PLACEMENT AGREEMENT July 7, 2006
EXHIBIT
10.14
PLACEMENT
AGREEMENT
July
7,
2006
Xxxxxxx
Securities, LLC
|
Axiom
Capital Management, Inc.
|
0000
XXX Xxxxxxx, Xxxxx 0000
|
000
Xxxxx Xxxxxx, 00xx
Xxxxx
|
Xxxxxxxxx
Xxxxxxx, XX 00000
|
Xxx
Xxxx, XX 00000-0000
|
Re: |
Offering
of Series B Convertible Preferred Stock in the Aggregate Principal
Amount
of $7,000,000 (Minimum) and $10,000,000 (Maximum) with Attached
Warrants
|
Gentlepersons:
1. Introduction.
Xxxxxxx
Securities, LLC, a Delaware limited liability company (“Xxxxxxx”), and Axiom
Capital Management, Inc. (“Axiom” and together with Xxxxxxx, the “Placement
Agents”), propose to act on a best efforts basis as the exclusive placement
agents for Infosmart Group Limited, a company incorporated in the British Virgin
Islands (“Infosmart”), in a private placement offering (“Offering”) of Series B
Convertible Preferred Stock (“Shares”) with attached warrants (“Warrants”), in a
minimum principal amount of $7,000,000 (“Minimum Amount”) and a maximum
principal amount of $10,000,000 (“Maximum Amount”), to be issued by Cyber
Merchants Exchange, Inc., a California corporation (“Cyber Merchants”), upon the
closing of the Exchange Agreement described below.
Prior
to
the closing of the Offering (“Closing”), Infosmart and Cyber Merchants shall
have completed the transactions under a certain exchange agreement (“Exchange
Agreement”) to be entered into by and among Cyber Merchants, KI Equity Partners
II, LLC, a shareholder of Cyber Merchants (“KI Equity”), Prime Fortune
Enterprises, Ltd., the sole shareholder of Infosmart (“Prime Fortune”), and each
of the shareholders of Prime Fortune (the “Shareholders”). Pursuant to the
Exchange Agreement, all of the issued and outstanding shares of capital stock
of
Prime Fortune will be transferred to Cyber Merchants in exchange for 1,000,000
shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) of
Cyber Merchants (the “Exchange”). The shares of Prime Fortune to be exchanged
pursuant to the Exchange Agreement will also include 58.82352 shares of Prime
Fortune’s capital stock (the “HIG Shares”) to be issued by Prime Fortune to
Hamptons Investment Group, Ltd. (“HIG”) immediately prior to the closing of the
Exchange Agreement for services as a finder in connection with the Exchange
Agreement. Upon completion of the Exchange, Infosmart will be an indirect,
wholly owned subsidiary of Cyber Merchants. The Series A Preferred Stock will
by
designation of its terms be junior to the Series B Convertible Preferred
Stock.
The
Shares will be entitled to quarterly dividends accruing at the rate of 8% per
annum. The Shares will be convertible into Cyber Merchant’s common stock (the
“Conversion Shares”) at any time at the option of the investor at a fixed
conversion price based on a $33,720,000 fully diluted pre-money valuation (the
“Conversion Price”). The Shares will also be subject to mandatory conversion on
the second anniversary of the closing of the Offering, and a forced
conversion
by Cyber Merchants upon the occurrence of certain events.
Investors in the Offering (“Investors”) will also receive five-year warrants to
purchase shares of Cyber Merchant’s common stock (“Common Stock”) in an amount
equal to 100% of the Conversion Shares. The Warrants will be exercisable at
a
price equal to 125% of the Conversion Price (“Exercise Price”).
Following
the consummation of the Exchange and prior to the closing of the Offering,
Cyber
Merchant’s shall assume all of Infosmart’s rights and obligations under this
Agreement; provided that prior to Cyber Merchants’ approval and assumption of
this Agreement, references to Infosmart shall only be deemed to include
Infosmart and references to Cyber Merchants shall only be deemed to include
Cyber Merchants.
The
Exchange and the transactions contemplated under the Exchange Agreement are
herein referred to as the “Transaction” or collectively as the
“Transactions.”
Upon
consummation of the Exchange, Cyber Merchants will prepare a proxy or
information statement pursuant to Regulation 14A or 14C under the Exchange
Act
(as defined below) (together with any amendments or supplements thereto, the
“Proxy/Information Statement”) and will either solicit proxies from its
shareholders or obtain majority consent from and inform its shareholders to:
(i)
approve a change in the name of Cyber Merchants to a name approved by its Board
of Directors (“Board”); (ii) approve an increase in the authorized number of
shares of Cyber Merchants Common Stock from 40,000,000 to 300,000,000; and
(iii)
to approve such other actions as may be approved by the Board. Upon
effectiveness of the increase in the authorized number of shares of Common
Stock, the shares of the Series A Preferred Stock will automatically convert
by
its terms into an aggregate of 116,721,360 fully paid and non-assessable shares
of Common Stock. As a condition of the closing of the Exchange, KI Equity and
the Shareholders will enter into a voting agreement (“Voting Agreement”) that
requires their share approval vote favoring the actions provided in (i) through
(iii) above.
The
Shares and the Warrants are more fully described in a private placement
memorandum dated July 10, 2006, including any supplements or amendments thereto
(the “Memorandum”). Except as otherwise defined herein, all capitalized terms
shall have the meaning set forth in the Memorandum.
Infosmart
desires to employ the Placement Agents as its exclusive placement agents to
offer, offer for sale and sell the Shares and Warrants subject to all of the
terms and conditions of this Agreement and subject to the terms and conditions
contained in the Memorandum. In the event of any inconsistency between this
Agreement and the Memorandum, the terms and conditions of this Agreement shall
supercede and be controlling.
2. Representations
and Warranties of Infosmart and Cyber Merchants.
(a) Infosmart
represents and warrants to, and covenants with, the Placement Agents as of
the
date of this Agreement and, unless otherwise set forth in the applicable
representation or warranty, upon completion of the as of the date of the Closing
as follows:
(i) Authority.
As of
the Closing (as defined in Section 4(d) below), all action required to be taken
by Infosmart necessary for the authorization of this Agreement, the
-2-
Subscription
Agreements between Infosmart and the purchasers of the Shares and Warrants,
the
form of which is attached as Exhibit
A
hereto
(the “Subscription Agreements”), the Registration Rights Agreement in the form
attached as Exhibit
B
hereto
(the “Registration Rights Agreement” and together with the Subscription
Agreements, the “Related Agreements”) and the performance of all obligations of
Infosmart hereunder will have been taken; and this Agreement and the Related
Agreements shall be in full force and effect.
(ii) Authority
for Exchange Agreement.
As of
the Closing, all action required to be taken by Infosmart necessary for the
authorization of the Exchange Agreement (collectively with each of the ancillary
agreements related thereto, collectively the “Transaction Documents”) and the
performance of all obligations of Infosmart thereunder will have been
taken.
(iii) Organization
and Qualification.
(a) Infosmart
is a company incorporated in the British Virgin Islands, is duly formed or
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the requisite power and authority to own,
lease and operate its assets and properties and to carry on its business as
it
is now being or currently planned by Infosmart to be conducted. Infosmart is
in
possession of all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders (“Approvals”) necessary
to own, lease and operate the properties it purports to own, operate or lease
and to carry on its business as it is now being conducted, and to consummate
the
Transactions contemplated under this Agreement and the Exchange Agreement,
except where the failure to have such Approvals could not, individually or
in
the aggregate, reasonably be expected to have a Material Adverse Effect (as
hereinafter defined) on Infosmart. Infosmart is not in violation of any of
the
provisions of Infosmart’s articles of organization or bylaws or similar
governing, organization or charter documents (collectively referred to herein
as
“Charter Documents”). Infosmart is in good standing in the British Virgin
Islands. The minute books or the equivalent contain true, complete and accurate
records of meetings and consents in lieu of meetings of its board of directors
(and any committees thereof), similar governing bodies and stockholders
(“Corporate Records”) of Infosmart, since the time of Infosmart’s organization.
The ownership records of shares of Infosmart’s capital stock are true, complete
and accurate records of the ownership such of shares as of the date of such
records and contain all transfers of such shares since the time of Infosmart’s
organization (“Share Records”). Infosmart is not required to qualify to do
business as a foreign corporation in any other jurisdiction. For purposes of
this Agreement, the term “Material Adverse Effect” when used in connection with
an entity means any change, event, violation, inaccuracy, circumstance or
effect, individually or when aggregated with other changes, events, violations,
inaccuracies, circumstances or effects, that is materially adverse to the
business, assets (including intangible assets), revenues, financial condition
or
results of operations of such entity or its subsidiaries, if any, taken as
a
whole (it being understood that neither of the following alone or in combination
shall be deemed, in and of itself, to constitute a Material Adverse Effect:
(i)
changes attributable to the public announcement or pendency of the Exchange,
the
Offering or any related transactions, (ii) changes in general national or
regional economic conditions, (iii) changes affecting the industry generally
in
which the entity operates (and with respect to Infosmart, in which the
Affiliated Companies (as defined in Section 2(a)(v) below) operate), or (iv)
any
SEC (as defined in Section 2(a)(xxv) below) rulemaking requiring enhanced
disclosure of transactions with a public shell.
-3-
(b) Each
member of the Group (as hereinafter defined) is organized under the laws of
the
jurisdiction set forth in Schedule 2(a)(iii) hereto, is duly formed or
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the requisite power and authority to own,
lease and operate its assets and properties and to carry on its business as
it
is now being or currently planned by each member of the Group to be conducted.
Each member of the Group is in possession of all Approvals necessary to own,
lease and operate the properties it purports to own, operate or lease, to carry
on its business as it is now being conducted, to consummate the Transactions.
No
member of the Group is in violation of any of the provisions of their respective
Charter Documents. The Corporate Records of each member of the Group contain
true, complete and accurate records of meetings and consents in lieu of meetings
of its board of directors (and any committees thereof), similar governing bodies
and holders of its registered capital, since the time of their respective
organization. The ownership records of each Group member’s registered capital
are true, complete and accurate records of such ownership as of the date of
such
records and contains all transfers of such registered capital since the time
of
their respective organization. No member of the Group is required to qualify
to
do business as a foreign corporation in any other jurisdiction. For purposes
of
this Agreement, the term “Group” shall mean collectively Infosmart, Infoscience
International Enterprises, Ltd., Info Smart Technology, Ltd., InfoScience Media
Limited and Discobrás Indústria E Comércio de Eletro Eletrônica
Limiteda.
(iv) Subsidiaries.
Set
forth in Schedule 2(a)(iv) hereto is a true and complete list of all
Subsidiaries (as hereinafter defined) of Infosmart and any member of the Group
stating, with respect to each Subsidiary, its jurisdiction of incorporation
or
organization, date of incorporation or organization, capitalization and equity
ownership. Each Subsidiary is a corporation duly incorporated or organized,
validly existing and in good standing under the laws of the jurisdiction of
its
incorporation or organization, has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its businesses as
they
are now being conducted, and no Subsidiary is required to qualify to do business
as a foreign corporation in any other jurisdiction. All of the outstanding
shares of capital stock of each Subsidiary have been duly and validly authorized
and issued, are fully paid and non-assessable, have not been issued in violation
of any preemptive or other right of stockholders, or any other Person (as
defined below), or of any Legal Requirements (as defined in Section 2(a)(vii)
below), and are owned beneficially and of record by the Person as specified
on
Schedule 2(a)(iv), free and clear of any liens, claims, charges, encumbrances,
pledges, mortgages, security interests, options, rights to acquire, proxies,
voting trusts or similar agreements, restrictions on transfer or adverse claims
of any nature whatsoever (“Liens”). No Subsidiary is in violation of any of the
provisions of its Charter Documents.
Except
as
described in Schedule 2(a)(iv) hereto, neither Infosmart, any member of the
Group nor any Subsidiary owns, directly or indirectly, any ownership, equity,
profits or voting interest in any Person (other than Infosmart, a member of
the
Group or the Subsidiaries) or has any agreement or commitment to purchase any
such interest, and Infosmart, each Group member and their Subsidiaries have
not
agreed and are not obligated to make nor are bound by any written, oral or
other
agreement, contract, subcontract, lease, binding understanding, instrument,
note, option, warranty, purchase order, license, sublicense, insurance policy,
benefit plan, commitment or undertaking of any nature, as of the date hereof
or
any date hereafter, under
-4-
which
any
of them may be obligated to make any future investment in or capital
contribution to any other entity.
For
purposes of this Agreement, (i) the term “Subsidiary” shall mean any Person
(other than a member of the Group) in which Infosmart, any member of the Group
or any Subsidiary directly or indirectly, owns beneficially securities or
interests representing more than 50% of (x) the aggregate equity or profit
interests, or (y) the combined voting power of voting interests ordinarily
entitled to vote for management or otherwise, and (ii) the term “Person” shall
mean and include an individual, a corporation, a partnership (general or
limited), a joint venture, an association, a limited liability company, a trust
or any other organization or entity, including a government or political
subdivision or an agency or instrumentality thereof.
(v) Capitalization.
(a) The
authorized capital stock of Infosmart currently consists of 50,000 shares of
capital stock, par value $1.00 per share, or an authorized and registered
capital of $50,000. At the close of business on the business day prior to the
date hereof, Schedule 2(a)(v) hereto contains all of the outstanding equity
securities of Infosmart together with the HIG Shares to be issued by Infosmart
immediately prior to closing of the Exchange Agreement. All Shares on Schedule
2(a)(v) have been validly issued, fully paid and are non-assessable and have
not
been issued in violation of any preemptive or other right of stockholders (or
any other Person), or of any legal requirement. Except as set forth in Schedule
2(a)(v), there are no outstanding securities, convertible securities, options,
warrants or derivative securities, and there are no agreements or commitments
obligating Infosmart to issue or grant any of the foregoing, including any
pre-emptive or similar rights. All outstanding shares of capital stock, options,
warrants and other securities of Infosmart have been issued in compliance with
(i) all applicable securities laws and (in all material respects) other
applicable laws and regulations, and (ii) all requirements set forth in any
applicable contracts. Except as described in Schedule 2(a)(v) or in
Schedule 2(a)(v) hereto, there are no commitments or agreements of any
character to which Infosmart is bound obligating Infosmart to accelerate the
vesting of any options or warrants as a result of the Transactions.
(b) The
authorized and registered capital stock of each member of the Group shall be
as
set forth in Schedule 2(a)(v) hereto. All of the outstanding shares of capital
stock of each member of the Group have been duly and validly authorized and
issued, are fully paid and non-assessable, have not been issued in violation
of
any preemptive or other right of stockholders (or any other Person) or of any
Legal Requirement, and are owned beneficially and of record by the Person as
specified on Schedule 2(a)(v), free and clear of any Lien. Except as set forth
in Schedule 2(a)(v), there are no outstanding securities, convertible
securities, options, warrants or derivative securities, and there are no
agreements or commitments obligating any member of the Group to issue or grant
any of the foregoing, including any pre-emptive or similar rights. All
outstanding shares, options, warrants and other securities of each member of
the
Group have been issued in compliance with (i) all applicable securities laws
and
(in all material respects) other applicable laws and regulations, and (ii)
all
requirements set forth in any applicable contracts.
(c) Except
as
set forth in this Section 2(a)(v) or in Schedule 2(a)(v) hereto, there are
no
equity securities, partnership interests or similar ownership interests of
any
-5-
class
of
any equity security of Infosmart, any member of the Group or any Subsidiary
(collectively, the “Affiliated Companies” and individually, the “Affiliated
Company”), or any securities exchangeable or convertible into or exercisable for
such equity securities, partnership interests or similar ownership interests,
issued, reserved for issuance or outstanding. Except as set forth in this
Section 2(a)(v) or in Schedule 2(a)(v) hereof, there are no subscriptions,
options, warrants, equity securities, ownership or partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which the Affiliated Companies
are
a party or by which they are bound obligating them to issue, deliver or sell,
or
cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition of, any registered
capital, ownership interests, partnership interests or similar ownership
interests of the Affiliated Companies or obligating the Affiliated Companies
to
grant, extend, accelerate the vesting of or enter into any such subscription,
option, warrant, equity security, call, right, commitment or
agreement.
(d) Except
as
contemplated by this Agreement, and except as set forth in Schedule 2(a)(v)
hereto, there are no registration rights, and there is no voting trust, voting
agreement, proxy, rights plan, anti-takeover plan or other agreement or
understanding to which the Affiliated Companies are a party or by which they
are
bound with respect to any shares of capital stock, registered capital, equity
securities, partnership interests or similar ownership interests of any class
of
the Affiliated Companies, and there are no agreements to which the Affiliated
Companies are a party, or which the Affiliated Companies have knowledge of,
which conflict with this Agreement or the transactions contemplated herein
or
otherwise prohibit the consummation of the transactions contemplated
hereunder.
(e) As
of the
Closing Date (as defined in Section 4(d)) (and following completion of the
Exchange), Infosmart’s capitalization will be the capitalization of Cyber
Merchants as described in Section 2(b)(vi).
(vi) Authority
Relative to this Agreement.
Infosmart has all necessary corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder and, to consummate
the
transactions contemplated hereby (including the Transactions). The execution
and
delivery of this Agreement and the consummation by Infosmart of the transactions
contemplated hereby (including the Transactions) have been duly and validly
authorized by all necessary action on the part of Infosmart (including the
approval by Infosmart’s stockholders), and no other proceedings on the part of
any Affiliated Company are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Infosmart and, assuming the due
authorization, execution and delivery thereof by the other parties hereto,
constitutes the legal and binding obligation of Infosmart, enforceable against
it in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of
creditors’ rights generally and by general principles of equity and public
policy.
(vii) No
Conflict; Required Filings and Consents.
(a) The
execution and delivery of this Agreement and the Exchange Agreement by Infosmart
does not, and the performance of this Agreement and the Exchange
-6-
Agreement
by Infosmart shall not, (i) conflict with or violate their respective Charter
Documents, (ii) conflict with or violate any Legal Requirements (as defined
below), or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
materially impair the Affiliated Company’s rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien or encumbrance on any of the properties or assets of any
Affiliated Company pursuant to, any Material Contracts (as defined in Section
2(a)(xxi) below), except, with respect to clauses (ii) or (iii), for any such
conflicts, violations, breaches, defaults or other occurrences that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Affiliated Companies. For purposes of this Agreement,
the
term “Legal Requirements” means any federal, state, local, municipal, foreign or
other law, statute, constitution, principle of common law, resolution,
ordinance, code, edict, decree, rule, regulation, ruling or requirement issued,
enacted, adopted, promulgated, implemented or otherwise put into effect by
or
under the authority of any Governmental Entity (as defined below).
(b) The
execution and delivery of this Agreement and the Exchange Agreement by Infosmart
does not, and the performance of obligations of Infosmart hereunder or
thereunder will not, require any consent, approval, authorization or permit
of,
or filing with or notification to, any court, administrative agency, commission,
governmental or regulatory authority, domestic or foreign (a “Governmental
Entity”), except (i) for applicable requirements, if any, of the Securities Act
of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), state securities laws (“Blue Sky Laws”), and
the rules and regulations thereunder, and appropriate documents with the
relevant authorities of other jurisdictions in which Infosmart is qualified
to
do business, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would
not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Affiliated Companies or, after the closing of the Exchange
Agreement, Cyber Merchants, or prevent consummation of the Transactions or
otherwise prevent the parties hereto from performing their obligations under
this Agreement or the Exchange Agreement.
(viii) Compliance.
Each
Affiliated Company has complied with and is not in violation of any Legal
Requirements with respect to the conduct of their business, or the ownership
or
operation of their business, except for failures to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely
to
have a Material Adverse Effect on the Affiliated Companies. To the knowledge
of
Infosmart, the businesses and activities of the Affiliated Companies have not
been and are not being conducted in violation of any Legal Requirements. Each
Affiliated Company is not in default or violation of any term, condition or
provision of any applicable Charter Documents or Contracts. Except as set forth
on Schedule 2(a)(viii), no written notice of non-compliance with any Legal
Requirements relating or with respect to the business of the Affiliated
Companies has been received by the Affiliated Companies (and each Affiliated
Company has no knowledge of any material such notice delivered to any other
Person). To the knowledge of Infosmart, the Affiliated Companies are not in
violation of any material term of any contract or covenant relating to
employment, patents, proprietary information disclosure, non-competition or
non-solicitation.
(ix) Financial
Statements.
-7-
(a) The
audited financial statements of Infosmart in the Memorandum are a correct and
complete copy of the audited financial statements (including, in each case,
any
related notes thereto) of Infosmart and the members of the Group, on a
consolidated basis, for the fiscal years ended December 31, 2004 and 2005,
prepared in accordance with the published rules and regulations of any
applicable Governmental Entity and with generally accepted accounting principles
of the United States (“U.S. GAAP”) applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto) and audited
in accordance with the auditing standards of the Public Company Accounting
Oversight Board (“PCAOB”) by an independent accountant registered with PCAOB,
and such statements fairly present in all material respects the financial
position of Infosmart and the members of the Group, on a consolidated basis,
at
the respective dates thereof and the results of its operations and cash flows
for the periods indicated, and each does not contain any untrue statement of
a
material fact or omit to state a material fact required to be stated therein
or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(b) The
unaudited financial statements of Infosmart in the Memorandum are a complete
copy of the unaudited financial statements (including, in each case, any related
notes thereto) of Infosmart and each member of the Group, on a consolidated
basis, for the three-month period ended March 31, 2006, prepared in accordance
with U.S. GAAP applied on a consistent basis throughout the period involved
(except as may be indicated in the notes thereto), and have been reviewed by
an
independent accountant registered with PCAOB, and such statements will fairly
present in all material respects the financial position of Infosmart and the
members of the Group, on a consolidated basis, at the dates thereof and the
results of its operations and cash flows for the periods indicated, except
that
the unaudited interim financial statements will be subject to normal adjustments
which are not expected to have a Material Adverse Effect on Infosmart or the
members of the Group. The audited financial statements and the unaudited
financial statements described in this Section 2(a)(ix) are collectively
referred to herein as the “U.S. GAAP Financial Statements”.
(c) Infosmart
and each member of the Group maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(x) No
Undisclosed Liabilities.
Except
as set forth in Schedule 2(a)(x) hereto, the Affiliated Companies have no
liabilities individually in excess of $25,000 and in the aggregate in excess
of
$100,000 (absolute, accrued, contingent or otherwise) of a nature required
to be
disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with U.S. GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of the Affiliated Companies, except:
(i) liabilities provided for in or otherwise disclosed in the consolidated
balance sheets of Infosmart and the members of the Group as of December 31,
2005, prepared in accordance with U.S. GAAP, as included in the Memorandum,
and
(ii) such liabilities arising in the ordinary
-8-
course
of
business of the Affiliated Companies since December 31, 2005, none of which
would have a Material Adverse Effect on the Affiliated Companies.
(xi) Absence
of Certain Changes or Events.
Except
as set forth in Schedule 2(a)(xi) hereto or in the Memorandum, including the
consolidated balance sheets of Infosmart and the members of the Group since
December 31, 2005, and except for the transactions contemplated under this
Agreement (including the Offering), there has not been, with respect to any
Affiliated Company: (a) any Material Adverse Effect, (b) any declaration,
setting aside or payment of any dividend on, or other distribution (whether
in
cash, securities or property) in respect of, any of equity securities, or any
purchase, redemption or other acquisition of any of equity securities or any
options, warrants, calls or rights to acquire any equity securities or other
securities, (c) any split, combination or reclassification of any equity
securities, (d) any granting of any increase in compensation or fringe benefits,
except for normal increases of cash compensation in the ordinary course of
business consistent with past practice, or any payment of any bonus, except
for
bonuses made in the ordinary course of business consistent with past practice,
or any granting of any increase in severance or termination pay or any entry
into any currently effective employment, severance, termination or
indemnification agreement or any agreement the benefits of which are contingent
or the terms of which are materially altered upon the occurrence of a
transaction of the nature contemplated hereby, (e) entry into any licensing
or
other agreement with regard to the acquisition or disposition of any
Intellectual Property (as hereinafter defined) other than licenses in the
ordinary course of business consistent with past practice or any amendment
or
consent with respect to any licensing agreement filed or required to be filed
with respect to any Governmental Entity, (f) any material change in its
accounting methods, principles or practices, (g) any change in the auditing
firm, (h) any issuance of securities, or (i) any revaluation of any of their
respective assets, including, without limitation, writing down the value of
capitalized inventory or writing off notes or accounts receivable or any sale
of
assets other than in the ordinary course of business.
(xii) Litigation.
Except
as disclosed in Schedule 2(a)(xii) hereto, there are no claims, suits, actions
or proceedings pending, or to the knowledge of any Affiliated Company,
threatened against the Affiliated Companies, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
individually or in the aggregate with all such claims, actions or proceedings,
to have a Material Adverse Effect on the Affiliated Companies or have a Material
Adverse Effect on the ability of the parties hereto to consummate the
Transactions.
(xiii) Employee
Benefit Plans.
(a) To
the
knowledge of Infosmart, all employee compensation, incentive, fringe or benefit
plans, programs, policies, commitments or other arrangements (whether or not
set
forth in a written document) covering any active or former employee, director
or
consultant of the Affiliated Companies, or any trade or business (whether or
not
incorporated) which is under common control with the Affiliated Companies,
with
respect to which the Affiliated Companies has liability (collectively, the
“Plans”) has been maintained and administered in all material respects in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations which are applicable to such Plans,
and
all liabilities with respect to the Plans have been properly reflected in the
consolidated
-9-
financial
statements of Infosmart and the members of the Group. No suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of
Plan activities) has been brought or is continuing, or to the knowledge of
Infosmart is threatened, against or with respect to any such Plan. To the
knowledge of Infosmart, there are no audits, inquiries or proceedings pending
or, to the knowledge of Infosmart, threatened by any governmental agency with
respect to any Plans. To the knowledge of Infosmart, all contributions, reserves
or premium payments required to be made or accrued as of the date hereof to
the
Plans have been timely made or accrued. To the knowledge of Infosmart, each
Plan
can be amended, terminated or otherwise discontinued after the closing of the
Transactions in accordance with its terms, subject to applicable laws, without
liability to Infosmart or the Affiliated Companies (other than ordinary
administration expenses and expenses for benefits accrued but not yet
paid).
(b) Except
as
disclosed on Schedule 2(a)(xiii) hereto, neither the execution and delivery
of
this Agreement or the Exchange Agreement nor the consummation of the
transactions contemplated hereby or thereby will (i) result in any payment
(including severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any stockholder, officer, director or employee of
the
Affiliated Companies under any Plan or otherwise, (ii) materially increase
any benefits otherwise payable under any Plan, or (iii) result in the
acceleration of the time of payment or vesting of any such
benefits.
(xiv) Labor
Matters.
Except
as disclosed in Schedule 2(a)(xiv) hereto, the Affiliated Companies are not
a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by the Affiliated Companies nor does any
Affiliated Company know of any activities or proceedings of any labor union
to
organize any such employees.
(xv) Restrictions
on Business Activities.
Except
as disclosed on Schedule 2(a)(xv)to, to the knowledge of Infosmart, there is
no
agreement, commitment, judgment, injunction, order or decree binding upon the
Affiliated Companies or to which the Affiliated Companies is a party which
has
or could reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of the Affiliated Companies, any acquisition
of
property by the Affiliated Companies or the conduct of business by the
Affiliated Companies as currently conducted other than such effects,
individually or in the aggregate, which have not had and could not reasonably
be
expected to have a Material Adverse Effect on the Affiliated
Companies.
(xvi) Title
to Property.
(a) All
real
estate or land use rights owned by the Affiliated Companies (including land
use
rights, improvements and fixtures thereon, easements and rights of way) (the
“Real Property”) is shown or reflected on the U.S. GAAP Financial Statements.
The Affiliated Companies have good, valid and marketable title to the Real
Property, and except as set forth in the U.S. GAAP Financial Statements or
on
Schedule 2(a)(xvi) hereto, all of the Real Property is held free and clear
of
all Liens, rights of way, easements, restrictions, exceptions, variances,
reservations, covenants or other title defects or limitations of any kind,
other
than Liens for taxes not yet due and payable and such Liens or other
imperfections of title, if any, that do not materially detract from the value
of
or materially interfere with the present use
-10-
of
the
property affected thereby. Schedule 2(a)(xvi) hereto is a list of all options
or
other contracts under which any Affiliated Company has a right to acquire any
interest in real property.
(b) All
leases of real property held by the Affiliated Companies and all personal
property and other property and assets of the Affiliated Companies (other than
Real Property) owned, used or held for use in connection with the business
of
the Affiliated Companies (the “Personal Property”) are shown or reflected on the
U.S. GAAP Financial Statements. The Affiliated Companies own and have good
and
marketable title to the Personal Property, and all such assets and properties
are in each case held free and clear of all Liens, except for Liens disclosed
in
the U.S. GAAP Financial Statements or in Schedule 2(a)(xvi) hereto, none of
which Liens has or will have, individually or in the aggregate, a Material
Adverse Effect on such property or on the present or contemplated use of such
property in the businesses of the Affiliated Companies.
(c) All
leases pursuant to which an Affiliated Company leases from others material
real
or personal property are valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing material default
or event of default of the Affiliated Companies or, to the knowledge of
Infosmart, any other party (or any event which with notice or lapse of time,
or
both, would constitute a material default), except where the lack of such
validity and effectiveness or the existence of such default or event of default
could not reasonably be expected to have a Material Adverse Effect on the
Affiliated Companies.
(xvii) Taxes.
(a) Definition
of Taxes.
For the
purposes of this Agreement, “Tax” or “Taxes” refers to any and all applicable
central, federal, provincial, state, local, municipal and foreign taxes,
including, without limitation, gross receipts, income, profits, sales, use,
occupation, value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, assessments, governmental
charges and duties together with all interest, penalties and additions imposed
with respect to any such amounts and any obligations under any agreements or
arrangements with any other person with respect to any such amounts and
including any liability of a predecessor entity for any such
amounts.
(b) Tax
Returns and Audits.
Except
as set forth in Schedule 2(a)(xvii) hereto, to the knowledge of
Infosmart:
(i) The
Affiliated Companies have timely filed all federal, state, local and foreign
returns, estimates, information statements and reports relating to Taxes
(“Returns”) required to be filed by the Affiliated Companies with any Tax
authority prior to the date hereof. All such Returns are true, correct and
complete in all material respects. The Affiliated Companies have paid all Taxes
shown to be due on such Returns.
(ii) All
Taxes
that the Affiliated Companies are required by law to withhold or collect have
been duly withheld or collected, and have been timely paid over to the proper
governmental authorities to the extent due and payable.
-11-
(iii) The
Affiliated Companies have not been delinquent in the payment of any Tax nor
is
there any Tax deficiency outstanding, proposed or assessed against the
Affiliated Companies, nor have the Affiliated Companies executed any unexpired
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(iv) No
audit
or other examination of any Return of the Affiliated Companies by any Tax
authority is presently in progress, nor have the Affiliated Companies been
notified of any request for such an audit or other examination.
(v) No
adjustment relating to any Returns filed by the Affiliated Companies has been
proposed in writing, formally or informally, by any Tax authority to the
Affiliated Companies or any representative thereof.
(vi) The
Affiliated Companies have no liability for any unpaid Taxes which have not
been
accrued for or reserved on Infosmart’s balance sheets included in the U.S. GAAP
Financial Statements for the most recent fiscal year ended, whether asserted
or
unasserted, contingent or otherwise, other than any liability for unpaid Taxes
that may have accrued since the end of the most recent fiscal year in connection
with the operation of the business of the Affiliated Companies in the ordinary
course of business, none of which is material to the business, results of
operations or financial condition of the Affiliated Companies.
(xviii) Environmental
Matters.
Except
as disclosed in Schedule 2(a)(xviii) hereto and except for such matters that,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect, to the knowledge of Infosmart: (a) the Affiliated Companies
have
complied with all applicable Environmental Laws; (b) the properties currently
owned or operated by the Affiliated Companies (including soils, groundwater,
surface water, buildings or other structures) are not contaminated with any
Hazardous Substances; (c) the properties formerly owned or operated by the
Affiliated Companies were not contaminated with Hazardous Substances during
the
period of ownership or operation by the Affiliated Companies; (d) the Affiliated
Companies are not subject to liability for any Hazardous Substance disposal
or
contamination on any third party property; (e) the Affiliated Companies have
not
been associated with any release or threat of release of any Hazardous
Substance; (f) the Affiliated Companies have not received any notice, demand,
letter, claim or request for information alleging that the Affiliated Companies
may be in violation of or liable under any Environmental Law; and (g) the
Affiliated Companies are not subject to any orders, decrees, injunctions or
other arrangements with any Governmental Entity or subject to any indemnity
or
other agreement with any third party relating to liability under any
Environmental Law or relating to Hazardous Substances.
As
used
in this Agreement, the term “Environmental Law” means all applicable central,
federal, provincial, state, local or municipal law, regulation, order, decree,
permit, authorization, opinion, common law or agency requirement relating to:
(A) the protection, investigation or restoration of the environment, health
and
safety, or natural resources; (B) the handling, use, presence, disposal, release
or threatened release of any Hazardous Substance or (C) noise, odor, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property.
As
used
in this Agreement, the term “Hazardous Substance” means any substance that is:
(a) listed, classified or regulated pursuant to any Environmental Law; (b)
any
petroleum product or by-product, asbestos-containing material, lead-containing
paint or plumbing, polychlorinated
-12-
biphenyls,
radioactive materials or radon; or (c) any other substance which is the subject
of regulatory action by any Governmental Entity pursuant to any Environmental
Law.
(xix) Brokers;
Third Party Expenses.
Except
as set forth in this Agreement and in the Related Agreements, and except as
set
forth in this Section 2(a)(xix), neither the Affiliated Companies nor, to the
knowledge of Infosmart, Prime Fortune or the Shareholders, have incurred, nor
will they incur, directly or indirectly, any liability for brokerage, finders’
fees, agent’s commissions or any similar charges in connection with this
Agreement or the Exchange Agreement or any transactions contemplated hereby
or
thereby. Immediately prior to the closing of the Exchange Agreement, Infosmart
will issue the HIG Shares as a finder’s fee in connection with the transactions
contemplated under this Agreement. Except as disclosed in this Section 2(a)(xix)
or on Schedule 2(a)(xix), no ownership interests, equity securities, convertible
securities, warrants, options, or other derivative securities of the Affiliated
Companies or Cyber Merchants are payable to any third party by any Affiliated
Company, Prime Fortune or any Shareholder as a result of the
Transactions.
(xx) Intellectual
Property.
For the
purposes of this Agreement, the following terms have the following
definitions:
(a) “Intellectual
Property” shall mean any or all of the following: (i) patents and
applications therefor and all reissues, divisions, renewals, extensions,
provisionals, continuations and continuations-in-part thereof (“Patents”)
worldwide; (ii) inventions (whether patentable or not), invention disclosures,
improvements, trade secrets, proprietary information, know how, technology,
technical data and customer lists, and all documentation relating to any of
the
foregoing; (iii) registered copyrights and applications therefor, and all other
rights corresponding thereto, worldwide; (iv) material domain names, uniform
resource locators (“URLs”) and other names and locators associated with the
Internet (“Domain Names”); (v) registered industrial designs and applications
therefor, worldwide; (vi) registered trade names, logos, trademarks and service
marks, and any applications therefor (collectively, “Trademarks”), worldwide;
(vii) all databases and data collections and all rights therein; and (viii)
all
moral and economic rights of authors and inventors, however
denominated.
(b) “Infosmart
Intellectual Property” shall mean any Intellectual Property that is owned by, or
licensed to, the Affiliated Companies.
(c) “Infosmart
Products” means all current versions of products or services of the Affiliated
Companies.
(d) Except
as
disclosed on Schedule 2(a)(xx), to the knowledge of Infosmart, Infosmart
Intellectual Property and Infosmart Products are not subject to any material
proceeding or outstanding decree, order, judgment, contract, license, agreement
or stipulation restricting in any manner the use, transfer or licensing thereof
by the Affiliated Companies, or which may affect the validity, use or
enforceability of such Infosmart Intellectual Property or Infosmart Products,
which in any such case could reasonably be expected to have a Material Adverse
Effect on the Affiliated Companies.
(e) Except
as
disclosed on Schedule 2(a)(xx) hereto, to the knowledge of Infosmart, the
Affiliated Companies either own and have good and marketable title to
each
-13-
material
item of Infosmart Intellectual Property owned by it free and clear of any Liens
(excluding licenses and related restrictions granted in the ordinary course)
or
have one or more licenses sufficient for use of Infosmart Intellectual Property
by the Affiliated Companies; and the Affiliated Companies are the owner or
licensee of all material Trademarks used in connection with the operation or
conduct of the business of the Affiliated Companies including the sale of any
Infosmart Products.
(f) The
operation of the business of the Affiliated Companies as such business currently
is conducted, including the use of any product, device or process, to the
knowledge of Infosmart and except as could not reasonably be expected to have
a
Material Adverse Effect, has not and does not infringe or misappropriate the
Intellectual Property of any third party or constitute unfair competition or
trade practices under the laws of any jurisdiction.
(xxi) Agreements,
Contracts and Commitments.
(a) For
purposes of this Agreement, (i) the term “Contracts” shall mean all written
contracts, agreements, leases, mortgages, indentures, notes, bonds, Liens,
licenses, arbitration awards, judgments, decrees, orders, documents,
instruments, understandings and commitments to which the Affiliated Companies
is
a party or by or to which any of the properties or assets of the Affiliated
Companies may be bound, subject or affected (including without limitation notes
or other instruments payable to the Affiliated Companies), and the term
“Material Contracts” shall mean (x) each Contract, (I) providing for payments
(present or future) to the Affiliated Companies in excess of $100,000 in the
aggregate, or (II) under which or in respect of which the Affiliated Companies
presently have any liability or obligation of any nature whatsoever (absolute,
contingent or otherwise) in excess of $100,000, and (y) without limitation
of
subclause (x), each of the following Contracts:
(i) any
mortgage, indenture, note, installment obligation or other instrument, agreement
or arrangement for or relating to any borrowing of money by or from the
Affiliated Companies;
(ii) any
guaranty, direct or indirect, by the Affiliated Companies or any officer,
director or 5% or more stockholder (“Insider”) of the Affiliated Companies of
any obligation of the Affiliated Companies for borrowings, or otherwise,
excluding endorsements made for collection in the ordinary course of
business;
(iii) any
Contract made other than in the ordinary course of business or (x) providing
for
the grant of any preferential rights to purchase or lease any asset of the
Affiliated Companies or (y) providing for any right (exclusive or non-exclusive)
to sell or distribute, or otherwise relating to the sale or distribution of,
any
product or service of the Affiliated Companies;
(iv) any
obligation to register any shares of the capital stock or other securities
of
the Affiliated Companies with any Governmental Entity;
(v) any
obligation to make payments, contingent or otherwise, arising out of the prior
acquisition of the business, assets or stock of other Persons;
-14-
(vi) any
collective bargaining agreement with any labor union;
(vii) any
lease
or similar arrangement for the use by the Affiliated Companies of personal
property;
(viii) any
Contract granting or purporting to grant, or otherwise in any way relating
to,
any mineral rights or any other interest (including, without limitation, a
leasehold interest) in real property; and
(ix) any
Contract with the Affiliated Companies to which any Insider of the Affiliated
Companies is a party.
(b) Each
Material Contract was entered into at arms’ length and in the ordinary course,
is in full force and effect and, to the knowledge of Infosmart, is valid and
binding upon and enforceable against each of the parties thereto.
(c) Except
as
set forth in Schedule 2(a)(xxi), neither the Affiliated Companies nor, to the
knowledge of Infosmart, any other party thereto, is in breach of or in default
under, and no event has occurred which with notice or lapse of time or both
would become a breach of or default under, any Material Contract, which breach,
individually or in the aggregate, could be reasonably likely to have a Material
Adverse Effect on the Affiliated Companies, and no party to any Material
Contract has given any written notice of any claim of any such breach, default
or event, which, individually or in the aggregate, are reasonably likely to
have
a Material Adverse Effect on the Affiliated Companies. Each Material Contract
to
which the Affiliated Companies is a party or by which it is bound that has
not
expired by its terms is in full force and effect, except where such failure
to
be in full force and effect is not reasonably likely to have a Material Adverse
Effect on the Affiliated Companies.
(xxii) Insurance.
Schedule 2(a)(xxii) sets forth the insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors (collectively, the “Insurance Policies”) of the
Affiliated Companies.
(xxiii) Governmental
Actions/Filings; Approvals.
Except
as set forth in Schedule 2(a)(xxiii), the Affiliated Companies hold, and/or
have made, all Governmental Actions/Filings and Approvals reasonably necessary
for the conduct by the Affiliated Companies of their business (as presently
conducted and to be conducted following the Closing and the closing of the
Exchange Agreement), except with respect to any Governmental Actions/Filings
and
Approvals the failure of which to hold or make would not reasonably be likely
to
have a Material Adverse Effect on the Affiliated Companies.
For
purposes of this Agreement, the term “Governmental Action/Filing” shall mean any
franchise, license, certificate of compliance, authorization, consent, order,
permit, approval, consent or other action of, or any filing, registration or
qualification with, any federal, state, municipal, foreign or other
governmental, administrative or judicial body, agency or authority.
(xxiv) Interested
Party Transactions.
Except
as set forth in the Schedule 2(a)(xxiv) hereto or as reflected in the financial
statements included in the Memorandum, no employee, officer, director or
stockholder of the Affiliated Companies or a member of his or her
-15-
immediate
family is indebted to the Affiliated Companies, nor are the Affiliated Companies
indebted (or committed to make loans or extend or guarantee credit) to any
of
them, other than (a) for payment of salary for services rendered,
(b) reimbursement for reasonable expenses incurred on behalf of the
Affiliated Companies, and (c) for other employee benefits made generally
available to all employees. Except as set forth in Schedule 2(a)(xxiv), to
the
knowledge of Infosmart, none of such individuals has any direct or indirect
ownership interest in any Person with whom the Affiliated Companies is
affiliated or with whom the Affiliated Companies has a contractual relationship,
or any Person that competes with the Affiliated Companies, except that each
employee, officer, director or stockholder of the Affiliated Companies and
members of their respective immediate families may own less than 5% of the
outstanding stock in publicly traded companies that may compete with the
Affiliated Companies. Except as set forth in Schedule 2(a)(xxiv), to the
knowledge of Infosmart, no employee, officer, director or stockholder or any
member of their immediate families is, directly or indirectly, interested in
any
material contract with the Affiliated Companies (other than such contracts
as
relate to any such individual ownership of interests in or securities of the
Affiliated Companies).
(xxv) Management.
Except
as set forth in Schedule 2(a)(xxv) hereto, during the past five year period,
to
the knowledge of Infosmart, no current or former officer or director or
stockholder of the Affiliated Companies has been the subject of:
(a) a
petition under bankruptcy laws or any other insolvency or moratorium law or
has
a receiver, fiscal agent or similar officer been appointed by a court for such
person, or any partnership in which such person was a general partner at or
within two years before the time of such filing, or any corporation or business
association of which such person was an executive officer at or within two
years
before the time of such filing;
(b) a
conviction in a criminal proceeding or a named subject of a pending criminal
proceeding (excluding traffic violations that do not relate to driving while
intoxicated or driving under the influence);
(c) any
order, judgment or decree, not subsequently reversed, suspended or vacated,
of
any court of competent jurisdiction, permanently or temporarily enjoining any
such person from, or otherwise limiting, the following activities:
(i) Acting
as
a futures commission merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage transaction merchant, any other
person regulated by the United States Commodity Futures Trading Commission
or an
associated person of any of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an affiliated person,
director or employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any conduct
or
practice in connection with such activity;
(ii) Engaging
in any type of business practice; or
(iii) Engaging
in any activity in connection with the purchase or sale of any security or
commodity or in connection with any violation of securities laws or commodities
laws;
-16-
(d) any
order, judgment or decree, not subsequently reversed, suspended or vacated,
of
any authority barring, suspending or otherwise limiting for more than 60 days
the right of any such person to engage in any activity described in the
preceding sub paragraph, or to be associated with persons engaged in any such
activity;
(e) a
finding
by a court of competent jurisdiction in a civil action or by the U.S. Securities
and Exchange Commission (“SEC”) or other authority to have violated any
securities law, regulation or decree and the judgment in such civil action
or
finding by the SEC or any other authority has not been subsequently reversed,
suspended or vacated; or
(f) a
finding
by a court of competent jurisdiction in a civil action or by the Commodity
Futures Trading Commission to have violated any federal commodities law, and
the
judgment in such civil action or finding has not been subsequently reversed,
suspended or vacated.
(xxvi) Representations
and Warranties Complete.
The
representations and warranties of Infosmart included in this Agreement and
any
Schedule provided pursuant to this Agreement, are true and complete in all
material respects and do not contain any untrue statement of a material fact
or
omit to state a material fact required to be stated therein or necessary to
make
the statements contained therein not misleading, under the circumstance under
which they were made. Any disclosure on one schedule will be deemed notice
of
and disclosure in respect of any other representation and warranty.
(xxvii) Escrow
Agreement.
The
Escrow Agreement (the “Escrow Agreement”) among Infosmart, Cyber Merchants,
Xxxxxxx and Xxxxxx Street State Bank (the “Escrow Agent”) has been duly and
validly executed and delivered by or on behalf of Infosmart and constitutes
a
legal, valid, and binding obligation of Infosmart enforceable in accordance
with
its terms, except as such enforceability may be limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium, or other laws of general
application relating to or affecting enforcement of creditors’ rights generally
and (b) laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
(xxviii) Injunction.
None of
the Affiliated Companies is or has been subject to any order, judgment, or
decree of any court of competent jurisdiction temporarily, preliminarily, or
permanently enjoining such person for failure to comply with Rule 503 under
Regulation D.
(b) Cyber
Merchants
represents, warrants, and agrees that upon the consummation of the Transactions,
the following are true, correct and complete at and as of the date of Closing.
The parties acknowledge that Cyber Merchants assumes no responsibility for
the
representations, warranties and agreements in this Section 2(b) until completion
of the Exchange:
(i) All
reports and statements required to be filed by Cyber Merchants with the SEC
under the Exchange Act and the rules and regulations thereunder, including
all
reports and statements with respect to the Transactions contemplated hereunder,
have been made or will be made at or prior to the Closing. Such filings,
together with all documents incorporated by reference therein, are referred
to
as “Exchange Act Documents.” Each Exchange Act Document, as amended, conformed
in all material respects to the requirements of the Exchange Act and the rules
and regulations thereunder, and no Exchange Act Document, as amended, at the
time each
-17-
such
document was filed, included any untrue statement of a material fact or omitted
to state any 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.
(ii) The
financial statements, together with the related notes, of Cyber Merchants
contained in the Exchange Act Documents filed for the 36 months prior to the
date of this Agreement, and the financial statements that will be included
in
Cyber Merchants’ Annual Report on Form 10-KSB for the year ended May 31, 2006,
fairly present in all material respects, on the basis stated therein and on
the
date thereof, the financial position of Cyber Merchants at the respective dates
therein specified and its results of operations and cash flows for the periods
then ended. To the knowledge of Cyber Merchants such statements and related
notes have been prepared in accordance with U.S. GAAP applied on a consistent
basis except as expressly noted therein (provided that the unaudited financial
statements lack footnotes and other presentation items).
(iii) Except
for the Transactions or the transactions contemplated by this Agreement, or
as
disclosed in the Exchange Act Documents or on Schedule 2(b)(iii), since December
31, 2005, Cyber Merchants has not incurred any material liabilities or
obligations, direct or contingent, except in the ordinary course of business,
and there has not been any material adverse change, or to the actual knowledge
of Cyber Merchants, any development involving a prospective material adverse
change, in the condition (financial or otherwise), business, or results of
operations of Cyber Merchants or any change in the capital or material increase
in the long-term debt of Cyber Merchants, nor has Cyber Merchants declared,
paid, or made any dividend or distribution of any kind on its capital
stock.
(iv) All
action required to be taken by Cyber Merchants for the authorization of this
Agreement, the Exchange Agreement and Related Agreements, the performance of
all
obligations of Cyber Merchants and Infosmart hereunder and thereunder at the
Closing, and as a condition to the due and proper authorization, issuance,
sale,
and delivery of the Shares and Warrants to subscribers therefor in accordance
with the terms of this Agreement has been, or prior to the Closing Date (as
defined in Section 4(d) below), will have been taken and upon the payment of
the
consideration for the Shares and Warrants shall be fully paid.
(v) Cyber
Merchants is a corporation duly organized, validly existing, and in good
standing under the laws of the State of California and has all requisite right,
power, and authority to own or lease its properties, to conduct its business
as
described in the Exchange Act Documents, and to execute, deliver, and perform
this Agreement, the Exchange Agreement, the Subscription Agreements and the
Registration Rights Agreement, to issue and sell the Shares and Warrants and
to
carry out the provisions of this Agreement, and the Related Agreements and
to
carry on its business as presently conducted. Cyber Merchants is duly qualified
to do business and in good standing as a foreign corporation in all other
jurisdictions in which its ownership or leasing of properties, or the conduct
of
its business requires or may require such qualification except where the failure
to be so qualified would not have a Material Adverse Effect on Cyber Merchants.
Cyber Merchants has complied in all material respects with all material laws,
rules, regulations, applicable to Cyber Merchants’ business, operations,
properties, assets, products, and services, and Cyber Merchants is in possession
of and operating in compliance with all material permits, licenses, and other
authorization, required to conduct its business as currently
conducted.
-18-
(vi) The
authorized capital stock of Cyber Merchants consists of: (i) 40,000,000
shares of common stock, no par value per share (“Common Stock”), and
(ii) 10,000,000 shares of preferred stock, no par value per share
(“Preferred Stock”). Prior to the closing of the Transactions under the Exchange
Agreement, 1,200,000 shares of Preferred Stock will be designated as Series
A
Convertible Preferred Stock (“Series A Preferred Stock”) and 1,800,000 shares of
Preferred Stock will be designated as Series B Convertible Preferred Stock
(“Series B Preferred Stock”). Following the closing of the Transactions, and
immediately prior to the Closing of the Offering, Cyber Merchants will have:
(i)
12,619,040 shares of Common Stock issued and outstanding, and (ii) 1,000,000
shares of Series A Preferred Stock issued and outstanding, which will be
convertible into 116,721,360 shares of Common Stock, based on a conversion
rate
of 116.721360 shares of Common Stock for each share of Series A Preferred Stock.
Except
as
contemplated by this Agreement and the Exchange Agreement, or as described
in
the Exchange Act Documents or on Schedule 2(b)(vi), immediately prior to the
Closing (a) there is no commitment by Cyber Merchants to issue any shares of
capital stock, subscriptions, warrants, options, convertible securities, or
other similar rights to purchase or receive Cyber Merchants securities or to
distribute to the holders of any of its equity securities any evidence of
indebtedness, cash, or other assets, (b) Cyber Merchants is under no obligation
(contingent or otherwise) to purchase, redeem, or otherwise acquire any of
its
equity or debt securities or any interest therein, and (c) to Cyber Merchants’
knowledge, there are no voting trusts or similar agreements, stockholders’
agreements, pledge agreements, buy-sell agreements, rights of first refusal,
preemptive rights, or proxies relating to any securities of Cyber Merchants.
Except for those persons issued securities pursuant to the Exchange Agreement
or
as set forth in the Exchange Act Documents or filings with the Commission made
by third parties pursuant to Schedule 13D or 13G or Form 3 or 4, and to the
knowledge of Cyber Merchants, no person holds of record or beneficially, 5%
or
more of the outstanding shares of the capital stock of Cyber Merchants. All
outstanding securities of Cyber Merchants were issued in compliance with
applicable Federal and state securities laws.
(vii) Except
as
disclosed in the Exchange Act Documents or as described on Schedule 2(b)(vii),
there is no pending or, to the knowledge of Cyber Merchants, threatened (a)
action, suit, claim, proceeding, or investigation against Cyber Merchants,
at
law or in equity, or before or by any Federal, state, municipal, or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign Governmental Entity, (b) arbitration proceeding against
Cyber Merchants, (c) governmental inquiry against Cyber Merchants, or (d) any
action or suit by or on behalf of Cyber Merchants pending or threatened against
others.
(viii) Cyber
Merchants is not in violation of its articles of incorporation or bylaws, or
in
default, or with the giving of notice or lapse of time or both, would be in
default, in the performance of any material obligation, agreement, or condition
contained in any lease, license, material contract, indenture, or loan agreement
or in any bond, debenture, note, or any other evidence of indebtedness, except
for such defaults as would not have a Material Adverse Effect on Cyber
Merchants. The execution, delivery, and performance of this Agreement, the
Related Agreements, and the Escrow Agreement, the incurrence of the obligations
herein, the issuance, sale, and delivery of the Shares and Warrants, and the
consummation of the transactions contemplated herein, have been duly authorized
by all requisite corporate action on the part of Cyber Merchants and (a) do
not
and will not conflict with Cyber Merchants’ articles
-19-
of
incorporation or bylaws, (b) do not and will not, with or without the passage
of
time or the giving of notice, result in the breach of, or constitute a default,
cause the acceleration of performance, or require any consent under, or result
in the creation of any lien, charge or encumbrance upon any property assets
of
Cyber Merchants pursuant to, any material loan agreement, mortgage, deed of
trust, indenture, or other instrument or agreement to which Cyber Merchants
is a
party or by which Cyber Merchants or its properties are bound, except such
consents as have been obtained as of the date hereof or to the extent that
the
same have been, or prior to the Closing Date will be, waived or cured, and
as
may be required by the Over-the-Counter Bulletin Board (“OTC BB”), which Cyber
Merchants undertakes to obtain as promptly as practicable, or (c) do not and
will not result in the violation of any law, statute, order, rule,
administrative regulation, or decree of any court, or governmental agency or
body having jurisdiction over Cyber Merchants or its properties. Upon execution
and delivery the Exchange Agreement will be in full force and
effect.
(ix) Except
as
disclosed in the Exchange Act Documents or as described on Schedule 2(b)(ix),
and other than pursuant to the Exchange Agreement and the documents related
thereto, there are no pre-emptive rights or other rights to subscribe for or
to
purchase, or any restriction upon the voting or transfer of, shares of Common
Stock pursuant to Cyber Merchants’ articles of incorporation, bylaws, or any
agreement or other instrument to which Cyber Merchants is a party. Except as
disclosed on Schedule 2(b)(ix), the issuance of the Shares and Warrants is
not
subject to any preemptive right of any stockholder of Cyber Merchants or to
any
right of first refusal or other right in favor of any person.
(x) The
obligations of Cyber Merchants under this Agreement has been duly and validly
assumed by Cyber Merchants and this Agreement constitutes a legal, valid, and
binding obligation of Cyber Merchants enforceable in accordance with its terms,
except to the extent that its enforceability is limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium, or other laws of general
application relating to or affecting the enforcement of creditors’ rights
generally, and (b) laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies and except as enforceability
of
the indemnity and contribution provisions contained in Section 7 hereof may
be
limited by applicable law or principles of public policy.
(xi) The
Escrow Agreement has been duly and validly executed and delivered by or on
behalf of Cyber Merchants and constitutes a legal, valid, and binding obligation
of Cyber Merchants enforceable in accordance with its terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws of general application relating to
or
affecting enforcement of creditors’ rights generally and (b) laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies.
(xii) No
consent, approval, authorization, or order of any court or governmental
authority or agency is required for the consummation by Cyber Merchants of
the
transactions contemplated by this Agreement, except such as may be required
by
the NASD, the Securities Act, or the rules and regulations thereunder or state
securities or Blue Sky laws.
(xiii) Except
as
disclosed on Schedule 2(b)(xiii), Cyber Merchants has filed, or caused to be
filed, on a timely basis, all tax returns (including payroll, unemployment,
and
other taxes related to its employees and independent contractors) required
to be
filed with any
-20-
Governmental
Entity and has paid or caused to be paid all taxes, levies, assessments,
tariffs, duties or other fees imposed, assessed, or collected by any
Governmental Entity that may have become due and payable pursuant to those
tax
returns or otherwise except taxes being disputed by Cyber Merchants in good
faith. Except as disclosed on Schedule 2(b)(xiii), no deficiency assessment
with
respect to or proposed adjustment of any of Cyber Merchants’ Federal, state,
municipal, or local tax returns has occurred or is threatened. There has been
no
tax lien imposed by any Governmental Entity outstanding against Cyber Merchants’
assets or properties, except the lien for current taxes not yet due. The
charges, accruals, and reserves on the books of Cyber Merchants with respect
to
taxes for all fiscal periods are adequate, in the opinion of Cyber Merchants,
and Cyber Merchants does not know of any actual or proposed tax assessment
for
any fiscal period or of any basis therefor against which adequate reserves
have
not been set up. Except as disclosed on Schedule 2(b)(xiii), Cyber Merchants
has
not been advised that any Federal income tax return of Cyber Merchants has
been,
or will be, examined or audited by the Internal Revenue Service.
(xiv) The
Cyber
Merchants Common Stock is registered pursuant to Section 12(g) of the Exchange
Act and is listed for quotation with the symbol “CMXG” on the OTC BB.
(xv) Cyber
Merchants has not during the past twelve months offered or sold any security
by
or for Cyber Merchants that is of the same or a similar class as the Shares
and
Warrants, other than offers of securities made solely to accredited investors
or
otherwise under an employee benefit plan as defined in Rule 405 under the
Securities Act, securities issued in connection with the Transactions or other
acquisitions, or other securities that will not invalidate the exemption from
registration relied on to offer and sell the Shares and Warrants.
(xvi) Neither
Cyber Merchants nor any of its affiliates is or has been subject to any order,
judgment, or decree of any court of competent jurisdiction temporarily,
preliminarily, or permanently enjoining such person for failure to comply with
Rule 503 under Regulation D.
(xvii) The
execution, delivery, and performance by Cyber Merchants of this Agreement and
the Related Agreements, and the offer and sale of the Shares and Warrants
require no consent of, action by or in respect of, or filing with, any person
or
Governmental Entity other than those consents that have been obtained and
filings that have been made pursuant to applicable state securities laws and
post-sale filings pursuant to applicable state and federal securities laws,
which Cyber Merchants undertakes to file within the applicable time
period.
(xviii) All
disclosure provided to you regarding Cyber Merchants, its business and the
transactions contemplated hereby, furnished by or on behalf of Cyber Merchants
(including the disclosures, representations and warranties made by each of
the
parities to the Exchange Agreement) are true and correct and do not contain
any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
(xix) Other
than pursuant to this Agreement, there are no brokers, representatives or other
persons which have an interest in commissions or other compensation payable
by
Cyber Merchants in connection with the transactions contemplated
hereunder.
-21-
3. Representations
and Warranties of the Placement Agents.
(a) Xxxxxxx
represents and warrants to, and agrees with, Infosmart and Cyber Merchants
that:
(i) Xxxxxxx
has been duly organized and validly existing and in good standing as a limited
liability company under the laws of the State of Delaware with power and
authority (corporate and other) to perform its obligations under this Agreement
and the Escrow Agreement; Xxxxxxx is a broker-dealer registered and in good
standing under the Exchange Act and under the securities or Blue Sky laws of
each state in which the Shares and Warrants are being offered or sold by
Xxxxxxx, and Xxxxxxx is a member in good standing of the NASD; Xxxxxxx is in
possession of and operating in compliance with all authorizations, licenses,
permits, consents, certificates, and orders required for the performance of
its
duties under this Agreement and the Escrow Agreement, and Xxxxxxx’x performance
of its duties hereunder and thereunder will be in compliance with all applicable
laws, including state securities and Blue Sky laws.
(ii) There
are
no legal or governmental proceedings pending to which Xxxxxxx is a party or
of
which any of its properties is the subject or, to Xxxxxxx’x knowledge,
threatened, which, if determined adversely to Xxxxxxx, would individually or
in
the aggregate materially and adversely affect its ability to perform its
obligations under this Agreement or the Escrow Agreement.
(iii) No
consent, approval, authorization or order of any court or governmental authority
or agency is required for the performance by Xxxxxxx of its obligations under
this Agreement, except such as may be required by the NASD or under Regulation
D
or state securities or Blue Sky laws.
(iv) This
Agreement has been duly and validly executed and delivered by or on behalf
of
Xxxxxxx and constitutes a legal, valid, and binding obligation of Xxxxxxx
enforceable in accordance with its terms, except to the extent that its
enforceability is limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws of general application relating to
or
affecting the enforcement of creditors’ rights generally, and (ii) laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies and except as enforceability of the indemnity and
contribution provisions contained in Section 7 hereof may be limited by
applicable law or principles of public policy.
(v) The
Escrow Agreement among Infosmart, Xxxxxxx, Cyber Merchants and the Escrow Agent
has been duly and validly executed and delivered by or on behalf of Xxxxxxx
and
constitutes a legal, valid, and binding obligation of Xxxxxxx enforceable in
accordance with its terms, except as such enforceability may be limited by
(i)
applicable bankruptcy, insolvency, reorganization, moratorium, or other laws
of
general application relating to or affecting enforcement of creditors’ rights
generally and (ii) laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
(b) Axiom
represents and warrants to, and agrees with, Infosmart and Cyber Merchants
that:
-22-
(i) Axiom
has
been duly organized and validly existing and in good standing as a limited
liability company under the laws of the State of Delaware with
power and authority (corporate and other) to perform its obligations under
this
Agreement; Axiom is a broker-dealer registered and in good standing under the
Exchange Act and under the securities or Blue Sky laws of each state in which
the Shares and Warrants are being offered or sold by Axiom, and Axiom is a
member in good standing of the NASD; Axiom is in possession of and operating
in
compliance with all authorizations, licenses, permits, consents, certificates,
and orders required for the performance of its duties under this Agreement,
and
Axiom’s performance of its duties hereunder and thereunder will be in compliance
with all applicable laws, including state securities and Blue Sky
laws.
(ii) There
are
no legal or governmental proceedings pending to which Axiom is a party or of
which any of its properties is the subject or, to Axiom’s knowledge, threatened,
which, if determined adversely to Axiom, would individually or in the aggregate
materially and adversely affect its ability to perform its obligations under
this Agreement.
(iii) No
consent, approval, authorization or order of any court or governmental authority
or agency is required for the performance by Axiom of its obligations under
this
Agreement, except such as may be required by the NASD or under Regulation D
or
state securities or Blue Sky laws.
(iv) This
Agreement has been duly and validly executed and delivered by or on behalf
of
Axiom and constitutes a legal, valid, and binding obligation of Axiom
enforceable in accordance with its terms, except to the extent that its
enforceability is limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws of general application relating to
or
affecting the enforcement of creditors’ rights generally, and (ii) laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies and except as enforceability of the indemnity and
contribution provisions contained in Section 7 hereof may be limited by
applicable law or principles of public policy.
4. Offering
and Sale of the Shares and Warrants.
(a) On
the
basis of the representations, warranties, and covenants herein contained, but
subject to the terms and upon the conditions herein set forth, the Placement
Agents are hereby appointed the placement agents of Infosmart and Cyber
Merchants on an exclusive basis during the term herein specified (the “Offering
Period”) for the purpose of finding subscribers for the Shares and Warrants on a
best-efforts basis for the account of Cyber Merchants (conditioned upon closing
of the Exchange Agreement) at $7.00 per Share (“Offering Price”) through a
private offering (the “Offering”) to an unlimited number of “accredited
investors” (as such term is defined in Rule 501 of Regulation D) (“Accredited
Investors”) pursuant to and in accordance with the Securities Act. The minimum
subscription amount will be $25,000 unless Infosmart agrees to accept a lesser
amount. Subject to the performance by Infosmart and Cyber Merchants of all
its
obligations to be performed hereunder, and to the completeness and accuracy
of
all the representations and warranties contained herein, the Placement Agents
hereby accept such agency and agree on the terms and conditions herein set
forth
to use their best efforts during the Offering Period to find subscribers for
the
Shares and Warrants at the Offering Price. The Placement Agents’ agencies
hereunder, which are terminable as provided in Section 11 hereof, shall
terminate at 11:59 p.m., New York time, on September 30, 2006; provided
that such
-23-
termination
date (the “Termination Date”) may be extended by mutual written agreement of the
parties until November 30, 2006.
(b) Each
Investor desiring to purchase Shares and Warrants will be required to:
(i) complete, execute, and deliver to the Placement Agents an executed copy
of a Subscription Agreement in the form attached as Exhibit
A
hereto
together with an Investor Questionnaire, and (ii) deliver to the Escrow Agent
payment for such purchase in the form of a wire transfer of immediately
available funds in the amount that the Investor desires to purchase in
accordance with the wire transfer instructions set forth in the Subscription
Agreement. Any payment received that does not conform to this requirement will
be returned to an Investor by the end of the next business day following
receipt. In
the
event funds are received by Xxxxxxx or Axiom, such party shall hold all such
Subscription Agreements for safekeeping and immediately forward all such funds
to the Escrow Agent. The Escrow Agent, upon receipt of such funds, will hold
the
funds in an escrow account pursuant to the Escrow Agreement. The
Placement Agents shall
promptly forward each executed Subscription Agreement received to Infosmart
for
acceptance or rejection, together with a schedule setting forth the name and
address of each subscriber and the amount received from each
subscriber.
(c) In
the
event that acceptable subscriptions for $7,000,000 in aggregate principal amount
of the Shares (the “Minimum Amount”) shall not have been received and accepted
by the Placement Agents by the Termination Date, all funds received from
subscribers (if any) shall be returned in full, and the Placement Agents’
agencies and this Agreement shall terminate without obligation on their part
or
on the part of Infosmart or Cyber Merchants.
(d) If,
by
the Termination Date or such earlier time as may be agreed upon by the Placement
Agents and Infosmart, the Placement Agents have received subscriptions for
the
Minimum Amount and such subscriptions have been accepted by Infosmart (in its
sole discretion) and the other conditions to Closing of the Offering have been
satisfied, the Placement Agents shall promptly notify Infosmart in writing
of
the aggregate amount of Shares and Warrants for which the Placement Agents
have
received subscriptions (the “Notice Date”). Payment of the purchase price for
the Shares and Warrants, and delivery, with respect to each subscriber for
the
Shares and Warrants, of a copy of a Subscription Agreement signed by such
subscriber (the “Closing”), shall then be made at such place and time as shall
be agreed upon between the Placement Agents and Infosmart, no later than the
fifth full business day after the Notice Date (the “Closing Date”).
(e) As
compensation for the Placement Agents’ services, Infosmart will pay the
Placement Agents a cash fee (“Fee”) with respect to all subscriptions as to
which the payments and deliveries provided for in this Section 4 are made at
the
Closing Date equal to 8% of
the
gross proceeds from the Offering. Such cash Fees shall be paid to the Placement
Agents, in immediately available funds, pursuant to a mutually agreeable
disbursement schedule provided to Infosmart by the Placement Agents prior to
the
Closing Date.
(f) In
addition, Infosmart agrees to pay the Placement Agents a non-accountable expense
allowance (“Allowance”) equal to 2% of
the
gross proceeds from the Offering. Infosmart will pay Xxxxxxx a $10,000
non-refundable advance against the Allowance at the time the Offering is
commenced. Such Allowance (less any advance previously paid) shall be paid
to
Xxxxxxx, as the Lead Placement Agent, on the Closing Date by bank wire transfer
payable in
-24-
immediately
available funds, and shall be allocated among the Placement Agents as they
may
separately agree.
(g) Infosmart
will
pay
all costs and expenses related to the Offering and/or the performance of
Infosmart’s obligations under this Agreement, including preparation and
distribution of the Memorandum and related documentation, accounting fees,
legal
fees, experts’ fees, consultants’ fees, escrow fees, filing fees with the SEC
and applicable states, any costs and expenses to qualify the Shares and Warrants
for sale in any state, any all costs and expenses for investor or road show
presentations, any and all costs and expenses incurred by the Placement Agents
in connection with the preparation of closing books and post-Closing expenses.
Except for the specific expenses of Placement Agents set forth above, Infosmart
shall not be responsible for any expenses of the Placement Agents or any
Additional Agents (as hereinafter defined) incurred in connection with the
Offering, including, but without limitation, attorneys’ fee, operating expenses,
travel expenses and other incidental expenses incurred by the Placement Agents
or any Additional Agents.
(h) Neither
Xxxxxxx, Axiom, Infosmart, Cyber Merchants nor any Additional Agent (as
hereinafter defined) shall, directly or indirectly, pay or award any finder’s
fees, commissions or other compensation to any person engaged by a potential
investor for investment advice as an inducement to such advisor to advise the
purchase of the Shares and Warrants; provided, however, that normal sales
commissions payable to a registered broker-dealer or other properly licensed
person for selling the Shares and Warrants shall not be prohibited
hereby.
(i) As
additional compensation, Infosmart will issue to the Placement Agents or their
designees on the Closing Date a Common Stock purchase warrant (the “Agent
Warrants”) in substantially the form attached hereto as Exhibit
C
granting
such party the right to purchase from Infosmart for a period commencing after
the Closing Date and ending five years after the Closing Date, a number of
shares of Common Stock equal to 10% of the number of Conversion Shares
underlying the Shares purchased at the Closing. Such Agent Warrants shall be
issued by Infosmart to the Placement Agents in accordance with Xxxxxxx’x
instructions, as Lead Placement Agent, which shall be in accordance with the
Placement Agents’ separate agreement, for an issue price of $0.0001 per warrant.
The Agent Warrants shall be exercisable at an exercise price equaling 125%
of
the conversion price of the Shares. Such Agent Warrants shall not be redeemable
by Infosmart and may be exercised on a cashless or net-issuance basis. Infosmart
hereby grants the same registration rights to the Placement Agents or their
designees with respect to the shares of Common Stock underlying the Agent
Warrants as are granted to Investors with respect to the Warrants as set forth
in this Agreement.
(j) In
connection with the Offering, the Placement Agents will, to the extent within
their control, conduct the Offering in accordance with the applicable provisions
of the Securities Act and Regulation D so as to preserve for Infosmart the
exemption provided by Rule 506 of Regulation D. The Placement Agents agree
not
to offer or sell the Shares and Warrants by means of (i) any means of general
solicitation, including any advertisement, article, notice, or other
communication published in any newspaper, magazine, or similar media or
broadcast over television or radio or (ii) any seminar or meeting, whose
attendees have been invited by any general solicitation or general advertising.
Prior to the sale of any of the Shares and Warrants, the Placement Agents will
have reasonable grounds to believe, and in fact believe, that each subscriber
for the Shares and Warrants is an Accredited Investor. The Placement Agents
agree
-25-
not
to
disclose any material nonpublic information regarding Infosmart to any
subscriber except as such disclosure may be permitted pursuant to Regulation
FD,
is included in the Memorandum or other written information provided to the
Placement Agents by Infosmart, or is otherwise is agreed to in advance by
Infosmart.
(k) In
connection with the performance of its obligations under this Agreement, the
Lead Placement Agent may engage, for the account of Infosmart, the services
of
one or more broker-dealers (“Additional Agents”) who are members of NASD and who
are acceptable to Infosmart, and, as compensation for their services, shall
pay
to such Additional Agents an amount to be negotiated between the Lead Placement
Agent and such Additional Agents. Such amount will be paid to the Additional
Agents by the Lead Placement Agent only out of the cash fees received by you
in
respect of sales of the Shares and Warrants as described in paragraph (e) of
this Section 4, and Infosmart shall have no obligation to any Additional Agents
respecting any such payment. The arrangements, if any, between Infosmart, you,
and any Additional Agent shall be set forth in an Additional Agent Agreement
(“Additional Agent Agreement”), which shall provide, among other things, that
such Additional Agent shall be deemed to have agreed to the matters set forth
herein as if the Additional Agent were a signatory hereof. Nothing contained
in
this Agreement or in the Additional Agent Agreement shall be deemed to
constitute the Additional Agents, if any, as agents of the Lead Placement Agent,
and the Lead Placement Agent shall not be liable to Infosmart in respect of
the
performance by the Additional Agents, if any, of any representations, warranties
or covenants of such Additional Agents contained herein or in the Additional
Agent Agreement.
5. Covenants
and Agreements of Infosmart and Cyber Merchants.
Infosmart and Cyber Merchants severally and not jointly covenant and agree
with
the Placement Agents that:
(a) Except
as
contemplated or described in this Agreement, the Exchange Agreement or in a
public disclosure made prior to the date hereof, neither Infosmart nor Cyber
Merchants will, prior to the Closing Date, incur any material liability or
obligation, direct or contingent, or enter into any material transaction, in
each case, other than in the ordinary course of business. Infosmart nor Cyber
Merchants will, prior to the Closing Date, declare or pay any dividend on its
shares of common or preferred stock or any distribution on its common or
preferred stock payable to stockholders of record on a date prior to the Closing
Date.
(b) Infosmart
will cooperate with the Placement Agents to enable the Shares and Warrants
to be
qualified for sale under the securities laws of such jurisdictions as the
Placement Agents may designate, subject to approval by Infosmart, and at the
Placement Agents’ request will make such applications and furnish such
information as may be required of it for that purpose; provided, however, that
the Placement Agents and Infosmart shall first determine whether an exemption
from registration other than the Uniform Limited Offering Exemption (ULOE)
or a
similar exemption is available in each such jurisdiction and Infosmart shall
not
be required to qualify to do business or to file a general consent to service
of
process in any such jurisdiction or to subject itself to taxation. Infosmart
will, from time to time, prepare and file all applications, forms and documents
required in each jurisdiction where the Shares and Warrants are to be qualified
or registered or qualified or offered in an exempt transaction under the state
securities laws, and Infosmart will continue such qualifications in effect
for
so long a period as the Placement Agents may reasonably request for the
distribution of the Shares and Warrants.
-26-
Infosmart
shall provide the Placement Agents with copies of all applications, forms and
documents filed in each jurisdiction.
(c) Infosmart
will make available to the Placement Agents and each purchaser of the Shares
and
Warrants at a reasonable time prior to the Closing Date the opportunity to
ask
questions and receive answers concerning the terms and conditions of the
Offering and to obtain any additional information that Infosmart possesses
or
can acquire without unreasonable effort or expense that is necessary to verify
the accuracy of any information in the Memorandum, the Exchange Act Documents
or
otherwise furnished by Infosmart to the Placement Agents or any purchaser of
the
Shares and Warrants; provided, however, that Infosmart shall not be required
to
disclose any material nonpublic information to any purchaser of the Shares
and
Warrants.
(d) Infosmart
or its counsel will prepare and file a Form D (and any and all amendments or
supplements thereto) with the SEC in timely manner and deliver copies thereof
to
the Placement Agents, together with copies of all forms (including without
limitation, Form Ds) and other documents and/or materials filed either before
or
after the Closing, and comply with Regulation D and all applicable state Blue
Sky laws and make any fillings required by the SEC and state securities
authorities in a timely manner.
(e) Infosmart
will not offer or sell any securities of Infosmart that are of the same or
a
similar class as the Shares and Warrants for a period of six months after the
Closing Date, other than those offers or sales of securities under an employee
benefit plan as defined in Rule 405 under the Securities Act, in connection
with
options, warrants, or convertible securities outstanding as of the Closing
Date,
or in connection with an acquisition of assets or another business by Infosmart,
if such offering will be integrated with the Offering of the Shares and Warrants
pursuant to this Agreement for purposes of the exemptions under Regulation
D, so
as to invalidate the exemption from registration relied on to offer and sell
the
Shares and Warrants.
(f) For
a
period of at least 24 months following the Closing Date, Infosmart will maintain
the registration of Cyber Merchants’ common stock under Section 12 of the
Exchange Act so long as the Exchange Act requires it to be so registered, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or
not
permitted by the Exchange Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Act unless required to do so by the Exchange
Act.
(g) Infosmart
shall prepare and file with the OTC BB an additional shares listing application
covering the shares of common stock issuable upon conversion of the Shares
and
exercise of the Warrants and Agent Warrants and take all steps necessary to
cause such shares to be approved for listing as soon as practicable
thereafter.
(h) For
a
period of at least 24 months following the Closing Date, Infosmart will use
its
best efforts (i) to timely file all reports required to be filed by Cyber
Merchants under the Securities Act and the Exchange Act (including the reports
pursuant to Section 13(a) or 15(d) of the Exchange Act referred to in
subparagraph (c)(1) of Rule 144) and the rules and regulations adopted by the
Commission thereunder), (ii) if Cyber Merchants is not required to file reports
pursuant to such sections, Infosmart will prepare and furnish to the purchasers
of the Shares and Warrants and make publicly available in accordance with Rule
144(c) such information as is
-27-
required
for the purchasers to sell the shares underlying the Shares and Warrants under
Rule 144, and (iii) to take such further action as any holder of the Shares
and
Warrants may reasonably request, all to the extent required from time to time
to
enable the purchasers to sell shares underlying the Shares and Warrants without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144, including causing its attorneys to issue and deliver
any
appropriate legal opinion required to permit a purchaser to sell shares
underlying the Shares and Warrants under Rule 144 upon receipt of appropriate
documentation relating to such sale.
(i) Infosmart
and Cyber Merchants shall use commercially reasonable efforts to consummate
the
Transactions.
6. Memorandum.
Infosmart warrants and represents to the Placement Agents that the Memorandum,
and any amendments or supplements thereto, as of the date hereof, and at all
subsequent times through the Closing, together with all other information
concerning Infosmart provided to the Placement Agents in connection with the
Offering, shall in all material respects conform to all applicable provisions
of
the Securities Act, the rules and regulations under the Securities Act and
state
securities laws, and shall not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to
make the statements therein not misleading
7. Indemnification
and Contribution.
(a) Infosmart
agrees to indemnify and hold harmless Xxxxxxx, Axiom, each Additional Agent,
and
each person, if any, who controls Xxxxxxx, Axiom or such Additional Agent within
the meaning of the Securities Act (the “Indemnified Parties”), along with the
agents and advisors of such Indemnified Parties, against any losses, claims,
damages, liabilities, or expenses (including, unless Infosmart elects to assume
the defense as hereinafter provided, the reasonable cost of investigating and
defending against any claims therefor and counsel fees incurred in connection
therewith), joint or several, which arise out of Infosmart’s breach of a
representation or warranty or covenant or agreement contained in this Agreement
(it being understood that in the event the Transactions are not completed,
Infosmart shall not provide any indemnity or contribution with respect to
breaches by Cyber Merchants); provided that in no case is Infosmart to be liable
with respect to any claims made against Xxxxxxx, Axiom, such Additional Agent,
or any such controlling person unless Xxxxxxx, Axiom, such Additional Agent,
or
such controlling person shall have notified Infosmart in writing promptly after
the summons or other first legal process giving information of the nature of
the
claim shall have been served upon it, but failure to notify Infosmart of any
such claim shall not relieve it from any liability that it may have to such
party otherwise than on account of the indemnity agreement contained in this
paragraph. Infosmart will be entitled to participate at its own expense in
the
defense, or if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if Infosmart elects to assume the defense,
such
defense shall be conducted by counsel chosen by it and reasonably acceptable
to
the indemnified parties. In the event Infosmart elects to assume the defense of
any such suit and retain such counsel, Xxxxxxx, Axiom, such Additional Agent,
or
such controlling person or persons, defendant or defendants in the suit, may
retain additional counsel but shall bear the fees and expenses of such counsel
unless (i) Infosmart shall have specifically authorized the retaining of
such counsel or (ii) the parties to such suit include Xxxxxxx, Axiom, such
Additional Agent, or such controlling person or persons, and
Infosmart
-28-
and
Xxxxxxx, Axiom, such Additional Agent, or such controlling person or persons
have been advised by counsel that one or more material legal defenses may be
available to Xxxxxxx, Axiom, such Additional Agent, or them that may not be
available to Infosmart in which case Infosmart shall not be entitled to assume
the defense of such suit notwithstanding its obligation to bear the reasonable
fees and expenses of such counsel. In no event shall Infosmart be liable for
the
fees and expenses of more than one counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in
the
same jurisdiction arising out of the same general allegations or circumstances.
Infosmart shall not be required to indemnify any person for any settlement
of
any such claim effected without Infosmart’s consent, which shall not be
unreasonably withheld. Infosmart shall not, without an indemnified party’s
consent, consent to the entry of any judgment or enter into any settlement
that
does not include as an unconditional term thereof, the giving by the claimant
or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or litigation. This indemnification obligation will be in addition
to any primary liability that Infosmart might otherwise have.
(b) Xxxxxxx,
Axiom and each Additional Agent agrees to indemnify and hold harmless Infosmart,
each of Infosmart’s officers, directors, and each other person, if any, who
controls Infosmart within the meaning of the Securities Act, against any losses,
claims, damages, liabilities, or expenses (including, unless Xxxxxxx, Axiom
or
such Additional Agent elects to assume the defense, the reasonable cost of
investigating and defending against any claims therefor and counsel fees
incurred in connection therewith), joint or several, which (i) arise out of
any
untrue statement of a material fact with respect to Infosmart made by Xxxxxxx,
Axiom or such Additional Agent to any purchaser of Shares and Warrants not
contained in an Exchange Act Document, the Memorandum or other written material
provided to Xxxxxxx, Axiom or such Additional Agent by Infosmart, (ii) arise
out
of any acts or omissions by Xxxxxxx, Axiom, any Additional Agent, or any
purchaser of the Shares or Warrants that cause the offering to involve a public
offering under the Securities Act or such party’s failure to be properly
licensed to sell the Shares or Warrants, or (iii) arise out of such party’s
breach of a representation or warranty or covenant or agreement contained in
this Agreement; provided, however, that in no case are Xxxxxxx, Axiom or any
Additional Agent to be liable with respect to any claims made against Infosmart
or any such person against whom the action is brought unless Infosmart or such
person shall have notified Xxxxxxx, Axiom or such Additional Agent, as the
case
may be, in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon Infosmart or such person, but failure to provide such notification
shall not relieve Xxxxxxx, Axiom or such Additional Agent from any liability
that Xxxxxxx, Axiom or such Additional Agent may have to Infosmart or such
person otherwise than on account of the indemnity agreement contained in this
paragraph. Xxxxxxx, Axiom or such Additional Agent shall be entitled to
participate at its expense in the defense, or if Xxxxxxx, Axiom or such
Additional Agent so elect, to assume the defense of any suit brought to enforce
any such liability, but, if Xxxxxxx, Axiom or such Additional Agent elect to
assume the defense, counsel chosen by Xxxxxxx, Axiom or such Additional Agent
and reasonably acceptable to Infosmart shall conduct such defense. In the event
that Xxxxxxx, Axiom or such Additional Agent elect to assume the defense of
any
such suit and retain such counsel, Infosmart, said officers and directors and
any person or persons, defendant or defendants in the suit, may retain
additional counsel but shall bear the fees and expenses of such counsel unless
(i) the indemnifying parties shall have specifically authorized the retaining
of
such counsel or (ii) the parties to such suit include Xxxxxxx, Axiom, such
Additional Agent, or such controlling person or
-29-
persons,
and Infosmart and Xxxxxxx, Axiom, such Additional Agent, or such controlling
person or persons have been advised by counsel that one or more material legal
defenses may be available to Infosmart that may not be available to Xxxxxxx,
Axiom or them in which case the indemnifying party parties not be entitled
to
assume the defense of such suit notwithstanding their obligation to bear the
reasonable fees and expenses of such counsel. Xxxxxxx, Axiom or such Additional
Agent shall not be liable to indemnify any person for any settlement of any
such
claim effected without its consent which consent shall not be unreasonably
withheld. Xxxxxxx, Axiom or an Additional Agent shall not, without the consent
of Infosmart, consent to entry of any judgment or enter into any settlement
that
does not include as an unconditional term thereof, the giving by the claimant
or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or litigation. This indemnification obligation will be in addition
to any primary liability that Xxxxxxx, Axiom or any Additional Agent might
otherwise have.
(c) If
the
indemnification provided for in this Section 7 is unavailable, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities
or
expenses (or actions in respect thereof) in such proportion as is appropriate
to
reflect not only the relative benefits received by Infosmart on one hand and
Xxxxxxx, Axiom and the Additional Agents, if any, on the other from the
Offering, but also the relative fault of Infosmart on the one hand and Xxxxxxx,
Axiom and the Additional Agents, if any, on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities, or expenses (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by Infosmart
on the one hand and Xxxxxxx, Axiom and the Additional Agents, if any, on the
other, shall be deemed to be in the same proportion as the total gross proceeds
from the Offering (before deducting expenses) received by Infosmart, bear to
the
total cash fees received by Xxxxxxx, Axiom and the Additional Agents, if any,
pursuant to Section 4(e) and the value of the Agent Warrant issued to Xxxxxxx,
Axiom and the Additional Agents, if any, pursuant to Section 4(i). The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by Infosmart,
Xxxxxxx, Axiom, or an Additional Agent, the party’s relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or
omission, and whether a party breached a representation or warranty or covenant
or agreement contained in this Agreement. Infosmart and Xxxxxxx, Axiom and
the
Additional Agents agree that it would not be just and equitable if contribution
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to above.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or expenses (or actions in respect thereof)
referred to above shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
8. Survival
of Indemnities, Representations, Warranties, etc.
The
respective representations and warranties of Xxxxxxx, Axiom and Infosmart as
set
forth in this Agreement or made by them respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of Xxxxxxx, Axiom, Infosmart, or any of
the
officers or directors of Infosmart or any controlling person, and shall survive
delivery of and payment for
-30-
the
Shares and Warrants for a period ending on the date two years subsequent to
the
Closing Date.
9. Conditions
of Xxxxxxx’x Obligations.
The
Placement Agents’ obligations hereunder are subject to: (i) the accuracy in all
material respects at and (except as otherwise stated herein) as of the date
hereof, of the representations and warranties made by Infosmart in Sections
2(a)
and 6; (ii) the accuracy in all material respects at and (except as otherwise
stated herein) as of the Closing Date, of the representations and warranties
made by Infosmart and Cyber Merchants in Sections 2(a), 2(b) and 6; (iii) the
compliance in all material respects at and as of the Closing Date by Infosmart
and Cyber Merchants with its covenants and agreements herein contained and
other
provisions hereof to be satisfied at or prior to the Closing Date; and (iv)
the
following additional conditions:
(a) The
Transactions shall have been consummated.
(b) The
Placement Agents shall have received a certificate, dated the Closing Date,
on
behalf of Cyber Merchants by the Chief Executive Officer or the President and
the Chief Financial or Accounting Officer of Cyber Merchants to the effect
that:
(i) The
representations and warranties in Sections 2(a), 2(b) and 6 are true and correct
in all material respects at and as of the Closing Date, and Infosmart and Cyber
Merchants has complied with all the agreements and satisfied in all material
respects all the conditions on its part to be performed or satisfied at or
prior
to the Closing Date;
(ii) The
Transactions have been consummated;
(iii) The
representations and warranties of Cyber Merchants contained in each subscription
agreement entered into with an Investor are true and correct in all material
respects as of the date of such certificate, except to the extent any such
representation or warranty was expressly made as of any other date, in which
case such representation and warranty was true and correct in all material
respects as of such other date;
(iv) Between
the date of this Agreement and the Closing Date, no litigation has been
instituted or, to the knowledge of Cyber Merchants, threatened against Infosmart
or Cyber Merchants; and
(v) Between
the date of this Agreement and the Closing Date, there has not been any material
adverse change in the financial condition, business, or results of operations
of
Infosmart or Cyber Merchants.
(c) The
Certificate of Determination for the Series B Preferred Stock shall have been
filed with the Secretary of State of the State of California and be
effective.
(d) Cyber
Merchants shall have entered into the Registration Rights Agreement with the
Investors.
(e) Cyber
Merchants shall have accepted subscriptions in such amount as mutually
determined by Cyber Merchants and Xxxxxxx, but not less than the Minimum
Amount.
-31-
(f) The
conditions set forth in subscription agreement between Cyber Merchants and
each
Investor shall have been satisfied.
(g) The
Placement Agents shall have received an opinion of Cyber Merchants’ U.S.
counsel, as to matters reasonably requested by Xxxxxxx.
(h) Cyber
Merchants shall have filed the Proxy/Information Statement contemplated by
the
Exchange Agreement with the SEC.
(i) Cyber
Merchants shall have delivered a Voting Agreement executed by each of KI Equity
and the Shareholders, substantially in the form attached to the Exchange
Agreement.
(j) Cyber
Merchants shall have obtained all consents, waivers and approvals required
in
connection with the consummation of the transactions contemplated by the
Offering, other than consents, waivers and approvals the absence of which,
either alone or in the aggregate could not reasonably be expected to have a
Material Adverse Effect on Cyber Merchants.
(k) Immediately
prior to Closing, Cyber Merchants shall be in compliance with the reporting
requirements under the Exchange Act and shall be quoted on the OTC
BB.
If
any of
the conditions provided for in this Section 9 shall not have been satisfied
when
and as required by this Agreement, this Agreement may be terminated by the
Placement Agents by notifying Infosmart of such termination in writing at or
prior to the Closing Date, but the Placement Agents shall be entitled to waive
any of such conditions.
10. Effective
Date.
This
Agreement shall become effective at 11:00 A.M., Denver time, on the date hereof
(the “Effective Time”).
11. Termination.
In the
event of any termination of this Agreement under this or any other provision
of
this Agreement, there shall be no liability of any party to this Agreement
to
any other party, other than as provided in Sections 7 and 8, and this Section
11. This Agreement may be terminated after the Effective Time by (a) Infosmart
for any reason by notice to the Placement Agents, and (b) the Placement
Agents by notice to Infosmart (i) if, Infosmart shall materially breach any
of
its representations and warranties in this Agreement or shall fail to fulfill
its covenants and agreements contained in this Agreement; (ii) if at or prior
to
the Closing Date there shall have been a material escalation of hostilities
between the United States and any foreign country (other than Iraq), or any
other material insurrection or armed conflict involving the United States which,
in the reasonable judgment of Xxxxxxx, as Lead Placement Agent, after
consultation with Infosmart, makes it impracticable or inadvisable to offer
or
sell the Share and Warrants; or (iii) if there shall be any material litigation
or regulatory action, pending or threatened against or involving Infosmart,
which, in the reasonable judgment of Xxxxxxx, as Lead Placement Agent, after
consultation with Infosmart, makes it impracticable or inadvisable to offer
or
deliver the Shares and Warrants on the terms contemplated by this
Agreement.
If,
and
only if, Infosmart terminates this Agreement after it becomes effective for
any
reason (other than Xxxxxxx’x or Axiom’s material failure to comply with its
obligations under this Agreement or material breach of its representations
and
warranties) or the Offering fails to close because of Infosmart’s breach of any
representations or warranties contained in this Agreement
-32-
or
Infosmart’s failure to fulfill its covenants and agreements contained in this
Agreement, Infosmart shall pay the Placement Agents their actual out-of-pocket
expenses incurred (less than amount of the advance of the Allowance paid under
Section 4(f)).
12. Agreement
Concerning Disclosure of Information.
The
Placement Agents agree to treat confidentially any information that is furnished
to such parties (or to parties acting on their behalf) by or on behalf of
Infosmart (the “Information”) until such time as such Information is disclosed
to the public (including disclosures in SEC filings). The Placement Agents
agree
that they will use the Information only for the purposes related to a
determination of your willingness to act as exclusive selling agents pursuant
to
this Agreement, and that the Information will be kept confidential by them
and
their partners, members, managers, officers, directors, employees, agents,
and
other affiliates (collectively, the “Affiliates”), and their attorneys and
accountants (collectively, the “Professionals”), and that the Placement Agents,
such Affiliates, or Professionals will not disclose the Information to any
Investor or other person; provided, however, that the Information may be
disclosed to (a) Additional Agents, Affiliates and Professionals who need to
know such Information for the purpose of evaluating or providing services in
connection with the Placement Agents and their clients’ investment in Infosmart;
provided such parties agree to be bound by this undertaking, (b) to any federal
or state regulatory agency and their employees, agents, and attorneys
(collectively, “Regulators”) for the purpose of making any filings with
Regulators if disclosure of such Information is required by law (provided that
you advise Infosmart in writing of the Information to be so disclosed within
a
reasonable time prior to such filing), and (c) any other person to which
Infosmart consents in writing prior to any such disclosure.
In
the
event that either of the Placement Agents are requested or required (by oral
questions, documents, subpoena, civil investigation, demand, interrogatories,
request for information, or other similar process) to disclose to any person
or
entity any information supplied to such party, Additional Agents, its
Affiliates, or its Professionals in the course of their dealings with Infosmart
or their respective representatives, such Placement Agent agrees that it will
provide Infosmart with prompt notice of such request(s) within a reasonable
time
prior to such disclosure so that Infosmart may seek an appropriate protective
order and/or waiver of compliance with the provisions of this Agreement. It
is
further agreed that, if a protective order is not obtained, or a waiver is
not
granted hereunder, and such Placement Agent is nonetheless, in the written
opinion of counsel, compelled to disclose information concerning Infosmart
to
any tribunal or else stand liable for contempt or suffer the censure or penalty,
such Placement Agent may disclose such information to such tribunal without
liability hereunder. Prior to making such disclosure, such Placement Agent
shall
deliver a written opinion of its counsel to Infosmart’s counsel that disclosure
is compelled by law. Such Placement Agent will exercise its best efforts to
obtain a protective order or other reliable assurance that confidential
treatment will be accorded the Information.
Before
Infosmart releases any information referring to the Placement Agents’ role under
this Offering or uses the Placement Agents’ name in a manner which may result in
public dissemination thereof, Infosmart shall furnish drafts of all documents
or
prepared oral statements to the Placement Agents for comments, and shall not
release any information relating thereto without the prior written consent
of
the Placement Agents. Nothing herein shall prevent Infosmart from releasing
any
information to the extent that such release is required by law, rule or
regulation.
-33-
13. Notices.
All
notices or other communications that are required or permitted under this
Agreement shall be in writing and sufficient if delivered by hand, by facsimile
transmission, by registered or certified mail, postage pre-paid, by electronic
mail, or by courier or overnight carrier, to the persons at the addresses set
forth below (or at such other address as any party shall have furnished to
the
other parties in writing),
and
shall be deemed to have been delivered as of the date so delivered:
If
to
Infosmart:
Xxxx
Xxxx
Infosmart
Group Limited
5th
Floor,
QPL Industrial Xxxxxxxx
000-000
Xxxxxx Xxxx
Xxxxx
Xxx, Xxxx Xxxx
(000)
0000-0000 telephone
(000)
0000-0000 telecopy
with
a
copy to:
Xxxxxxxxxx
& Xxxxx LLP
00000
Xxxxxxxx Xxxx., Xxxxx 000
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
Attn:
Xxxxx X. Xxxxx, Esq.
(000)
000-0000 telephone
(000)
000-0000 telecopy
If
to
Xxxxxxx:
Xxxxxxx
Securities, LLC
0000
XXX
Xxxxxxx, Xxxxx 0000
Xxxxxxxxx
Xxxxxxx, XX 00000
Attn:
Xxxxxxx X. Xxxxxxx
(720)
889
-0131 telephone
(000)
000-0000 telecopy
If
to
Axiom:
Axiom
Capital Management, Inc.
000
Xxxxx
Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx,
XX 00000-0000
Attn:
Xxxx X. Xxxxxxx
(000)
000-0000 telephone
(000)
000-0000 telecopy
with
a
copy to:
Xxxxxxxx
Xxxxx & Deutsch LLP
000
Xxxxx
Xxxxxx
Xxx
Xxxx,
XX 00000
Attn:
Xxxx X. Deutsch, Esq.
(000)
000-0000 telephone
(000)
000-0000 telecopy
14. Successors.
This
Agreement shall inure to the benefit of and be binding upon the Placement
Agents, and Additional Agents, Infosmart, Cyber Merchants and their respective
successors and legal representatives, except that neither Infosmart nor the
Placement Agents may assign or transfer any of its or their rights or
obligations under this Agreement without the prior written consent of the other;
provided, however, that upon consummation of the Transactions,
-34-
Cyber
Merchants shall assume all of the rights and obligations of Infosmart under
this
Agreement without the need for further consent of the parties. Nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
person other than the persons mentioned in the preceding sentence any legal
or
equitable right, remedy or claim under or in respect of this Agreement, or
any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of
such
persons and for the benefit of no other person; except that the indemnities
of
Infosmart contained in this Agreement shall also be for the benefit of the
person or persons, if any, who control the Placement Agents or any Additional
Agents within the meaning of Section 15 of the Securities Act, and the Placement
Agents’ and any Additional Agent’s indemnities shall also be for the benefit of
each officer and director of Infosmart and the person or persons, if any, who
control Infosmart within the meaning of Section 15 of the Securities
Act.
15. Applicable
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of California. Any judicial proceeding brought against either of the
parties to this agreement or any dispute arising out of this Agreement or any
matter related hereto may be brought in the courts of the State of California
or
in the United States District Court located in Los Angeles, California and,
by
its execution and delivery of this agreement, each party to this Agreement
accepts the jurisdiction of such courts. The foregoing consent to jurisdiction
shall not be deemed to confer rights on any person other than the parties to
this Agreement. The prevailing party in any such litigation shall be entitled
to
receive from the losing party or parties all costs and expenses, including
reasonable attorney fees, incurred by the prevailing party.
16. Miscellaneous
Provisions.
(a) Severability.
If any
portion of this Agreement shall be held invalid or inoperative, then, so far
as
is reasonable and possible (i) the remainder of this Agreement shall be
considered valid and operative, and (ii) effect shall be given to the intent
manifested by the portion held invalid or inoperative.
(b) Modification
or Amendment.
This
Agreement may not be modified or amended except by written agreement executed
by
the parties hereto.
(c) Number
and Gender of Words.
Whenever the contest so requires, the masculine shall include the feminine
and
neuter, and the singular shall include the plural, and conversely.
(d) Other
Instruments; Counterparts.
The
parties hereto covenant and agree that they will execute such other and further
instruments and documents are or may become necessary or convenient to effect
and carry out the terms of this Agreement. This Agreement may be executed by
facsimile signatures and in multiple counterparts, each of which shall be deemed
an original. It shall not be necessary that each party executes each
counterpart, or that any one counterpart be executed by more than one party
so
long as each party executes at least one counterpart.
(e) No
Partnership.
Neither
of the Placement Agents is a principal of or a partner with, or does not control
in any way, Infosmart or its employees or agents.
-35-
(f) Entire
Agreement.
This
Agreement contains the entire understanding between the parties and supersedes
any prior understandings or written or oral agreements between them respecting
the subject matter hereof.
[Signatures
on following page]
-36-
If
the
foregoing correctly sets forth our understanding please indicate your acceptance
thereof in the space provided below for that purpose, whereupon this letter
and
your acceptance shall constitute a binding agreement between us.
Very
truly yours,
INFOSMART
GROUP LIMITED
By:
/s/ Xxxx Xxxx
Xxxx
Xxxx, CEO
Accepted
and agreed:
XXXXXXX
SECURITIES, LLC
By:
/s/ Xxxxxxx X. Xxxxxxx
Xxxxxxx
X. Xxxxxxx, President
AXIOM
CAPITAL MANAGEMENT, INC.
By:
/s/ Xxxx X. Xxxxxxx
Xxxx
X.
Xxxxxxx, President
EXHIBIT
A
SUBSCRIPTION
AGREEMENT
EXHIBIT
B
REGISTRATION
RIGHTS AGREEMENT
EXHIBIT
C
FORM
OF AGENT WARRANT
DISCLOSURE
SCHEDULES
TO
PLACEMENT
AGREEMENT