OTHER RESTRICTIONS ON TRANSFER NOTED HEREON." 2.7 Shareholder Consent. The Company and its Board of Directors shall take all action necessary in accordance with applicable law and the Company's Certificate of Incorporation and Bylaws to, prior to the Closing Date, have the Shareholders execute a written consent without a meeting for the purpose of consenting to, approving and adopting (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 Certificate of Incorporation, the Company's Bylaws or the DGCL. 2.8 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. Any holders of Company Stock Options who decide to exercise their Company Stock Options before the Closing Date shall become Shareholders, and as such, shall be entitled to receive the Merger Consideration on a Pro Rata Basis, and as set forth in Article III. 2.9 Dissenters' Rights. In the event the Merger becomes effective without the approval of the holders of 100% of the outstanding shares of the Company Shares, any Company Shares held by shareholders who properly exercise and perfect the dissenters' rights set forth in Section 262 of the DGCL ("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 the shares as may be determined to be due with respect to such Dissenting Shares pursuant to the provisions of the DGCL. Parent shall have the right to control all negotiations and proceedings with respect to the Page 7 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 DGCL, 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. Each holder of Dissenting Shares (a "Dissenting Shareholder") who, pursuant to the provisions of the DGCL, becomes entitled to payment of the fair value of the 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 DGCL). In the event that any holder of the 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. 2.10 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. ARTICLE III. MERGER CONSIDERATION 3.1 Merger Consideration. From and after the Effective Time, each certificate of the Company Shares shall be deemed to represent the right to receive, upon the surrender of such certificate, a certificate representing the Merger Consideration, including the appropriate number Parent Shares, as contemplated by this Article III. The Shareholders shall have the right to receive a maximum of four million (4,000,000) Parent Shares (as may be adjusted in accordance with Section 3.3 below) (the "Merger Consideration"). The Merger Consideration shall be allocated and payable to the Shareholders on a Pro Rata Basis as follows: (a) 997,182 Parent Shares on the Effective Date, equal to 1.3 multiplied by the Company's Recognized Revenues for the twelve month period ending on December 31, 2004 (the "Base Year"), divided by the PASP, and 913,773 Parent Shares on the Effective Date, equal to the Company's cash at Closing divided by the PASP (together, the "Initial Stock Consideration"); (b) if the Surviving Corporation generates Recognized Revenues that are greater than the Base Year's Recognized Revenues during the twelve month period following the end of the Base Year (the "First Year Period"), then the Shareholders shall receive, on a Pro Rata Basis, Page 8 additional Parent Shares, equal to 1.3 multiplied by the difference between the Base Year's Recognized Revenues and the First Year Period's Recognized Revenues, divided by the PASP; the total maximum number of Parent Shares issuable pursuant to Section 3.1(a) and (b) shall be four million (4,000,000) shares, as appropriately adjusted for any stock splits, stock dividends or similar recapitalization; (c) if the maximum number of Parent Shares have not been issued yet, and the Surviving Corporation generates Recognized Revenues during the twelve month period following the end of the First Year Period (the "Second Year Period") that are greater than the First Year Period, then the Shareholders shall receive, on a Pro Rata Basis, additional Parent Shares equal to 1.3 multiplied by the difference between the First Year Period's Recognized Revenues and the Second Year Period's Recognized Revenues, divided by the PASP; the maximum number of Parent Shares issuable pursuant to Section 3.1(a), (b) and (c) shall be four million (4,000,000) shares, as appropriately adjusted for any stock splits, stock dividends or similar recapitalization; and (d) Parent shall authorize the issuance of any Parent Shares due to the Shareholders in accordance with clauses (b) or (c) of this Section 3.1, and shall deliver, or cause its transfer agent to deliver, to Shareholders the certificates representing such Parent Shares within twenty five (25) business days after the Shareholders' receipt of a Year End Statement. 3.2 Determination of Recognized Revenue and Gross Business Expenses. The Shareholders acknowledge and agree that the Chief Financial Officer of Parent (the "Parent CFO") shall determine the Recognized Revenue for each respective Year Period (as determined in accordance with generally accepted accounting principles). Promptly, but in no event later than thirty (30) business days after each Year Period the Parent CFO shall provide to the Shareholder Representative a statement which shall disclose the Recognized Revenues for the preceding Year Period (a "Year End Statement"). The Surviving Corporation agrees to provide any and all information, as reasonably requested by the Parent CFO, that is necessary to calculate the Recognized Revenues for any given Year Period, to Parent and the Shareholder Representative. (a) Disputed Recognized Revenue Amount. If greater than twenty percent (20%) of the Shareholders disagree with the Year End Statement, the Shareholder Representative must notify Parent of such disagreement in writing (the "Dispute Notice"), specifying the particulars of such disagreement, within 30 business days after the Shareholder Representative's receipt of the Year End Statement. To the extent that any portion of the Year End Statement is not in dispute, within 35 business days after the Shareholder Representative's receipt of the Year End Statement, Parent shall (or cause its transfer agent to) issue to the Shareholders 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 Amounts. Parent and the Shareholder Representative will use their best efforts for a period of thirty (30) calendar days after the Shareholder Representative'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 Representative are unable to Page 9 resolve such disagreements, a mutually agreed upon third party CPA firm (the "Independent Auditor") shall resolve any remaining disagreements. The determination by the 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 ten (10) business days after the date of determination of the Independent Auditor, Parent shall (or cause its transfer agent to) issue Parent Shares as are due in accordance with this Article III. If the Recognized Revenue calculation is off by 5% or more in favor of the Shareholders, provided that such amount affects the determination of how many, if any, Parent Shares, as the case may be, the Shareholders are entitled to receive, the fees and expenses of the Independent Auditor retained to settle Year End Statement disputes shall be borne by the Parent; otherwise, such fees and expenses shall be borne by the Shareholders by reducing the number of shares in escrow by a number of shares equal to such fees and expensesbased on the closing price of the common stock of Parent on the Closing Date, and subject to a maximum of 10% of Parent Shares held in the escrow account at the time of the dispute. 3.3 Changes in Parent Shares. If prior to the end of the Second Year Period, the Parent Shares shall be recapitalized or reclassified or Parent shall effect any stock dividend, stock split, or reverse stock split of Parent Shares, then the 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 Parent Shares resulting from such corporate event. 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 Merger Certificate) 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: (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 Certificate of Merger substantially in the form of Exhibit 2.2; and Page 10 (d) A certificate of the Secretary of the Company certifying as to the matters described in Section 9.1.(e) 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 applicable 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 organized, validly existing and in good standing under the laws of the State of Delaware. 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 Certificate 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 26,000,000 shares, of which 17,500,000 shares are common stock, of which 4,751,108 shares are outstanding, and 8,500,000 shares are preferred stock of which 7,285,812 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. 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, 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 Page 11 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 February 28, 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; (c) any waiver or compromise by the Company of a material right or of a material debt owed to it; (d) any satisfaction or discharge of any material lien, claim, or encumbrance or payment of any material obligation by the Company, except in the ordinary course of business and that have not had, in the aggregate, a Material Adverse Effect; (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; Page 12 (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; or (l) any arrangement or commitment by the Company to do any of the things described in this Section 5.8. 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 less; (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 others; Page 13 (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 purchasers 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 (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, to the best of Company's knowledge, 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 bankruptcy and equity 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 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. Page 14 5.11 Corporate Documents. The Certificate 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 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 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 Certificate 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 (a) to which the Company is a party or (b) by which the Company is bound, (c) violate any statute, rule, regulation, ordinance, code, order, judgment, ruling, writ, injunction, decree or award, 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 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. The Financial Statements have been compiled by Alexander X. Kuhn & Co., certified public accountants. 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. 5.14 Disclosure. The Company has fully provided Parent and Sub with all the written information that has been requested by the Parent's due diligence request letter. No representation or warranty of the Company contained in this Agreement, the Exhibits or Schedules attached hereto, or any certificate 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. Page 15 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. 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 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) 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 Page 16 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 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 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 owned or used by the Company in connection with the Business. (b) Ownership and Protection of Proprietary Rights. Except as set forth on Schedule 5.21, (i) to the best of its knowledge, the Company owns and has the sole right to use each of the Proprietary Rights. 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 (a) has the right to use any such Proprietary Rights, (b) has notified the Company that it is claiming any ownership of or right to use such Proprietary Rights, or (c) to the best of its knowledge, is infringing upon any such Proprietary Rights in any way. To the best of 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 best of its knowledge, Page 17 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 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 Material Misstatements Or Omissions. No representations or warranties by the Company in this Agreement, nor any exhibit, certificate or schedule furnished to Parent and Sub pursuant hereto, 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. To the best of the Company's knowledge, the Company has disclosed all events, conditions and facts materially affecting the business, prospects and financial condition of the Company. 5.26 Vote Required. The only vote of Shareholders required under the DGCL, the Company's Certificate of Incorporation and the Company's bylaws in order to approve and adopt the Merger Page 18 Proposals was the affirmative vote of a majority of the aggregate voting power of the issued and outstanding Company Shares and no other vote or approval of or other action of holders of capital stock of the Company was required. 5.27 Dissenter Rights Procedures. The Company has performed and is in compliance with any and all obligations required of a domestic corporation under Section 259 of the DGCL and the Company has informed the Parent of any and all Shareholders who have notified the Company of their appraisal rights in accordance with Section 262 of the DCGL. ARTICLE VI. 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, and will be, as of the Closing Date, true and correct: 6.1 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 and Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 6.2 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. 6.3 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, 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 Page 19 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. 6.4 SEC Reports. Parent has timely filed all required reports, statements and documents with the Securities Exchange Commission (the "Commission"), all of which have, to the best of Parent's knowledge, 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"). 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. 6.5 Capitalization. As provided in Parent's SEC Form 10-QSB, as of December 31, 2004, the authorized capital stock of Parent consists of 50,000,000 shares of common stock, of which 22,785,846 shares are outstanding, and 5,000,000 shares of preferred stock, of which none are outstanding. All Parent Shares have been validly issued and are fully paid and non- assessable. No shares of common stock are held by Parent as treasury stock. Except as set forth on Schedule 6.5, there is no existing option, warrant, call, commitment or other security or agreement of any kind to which Parent is a party requiring, and there are no convertible securities of Parent outstanding which upon conversion would require, the issuance of any additional shares of capital stock of Parent or other securities convertible into shares of capital stock or any debt or equity security of Parent of any kind. 6.6 No Adverse Change. Since December 31, 2004, there has not 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 and would not reasonably be expected to have, in the aggregate, a Material Adverse Effect. 6.7 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 Parent's knowledge, threatened or anticipated (1) against, related to or affecting: (a) the Parent, or (b) any officers or directors of the Parent, (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 Parent is a plaintiff, including any derivative suits. The Parent 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 Parent. Page 20 6.8 Financial Statements. The Parent's financial statements (including the notes thereto) included in Parent's most recently filed SEC Forms 10K and 10QSB (1) have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods covered thereby and (2) fairly and accurately present the assets, liabilities (including all reserves) and financial position of the Parent as of the respective dates thereof and the results of operations and changes in cash flows for the periods then ended. Parent's Financial Statements have been audited (in the case of year-end financial statements) and reviewed (in the case of interim financial statements), by LL Bradford & Co. At the respective dates of the Parent's financial statements, there were no liabilities of Parent and its subsidiaries, taken as a whole, which, in accordance with generally accepted accounting principles, should have been shown or reflected in the Parent's financial statements or the notes thereto, which are not shown or reflected in the Parent's financial statements or notes thereto. 6.9 No Brokers. Neither the Parent 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 Company 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. ARTICLE VII. 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: 7.1 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. 7.2 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. Page 21 7.3 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 VII as may be reasonably requested by the Company. 7.4 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. 7.5 Exchange Listing. The Parent Shares to be issued as Merger Consideration shall have been authorized for listing on the American Stock Exchange, subject to official notice of issuance. 7.6 No Adverse Change. Since December 31, 2004, there has not 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. 7.7 SEC Reports. Parent has timely filed all required reports, statements and documents with the Securities 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 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. ARTICLE VIII. 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. 8.1 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 Page 22 all agreements and covenants required hereby to be performed by them prior to or on the Closing Date. 8.2 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 and Sub, makes it inadvisable to consummate such transaction. 8.3 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 VIII as may be reasonably requested by Parent and Sub. 8.4 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. 8.5 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. 8.6 Approval of the Shareholders. This Agreement and the Merger Proposal shall have been approved and adopted by the Shareholders, including the separate vote of the Series A and Series B Preferred Stock, as set forth in Sections 2.7 and 5.26. Further, no more than five percent of the Shareholders shall have notified the Company of their appraisal rights in accordance with Section 262 of the DCGL. ARTICLE IX. ACTIONS BY PARTIES AFTER THE CLOSING 9.1 Registration of Parent Shares. (a) By no later than July 30, 2005, 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 Initial Stock Consideration issued to the Shareholders on the Effective Date. If and when the registration statement does become 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. However, this trading restriction will not apply to any Shareholder who holds less than one thousand (1,000) shares of Parent's common stock; for purposes of this calculation, a Shareholder shall include the Shareholder and all of its affiliates. Page 23 (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, www.freedgar.com. Parent does not need to register or qualify the Parent Shares covered by such S-3 under such 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 9.1(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 9.1, 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 its obligations under this Section 9.1. Subject to the provisions of Section 9.1(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 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 Page 24 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 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. Subject to the provisions of Section 9.1(f), the Shareholders will reimburse, to the extent of the total proceeds received by such Shareholders, 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. In connection with an underwritten offering, each Shareholder will indemnify the underwriters and 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 Parent and Surviving Company. (e) Conduct of Indemnification Proceedings. Any person entitled to indemnification under this Section 9.1 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 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 Page 25 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 9.1(c) or Section 9.1(d) 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 9.1(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 9.1(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. 9.2 Parent Services. Parent will use commercially reasonable efforts to extend to the Surviving Corporation, for the benefit of the Surviving Corporation, 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"). 9.3 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, Shareholders 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 and 5.22 and this Section 9.3, and all claims and causes of action with respect thereto) shall terminate upon expiration of two (2) years after the Closing Date ("Expiration Date"). The representations and warranties in Sections 5.6 and 5.22 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 shall survive indefinitely. The termination of the representations and warranties provided herein shall not Page 26 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. 9.4 Indemnifications; Set Off Rights. (a) Indemnification 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, 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, or (2) any breach of any covenant or agreement made by Parent or Sub in or pursuant to this Agreement; provided, however, that the Company makes a written claim for indemnification against Parent or Sub within the applicable survival period. Page 27 (b) Damages. The term "Damages" as used in this Section 9.4 is not limited to matters asserted by third parties against the Company, the Shareholders, Parent or Sub, but includes Damages incurred or sustained by the Company, the Shareholders, Parent or Sub in the absence of third party claims. Payments by Parent or Sub of amounts for which Parent or Sub is indemnified or has a Right of Offset hereunder, and payments by the Company of amounts for which the Company is 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 any such party may have under statute or common law. (c) 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 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. (d) Defense of Claims. If a claim for Damages (a "Claim") is made by a party entitled to Indemnification or Set Off Rights hereunder against the Indemnifying Party, the party claiming such indemnification or Set Off Rights shall give written notice (a "Claim Notice") to the other Party (the ("Indemnifying Party") as soon as practicable after the party entitled to indemnification or Set Off Rights (the "Indemnified Party") becomes aware of any fact, condition or event which may give rise to Damages for which indemnification or Set Off Rights may be sought under this Section 9.4. If any lawsuit or enforcement action is filed against any party entitled to the benefit of indemnity or Set Off Rights hereunder, the Claim 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). 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 or Set Off Rights 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 Page 28 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 9.4 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. (e) Parent's Right of Offset. Anything in this Agreement to the contrary notwithstanding, Parent may withhold and set off against any Merger Consideration (including, but not limited to, ten percent (10%) of the Initial Stock Consideration that shall be withheld in an escrow account at the Effective Date) otherwise due to the Shareholders, any amounts as to which the Shareholders are obligated to indemnify or pay to Parent, Sub or a third party pursuant to any provision of this Agreement (the "Set Off Rights" or "Right of Offset"). (f) Product and Warranty Liability. The provisions of this Section 9.4 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. (g) Value of Parent Shares. In calculating the amount of Parent Shares which Parent may withhold and set off against under Section 9.4 hereof, the value of one Parent Share shall be deemed to be equal to the average closing price per share that Parent's Common Stock is traded on the American Stock Exchange, or any other established stock exchange, automated quotation system or bulletin board, for the thirty consecutive market trading days ending on the date on which the Claim Notice is delivered. 9.5 Patents. If Parent or the Surviving Company decide not to pay maintenance fees or to otherwise constructively dispose of the patents of the Company as set forth in Schedule 9.5 (the "Patents"), Parent and Sub hereby grant Ari Kaplan a Right of First Refusal to assume ownership of the Patents. ARTICLE X. MISCELLANEOUS 10.1 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; Page 29 (ii) By Parent, Sub, or the Company: (i) if the Merger shall not have been consummated on or before March 31, 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 March 31, 2005 solely or primarily as a result of the failure of the conditions set forth in Sections 7.2 or 8.2 to be satisfied or waived, any party, by written notice to each other party, may extend such date up to April 10, 2005; (iii) By Parent or Sub if there is a material breach of any representation or warranty set forth in Articles V 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 VIII 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 VIII 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 VI 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 VII 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 VII 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 Section 262 of the DGCL. (b) In the Event of Termination. In the event of termination of this Agreement: (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 ____________, by and between Parent and the Company shall continue in full force and effect; and Page 30 (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 10.1(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. 10.2 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. 10.3 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: Expand Beyond Corporation Facsimile: With a copy to: Facsimile: If to Parent or Sub at any time or the Surviving Corporation, addressed to: Semotus Solutions, Inc. 16400 Lark Ave., Suite 230 Los Gatos, CA 95032 Attention: Tali Durant, Esq. Facsimile: (408)-358-7110 Page 31 With a copy to: Clark Wilson or to such other place and with such other copies as either party may designate as to itself by written notice to the others. 10.4 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. 10.5 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. 10.6 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 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. Page 32 10.7 . 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. 10.8 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. 10.9 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. 10.10 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. 10.11 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. 10.12 No Third Party Beneficiary. Except as provided in this Section 10.11, 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. Page 33 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/ Anthony N. LaPine --------------------------------- Name: Anthony N. LaPine Its: President and CEO SUB: SEMOTUS ACQUISITION CORP. By: /s/ Anthony N. LaPine --------------------------------- Name: Anthony N. LaPine Its: President and CEO COMPANY: EXPAND BEYOND CORPORATION By: /s/ Ari Kaplan --------------------------------- Name: Ari Kaplan Its: CEO EXHIBIT 2.2 - ----------- MERGER CERTIFICATE DISCLOSURE SCHEDULES - -------------------- EX-4.1 3 exhibit4-1_13383.txt WARRANT TO PURCHASE 400,000 SHARES EXHIBIT 4.1 ----------- NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR CANADIAN PROVINCE, OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE SECURITIES ACT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. SEMOTUS SOLUTIONS, INC. Incorporated Under the Laws of the State of Nevada 400,000 Common Stock Purchase Warrants CERTIFICATE FOR COMMON STOCK PURCHASE WARRANTS 1. Warrants. This Warrant Certificate certifies that ARI KAPLAN, or registered assigns (the "Holder"), is the registered owner of the above-indicated number of Warrants expiring on March 28, 2015 ("Expiration Date"). One (1) Warrant entitles the Holder to purchase one share of common stock, $.01 par value ("Share"), from Semotus Solutions, Inc., a Nevada corporation ("Company"), at a purchase price of $0.37 per share ("Exercise Price"), commencing March 28, 2005, and terminating or expiring according to Section 4, upon surrender of this Warrant Certificate with the exercise form hereon (or the Warrant Conversion Form in the case of a warrant conversion pursuant to Section 3(b) below) duly completed and executed with payment of the Exercise Price at the offices of the Company, 16400 Lark Ave., Suite 230, Los Gatos, CA 95032. 2. Transfer of Warrants. The Warrants represented by this Warrant Certificate shall not be transferable except upon the death of the Holder and then only to the estate of the Holder or pursuant to the Holder's will or the applicable laws of descent and distribution. 3. (a) Exercise of Warrant. The Warrant may be exercised in whole or in part in accordance with the vesting schedule set forth below, on or before the Expiration Date or Termination Date upon surrender of the Warrant in conjunction with Form of Election to Purchase and the payment at the Exercise Price stipulated above. If the Warrant is exercised in part, then the Holder shall be entitled to receive a new Warrant covering the remaining number of Warrant Shares not exercised. (b) Vesting Schedule. The Employee will have the right, but not the obligation, to exercise the Option shares for an amount equivalent to the Exercise Price in accordance with the following schedule: One Fourth (1/4) of the Shares covered by the Option shall vest immediately on the Grant Date; and thereafter, One-Thirty-Sixth (1/36) of the total Shares covered by this Option, rounded to the nearest whole Share, shall vest after each monthly anniversary of the Date of Grant. (c) Conversion Right. In addition to and without limiting the rights of the Warrantholder under the terms of the Warrant, the Holder shall have the right (the "Conversion Right") to convert this Warrant or any portion thereof into Shares as provided in this Section 3 at any time or from time to time prior to its expiration.) Upon exercise of the Conversion Right with respect to a particular number of Warrants (the "Converted Warrants"), the Company shall deliver to the Holder, without payment by the Holder of any Exercise Price or any cash or other consideration, that number of Shares computed using the following formula: X = Y(A-B) ------ A Where: X = the number of Shares and/or Warrants to be issued to the Holder; Y = the number of Shares and/or Warrants to be converted under this Warrant; A = the Current Market Price of one share of Common Stock; and B = the Share Exercise Price. 4. Termination and Expiration of Warrants. (a) Expiration of Warrant. No Warrant may be exercised or converted after 5:00 p.m. Pacific Time on the Expiration Date and any Warrant not exercised or converted by such time shall become void, unless the Expiration Date of this Warrant is extended by the Company. (b) Termination of Warrant. Except as provided below in this Section, this Warrant shall terminate and may not be exercised if the Holder ceases to be employed by the Company or any Parent or Subsidiary of the Company. The Holder shall be considered to be employed by the Company for all purposes under this Warrant if the Holder is an officer or full-time employee of the Company or any Parent, Subsidiary or Affiliate of the Company or if the board of directors of the Company determines that the Holder is rendering substantial services as a part-time employee, consultant or adviser to the Company or any Parent, Subsidiary or Affiliate of the Company. The board of directors of the Company shall have discretion to determine whether the Holder has ceased to be employed by the Company or any Parent, Subsidiary or Affiliate of the Company and the effective date on which such employment terminated (the "Termination Date"). (i) Death. If the Holder's employment is terminated by death, the Holder's estate shall have the right, for a period of six (6) months following the date of the Holder's death, to exercise this Warrant to the extent it was exercisable by the Holder on the date of death. The Holder's estate shall mean the Holder's legal representative upon death or any person who acquires the right to exercise this Warrant by reason of such death under the Holder's will or the laws of intestate succession. (ii) Disability. If The Holder's employment is terminated because of a permanent and total disability (as defined in the Internal Revenue Code Section 22(e)(3)), The Holder or the Holder's estate may, within six (6) months following such termination, exercise this Warrant to the extent it was exercisable by the Holder on the date of such termination. (iii) Other Termination. If the Holder's employment is terminated for any reason other than those provided in Subsections above, the Holder may, within the later of (A) three (3) months following such termination and (B) three (3) months following the first anniversary of the Grant Date, exercise this Warrant to the extent it was exercisable by the Holder on the date of such termination. This Warrant shall terminate upon the expiration of such three (3) month period. (c) Transfer to Related Corporation. In the event the Holder leaves the employ of the Company to become an employee of any Parent or Subsidiary or if the Holder leaves the employ of any such Parent or Subsidiary to become an employee of the Company or of another Parent or Subsidiary, the Holder shall be deemed to continue as an employee of the Company for all purposes of this Agreement. (d) No Right to Employment. Nothing in this Warrant shall confer on the Holder any right to continue in the employ of, or other relationship with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit in any way the right of the Company or any Parent, Subsidiary or Affiliate of the Company to terminate the Holder's employment or other relationship at any time, in accordance with the Holder's employment agreement. 5. Adjustment of Exercise Price. After each adjustment of the Exercise Price pursuant to this paragraph 5, the number of shares of Common Stock purchasable on the exercise of each Warrant shall be the number derived by dividing such adjusted pertinent Exercise Price into the original pertinent Exercise Price. The pertinent Exercise Price shall be subject to adjustment as follows: In the event, prior to the expiration of the Warrants by exercise or by their terms, the Company shall issue any shares of its Common Stock as a share dividend or shall subdivide the number of outstanding shares of Common Stock into a greater number of shares, then, in either of such events, the Exercise Price per share of Common Stock purchasable pursuant to the Warrants in effect at the time of such action shall be reduced proportionately and the number of shares purchasable pursuant to the Warrants shall be increased proportionately. Conversely, in the event the Company shall reduce the number of shares of its outstanding Common Stock by combining such shares into a smaller number of shares, then, in such event, the Exercise Price per share purchasable pursuant to the Warrants in effect at the time of such action shall be increased proportionately and the number of shares of Common Stock at that time purchasable pursuant to the Warrants shall be decreased proportionately. Any dividend paid or distributed on the Common Stock in shares of any other class of the Company or securities convertible into shares of Common Stock shall be treated as a dividend paid in Common Stock to the extent that shares of Common Stock are issuable on the conversion thereof. 6. Adjustments for Reorganization, Consolidation, Merger, or Sale of Assets. If at any time while the Warrant, or any portion thereof, remains outstanding and unexpired, should there occur a reorganization, merger, or consolidation; or should there occur a sale or transfer of the Company's assets or properties substantially in entirety as part of a reorganization, merger or consolidation, then lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of the Warrant, or any unexpired exercisable portion thereof, the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, consolidation, merger, sale or transfer that the Holder would have been entitled to if the Warrant, or portions thereof, had been exercised immediately prior to the event. The foregoing shall apply similarly to any successive reorganizations, consolidations, mergers, sales or transfers that may occur while the Warrant, or any portion thereof, remains exercisable. 7. Reservation of Stock Underlying the Warrant. At all times until the expiration of the Warrant, the Company will authorize, reserve, and keep available, solely for issuance and delivery upon the exercise of the Warrant, the shares of Common Stock of the Company that shall be receivable upon exercise of the Warrant. 8. Underlying Stock to be Fully Paid and Non-Assessable. The Company covenants that the shares of Common Stock issuable upon exercise of the Warrant shall be duly and validly issued, fully paid, non-assessable, and free of any liens, charges, and all taxes with respect to the issue thereof. 9. No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or other method or venue, avoid or seek to avoid the observance or performance of any of the terms of the Warrant, but shall at all times, in good faith, take all such actions as may be necessary or appropriate in order to protect the rights of the Holder thereunder against impairment. 10. Independent Tax Advice. The Holder agrees that the Holder has or will obtain the advice of independent tax counsel regarding the federal and state income tax consequences of the receipt and exercise of this Warrant and of the disposition of Common Stock acquired upon exercise hereof, including advice regarding the imposition of the alternative minimum tax on tax preferences generated by exercise of warrants and regarding any potential holding period requirements for preferential tax treatment. THE HOLDER ACKNOWLEDGES THAT HE OR SHE HAS NOT RELIED AND WILL NOT RELY UPON ANY ADVICE OR REPRESENTATIONS BY THE COMPANY OR BY ITS EMPLOYEES OR REPRESENTATIVES WITH RESPECT TO THE TAX TREATMENT OF THIS WARRANT OR ANY SHARES ISSUED PURSUANT HERETO. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its President and by its Secretary. Dated: March 28, 2005 SEMOTUS SOLUTIONS, INC. Attest: /s/ Tali Durant By: /s/ Anthony N. LaPine Tali Durant, Secretary Anthony N. LaPine, President FORM OF ELECTION TO PURCHASE (To be executed by the Holder if he desires to exercise Warrants evidenced by the within Warrant Certificate) To Semotus Solutions, Inc.: The undersigned hereby irrevocably elects to exercise ____________ Warrants, evidenced by the within Warrant Certificate for, and to purchase thereunder, ________________ full shares of Common Stock issuable upon exercise of said Warrants and delivery of $____________ and any applicable taxes. The undersigned requests that certificates for such shares be issued in the name of: PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER - ------------------------------- -------------------------------- (Please print name and address) - ------------------------------- -------------------------------- - ------------------------------- -------------------------------- If said number of Warrants shall not be all the Warrants evidenced by the within Warrant Certificate, the undersigned requests that a new Warrant Certificate evidencing the Warrants not so exercised be issued in the name of and delivered to: ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- (Please print name and address) Dated: ____________________ Signature: _____________________________________ NOTICE: The above signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever, or if signed by any other person the Form of Assignment hereon must be duly executed and if the certificate representing the shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which the within Warrant Certificate is registered, the signature of the holder hereof must be guaranteed. Signature Guaranteed: __________________________________________ SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE. FORM OF ELECTION TO CONVERT (To be executed by the Holder if he desires to exercise Warrants evidenced by the within Warrant Certificate) TO: Semotus Solutions, Inc. Pursuant to Section 3(b) of the Warrant, he undersigned hereby irrevocably elects to convert ____________ Warrants, evidenced by the within Warrant Certificate for, and to purchase thereunder, ________________ full shares of Common Stock issuable upon conversion of said Warrants. A conversion calculation is attached hereto. The undersigned requests that certificates for such shares be issued in the name of: PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER - ------------------------------- -------------------------------- (Please print name and address) - ------------------------------- -------------------------------- If said number of Warrants shall not be all the Warrants evidenced by the within Warrant Certificate, the undersigned requests that a new Warrant Certificate evidencing the Warrants not so converted be issued in the name of and delivered to: ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- (Please print name and address) Dated: ____________________ Signature: ____________________________________ NOTICE: The above signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever, or if signed by any other person the Form of Assignment hereon must be duly executed and if the certificate representing the shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which the within Warrant Certificate is registered, the signature of the holder hereof must be guaranteed. Signature Guaranteed: __________________________________________ SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE. CALCULATION OF WARRANT CONVERSION --------------------------------- X = Y(A-B) ------ A Where: X = the number of Shares and/or Warrants to be issued to the Holder; Y = the number of Shares and/or Warrants to be converted under this Warrant; A = the Current Market Price of one share of Common Stock; and B = the Share Exercise Price. Fractional Converted Shares = (1) -------------- (1) <> to pay for fractional Shares in cash @ $ per Share. ------------- EX-4.2 4 exhibit4-2_13383.txt WARRANT TO PURCHASE 45,000 SHARES EXHIBIT 4.2 ----------- NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR CANADIAN PROVINCE, OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE SECURITIES ACT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. SEMOTUS SOLUTIONS, INC. Incorporated Under the Laws of the State of Nevada No. A-1 45,000 Common Stock Purchase Warrants CERTIFICATE FOR COMMON STOCK PURCHASE WARRANTS 1. Warrants. This Warrant Certificate certifies that BATHGATE CAPITAL PARTNERS, LLC, or registered assigns (the "Holder"), is the registered owner of the above-indicated number of Warrants expiring on May 27, 2009 ("Expiration Date"). One (1) Warrant entitles the Holder to purchase one share of common stock, $.01 par value ("Share"), from Semotus Solutions, Inc., a Nevada corporation ("Company"), at a purchase price of $0.34 per share ("Exercise Price"), commencing May 27, 2004, and terminating on the Expiration Date ("Exercise Period"), upon surrender of this Warrant Certificate with the exercise form hereon (or the Warrant Conversion Form in the case of a warrant conversion pursuant to Section 3(b) below) duly completed and executed with payment of the Exercise Price at the offices of the Company, 16400 Lark Ave., Suite 230, Los Gatos, CA 95032. 2. Transfer of Warrants. The Warrants represented by this Warrant Certificate shall not be transferable except upon the death of the Holder and then only to the estate of the Holder or pursuant to the Holder's will or the applicable laws of descent and distribution. 3. (a) Exercise of Warrant. The Warrant may be exercised in whole or in part at any time on or before the Expiration Date upon surrender of the Warrant in conjunction with Form of Election to Purchase and the payment at the Exercise Price stipulated above. If the Warrant is exercised in part, then the Holder shall be entitled to receive a new Warrant covering the remaining number of Warrant Shares not exercised. (b) Conversion Right. In addition to and without limiting the rights of the Warrantholder under the terms of the Warrant, the Holder shall have the right (the "Conversion Right") to convert this Warrant or any portion thereof into Shares as provided in this Section 2.4 at any time or from time to time prior to its expiration. ) Upon exercise of the Conversion Right with respect to a particular number of Warrants (the "Converted Warrants"), the Company shall deliver to the Holder, without payment by the Holder of any Exercise Price or any cash or other consideration, that number of Shares computed using the following formula: X = Y(A-B) ------ A Where: X = the number of Shares and/or Warrants to be issued to the Holder; Y = the number of Shares and/or Warrants to be converted under this Warrant; A = the Current Market Price of one share of Common Stock; and B = the Share Exercise Price. 4. Expiration of Warrants. No Warrant may be exercised or converted after 5:00 p.m. Pacific Time on the Expiration Date and any Warrant not exercised or converted by such time shall become void, unless the Expiration Date of this Warrant is extended by the Company. 5.Piggy Back Registration Rights. (a) If (but without any obligation to do so) Company proposes to register any of the Shares on a registration statement (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration relating to a corporate reorganization or other transaction under Rule 145 of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Shares, a registration in which the only Shares being registered are Shares issuable upon conversion of debt securities that are also being registered, or if there is a managing underwriter of the offering of shares referred to in the registration statement and such managing underwriter advises the Company in writing that the Shares proposed to be included in the offering will have an adverse effect on its ability to successfully conclude the offering), Company shall, at such time, promptly give the Holder written notice of such registration. Upon the written request of the Holder given within ten (10) days after mailing of such notice by Company, Company shall, subject to the final approval of the other holder(s) of securities (including the underwriter, if applicable) intended to be included on such registration statement, use all reasonable efforts to cause to be registered under the Act all of the Shares that the Holder has requested to be registered (b) Unless otherwise approved by Company, the Holder shall have the right to include its Shares in no more than one registration statement filed by Company in accordance with this Section. (c) Company shall have the right to terminate or withdraw any registration initiated by it under this Section prior to the effectiveness of such registration. The expenses of such withdrawn registration shall be borne by Company. 6. Adjustment of Exercise Price. After each adjustment of the Exercise Price pursuant to this paragraph 5, the number of shares of Common Stock purchasable on the exercise of each Warrant shall be the number derived by dividing such adjusted pertinent Exercise Price into the original pertinent Exercise Price. The pertinent Exercise Price shall be subject to adjustment as follows: In the event, prior to the expiration of the Warrants by exercise or by their terms, the Company shall issue any shares of its Common Stock as a share dividend or shall subdivide the number of outstanding shares of Common Stock into a greater number of shares, then, in either of such events, the Exercise Price per share of Common Stock purchasable pursuant to the Warrants in effect at the time of such action shall be reduced proportionately and the number of shares purchasable pursuant to the Warrants shall be increased proportionately. Conversely, in the event the Company shall reduce the number of shares of its outstanding Common Stock by combining such shares into a smaller number of shares, then, in such event, the Exercise Price per share purchasable pursuant to the Warrants in effect at the time of such action shall be increased proportionately and the number of shares of Common Stock at that time purchasable pursuant to the Warrants shall be decreased proportionately. Any dividend paid or distributed on the Common Stock in shares of any other class of the Company or securities convertible into shares of Common Stock shall be treated as a dividend paid in Common Stock to the extent that shares of Common Stock are issuable on the conversion thereof. 7. Adjustments for Reorganization, Consolidation, Merger, or Sale of Assets. If at any time while the Warrant, or any portion thereof, remains outstanding and unexpired, should there occur a reorganization, merger, or consolidation; or should there occur a sale or transfer of the Company's assets or properties substantially in entirety as part of a reorganization, merger or consolidation, then lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of the Warrant, or any unexpired exercisable portion thereof, the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, consolidation, merger, sale or transfer that the Holder would have been entitled to if the Warrant, or portions thereof, had been exercised immediately prior to the event. The foregoing shall apply similarly to any successive reorganizations, consolidations, mergers, sales or transfers that may occur while the Warrant, or any portion thereof, remains exercisable. 8. Reservation of Stock Underlying the Warrant. At all times until the expiration of the Warrant, the Company will authorize, reserve, and keep available, solely for issuance and delivery upon the exercise of the Warrant, the shares of Common Stock of the Company that shall be receivable upon exercise of the Warrant. 9. Underlying Stock to be Fully Paid and Non-Assessable. The Company covenants that the shares of Common Stock issuable upon exercise of the Warrant shall be duly and validly issued, fully paid, non-assessable, and free of any liens, charges, and all taxes with respect to the issue thereof. 10. No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or other method or venue, avoid or seek to avoid the observance or performance of any of the terms of the Warrant, but shall at all times, in good faith, take all such actions as may be necessary or appropriate in order to protect the rights of the Holder thereunder against impairment. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its President and by its Secretary. Dated: May 27, 2004 SEMOTUS SOLUTIONS, INC. Attest: /s/ Tali Durant By: /s/ Anthony N. LaPine Tali Durant, Secretary Anthony N. LaPine, President FORM OF ELECTION TO PURCHASE (To be executed by the Holder if he desires to exercise Warrants evidenced by the within Warrant Certificate) To Semotus Solutions, Inc.: The undersigned hereby irrevocably elects to exercise ____________ Warrants, evidenced by the within Warrant Certificate for, and to purchase thereunder, ________________ full shares of Common Stock issuable upon exercise of said Warrants and delivery of $____________ and any applicable taxes. The undersigned requests that certificates for such shares be issued in the name of: PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER - ------------------------------- -------------------------------- (Please print name and address) - ------------------------------- -------------------------------- - ------------------------------- -------------------------------- If said number of Warrants shall not be all the Warrants evidenced by the within Warrant Certificate, the undersigned requests that a new Warrant Certificate evidencing the Warrants not so exercised be issued in the name of and delivered to: ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- (Please print name and address) Dated: ____________________ Signature: _____________________________________ NOTICE: The above signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever, or if signed by any other person the Form of Assignment hereon must be duly executed and if the certificate representing the shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which the within Warrant Certificate is registered, the signature of the holder hereof must be guaranteed. Signature Guaranteed: __________________________________________ SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE. FORM OF ELECTION TO CONVERT (To be executed by the Holder if he desires to exercise Warrants evidenced by the within Warrant Certificate) TO: Semotus Solutions, Inc. Pursuant to Section 3(b) of the Warrant, he undersigned hereby irrevocably elects to convert ____________ Warrants, evidenced by the within Warrant Certificate for, and to purchase thereunder, ________________ full shares of Common Stock issuable upon conversion of said Warrants. A conversion calculation is attached hereto. The undersigned requests that certificates for such shares be issued in the name of: PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER - ------------------------------- --------------------------------- (Please print name and address) - ------------------------------- --------------------------------- If said number of Warrants shall not be all the Warrants evidenced by the within Warrant Certificate, the undersigned requests that a new Warrant Certificate evidencing the Warrants not so converted be issued in the name of and delivered to: ------------------------------------------------------- ------------------------------------------------------- (Please print name and address) Dated: ____________________ Signature: _____________________________________ NOTICE: The above signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever, or if signed by any other person the Form of Assignment hereon must be duly executed and if the certificate representing the shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which the within Warrant Certificate is registered, the signature of the holder hereof must be guaranteed. Signature Guaranteed: __________________________________________ SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE. CALCULATION OF WARRANT CONVERSION --------------------------------- X = Y(A-B) ------ A Where: X = the number of Shares and/or Warrants to be issued to the Holder; Y = the number of Shares and/or Warrants to be converted under this Warrant; A = the Current Market Price of one share of Common Stock; and B = the Share Exercise Price. Fractional Converted Shares = (1) -------------- (1) <> to pay for fractional Shares in cash @ $ per Share. ------------- EX-99.1 5 exhibit99-1_13383.txt PRESS RELEASE DATED MARCH 29, 2005 EXHIBIT 99.1 ------------ SEMOTUS SOLUTIONS ACQUIRES EXPAND BEYOND STOCK-FOR-STOCK ACQUISITION OF EXPAND BEYOND CORPORATION LOS GATOS, CA - (PrimeZone Media) - March 29, 2005, 7:00AM EST -- Semotus Solutions Inc. (AMEX:DLK), an innovative provider of real-time professional market data and intelligent wireless communications software, today announced that it has acquired Expand Beyond Corporation, a leader in real-time mobile business software. The boards of both companies and the majority of the shareholders of Expand Beyond have approved the stock-for-stock purchase transaction. Expand Beyond, based in Chicago, develops, sells and supports mobile and web applications, software products and application extension technologies. As part of the acquisition, Expand Beyond co-founder and CEO Ari Kaplan will join Semotus as President of Expand Beyond Corporation, now the wholly owned subsidiary of Semotus. In addition to his new post with Semotus, Kaplan is on the Board of Directors for the International Oracle Users Group. Expand Beyond's PocketDBA and PocketAdmin solutions provide immediate mobile access and control of business-critical software applications, databases, networks and servers. This solves the vulnerabilities of relying on on-call staff, which may require 30 to 40 minutes to relocate to the home or office, by giving them the tools to respond immediately from the field. A range of products allow for the secure real-time management of Oracle, SQL Server, Teradata, Windows Active Directory, Exchange, servers and more from mobile devices including BlackBerry, Palm, Pocket PC, laptops, smartphones, and desktops. The Expand Beyond solutions are based upon the patented XBanywhere framework, which will enable Semotus to develop additional web-based handheld applications up to 20 times faster than traditional embedded development methods such as J2ME and NET. As part of the transaction, Semotus also receives Expand Beyond's broad portfolio of patents. One of the patents, titled "System, Method, and Apparatus for the Wireless Monitoring and Management of Computer Systems," has an extensive list of 46 approved claims - making it one of the most comprehensive and far-reaching patents awarded in the mobile business software industry to date. "With Expand Beyond's solutions, technology, and patents, Semotus strengthens its leadership position as mobility continues its rapid adoption in the enterprise. Semotus' existing wireless software applications solve significant business problems, and Expand Beyond's products provide the perfect complementary business value. This merger will have an immediate positive impact on both our cash flow and our revenues," said Anthony N. LaPine, Semotus Solutions' Chairman and CEO. "Expand Beyond will augment our HipLink product line. We expect to take advantage of Expand Beyond's customer base for marketing our HipLink products, which should significantly enhance our future revenues." "Expand Beyond is delighted to be acquired by Semotus Solutions, a well respected wireless infrastructure technology company with a disciplined strategic focus," said Ari Kaplan, President of Expand Beyond. "Semotus Solutions' products and services are highly complementary and attractive to Expand Beyond and its customers. The resulting combined company will be a strong player in the mobile software industry." Expand Beyond was represented by its financial advisor, Newforth Partners, LLC, a San Mateo-based investment bank. Semotus Solutions was represented by Bathgate Capital Partners, LLC, based in Greenwood Village, Colorado. ABOUT SEMOTUS SOLUTIONS Founded in 1993, Semotus Solutions (AMEX:DLK) is the premier provider of software for the mobile enterprise, connecting employees to critical business systems, information and processes. Semotus has a Fortune 1000 installed customer base and more than 600 corporate clients including Lockheed Martin, Blue Cross Blue Shield, Coca-Cola, Hewlett Packard, Nextel Communications, JP Morgan-Chase, and The United Nations. Semotus Solutions' software provides mobility, convenience, efficiency and profitability in the areas of workforce automation, finance, healthcare, and m-commerce. www.semotus.com; www.hiplinkxs.com SEMOTUS SOLUTIONS MEDIA CONTACT DONALD MEYER MARKETING MANAGER (408) 358-7003 dmeyer@semotus.com SEMOTUS SOLUTIONS INVESTOR RELATIONS CONTACT TALI DURANT CORPORATE COUNSEL (408) 358-7100 tdurant@semotus.com #### This press release contains forward-looking statements, which are made pursuant to the Safe-Harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as "intends," "believes" and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These forward-looking statements involve a number of risks and uncertainties, including the timely development and market acceptance of products and technologies, successful integration of acquisitions, the ability to secure additional sources of finance, the ability to reduce operating expenses, and other factors described in the Company's filings with the Securities and Exchange Commission. The actual results that the Company achieves may differ materially from any forward-looking statement due to such risks and uncertainties. The Company undertakes no obligation to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release. -----END PRIVACY-ENHANCED MESSAGE-----