AGREEMENT AND PLAN OF MERGER
BY AND AMONG
REFLECT SCIENTIFIC, INC. AND
IMAGE ACQUISITION CORP.
AND
XXXXXXXXX AND ASSOCIATES, INC. dba Image Labs International AND XXXXX
XXXXXXXXX
November 15, 2006
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is dated as of
November 15, by and among Reflect Scientific, Inc. a Utah corporation
("Parent"); Image Acquisition Corp., a Georgia corporation and wholly-owned
subsidiary of Parent ("Merger Subsidiary"); Xxxxxxxxx and Associates, Inc. dba
Image Labs International, a Georgia corporation qualified to do business as a
foreign corporation in Montana (the "Company"); and Xxxxx Xxxxxxxxx
("Xxxxxxxxx") the Company's sole shareholder (the "Company Shareholder").
WHEREAS, the Company is a manufacturer and developer of factory
automation equipment (the "Business"); and
WHEREAS, the Boards of Directors of Parent, Merger Subsidiary and the
Company, and the shareholders of Merger Subsidiary and the Company, have
approved the merger of the Merger Subsidiary with and into the Company (the
"Merger") upon the terms and subject to the conditions set forth herein; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization within the meaning of Section 368(a)(1)(A)
and (a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code");
and
WHEREAS, the parties hereto desire to make certain representations,
warranties, and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants, and agreements contained
herein, the parties hereto agree as follows:
ARTICLE 1
THE MERGER; CONVERSION OF SHARES
1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.2 hereof), the
Merger Subsidiary will be merged with and into the Company in accordance with
the provisions of the Georgia Business Corporation Code (the "Georgia Code"),
whereupon the separate corporate existence of the Merger Subsidiary will
cease, and the Company will continue as the surviving corporation
(the "Surviving Corporation"). From and after the Effective Time, the
Surviving Corporation will possess all the rights, privileges, powers and
franchises and be subject to all the restrictions, disabilities and duties of
the Company and Merger Subsidiary, all as more fully described in the Georgia
Code.
1.2 Effective Time. As soon as practicable after each of the
conditions set forth in Article 5 and Article 6 has been satisfied or waived,
the Company and Merger Subsidiary will file, or cause to be filed, with the
Secretary of State of the State of Georgia, an Agreement of Merger for the
Merger, which Agreement of Merger will be in the form required by and executed
in accordance with the applicable provisions of the Georgia Code. The Merger
will become effective at the time such filing is made or, if agreed to by
Parent, Merger Subsidiary and the Company, such later time or date set forth
in the Agreement of Merger (the "Effective Time").
1.3 Closing.
(a) Unless this Agreement has been terminated and the
transactions contemplated herein have been abandoned pursuant to Article
7 hereof, the closing of the Merger (the "Closing") will take place at a
time and on a date (the "Closing Date") to be specified by the parties,
which will be no later than December 31, 2006 (the "Termination Date"),
unless mutually agreed otherwise in writing; provided, however, that all
of the conditions provided for in Articles 5 and 6 hereof shall have
been satisfied or waived by such date. The Closing will be held at the
offices of Xxxxxxxxxx & Xxxxxxxxxx, Xxxxx 000, 455 East 000 Xxxxx
Xxxxxx, Xxxx Xxxx Xxxx, Xxxx 00000, or such other place as the parties
may agree, at which time and place the documents and instruments
necessary or appropriate to effect the transactions contemplated herein
will be exchanged by the parties. Except as otherwise provided herein,
all actions taken at the Closing will be deemed to have been taken
simultaneously.
(b) At the Closing, Parent shall issue and exchange with the
Company Shareholder as consideration for all shares of Company Common
Stock (as defined in Section (1.4(a)), 525,000 shares of Parent Common
Stock (as defined in Section (1.4(a)) (the "Merger Consideration" as
defined in Section 1.4(a)). The shares of Parent Common Stock
referenced in this Agreement and exchangeable with the Company
Shareholder shall be "restricted securities" as defined in Rule 144 of
the Securities and Exchange Commission (the "SEC"). Parent shall assume
no Company debt owed to the Company Shareholder. Parent shall pay to the
Company Shareholder $200,000 by wire in accordance with the wiring
information set forth in Section 8.6. Parent shall be able to
demonstrate to the satisfaction of Company Shareholder that it has
raised or is in the process of raising approximately $1,000,000 in cash
funding to support the Catpro Business Segment owned by the Company and
to be operated as a separate division within the Company as a wholly-
owned subsidiary of the Parent.
(c) Additional Consideration. As further consideration for the
Merger, Parent shall (i) pay the Company Shareholder a 2.5% Running
Earnout Purchase Price (the "Running EOPP") as a contingent purchase
price based upon the gross revenues earned after Closing by the
Company's "Manufacturing," "Value Added Re-sales" and "Custom
Engineering" business segments (the "PP Business Segments"), excluded,
without qualification, for the purpose of calculating revenues on which
Running EOPP is payable, are any revenues produced by the Company's
"Catpro" business segment (the "Catpro Business Segment"). The Running
EOPP shall be paid quarterly within 45 days days of the end of each
quarter so long as Parent owns and operates the PP Business Segments of
the Company and in the event of a sale or merger of the PP Business
Segments, the Running EOPP obligation shall remain an integral part of
the PP Business Segments, the Running EOPP shall be paid to Company
Shareholder for the period of his life by the owner of the PP Business
Segments; and (ii) the Parent shall pay quarterly a 2.5% Performance
Contingent Purchase Price (the 'Performance CPP') based upon the
performance of the PP Business Segments in the prior quarter provided
the PP Business Segments achieve an Earnings Before Interest and Taxes
("EBIT" as defined below) of 10% in the relevant quarter. Performance
CPP shall be paid within 45 days following the quarter and shall be paid
so long as the Parent owns and operates the PP Business Segments and so
long as the Company Shareholder remains an employee of the Parent. Late
payments of Running EOPP or Performance CPP shall bear interest at the
lesser of the prime rate as listed in the Wall Street Journal, Western
Edition plus 6 percentage points or eighteen percent (18%).
(i) Audit Rights. Parent shall maintain complete and accurate
financial and other records necessary to comply with this
Section 1.3(c). Parent shall submit written reports on a
quarterly basis to the Company Shareholder. The Company
Shareholder shall have the right to, through independent
accountants of his own choosing and at his own expense,
audit the financial and other records of the Parent at
reasonable times, at least once per fiscal year, to
determine compliance with this Section 1.3(c). In the event
such audit reveals that Parent has not accurately or
adequately complied with this Section 1.3(c), the costs of
said audit shall be borne by Parent and the maximum amount
payable under Section 1.3(c) above, shall become immediately
due and payable.
(ii) The Company Shareholder is a third party beneficiary with
respect to Section 1.3(c) of this Agreement with full rights
to enforce this Section of the Agreement against Parent to
his benefit.
(iii)Parent shall use its reasonable efforts to support the
Business.
(iv) Notwithstanding anything contained in this Agreement to the
contrary, the obligations of this Section 1.3(c) shall
survive the termination of this Agreement, provided Parent
still owns the Business.
(v) For purposes of the Performance CPP minimum EBIT threshold,
EBIT shall be defined as Earnings Before Interest and State &
Federal Income Taxes calculated according to the following
clarifications and specificities.
The Earnings of the PP Business Segments shall be calculated
in accordance with GAAP as GAAP Net Income, consistent with
the historical practices of the Company.
The following shall be added back to EBIT (without
duplication) to the extent they are included as expenses
therein. Expenses are not to include commissions paid to
brokers in connection with the sale of the business.
* all expenses which are expensed, whether immediately
or after having been capitalized by the Company,
relating specifically to the acquisition contemplated
hereunder, including, without limitation, expenses in
connection with any acquisition indebtedness and any
refinancing of such indebtedness and interest expense
incurred on acquisition indebtedness;
* amortization expenses relating to the consummation of
the transactions contemplated hereunder and any
non-compete fee expensed in connection with the
transaction;
* any additional depreciation, amortization or other
expenses resulting from the write-up of, or the change
in the depreciation schedules used with respect to,
any assets (including without limitation goodwill and
other intangibles) acquired hereunder or in any
acquisition by the Company after the Closing;
* all legal, accounting, financial, actuarial, and other
fees and expenses incurred by the Company in
connection with the calculation of the Running EOPP or
Performance CPP;
* all Running EOPP and Performance CPP paid pursuant to
1.3(c)(ii) above
* any employment-related costs associated with personnel
required by the Parent or any of Parent's affiliates
(other than the Company) to be employed by the Company
that the Company would not otherwise have employed;
* any employee termination or other costs arising out of
a consolidation of services or facilities or other
rationalization of the Company subsequent to the
acquisition contemplated hereunder by the Company that
the Company would not otherwise have initiated or that
does not result in a net increase in EBIT
* the amount by which the EBIT have been reduced as a
result of the making of any loan by the Company to the
Parent or any of Parent's affiliates or otherwise
required by Parent, or any guaranty or indemnity given
by the Company for the obligations of third parties,
except to the extent such guarantees or indemnities
were given in the ordinary course of the Company's
business;
* any other payment or liability of the Company incurred
by the Company at the direction of the Parent or any
of Parent's affiliates (other than the Company) made
or created other than in the bona fide interest of
increasing the EBIT of the Company; and
* any Parent administrative or corporate overhead
charges to the Company. However, any expenses that are
initiated by the PP Business Segments to the Parent
for support of its business operation or any other
expenses that the Company Shareholder and Parent
mutually agree are required to support the PP Business
Segments shall be included.
Any dispute arising out of the calculation of EBIT and
adjustments thereof shall be settled by arbitration through
the use of an independent accounting firm acceptable to both
parties who shall share the costs equally.
Attached hereto as Exhibit 1.3(c) is a sample of how EBIT
will be calculated, subject to the provisions of this
paragraph.
(d) Further Covenants.
(i) Parent will provide approximately $1,000,000 to support the
post-Merger Catpro Business Segment, as outlined in Section
6.10.
(ii) Parent will appoint Xxxxxxxxx and Xxxx Xxxxxxx, both of whom
are to be employed by Parent as provided in Section 6.4(c)
and (d), respectively, as a condition to the Closing of the
Merger, to the Parent's steering committee.
(iii)Parent will use reasonable efforts to seek continued funding
of its consolidated operations to support additional related
business opportunities.
(iv) The Company and Xxxxxxxxx shall guarantee at Closing that
the Company has $115,000 in inventory, $25,000 in cash in
the Company's business account to be utilized for continuing
Company Business operations or work in progress. In
addition, Xxxxxxxxx shall guarantee that the Company has the
unused balance of Customer Deposits available and that the
Company has no liabilities of any type or nature whatsoever
at Closing other than the corresponding liability for the
Customer Deposit.
(v) Xxxxxxxxx shall retain all Company accounts receivable and
prepaid expenses, and shall personally assume and pay all
liabilities of the Company of any type or nature whatsoever
existing at Closing, including but not limited to payroll
liability to the date of Closing, provided, however, that
Parent will assume the liability related to the Customer
Deposit. Xxxxxxxxx shall retain future benefit of WIP (net
of Cost in Excess of Billing less Billing in Excess of
Costs). See Exhibit 1.3(d)(v) for example of Balance Sheet
showing split. Xxxxxxxxx shall receive those WIP amounts
upon billing and receipt from customer to be adjusted by WIP
Adjustment Schedule as described in 1.3(d)(vi).
(vi)The Company Shareholder and Parent shall prepare within
thirty (30) days after the Closing Date a schedule, which
identifies all of the Company's existing long-term contracts
that are being accounted for by percentage of completion
methods as of the Closing Date ("WIP"). This Schedule shall
be referred to as the "WIP Schedule" and shall identify,
with respect to each contract identified thereon (each a
"WIP Contract"), the contract amount, the estimated total
costs and gross profit, the amounts billed to date, the
costs to date and the over and under billed calculations.
The calculation of the contract amount shall include amounts
for contract change orders, but only to the extent these
change orders are signed or there exists other valid
documentation which verifies the Company's entitlement to
such amounts. In preparing the WIP Schedule, the Company
Shareholder and Parent shall prepare a cost-to-complete
analysis for each of the WIP Contracts on the WIP Schedule
and determine the accuracy of the amounts and estimates
contained herein, and the net over-billed and under-billed
amounts. The WIP Schedule and the cost-to-complete analysis
shall be attached hereto as Exhibit 1.3(d)(vi). The value
of the WIP determined by the Parent and the Company
Shareholder on Exhibit 1.3(d)(vi) shall be included in and
correspond with the WIP-related line items on the Closing
Balance Sheet.
At the end of each calendar quarter following the Closing
Date and continuing until each of the WIP Contracts are
"Complete" or "Completed" as defined below, the Company
Shareholder and Parent shall prepare a schedule (the "WIP
Adjustment Schedule") which describes the actual results on
the WIP Contracts which are Completed during that quarter,
including a calculation of the actual profit or loss on such
contracts. The Parent and the Company Shareholder will
jointly calculate the actual profit or loss on the WIP
Contract(s) that is/are Complete. The Company Shareholder
and Parent shall share pro-rata in the profits and losses of
the WIP Contract. Shareholders' pro-rata share of the
actual profit or loss shall be the percentage calculated by
dividing costs as stated in the WIP Schedule by the total
costs in the WIP Adjustment Schedule prepared for the WIP
Contract that was Completed. Parent's pro-rata share of the
actual profit or loss shall be the percentage calculated by
dividing the total costs in the WIP Adjustment Schedule,
less the costs shown on the WIP Schedule, by the total costs
in the WIP Adjustment Schedule for the WIP Contract that was
Completed. If the Company Shareholder's pro-rata share of
the profits and losses exceeds the profit already
recognized, then the Parent shall pay the net profit, less
any profit recognized for those same contracts in the WIP
Schedule, to the Company Shareholder within ten (10) days of
such calculation by the Company Shareholder and Parent. If
the Company Shareholder's pro-rata share of profits and
losses exceeds the profit already recognized then,the
Company Shareholder shall credit against future Runnning
EOPP or Performacne CPP payments the net loss, less any loss
recognized for those same contracts in the WIP Schedule, to
the Parent within ten (10) days of such calculation by the
Company Shareholder and Parent. A contract is "Complete" or
"Completed" when all valid xxxxxxxx on such contract have
been submitted and paid (or written off by the Company), all
costs on such contract have been incurred and paid, and
there exists valid and complete contract documentation for
all contract amounts (with respect to such contract) set
forth on the WIP Schedule. The parties recognize the
complexity of accounting in connection with this article
1.3d(vi) and therefore if the foregoing results in an undue
hardship on either party then the Parent and Company will
mutually agree to settle all work in progress at the Closing
in a fair an equitable manner.
(vii)The Company's financial statements shall be auditable in
accordance with the Public Company Accounting Oversight
Board (the "PCAOB") standards, and Xxxxxxxxx and Parent
shall divide equally the cost and expense of any pre-Closing
audited or reviewed financial statements of the Company that
are required to be filed by Parent with the SEC as a result
of the Closing.
(viii)In the event that the PP Business Segments perform
unpaid research and development services for other business
divisions within Parent but will not market or sell such
related products then the business segment of Parent making
use of the result of such R&D shall share revenues with the
PP Business Segments in such manner that shall reasonably
represent the contribution of the PP Business Segments to
the final product.
1.4 Conversion of Interests. Subject to the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of the Company and/or the Merger Subsidiary:
(a) All of the shares of the Company (the "Company Common Stock")
issued and outstanding immediately prior to the Effective Time (except for
Company Common Stock referred to in Section 1.4(c) hereof) will be converted
into the right of the Company Shareholder to receive 525,000 shares of common
stock of the Parent as described in Paragraph 1.3(b) (the "Parent Common
Stock"). The amount of Parent Common Stock into which shares of Company
Common Stock is converted is referred to herein as the "Merger Consideration."
(b) All stock options, warrants, convertible debt, other convertible
securities or other rights to acquire shares of the Company (collectively the
"Company's Convertible Securities") outstanding at the Effective Time, whether
or not exercisable and whether or not vested, and all of which are listed on
the "Company Disclosure Schedule" as defined in Section 2.1 hereof, shall be
canceled.
(c) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time that is then owned beneficially or of
record by Parent, Merger Subsidiary, or any direct or indirect subsidiary of
Parent or the Company will be canceled without payment of any consideration
therefore and without any conversion thereof. Furthermore, at the Effective
Time, one thousand (1,000) shares of Company Common Stock shall be issued to
Parent.
(d) Except as expressly set forth herein, each share of any other
equity interest of the Company (other than Company Common Stock) will be
canceled without payment of any consideration therefore and without any
conversion thereof.
(e) Each share of common stock of Merger Subsidiary ("Merger
Subsidiary Common Stock"), issued and outstanding immediately prior to the
Effective Time will be canceled as of the Effective Time.
1.5 Exchange of Company Common Stock.
(a) At the Closing, the Company will arrange for each
holder of record (a "Company Shareholder") of Company Common Stock
outstanding immediately prior to the Effective Time to deliver to
the Parent appropriate evidence of such holder's Company Common
Stock ("Company Certificates"), together with an appropriate
assignment signed by such holders, in exchange for the number of
whole shares of Parent Common Stock into which such interests have
been converted as provided in Section 1.4(a), and the Company
Certificate(s) so surrendered will be canceled.
(b) All shares of Parent Common Stock issued upon the
surrender for exchange of shares of Company Common Stock in
accordance with the terms hereof will be deemed to have been
issued in full satisfaction of all rights pertaining to such
Company Common Stock.
(c) As of the Effective Time, the holders of Company
Certificates representing shares of Company Common Stock will
cease to have any rights as Company Shareholder, except such
rights, if any, as they may have pursuant to the Georgia Code.
Except as provided above, until such Company Certificates are
surrendered for exchange, each such Company Certificate will,
after the Effective Time, represent for all purposes only the
right to receive certificates representing the number of whole
shares of Parent Common Stock into which Company Common Stock
shall have been converted pursuant to the Merger as provided in
Section 1.4(a).
(d) No fractional shares of Parent Common Stock will be
issued upon the surrender for exchange of Company Certificates.
1.6 Articles of Incorporation of the Surviving Corporation. The
Articles of Incorporation of the Merger Subsidiary as in effect immediately
prior to the Effective Time will be the Articles of Incorporation of the
Surviving Corporation.
1.7 Bylaws of the Surviving Corporation. The Bylaws of the Merger
Subsidiary, as in effect immediately prior to the Effective Time, will be the
Bylaws of the Surviving Corporation until thereafter amended in accordance
with applicable law.
1.8 Directors and Officers of the Surviving Corporation and Parent.
The directors and officers of Merger Subsidiary, as of the Effective Time,
shall be designated as the directors and officers of the Surviving
Corporation.
1.9 Bylaws of the Parent. The Bylaws of the Parent shall be amended
to facilitate the addition of the Company's Business, as necessary.
1.10 Dissenting Interests. There are no dissenters' rights of
appraisal under Sections 14-2-1301 through 14-2-1332 of the Georgia Code or
otherwise, as the Company Shareholder, its sole stockholder, is required to
execute and deliver this Agreement as a condition of the Closing, and
accordingly, Xxxxxxxxx hereby waives any such rights, without qualification.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY SHAREHOLDER
The Company and the Company Shareholder hereby represent and warrant to
Parent and Merger Subsidiary as follows:
2.1 Disclosure Schedule. The disclosure schedule attached hereto as
Exhibit 2.1 (the "Company Disclosure Schedule") is divided into sections that
correspond to the sections of this Article 2. The Company Disclosure Schedule
comprises a list of all exceptions to the truth and accuracy of, and of all
disclosures or descriptions required by, the representations and warranties
set forth in the remaining sections of this Article 2.
2.2 Corporate Organization, etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Georgia with the requisite corporate power and authority to carry on its
business as it is now being conducted and to own, operate and lease its
properties and assets and is duly qualified or licensed to do business as a
foreign corporation in good standing in every other jurisdiction in which the
character or location of the properties and assets owned, leased or operated
by it or the conduct of its business requires such qualification or licensing,
except in such jurisdictions in which the failure to be so qualified or
licensed and in good standing would not, individually or in the aggregate,
have a Material Adverse Effect (as defined below) on the Company. The Company
Disclosure Schedule contains a list of all jurisdictions in which the Company
is qualified or licensed to do business and includes complete and correct
copies of the Company's articles of incorporation and bylaws. The Company
does not own or control any capital stock of any corporation or any interest
in any partnership, joint venture or other entity.
2.3 Capitalization. The authorized capital securities of the Company
is set forth in the Company Disclosure Schedule. The number of shares of
Company Common Stock outstanding, as of the date of this Agreement and as set
forth in the Company Disclosure Schedule, represent all of the issued and
outstanding capital securities of the Company. All issued and outstanding
shares of Company Common Stock are duly authorized, validly issued, fully paid
and nonassessable and are without, and were not issued in violation of,
preemptive rights. Except as set forth in the Company Disclosure Schedule,
there are no shares of Company Common Stock or other equity securities of the
Company outstanding or any securities convertible into or exchangeable for
such interests, securities or rights. Other than as set forth on the Company
Disclosure Schedule and pursuant to this Agreement, there is no subscription,
option, warrant, call, right, contract, agreement, commitment, understanding
or arrangement to which the Company is a party, or by which it is bound, with
respect to the issuance, sale, delivery or transfer of the capital securities
of the Company, including any right of conversion or exchange under any
security or other instrument. The Company has no subsidiaries.
2.4 Authorization. The Company has all requisite corporate power and
authority to enter into, execute, deliver and perform its obligations under
this Agreement. This Agreement has been duly and validly executed and
delivered by the Company and is the valid and binding legal obligation of the
Company enforceable against the Company in accordance with its terms, subject
to bankruptcy, moratorium, principles of equity and other limitations limiting
the rights of creditors generally.
2.5 Non-Contravention. Except as set forth in the Company Disclosure
Schedule, neither the execution, delivery and performance of this Agreement,
and each other agreement to be entered into in connection with this Agreement,
nor the consummation of the transactions contemplated herein will:
(a) violate, contravene or be in conflict with any provision of
the articles of incorporation or bylaws of the Company;
(b) be in conflict with, or constitute a default, however
defined (or an event which, with the giving of due notice or lapse of
time, or both, would constitute such a default), under, or cause or
permit the acceleration of the maturity of, or give rise to any right of
termination, cancellation, imposition of fees or penalties under any
debt, note, bond, lease, mortgage, indenture, license, obligation,
contract, commitment, franchise, permit, instrument or other agreement
or obligation to which the Company is a party or by which the Company or
any of the Company's properties or assets is or may be bound;
(c) result in the creation or imposition of any pledge, lien,
security interest, restriction, option, claim or charge of any kind
whatsoever ("Encumbrances") upon any property or assets of the Company
under any debt, obligation, contract, agreement or commitment to which
the Company is a party or by which the Company or any of the Company's
assets or properties are bound; or
(d) materially violate any statute, treaty, law, judgment, writ,
injunction, decision, decree, order, regulation, ordinance or other
similar authoritative matters (referred to herein individually as a
"Law" and collectively as "Laws") of any foreign, federal, state or
local governmental or quasi-governmental, administrative, regulatory or
judicial court, department, commission, agency, board, bureau,
instrumentality or other authority (referred to herein individually as
an "Authority" and collectively as "Authorities").
2.6 Consents and Approvals. Except as set forth in the Company
Disclosure Schedule, with respect to the Company, no consent, approval, order
or authorization of or from, or registration, notification, declaration or
filing with ("Consent") any individual or entity, including without limitation
any Authority, is required in connection with the execution, delivery or
performance of this Agreement by the Company or the consummation by the
Company of the transactions contemplated herein.
2.7 Financial Statements. The Company Disclosure Schedule contains a
copy of the financial statement of the Company as of the year ended December
31, 2005, and the period ended June 30, 2006 (the "Financial Statements").
Except as disclosed therein or in the Company Disclosure Schedule, the
aforesaid Financial Statements fairly present the financial position of the
Company as of the dates thereof, and the income or loss for the periods then
ended.
2.8 Absence of Undisclosed Liabilities. The Company does not have any
material liabilities, obligations or claims of any kind whatsoever, whether
secured or unsecured, accrued or unaccrued, fixed or contingent, matured or
unmatured, known or unknown, direct or indirect, contingent or otherwise and
whether due or to become due (referred to herein individually as a "Liability"
and collectively as "Liabilities"), other than: (a) Liabilities that are fully
reflected or reserved for in the balance sheet; (b) Liabilities that are set
forth on the Company Disclosure Schedule; (c) Liabilities incurred by the
Company in the ordinary course of business after the date of the balance sheet
and consistent with past practice; (d) Liabilities in an amount not to exceed
($1,000) individually or in the aggregate unless such amounts are disclosed on
the Company Disclosure Schedule; or (e) Liabilities for express executory
obligations to be performed after the Closing under the contracts described in
Section 2.14 of the Company Disclosure Schedule.
2.9 Absence of Certain Changes. Except as set forth in the Company
Disclosure Schedule, since June 30, 2006, the Company has owned and operated
its assets, properties and business in the ordinary course of business and
consistent with past practice. Without limiting the generality of the
foregoing, subject to the aforesaid exceptions:
(a) the Company has not experienced any change that has had or
could reasonably be expected to have a Material Adverse Effect on the
Company; and
(b) the Company has not suffered (i) any loss, damage,
destruction or other property or casualty (whether or not covered by
insurance) or (ii) any loss of officers, employees, dealers,
distributors, independent contractors, customers or suppliers, which had
or may reasonably be expected to result in a Material Adverse Effect on
the Company.
2.10 Assets. Except as set forth in the Company Disclosure Schedule,
the Company has good and marketable title to all of its assets and properties,
whether or not reflected in the balance sheet or acquired after the date
thereof (except for properties sold or otherwise disposed of since the date
thereof in the ordinary course of business and consistent with past
practices), that relate to or are necessary for the Company to conduct its
business and operations as currently conducted (collectively, the "Assets"),
free and clear of any mortgage, pledge, lien, security interest, conditional
or installment sales agreement, encumbrance, claim, easement, right of way,
tenancy, covenant, encroachment, restriction or charge of any kind or nature
(whether or not of record) (a "Lien"), other than (i) liens securing specific
Liabilities shown on the balance sheet with respect to which no breach,
violation or default exists; (ii) mechanics,' carriers,' workers' or other
like liens arising in the ordinary course of business; (iii) minor
imperfections of title that do not individually or in the aggregate, impair
the continued use and operation of the Assets to which they relate in the
operation of the Company as currently conducted; and (iv) liens for current
taxes not yet due and payable or being contested in good faith by appropriate
proceedings ("Permitted Liens").
2.11 Receivables and Payables.
Except as set forth in Section 1.3(d), there are no liabilities
and there will be no liabilities in an amount greater than $1,000 at the time
of Closing.
2.12 Intellectual Property Rights. The Company owns or has the
unrestricted right to use, and the Company Disclosure Schedule contains a
detailed listing of, all patents, patent applications, patent rights,
registered and unregistered trademarks, trademark applications, trade names,
service marks, service xxxx applications, copyrights, internet domain names,
computer programs and other computer software, inventions, know-how, trade
secrets, technology, proprietary processes, trade dress, software and formulae
(collectively, "Intellectual Property Rights") used in, or necessary for, the
operation of its Business as currently conducted or proposed to be conducted.
Except as set forth on the Company Disclosure Schedule, to the Company's
knowledge, the use of all Intellectual Property Rights necessary or required
for the conduct of the Business of the Company as presently conducted and as
proposed to be conducted does not infringe or violate the Intellectual
Property Rights of any person or entity. Except as described on the Company
Disclosure Schedule, to the Company's knowledge: (a) the Company does not own
or use any Intellectual Property Rights pursuant to any written license
agreement; (b) the Company has not granted any person or entity any rights,
pursuant to a written license agreement or otherwise, to use the Intellectual
Property Rights; (c) the Company owns, has unrestricted right to use and has
sole and exclusive possession of and has good and valid title to, all of the
Intellectual Property Rights, free and clear of all Liens and Encumbrances;
and (d) all application, maintenance and other necessary fees are fully paid
with the United States Patent Office and any corresponding foreign agencies.
All license agreements relating to Intellectual Property Rights are binding
and there is not, under any of such licenses, any existing default or event of
default (or event which with notice or lapse of time, or both, would
constitute a default, or would constitute a basis for a claim on non-
performance) on the part of the Company or, to the knowledge of the Company,
any other party thereto.
2.13 Litigation. Except as set forth in the Company Disclosure
Schedule, there is no legal, administrative, arbitration, or other proceeding,
suit, claim or action of any nature or investigation, review or audit of any
kind, or any judgment, decree, decision, injunction, writ or order pending,
noticed, scheduled, or, to the knowledge of the Company, threatened or
contemplated by or against or involving the Company, its assets, properties or
business or its directors, officers, agents or employees (but only in their
capacity as such), whether at law or in equity, before or by any person or
entity or Authority, or which questions or challenges the validity of this
Agreement or any action taken or to be taken by the parties hereto pursuant to
this Agreement or in connection with the transactions contemplated herein.
2.14 Contracts and Commitments; No Default.
(a) Except as set forth in the Company Disclosure Schedule, the
Company is not a party to, nor are any of the Assets bound by, any
written or oral:
(i) employment, non-competition, consulting or severance
agreement, collective bargaining agreement, or pension, profit-
sharing, incentive compensation, deferred compensation, stock
purchase, stock option, stock appreciation right, group insurance,
severance pay or retirement plan or agreement;
(ii) indenture, mortgage, note, installment obligation,
agreement or other instrument relating to the borrowing of money
by the Company;
(iii) contract, agreement, lease (real or personal
property) or arrangement that (A) is not terminable on less than
30 days' notice without penalty, (B) is not over one year in
length of obligation of the Company, or (C) involves an obligation
of more than $1,000 over its term;
(iv) contract, agreement, commitment or license relating to
Intellectual Property Rights or contract, agreement or commitment
of any other type, whether or not fully performed, not otherwise
disclosed pursuant to this Section 2.14;
(v) obligation or requirement to provide funds to or make
any investment (in the form of a loan, capital contribution or
otherwise) in any person or entity; or
(vi) outstanding sales or purchase contracts, commitments
or proposals that will result in any material loss upon completion
or performance thereof after allowance for direct distribution
expenses, or bound by any outstanding contracts, bids, sales or
service proposals quoting prices that are not reasonably expected
to result in a normal profit.
(b) True and complete copies (or summaries, in the case of oral
items) of all agreements disclosed pursuant to this Section 2.14 (the
"Company Contracts") have been provided to Parent for review. Except as
set forth in the Company Disclosure Schedule, all of the Company
Contracts items are valid and enforceable by and against the Company in
accordance with their terms, and are in full force and effect. The
Company is not in breach, violation or default, however defined, in the
performance of any of its obligations under any of the Company
Contracts, and no facts and circumstances exist which, whether with the
giving of due notice, lapse of time, or both, would constitute such
breach, violation or default thereunder or thereof, and, to the
knowledge of the Company, no other parties thereto are in a breach,
violation or default, however defined, thereunder or thereof, and no
facts or circumstances exist which, whether with the giving of due
notice, lapse of time, or both, would constitute such a breach,
violation or default thereunder or thereof.
2.15 Compliance with Law; Permits and Other Operating Rights. Except
as set forth in the Company Disclosure Schedule, the Assets, properties,
business and operations of the Company are and have been in compliance in all
respects with all Laws applicable to the Company's assets, properties,
business and operations, except where the failure to comply would not have a
Material Adverse Effect. The Company possesses all material permits, licenses
and other authorizations from all Authorities necessary to permit it to
operate its business in the manner in which it presently is conducted and the
consummation of the transactions contemplated by this Agreement will not
prevent the Company from being able to continue to use such permits and
operating rights. The Company has not received notice of any violation of any
such applicable Law, and is not in default with respect to any order, writ,
judgment, award, injunction or decree of any Authority.
2.16 Brokers. The Company Shareholder has engaged a broker. Any fees
payable to such broker shall be paid by the Company Shareholder from the
Merger Consideration or the cash paid to the Company Shareholder as outlined
in Section 1.3(b), or otherwise, by the Company Shareholder.
2.17 Books and Records. The books of account, minute books, stock
record books, and other material records of the Company, have been made
available to Parent At the Closing, all of those books and records will be in
the possession of the Company.
2.18 Business Generally; Accuracy of Information. No representation or
warranty made by the Company in this Agreement, the Company Disclosure
Schedule or in any document, agreement or certificate furnished or to be
furnished to Parent at the Closing by or on behalf of the Company in
connection with any of the transactions contemplated by this Agreement
contains or will contain any untrue statement of material fact or omit or will
omit to state any material fact necessary in order to make the statements
herein or therein not misleading in light of the circumstances in which they
are made, and all of the foregoing completely and correctly present the
information required or purported to be set forth herein or therein.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PARENT
AND THE MERGER SUBSIDIARY
Parent and the Merger Subsidiary represent and warrant to the Company
and the Company Shareholder as follows:
3.1 Disclosure Schedule. The disclosure schedule attached hereto as
Exhibit 3.1 (the "Parent Disclosure Schedule") is divided into sections that
correspond to the sections of this Article 3. The Parent Disclosure Schedule
comprises a list of all exceptions to the truth and accuracy of, and of all
disclosures or descriptions required by, the representations and warranties
set forth in the remaining sections of this Article 3.
3.2 Corporate Organization, Standing and Power. Parent is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Utah; and Merger Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Georgia. Each of Parent and Merger Subsidiary has all corporate power and
authority to own its properties and to carry on its business as now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on Parent and Merger Subsidiary. Parent owns all of the
outstanding capital stock of Merger Subsidiary. The Parent Disclosure Schedule
contains a list of all jurisdictions in which the Parent and Merger Subsidiary
are qualified or licensed to do business and includes complete and correct
copies of the Parent's and Merger Subsidiary's articles of incorporation and
bylaws. Other than the Merger Subsidiary, Reflect Scientific, Inc., a Utah
corporation and its wholly-owned subsidiary Cryometrix, Inc., a California
corporation, neither the Parent nor the Merger Subsidiary owns or controls any
capital stock of any corporation or any interest in any partnership, joint
venture or other entity.
3.3 Authorization. Each of Parent and the Merger Subsidiary has all
the requisite corporate power and authority to enter into this Agreement and
to carry out the transactions contemplated herein. The Board of Directors of
Parent and the Merger Subsidiary, and Parent as the sole shareholder of the
Merger Subsidiary, have taken all action required by law, their respective
articles of incorporation and bylaws or otherwise to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein. This Agreement is the valid and binding
legal obligation of Parent and the Merger Subsidiary enforceable against each
of them in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or similar laws
that affect creditors' rights generally.
3.4 Capitalization. The authorized capital securities of the Parent
and Merger Subsidiary are set forth in the Parent Disclosure Schedule. The
number of shares of Parent Common Stock, as of the date of this Agreement and
as set forth in the Parent Disclosure Schedule, represent all of the issued
and outstanding capital securities of the Parent. All issued and outstanding
shares of Parent Common Stock are duly authorized, validly issued, fully paid
and nonassessable and are without, and were not issued in violation of,
preemptive rights. Other than as set forth on the Parent Disclosure Schedule,
there are no shares of Parent Common Stock or other equity securities of
Parent outstanding or any securities convertible into or exchangeable for such
interests, securities or rights. Other than as set forth on the Parent
Disclosure Schedule and pursuant to this Agreement, there is no subscription,
option, warrant, call, right, contract, agreement, commitment, understanding
or arrangement to which Parent is a party, or by which it is bound, with
respect to the issuance, sale, delivery or transfer of the capital securities
of Parent, including any right of conversion or exchange under any security or
other instrument.
3.5 Non-Contravention. Neither the execution, delivery and
performance of this Agreement nor the consummation of the transactions
contemplated herein will:
(a) violate any provision of the articles of incorporation or
bylaws of Parent or the Merger Subsidiary; or
(b) be in conflict with, or constitute a default, however
defined (or an event which, with the giving of due notice or lapse of
time, or both, would constitute such a default), under, or cause or
permit the acceleration of the maturity of, or give rise to, any right
of termination, cancellation, imposition of fees or penalties under, any
debt, note, bond, lease, mortgage, indenture, license, obligation,
contract, commitment, franchise, permit, instrument or other agreement
or obligation to which Parent or the Merger Subsidiary is a party or by
which Parent or the Merger Subsidiary or any of their respective
properties or assets is or may be bound;
(c) result in the creation or imposition of any Encumbrance upon
any property or assets of Parent or the Merger Subsidiary under any
debt, obligation, contract, agreement or commitment to which Parent or
the Merger Subsidiary is a party or by which Parent or the Merger
Subsidiary or any of their respective assets or properties is or may be
bound; or
(d) violate any Law of any Authority.
3.6 Consents and Approvals. No Consent is required by any person or
entity, including without limitation any Authority, in connection with the
execution, delivery and performance by Parent or Merger Subsidiary of this
Agreement, or the consummation of the transactions contemplated herein, other
than any Consent which, if not made or obtained, will not, individually or in
the aggregate, have a Material Adverse Effect on the business of Parent or
Merger Subsidiary.
3.7 Valid Issuance. The Parent Common Stock to be issued in
connection with the Merger will be duly authorized and, when issued, delivered
and paid for as provided in this Agreement, will be validly issued, fully paid
and non-assessable.
3.8 SEC Filings; Financial Statements.
(a) Parent has delivered or made available to the Company
accurate and complete copies (excluding copies of exhibits) of each
report, registration statement and definitive proxy and information
statements filed by Parent with the SEC (collectively, with all
information incorporated by reference therein or deemed to be
incorporated by reference therein, the "Parent SEC Documents"). All
statements, reports, schedules, forms and other documents required to
have been filed by Parent with the SEC have been so filed in a timely
manner. As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the
date of such filing): (i) each of the Parent SEC Documents complied in
all material respects with the applicable requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); and (ii) none of
the Parent SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(b) The consolidated financial statements contained in the
Parent SEC Documents: (i) complied as to form in all material respects
with the published rules and regulations of the SEC applicable thereto;
(ii) were prepared in accordance with GAAP and the PCAOB standards
applied on a consistent basis throughout the periods covered (except as
may be indicated in the notes to such financial statements) and, in the
case of unaudited statements, as permitted by Form 10-QSB of the SEC);
and (iii) fairly present, in all material respects, the consolidated
financial position of Parent and its consolidated subsidiaries as of the
respective dates thereof and the consolidated results of operations of
Parent and its consolidated subsidiaries for the periods covered
thereby. All adjustments considered necessary for a fair presentation
of the financial statements have been included.
3.9 No Liabilities. Parent does not have any Liabilities, except for
(i) Liabilities expressly stated in the most recent balance sheet included in
the Parent SEC Documents or the notes thereto, or (ii) Liabilities which do
not exceed $5,000 in the aggregate.
3.10 No Assets. As of the Closing, Parent will not have any assets or
operations of any kind, except as identified in the most recent balance sheet
and notes thereto included in the Parent SEC Documents or the Parent
Disclosure Schedule. Except as set forth in the Parent Disclosure Schedule,
Parent has good and marketable title to all of its Assets, free and clear of
any and all Liens, other than (i) liens securing specific Liabilities shown on
the Balance Sheet with respect to which no breach, violation or default
exists; (ii) mechanics,' carriers,' workers' or other like liens arising in
the ordinary course of business; (iii) minor imperfections of title that do
not individually or in the aggregate, impair the continued use and operation
of the Assets to which they relate in the operation of Parent as currently
conducted; and (iv) liens for current taxes not yet due and payable or being
contested in good faith by appropriate proceedings ("Permitted Liens").
3.11 Absence of Certain Changes. Except as set forth in the Parent SEC
Documents, Parent has owned and operated its assets, properties and business
in the ordinary course of business and consistent with past practice. Without
limiting the generality of the foregoing, subject to the aforesaid exceptions,
Parent has not experienced any change that has had or could reasonably be
expected to have a Material Adverse Effect on the Parent.
3.12 Litigation. Except as disclosed in the Parent SEC Documents,
there is no legal, administrative, arbitration, or other proceeding, suit,
claim or action of any nature or investigation, review or audit of any kind,
or any judgment, decree, decision, injunction, writ or order pending, noticed,
scheduled, or, to the knowledge of the Parent or the Merger Subsidiary,
threatened or contemplated by or against or involving the Parent, its assets,
properties or business or its directors, officers, agents or employees (but
only in their capacity as such), whether at law or in equity, before or by any
person or entity or Authority, or which questions or challenges the validity
of this Agreement or any action taken or to be taken by the parties hereto
pursuant to this Agreement or in connection with the transactions contemplated
herein.
3.13 Contracts and Commitments; No Default. The Parent is not a party
to, nor are any of its Assets bound by, any contract (a "Parent Contract")
that is not disclosed in the Parent SEC Documents. Except as disclosed in the
Parent SEC Documents, none of the Parent Contracts contains a provision
requiring the consent of any party with respect to the consummation of the
transactions contemplated by this Agreement. The Parent is not in breach,
violation or default, however defined, in the performance of any of its
obligations under any of the Parent Contracts, and no facts and circumstances
exist which, whether with the giving of due notice, lapse of time, or both,
would constitute such breach, violation or default thereunder or thereof, and,
to the knowledge of the Parent, no other parties thereto are in a breach,
violation or default, however defined, thereunder or thereof, and no facts or
circumstances exist which, whether with the giving of due notice, lapse of
time, or both, would constitute such a breach, violation or default thereunder
or thereof.
3.14 No Broker or Finder. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or any of the other transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Parent.
3.15 Intercompany And Affiliate Transactions; Insider Interests.
Except as expressly identified in the Parent SEC Documents or in the Consent
of Directors of Parent approving the Merger which has been executed and
provided to the Company prior to execution, there are, and during the last two
years there have been, no transactions, agreements or arrangements of any
kind, direct or indirect, between the Parent, on the one hand, and any
director, officer, employee, stockholder, or affiliate of the Parent, on the
other hand, including, without limitation, loans, guarantees or pledges to, by
or for the Parent or from, to, by or for any of such persons, that are
currently in effect.
3.16 Compliance with Law; Permits and Other Operating Rights. Except
as set forth in the Parent Disclosure Schedule, the Assets, properties,
business and operations of Parent are and have been in compliance in all
respects with all Laws applicable to the Parent's assets, properties, business
and operations, except where the failure to comply would not have a Material
Adverse Effect. Parent possesses all material permits, licenses and other
authorizations from all Authorities necessary to permit it to operate its
business in the manner in which it presently is conducted and the consummation
of the transactions contemplated by this Agreement will not prevent Parent
from being able to continue to use such permits and operating rights. Parent
has not received notice of any violation of any such applicable Law, and is
not in default with respect to any order, writ, judgment, award, injunction or
decree of any Authority.
3.17 Business Generally; Accuracy of Information. No representation or
warranty made by Parent or Merger Subsidiary in this Agreement, the Parent
Disclosure Schedule, or in any document, agreement or certificate furnished or
to be furnished to the Company at the Closing by or on behalf of Parent or
Merger Subsidiary in connection with any of the transactions contemplated by
this Agreement contains or will contain any untrue statement of material fact
or omit or will omit to state any material fact necessary in order to make the
statements herein or therein not misleading in light of the circumstances in
which they are made, and all of the foregoing completely and correctly present
the information required or purported to be set forth herein or therein.
ARTICLE 4
COVENANTS OF THE PARTIES
4.1 Conduct of Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Closing Date, the
Company and Parent will each conduct its business and operations according to
its ordinary and usual course of business consistent with past practices.
Without limiting the generality of the foregoing, and, except as otherwise
expressly provided in this Agreement or as otherwise disclosed on the Parent
Disclosure Schedule or Company Disclosure Schedule, respectively, prior to the
Closing Date, without the prior written consent of the other party, not to be
unreasonably delayed, Parent and the Company will not:
(a) amend its articles of incorporation or bylaws;
(b) issue, reissue, sell, deliver or pledge or authorize or
propose the issuance, reissuance, sale, delivery or pledge of shares of
capital stock of any class, or securities convertible into capital stock
of any class, or any rights, warrants or options to acquire any
convertible securities or capital stock;
(c) adjust, split, combine, subdivide, reclassify or redeem,
purchase or otherwise acquire, or propose to redeem or purchase or
otherwise acquire, any shares of its capital stock, or any of its other
securities;
(d) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of its capital stock, redeem or otherwise acquire any shares of
its capital stock or other securities, alter any term of any of its
outstanding securities;
(e) (i) except as required under any employment agreement,
increase in any manner the compensation of any of its directors,
officers or other employees; (ii) pay or agree to pay any pension,
retirement allowance or other employee benefit not required or permitted
by any existing plan, agreement or arrangement to any such director,
officer or employee, whether past or present; or (iii) commit itself to
any additional pension, profit-sharing, bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right,
group insurance, severance pay, retirement or other employee benefit
plan, agreement or arrangement, or to any employment agreement or
consulting agreement (arising out of prior employment ) with or for the
benefit of any person, or, except to the extent required to comply with
applicable law, amend any of such plans or any of such agreements in
existence on the date of this Agreement;
(f) hire any additional personnel;
(g) incur, assume, suffer or become subject to, whether directly
or by way of guarantee or otherwise, any Liabilities which, individually
or in the aggregate, exceed $10,000 in the case of Parent or $5,000 in
the case of the Company;
(h) make or enter into any commitment for capital expenditures
in excess of $10,000 in the case of Parent or $5,000 in the case of the
Company;
(i) pay, lend or advance any amount to, or sell, transfer or
lease any properties or assets (real, personal or mixed, tangible or
intangible) to, or enter into any agreement or arrangement with, any of
its officers or directors or any affiliate or associate of any of its
officers or directors;
(j) terminate, enter into or amend in any material respect any
contract, agreement, lease, license or commitment, or take any action or
omit to take any action which will cause a breach, violation or default
(however defined) under any contract, except in the ordinary course of
business and consistent with past practice;
(k) acquire any of the business or assets of any other person or
entity;
(l) permit any of its current insurance (or reinsurance)
policies to be cancelled or terminated or any of the coverage thereunder
to lapse, unless simultaneously with such termination, cancellation or
lapse, replacement policies providing coverage equal to or greater than
coverage remaining under those cancelled, terminated or lapsed are in
full force and effect;
(m) enter into other material agreements, commitments or
contracts not in the ordinary course of business or in excess of current
requirements;
(n) settle or compromise any suit, claim or dispute, or
threatened suit, claim or dispute (other than any settlement or
compromise having no effect upon the Company, its assets, operations or
financial position); or
(o) agree in writing or otherwise to take any of the foregoing
actions or any action which would make any representation or warranty in
this Agreement untrue or incorrect in any material respect.
Nothing herein shall prevent the Company from operating its business in
the ordinary course and consistent with past practice.
4.2 Full Access. Throughout the period prior to Closing, each party
will afford to the other and its directors, officers, employees, counsel,
accountants, investment advisors and other authorized representatives and
agents, reasonable access to the facilities, properties, books and records of
the party in order that the other may have full opportunity to make such
investigations as it will desire to make of the affairs of the disclosing
party. Each party will furnish such additional financial and operating data
and other information as the other will, from time to time, reasonably
request, including without limitation access to the working papers of its
independent certified public accountants; provided, however, that any such
investigation will not affect or otherwise diminish or obviate in any respect
any of the representations and warranties of the disclosing party.
4.3 Confidentiality. Each of the parties hereto agrees that it will
not use, or permit the use of, any of the information relating to any other
party hereto furnished to it in connection with the transactions contemplated
herein ("Information") in a manner or for a purpose detrimental to such other
party or otherwise than in connection with the transaction, and that they will
not disclose, divulge, provide or make accessible (collectively, "Disclose"),
or permit the Disclosure of, any of the Information to any person or entity,
other than their respective directors, officers, employees, investment
advisors, accountants, counsel and other authorized representatives and
agents, except as may be required by judicial or administrative process or, in
the opinion of such party's counsel, by other requirements of Law; provided,
however, that prior to any Disclosure of any Information permitted hereunder,
the disclosing party will first obtain the recipients' undertaking to comply
with the provisions of this Section with respect to such information. The
term "Information" as used herein will not include any information relating to
a party that the party disclosing such information can show: (i) to have been
in its possession prior to its receipt from another party hereto; (ii) to be
now or to later become generally available to the public through no fault of
the disclosing party; (iii) to have been available to the public at the time
of its receipt by the disclosing party; (iv) to have been received separately
by the disclosing party in an unrestricted manner from a person entitled to
disclose such information; or (v) to have been developed independently by the
disclosing party without regard to any information received in connection with
this transaction. Each party hereto also agrees to promptly return to the
party from whom it originally received such information all original and
duplicate copies of written materials containing Information should the
transactions contemplated herein not occur. A party hereto will be deemed to
have satisfied its obligations to hold the Information confidential if it
exercises the same care as it takes with respect to its own similar
information.
4.4 Filings; Consents; Removal of Objections. Subject to the terms
and conditions herein provided, the parties hereto will use their best efforts
to take or cause to be taken all actions and do or cause to be done all things
necessary, proper or advisable under applicable Laws to consummate and make
effective, as soon as reasonably practicable, the transactions contemplated
hereby, including without limitation obtaining all Consents of any person or
entity, whether private or governmental, required in connection with the
consummation of the transactions contemplated herein. In furtherance, and not
in limitation of the foregoing, it is the intent of the parties to consummate
the transactions contemplated herein at the earliest practicable time, and
they respectively agree to exert commercially reasonable efforts to that end,
including without limitation: (i) the removal or satisfaction, if possible, of
any objections to the validity or legality of the transactions contemplated
herein; and (ii) the satisfaction of the conditions to consummation of the
transactions contemplated hereby.
4.5 Further Assurances; Cooperation; Notification.
(a) Each party hereto will, before, at and after Closing,
execute and deliver such instruments and take such other actions as the
other party or parties, as the case may be, may reasonably require in
order to carry out the intent of this Agreement. Without limiting the
generality of the foregoing, at any time after the Closing, at the
reasonable request of Parent and without further consideration, the
Company will execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation and take such action as Parent
may reasonably deem necessary or desirable in order to more effectively
consummate the transactions contemplated hereby.
(b) At all times from the date hereof until the Closing, each
party will promptly notify the other in writing of the occurrence of any
event which it reasonably believes will or may result in a failure by
such party to satisfy the conditions specified in this Article 4.
4.6 Supplements to Disclosure Schedule. Prior to the Closing, each
party will supplement or amend its respective Disclosure Schedule with respect
to any event or development which, if existing or occurring at or prior to the
date of this Agreement, would have been required to be set forth or described
in the Disclosure Schedule or which is necessary to correct any information in
the Disclosure Schedule or in any representation and warranty of the Company
which has been rendered inaccurate by reason of such event or development.
4.7 Public Announcements. None of the parties hereto will make any
public announcement with respect to the transactions contemplated herein
without the prior written consent of the other parties, which consent will not
be unreasonably withheld or delayed; provided, however, that any of the
parties hereto may at any time make any announcements that are required by
applicable Law so long as the party so required to make an announcement
promptly upon learning of such requirement notifies the other parties of such
requirement and discusses with the other parties in good faith the exact
proposed wording of any such announcement.
4.8 Satisfaction of Conditions Precedent. Each party will use
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent that are applicable to them, and to cause the
transactions contemplated by this Agreement to be consummated, and, without
limiting the generality of the foregoing, to obtain all material consents and
authorizations of third parties and to make filings with, and give all notices
to, third parties that may be necessary or reasonably required on its part in
order to effect the transactions contemplated hereby.
4.9 Waiver of Dissenters Rights. The Company shall obtain from all
holders of Company Common Stock a written consent to the Merger for purposes
of effecting such holders' waiver of their rights to dissent from the Merger
and to be paid the fair value of their Company Common Stock in accordance with
Section 14-2-1302 of the Georgia Code.
4.10 Excluded Assets. Prior to the Effective Time, the Company shall
transfer those certain assets described on Exhibit 4.10, attached hereto, out
of the Company and such assets are to be excluded from the Merger.
ARTICLE 5
CONDITIONS TO THE OBLIGATIONS OF THE PARENT
AND MERGER SUBSIDIARY
Notwithstanding any other provision of this Agreement to the contrary,
the obligation of Parent and Merger Subsidiary to effect the transactions
contemplated herein will be subject to the satisfaction at or prior to the
Closing, or waiver by Parent, of each of the following conditions:
5.1 Representations and Warranties True. The representations and
warranties of the Company contained in this Agreement, including without
limitation in the Company Disclosure Schedule initially delivered to Parent as
Exhibit 2.1 (and not including any changes or additions delivered to Parent
pursuant to Section 4.6), will be true, complete and accurate in all material
respects as of the date when made and at and as of the Closing Date as though
such representations and warranties were made at and as of such time, except
for changes specifically permitted or contemplated by this Agreement, and
except insofar as the representations and warranties relate expressly and
solely to a particular date or period, in which case they will be true and
correct at the Closing with respect to such date or period.
5.2 Performance. The Company will have performed and complied in all
material respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by the Company on
or prior to the Closing.
5.3 Required Approvals and Consents.
(a) All action required by law and otherwise to be taken by the
Company Shareholder to authorize the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated
hereby will have been duly and validly taken.
(b) All Consents of or from all Authorities required hereunder
to consummate the transactions contemplated herein, will have been
delivered, made or obtained, and Parent will have received copies
thereof.
5.4 Agreements and Documents. Parent and Merger Subsidiary will have
received the following agreements and documents, each of which will be in full
force and effect:
(a) a certificate executed on behalf of the Company by its Chief
Executive Officer confirming that the conditions set forth in Sections
5.1, 5.2, 5.3, 5.5, 5.6 and 5.7 have been duly satisfied;
(b) a Merger written consent in the form of Exhibit 5.4(b)
executed by the Board of Directors of the Company and the Company
Shareholder;
(c) an Investment Letter in the form of Exhibit 5.4(c) attached
hereto and incorporated herein by reference signed by the Company
Shareholder.
(d) an Employment Agreement in the form of Exhibit 5.4(d)
attached hereto and incorporated herein by referenced signed by Xxxxx
Xxxxxxxxx;
(e) an Employment Agreement in the form of Exhibit 5.4(e)
attached hereto and incorporated herein by referenced signed by the
Parent and Xxxx Xxxxxxx.
5.5 Adverse Changes. No material adverse change will have occurred in
the business, financial condition, prospects, assets or operations of the
Company since June 30, 2006, except as set forth in the Company Disclosure
Schedule.
5.6 No Proceeding or Litigation. No suit, action, investigation,
inquiry or other proceeding by any Authority or other person or entity will
have been instituted or threatened which delays or questions the validity or
legality of the transactions contemplated hereby or which, if successfully
asserted, would, in the reasonable judgment of Parent, individually or in the
aggregate, otherwise have a Material Adverse Effect on the Company's business,
financial condition, prospects, assets or operations or prevent or delay the
consummation of the transactions contemplated by this Agreement.
5.7 Legislation. No Law will have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated hereby
or any of the conditions to the consummation of such transaction.
5.8 Appropriate Documentation. The Parent will have received, in a
form and substance reasonably satisfactory to Parent, dated the Closing Date,
all certificates and other documents, instruments and writings to evidence the
fulfillment of the conditions set forth in this Article 5 as Parent may
reasonably request.
ARTICLE 6
CONDITIONS TO OBLIGATIONS OF THE COMPANY
Notwithstanding anything in this Agreement to the contrary, the
obligation of the Company to effect the transactions contemplated herein will
be subject to the satisfaction at or prior to the Closing of each of the
following conditions:
6.1 Representations and Warranties True. The representations and
warranties of Parent contained in this Agreement will be true, complete and
accurate in all material respects as of the date when made and at and as of
the Closing, as though such representations and warranties were made at and as
of such time, except for changes permitted or contemplated in this Agreement,
and except insofar as the representations and warranties relate expressly and
solely to a particular date or period, in which case they will be true and
correct at the Closing with respect to such date or period.
6.2 Performance. The Parent will have performed and complied in all
material respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by Parent at or
prior to the Closing.
6.3 Required Approvals and Consents.
(a) All action required by law and otherwise to be taken by the
directors and stockholders of the Parent to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will have been duly and validly taken.
(b) All Consents of or from all Authorities required hereunder
to consummate the transactions contemplated herein, will have been
delivered, made or obtained, and the Company will have received copies
thereof.
6.4 Agreements and Documents. The Company will have received the
following agreements and documents, each of which will be in full force and
effect:
(a) a certificate executed on behalf of Parent by its Chief
Executive Officer confirming that the conditions set forth in Sections
6.1, 6.2, 6.3, 6.5, 6.6 and 6.7 have been duly satisfied;
(b) resolutions of the board of directors of Parent and the
board of directors and sole stockholder of Merger Subsidiary, certified
by the secretary of Parent, approving the transactions contemplated by
this Agreement, including the Merger and the issuance of the Merger
Consideration;
(c) an Employment Agreement in the form of Exhibit 5.4(d)
attached hereto and incorporated herein by referenced signed by the
Parent and Xxxxx Xxxxxxxxx;
(d) an Employment Agreement in the form of Exhibit 5.4(e)
attached hereto and incorporated herein by referenced signed by the
Parent and Xxxx Xxxxxxx.
6.5 Adverse Changes. No material adverse change will have occurred in
the business, financial condition, prospects, assets or operations of Parent
since June 30, 2006, except as set forth in the Parent Disclosure Schedule.
6.6 No Proceeding or Litigation. No suit, action, investigation,
inquiry or other proceeding by any Authority or other person or entity will
have been instituted or threatened which delays or questions the validity or
legality of the transactions contemplated hereby or which, if successfully
asserted, would, in the reasonable judgment of the Company, individually or in
the aggregate, otherwise have a Material Adverse Effect on Parent's business,
financial condition, prospects, assets or operations or prevent or delay the
consummation of the transactions contemplated by this Agreement.
6.7 Legislation. No Law will have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated hereby
or any of the conditions to the consummation of such transaction.
6.8 Appropriate Documentation. The Company will have received, in a
form and substance reasonably satisfactory to Company, dated the Closing Date,
all certificates and other documents, instruments and writings to evidence the
fulfillment of the conditions set forth in this Article 6 as the Company may
reasonably request.
6.9 Payment. The amounts as outlined in Section 1.3(b) to be paid as
consideration to the Company Shareholder will have been paid
6.10 Financing a Condition of Closing. The Parent shall have raised
approximately $1,000,000 in funding to support the Catpro Business Segment
owned by the Company and to be operated as a separate division within the
Company as a wholly-owned subsidiary of the Parent.
ARTICLE 7
TERMINATION, DEFAULT AND ABANDONMENT
7.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing by the written consent of the Company and
Parent.
7.2 Termination by Either the Company or Parent. This Agreement may
be terminated by either the Company or Parent if the Closing is not
consummated by the Termination Date (provided that the right to terminate this
Agreement under this Section 7.2 will not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of
or resulted in the failure of the Closing to occur on or before such date).
7.3 Termination by Parent. This Agreement may be terminated at any
time prior to the Closing by Parent if any of the conditions provided for in
Article 5 have not been met or waived by Parent in writing prior to the
Closing.
7.4 Termination by the Company. This Agreement may be terminated
prior to the Closing by action of the Company if any of the conditions
provided for in Article 6 have not been met or waived by the Company in
writing prior to the Closing.
7.5 Procedure and Effect of Termination. In the event of termination
of this Agreement and abandonment of the transactions contemplated hereby by
the Company or Parent pursuant to this Article 7, written notice thereof will
be given to all other parties and this Agreement will terminate and the
transactions contemplated hereby will be abandoned, without further action by
any of the parties hereto. If this Agreement is terminated as provided
herein:
(a) Each of the parties will, upon request, redeliver all
documents, work papers and other material of the other parties relating
to the transactions contemplated hereby, whether obtained before or
after the execution hereof, to the party furnishing the same;
(b) No party will have any liability for a breach of any
representation, warranty, agreement, covenant or the provision of this
Agreement, unless such breach was due to a willful or bad faith action
or omission of such party or any representative, agent, employee or
independent contractor thereof; and
(c) All filings, applications and other submissions made
pursuant to the terms of this Agreement will, to the extent practicable,
be withdrawn from the agency or other person to which made.
7.6 Default. Default shall be defined as the nonpayment or material
underpayment of any amount owing under the terms of this Agreement Section
1.3(c). In the event of Default by Parent, Company Shareholder shall give
written notice of such default to Parent and Parent shall have sixty days in
which to cure such default. In the event that Parent fails to cure, Company
Shareholder shall have all rights in law and equity to enforce this Agreement.
In addition, in the event of a failure to cure, Company Shareholder shall be
released from the non-competition agreement contained in his Employment
Agreement attached hereto as Exhibit 5.4(d).
ARTICLE 8
MISCELLANEOUS PROVISIONS
8.1 Expenses. The Parent and the Company will each bear their own
costs and expenses relating to the transactions contemplated hereby, including
without limitation, fees and expenses of legal counsel, accountants,
investment bankers, brokers or finders, printers, copiers, consultants or
other representatives for the services used, hired or connected with the
transactions contemplated hereby.
8.2 Survival. The representations and warranties of the parties shall
survive the Closing for a period of three (3) years.
8.3 Amendment and Modification. Subject to applicable Law, this
Agreement may be amended or modified by the parties hereto at any time with
respect to any of the terms contained herein; provided, however, that all such
amendments and modifications must be in writing duly executed by all of the
parties hereto.
8.4 Waiver of Compliance; Consents. Any failure of a party to comply
with any obligation, covenant, agreement or condition herein may be expressly
waived in writing by the party entitled hereby to such compliance, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition will not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No single or partial
exercise of a right or remedy will preclude any other or further exercise
thereof or of any other right or remedy hereunder. Whenever this Agreement
requires or permits the consent by or on behalf of a party, such consent will
be given in writing in the same manner as for waivers of compliance.
8.5 No Third Party Beneficiaries. Except as otherwise provided
herein, nothing in this Agreement will entitle any person or entity (other
than a party hereto and his, her or its respective successors and assigns
permitted hereby) to any claim, cause of action, remedy or right of any kind.
8.6 Notices. All notices, requests, demands and other communications
required or permitted hereunder will be made in writing and will be deemed to
have been duly given and effective: (i) on the date of delivery, if delivered
personally; (ii) on the earlier of the fourth (4th) day after mailing or the
date of the return receipt acknowledgement, if mailed, postage prepaid, by
certified or registered mail, return receipt requested; or (iii) on the date
of transmission, if sent by facsimile, telecopy, telegraph, telex or other
similar telegraphic communications equipment, or to such other person or
address as the Company will furnish to the other parties hereto in writing in
accordance with this subsection.
If to the Company: With a copy to:
Image Laboratories International Xxxxxx X. Xxxxx, Esq.
000 Xxxxxxxxx Xxxxx, Xxxxx X Xxxxxxx Venture Law, P.C.
Bozeman, Montana 59715 U. S. Bank Building
Fax: 000 Xxxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Fax: 000-000-0000
or to such other person or address as either the Company or the Company
Shareholder will furnish to the other parties hereto in writing in accordance
with this subsection.
The wiring information for payment to Company Shareholder Xxxxx Xxxxxxxxx:
Name on Account: Xxxxx Xxxxxxxxx
Bank Name: First Interstate Bank
0000 Xxxx Xxxxxx
Xxxxxxx, XX 00000
Routing Number: 000000000
Account Number: 2063084574
If to any Company Shareholder following the Merger, to the address set
forth in the representation letter executed and delivered by such shareholder
pursuant to Section 5.4(b) hereto.
If to the Parent or Merger Subsidiary: With a copy to:
Reflect Scientific, Inc. Xxxxxxx X. Xxxxxxxxxx, Esq.
Xxxxxxxxxx & Xxxxxxxxxx
1270 South 1380 West 000 Xxxx 000 Xxxxx, #000
Xxxx, Xxxx 00000 Xxxx Xxxx Xxxx, Xxxx 00000
Fax: 000-000-0000
Attn: Office of the President
Fax: 000-000-0000
or to such other person or address as Parent will furnish to the other parties
hereto in writing in accordance with this subsection.
8.7 Assignment. This Agreement and all of the provisions hereof will
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder will be assigned
(whether voluntarily, involuntarily, by operation of law or otherwise) by any
of the parties hereto without the prior written consent of the other parties.
8.8 Governing Law. This Agreement and the legal relations among the
parties hereto will be governed by and construed in accordance with the
internal substantive laws of the State of Georgia (without regard to the laws
of conflict that might otherwise apply) as to all matters, including without
limitation matters of validity, construction, effect, performance and
remedies.
8.9 Counterparts. This Agreement may be executed simultaneously in
one or more counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
8.10 Headings. The table of contents and the headings of the sections
and subsections of this Agreement are inserted for convenience only and will
not constitute a part hereof.
8.11 Entire Agreement. This Agreement, the Disclosure Schedule of each
party and the exhibits and other writings referred to in this Agreement or in
the Disclosure Schedule or any such exhibit or other writing are part of this
Agreement, together they embody the entire agreement and understanding of the
parties hereto in respect of the transactions contemplated by this Agreement
and together they are referred to as this "Agreement" or the "Agreement."
There are no restrictions, promises, warranties, agreements, covenants or
undertakings, other than those expressly set forth or referred to in this
Agreement. This Agreement supersedes all prior agreements and understandings
between the parties with respect to the transaction or transactions
contemplated by this Agreement. Provisions of this Agreement will be
interpreted to be valid and enforceable under applicable Law to the extent
that such interpretation does not materially alter this Agreement; provided,
however, that if any such provision becomes invalid or unenforceable under
applicable Law such provision will be stricken to the extent necessary and the
remainder of such provisions and the remainder of this Agreement will continue
in full force and effect.
8.12 Definition of Material Adverse Effect. "Material Adverse Effect"
with respect to a party means a material adverse change in or effect on the
business, operations, financial condition, properties or liabilities of that
party; provided, however, that a Material Adverse Effect will not be deemed to
include (i) changes as a result of the announcement of this transaction, (ii)
events or conditions arising from changes in general business or economic
conditions or (iii) changes in generally accepted accounting principles.
This space intentionally left blank.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
REFLECT SCIENTIFIC, INC. XXXXXXXXX AND ASSOCIATES, INC.
By:/s/Xxx Xxxxx By:/s/Xxxxx Xxxxxxxxx, President
Xxx Xxxxx, President Xxxxx Xxxxxxxxx, President
XXXXXXXXX AND ASSOCIATES, INC. SOLE
SHAREHOLDER
/s/Xxxxx Xxxxxxxxx
XXXXX XXXXXXXXX
