Exhibit 99.1
MERGER AGREEMENT
AMONG
CENTURY PARK PICTURES CORPORATION,
CENTURY PARK TRANSITORY SUBSIDIARY, INC.,
CERTAIN SHAREHOLDERS,
AND
ISORAY MEDICAL, INC.
May _____, 2005
TABLE OF CONTENTS
1. DEFINITIONS............................................................... 1
2. BASIC TRANSACTION......................................................... 5
2.1 The Merger....................................................... 5
2.2 The Closing...................................................... 5
2.3 Actions at the Closing........................................... 6
2.4 Effect of Merger................................................. 6
2.5 Closing of Transfer Records...................................... 7
2.6 Dissenting Shares................................................ 7
3. REPRESENTATIONS AND WARRANTIES OF THE TARGET.............................. 7
3.1 Organization, Qualification, and Corporate Power................. 7
3.2 Capitalization................................................... 8
3.3 Authorization of Transaction..................................... 8
3.4 Noncontravention................................................. 8
3.5 Financial Statements............................................. 8
3.6 Books And Records................................................ 9
3.7 Title To Properties; Encumbrances................................ 9
3.8 Condition And Sufficiency Of Assets.............................. 9
3.9 No Undisclosed Liabilities....................................... 9
3.10 Taxes............................................................10
3.11 No Material Adverse Change.......................................10
3.12 Employee Benefits................................................10
3.13 Compliance With Legal Requirements; Governmental Authorizations..10
3.14 Legal Proceedings; Orders........................................11
3.15 Absence Of Certain Changes And Events............................12
3.16 Contracts; No Defaults...........................................13
3.17 Insurance........................................................14
3.18 Environmental Matters............................................15
3.19 Employees........................................................16
3.20 Labor Relations; Compliance......................................16
3.21 Intellectual Property............................................16
3.22 Certain Payments.................................................18
3.23 Relationships With Related Persons...............................18
3.24 Brokers' Fees....................................................18
3.25 Tax Treatment....................................................19
3.26 Disclosure.......................................................19
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE TRANSITORY SUBSIDIARY
AND THE MAJOR BUYER SHARHOLDERS...........................................19
4.A.1. Organization.....................................................19
4.A.2. No Brokers' Fees.................................................19
i
4.A.3. Buyer's Securities...............................................19
4.B.1. No Business Conducted............................................20
4.B.2. Undisclosed Liabilities..........................................20
4.B.3. Authorization of Transaction.....................................20
4.B.4. Disclosure.......................................................20
4.C. The Buyer and the Transitory Subsidiary warrant, and Xxxxxxx
represents to his Knowledge to the Target that the following
statements contained in this Section 4.C are correct and
complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this
Agreement throughout this Section 4.C), except as set forth in
the Disclosure Schedule..........................................21
4.C.1. Filings with the SEC.............................................21
4.C.2. Financial Statements.............................................21
4.C.3. Books and Records................................................21
4.C.4. No Contravention.................................................22
4.C.5. Reporting Company Status.........................................22
4.C.6. No Injunctions...................................................22
4.C.7. Antitakeover Statutes and Rights Agreement; Dissenters Rights....22
4.C.8. Absence of Certain Changes.......................................23
4.C.9. Compliance with Laws and Court Orders............................23
4.C.10. Tax Treatment....................................................23
4.C.11. Litigation.......................................................24
4.C.12. Agreements, Contracts and Commitments............................24
5. COVENANTS.................................................................24
5.1 General..........................................................24
5.2 Notices and Consents.............................................24
5.3 Regulatory Matters and Approvals.................................24
5.4 Operation of Business............................................25
5.5 Full Access......................................................25
5.6 Notice of Developments...........................................26
5.7 Exclusivity......................................................26
6. CONDITIONS TO OBLIGATION TO CLOSE.........................................26
6.1 Conditions to Obligation of the Buyer and the Transitory
Subsidiary.......................................................26
6.2 Conditions to Obligation of the Target...........................27
7. INDEMNIFICATION...........................................................29
7.1 Indemnification..................................................29
7.2 Warranty of No Claims............................................29
7.3 Buyer Indemnity..................................................29
7.4 Indemnity Procedure..............................................29
7.5 ESCROW ARRANGEMENTS.......................................................30
7.6 Indemnification by Xxxxxxx.......................................30
ii
8. TERMINATION...............................................................31
8.1 Termination of Agreement.........................................31
8.2 Effect of Termination............................................31
9. MISCELLANEOUS.............................................................31
9.1 Survival.........................................................31
9.2 Press Releases and Public Announcements..........................31
9.3 No Third-Party Beneficiaries.....................................32
9.4 Entire Agreement.................................................32
9.5 Succession and Assignment........................................32
9.6 Counterparts.....................................................32
9.7 Headings.........................................................32
9.8 Notices..........................................................32
9.9 Governing Law....................................................33
9.10 Amendments and Waivers...........................................33
9.11 Severability.....................................................33
9.12 Expenses.........................................................33
9.13 Construction.....................................................34
9.14 Incorporation of Exhibits and Schedules..........................34
iii
Exhibit A - Certificate of Merger
Exhibit B -- IsoRay Director & Officer Lock-Up Agreement
Exhibit C - Xxxxxxxxx Lock-Up Agreement
Exhibit D - Registration Rights Agreement
Exhibit E - Xxxxxxxxx Escrow Agreement
Exhibit F - Xxxxxxx Escrow Agreement
Disclosure Schedule -- Exceptions to Representations and Warranties
iv
MERGER AGREEMENT
Agreement entered into as of May ____, 2005, by and among Century Park
Pictures Corporation, a Minnesota corporation (the "BUYER"), Century Park
Transitory Subsidiary, Inc., a Delaware corporation that is a wholly-owned
Subsidiary of the Buyer (the "TRANSITORY SUBSIDIARY"), and IsoRay Medical, Inc.,
a Delaware corporation (the "TARGET"). The Buyer, the Transitory Subsidiary, and
the Target are referred to collectively herein as the "PARTIES."
A. Target is engaged in the business of developing, manufacturing and
marketing medical devices for the treatment of cancer.
B. Buyer is a public company without any ongoing business operations whose
shareholders would like to acquire Target as it has operations which Buyer
believes could be financed by the public markets.
C. Target needs financing to meet its business objectives and Target's
management believes the needed financing may become more readily available
following the merger due to the anticipated increase in liquidity of the
combined companies.
D. Transitory Subsidiary has been formed to merge with and into the Target
pursuant to a non-taxable reorganization under Section 368(a) (1) (A) of the
Internal Revenue Code of 1986, as amended ("Code"), and specifically as a
reverse triangular merger as authorized by Section 368(a) (2) (E) of the Code
whereby the Common Stock and other securities of the Buyer shall be used as
consideration for the transaction.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"AUDITED STATEMENTS" has the meaning set forth in SECTION 3.5 below.
"BUYER" has the meaning set forth in the preface above.
"BUYER OPTIONS" means any options to purchase Common Stock issued by Buyer.
"BUYER PREFERRED SHARES" means any shares of Preferred Stock, of any
series, issued by Buyer.
"BUYER SECURITIES" means all Buyer Options, Buyer Preferred Shares, Buyer
Shares, and Buyer Warrants.
"BUYER SPECIAL MEETING" has the meaning set forth in SECTION 5.3(C) below.
"BUYER SHARES" means any shares of Common Stock, $.001 par value per share,
issued by Buyer.
"BUYER WARRANTS" means any warrants to purchase Preferred or Common Stock
issued by the Buyer.
"CERTIFICATE OF MERGER" has the meaning set forth in SECTION 2.3 below.
"CLOSING" has the meaning set forth in SECTION 2.2 below.
"CLOSING DATE" has the meaning set forth in SECTION 2.2 below.
"CONFIDENTIAL INFORMATION" means any information concerning the businesses
and affairs of the Target that is not already generally available to the public.
"CONSENT" means any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTRACT" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"DELAWARE GENERAL CORPORATION LAW" means the General Corporation Law of the
State of Delaware, as amended.
"DERIVATIVE SECURITIES" shall mean those securities as defined in SECTION
3.2 below.
"DISCLOSURE SCHEDULE" has the meaning set forth in SECTION 3 below.
"DISSENTING SHARE" has the meaning set forth in SECTION 2.6 below.
"EFFECTIVE TIME" has the meaning set forth in SECTION 2.4(A) below.
"ENCUMBRANCE" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"ERISA" means the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"GOVERNMENTAL AUTHORIZATION" means any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY" means any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
"INTELLECTUAL PROPERTY ASSETS" has the meaning set forth in SECTION 3.23
below.
"KNOWLEDGE" means an individual shall be deemed to have "Knowledge" of a
particular fact or other matter if (i) such individual is actually aware of such
fact or other matter, or (ii) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the existence of
such fact or other matter. A Person (other than an individual) will be deemed to
have "Knowledge" of a particular fact or other matter if any individual who is
serving, or who has at any time within the last six years served, as a director,
officer, partner, executor, or trustee of such Person (or in any similar
capacity) has, or at any time within the last six years had, Knowledge of such
2
fact or other matter provided that the loyalty and diligence of such director,
officer, partner, executor or trustee was at the time and under the
circumstances Knowledge was acquired, steadfast and undiminished.
"LEGAL REQUIREMENT" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"MAJOR BUYER SHAREHOLDERS" shall mean Xxxxxxx Xxxxxxxxx and Xxxxxx Xxxxxxx,
who collectively own approximately 44% of the outstanding Buyer Shares.
"MERGER" has the meaning set forth in SECTION 2.1 below.
"MERGER CONSIDERATION" has the meaning set forth in SECTION 2.4(E) below.
"MINNESOTA BUSINESS CORPORATION ACT" means the Business Corporation Act of
the State of Minnesota, as amended.
"MOST RECENT FISCAL QUARTER END" has the meaning set forth in SECTION 4.C.2
below.
"ORDER" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" means an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of such
Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority); and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or by
any Person or group of Persons exercising similar authority), in the ordinary
course of the normal day-to-day operations of other Persons that are in the same
line of business as such Person.
"ORGANIZATIONAL DOCUMENTS" shall mean (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"PARTY" has the meaning set forth in the preface above.
"PERSON" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"PROCEEDING" means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body, or arbitrator.
"RELATED PERSON" means, with respect to a particular individual:
(a) each other member of such individual's Family;
3
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material Interest;
and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or
(c).
For purposes of this definition, (a) the "FAMILY" of an individual includes
(i) the individual, (ii) the individual's spouse and former spouses, (iii) any
other natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "MATERIAL INTEREST" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least 5% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 5% of the outstanding equity securities or
equity interests in a Person.
"REQUISITE STOCKHOLDER APPROVAL" means the affirmative vote of the holders
of fifty and one-tenth percent (50.1%) of the Target Shares.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialman's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"SUBSIDIARY" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"SURVIVING CORPORATION" has the meaning set forth in SECTION 2.1 below.
"TARGET" has the meaning set forth in the preface above.
4
"TARGET DEBENTURES" means any convertible debentures issued by Target.
"TARGET OPTIONS" means any options to purchase Common Stock issued by
Target.
"TARGET PPM" means the private placement memorandum and special meeting
notice prepared by Target for distribution to its shareholders in connection
with the Merger.
"TARGET PREFERRED SHARES" means any shares of Preferred Stock, of any
series, issued by Target.
"TARGET SECURITIES" means all Target Options, Target Preferred Shares,
Target Shares and Target Warrants.
"TARGET SECURITYHOLDER" means any Person who or which holds any Target
Securities.
"TARGET SHARE" means any share of the Common Stock, $.001 par value per
share, of the Target.
"TARGET SPECIAL MEETING" has the meaning set forth in SECTION 5.3(B) below.
"TARGET STOCKHOLDER" means any Person who or which holds any Target Shares
or Target Preferred Shares.
"TARGET WARRANTS" means any warrants to purchase Preferred or Common Stock
issued by Target.
"TAX RETURN" means any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any tax.
"THREATENED" means that a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made (orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other circumstances exist,
that would lead a prudent Person to conclude that such a claim, Proceeding,
dispute, action, or other matter is likely to be asserted, commenced, taken, or
otherwise pursued in the future.
"TRANSITORY SUBSIDIARY" has the meaning set forth in the preface above.
2. BASIC TRANSACTION.
2.1 THE MERGER.
On and subject to the terms and conditions of this Agreement, the
Transitory Subsidiary will merge with and into the Target (the "MERGER") at the
Effective Time. The Target shall be the corporation surviving the Merger (the
"SURVIVING CORPORATION") and shall be a wholly-owned subsidiary of Buyer.
2.2 THE CLOSING.
The closing of the transactions contemplated by this Agreement (the
"CLOSING") shall take place at the offices of Xxxxxx Xxxxxxxx, PLC in Phoenix,
Arizona, commencing at 10:00 a.m. local time on the second business day
following the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as the Parties may mutually determine (the
"CLOSING DATE").
5
2.3 ACTIONS AT THE CLOSING.
At the Closing, (i) the Target will deliver to the Buyer and the Transitory
Subsidiary the various certificates, instruments, and documents referred to in
SECTION 6.1 below, (ii) the Buyer and the Transitory Subsidiary will deliver to
the Target the various certificates, instruments, and documents referred to in
SECTION 6.2 below, (iii) the Target and the Transitory Subsidiary will file with
the Secretary of State of the State of Delaware a Certificate of Merger in the
form attached hereto as EXHIBIT A (the "CERTIFICATE OF MERGER"), and (iv) the
Buyer will cause the Buyer Securities to be exchanged in the manner provided in
the i Certificate of Merger.
2.4 EFFECT OF MERGER.
(a) General. The Merger shall become effective at the time (the "EFFECTIVE
TIME") the Target and the Transitory Subsidiary file the Certificate of Merger
with the Secretary of State of the State of Delaware. The Merger shall have the
effect set forth in the Delaware General Corporation Law. The Surviving
Corporation may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name and on behalf of
either the Target or the Transitory Subsidiary in order to carry out and
effectuate the transactions contemplated by this Agreement.
(b) Articles of Incorporation. Unless otherwise determined by Buyer prior
to the Effective Time, the Articles of Incorporation of the Target shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by law and such Articles of Incorporation. Concurrent with the
Merger, the name of Buyer shall be changed to "IsoRay, Inc." and the name of the
Surviving Corporation shall be changed to "IsoRay Medical, Inc."
(c) Bylaws. The Bylaws of the Target, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended, and the Bylaws of the Buyer shall remain unchanged until
later amended by the Buyer's new Board of Directors.
(d) Directors and Officers. At least a majority of the directors and
officers of the Target shall become directors and officers of the Surviving
Corporation at and as of the Effective Time (retaining their respective
positions and terms of office). At the Effective Time, all of the directors and
officers of the Buyer shall resign and the directors of the Buyer following the
Merger shall be Xxxxxx Xxxxxxxx, Xxxxxx XxXxx, Xxxxx Xxxxxx, Xxxxx Xxxxxxxx, and
Xxxxxxx X. Xxxxxxxxxx and the officers of the Buyer shall be Xxxxx Xxxxxx, CEO
and Xxxxxxx Xxxxxx, CFO.
(e) Conversion of Target Securities. At and as of the Effective Time, each
Target Security (other than any Dissenting Share) shall be converted into the
right to receive Buyer Securities as set forth in the Certificate of Merger
attached hereto as EXHIBIT A. No Target Security shall be deemed to be
outstanding or to have any rights other than those set forth above in this
SECTION 2.4 after the Effective Time.
(f) Amendment of Target Debentures. At and as of the Effective Time, each
Target Debenture shall be amended such that they are convertible into Buyer
Shares as set forth in the Certificate of Merger attached hereto as EXHIBIT A
rather than being convertible into Target Shares pursuant to their original
terms, although repayment of the Target Debentures shall remain an obligation of
Target that will be assumed by the Surviving Corporation.
(g) Conversion of Capital Stock of the Transitory Subsidiary. At and as of
the Effective Time, each share of Common Stock, $0.001 par value per share, of
the Transitory Subsidiary shall be converted into one share of Common Stock,
$0.001 par value per share, of the Surviving Corporation as set forth in the
Certificate of Merger attached hereto as EXHIBIT A. Each stock certificate of
Transitory Subsidiary evidencing ownership of any such shares shall continue to
evidence ownership of such shares of capital stock of the Surviving Corporation.
6
2.5 CLOSING OF TRANSFER RECORDS.
After the close of business on the Closing Date, transfers of Target
Securities outstanding prior to the Effective Time shall not be made on the
stock transfer books of the Surviving Corporation.
2.6 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary, any
Target Shares or Target Preferred Shares issued and outstanding immediately
prior to the Effective Time that are held by a Target Stockholder who has
exercised and perfected appraisal rights for such shares in accordance with the
Delaware General Corporation Law and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal rights ("DISSENTING SHARES"), shall
not be converted into or represent a right to receive Buyer Shares or Buyer
Preferred Shares pursuant to SECTION 2.4, but the holder thereof shall only be
entitled to such rights as are granted by the Delaware General Corporation Law.
(b) Notwithstanding the provisions of subsection (a), if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure to perfect
or otherwise) his or her appraisal rights, then, as of the later of Effective
Time and the occurrence of such event, such holder's shares shall automatically
be converted into and represent only the right to receive the Buyer Shares or
Buyer Preferred Shares to which such Target Stockholder would otherwise be
entitled under SECTION 2.4 upon surrender of the certificate representing such
shares.
(c) The Target shall give the Buyer prompt notice of any written demand for
appraisal received by the Target pursuant to the applicable provisions of the
Delaware General Corporation Law and the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Target shall not,
except with the prior written consent of the Buyer, voluntarily make any payment
with respect to any such demands or offer to settle or settle any such demands.
(d) After payments of fair value in respect of Dissenting Shares have been
made to dissenting shareholders pursuant to the Delaware General Corporation
Law, such Dissenting Shares shall be canceled.
3. REPRESENTATIONS AND WARRANTIES OF THE TARGET.
The Target represents and warrants to Buyer and the Transitory Subsidiary
that the statements contained in this SECTION 3 are correct and complete as of
the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this SECTION 3), except as set forth in
the Disclosure Schedule accompanying this Agreement and initialed by the Parties
(the "DISCLOSURE SCHEDULE"). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this SECTION 3.
3.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER.
Target is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. Target is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required except where the lack of such
qualification would not have a material adverse effect on the financial
condition of the Target taken as a whole or on the ability of the Parties to
consummate the transactions contemplated by this Agreement. Target has full
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it.
7
3.2 CAPITALIZATION.
The entire authorized capital stock of the Target consists of 100,000,000
Target Shares, of which 7,209,119 Target Shares are issued and outstanding and
none are held in treasury, 1,000,000 Target Series A Preferred Shares, of which
none are issued and outstanding and none are held in treasury, and 5,000,000
Target Series B Preferred Shares, of which 1,484,723 are issued and outstanding
and none are held in treasury. All of the issued and outstanding Target Shares
and Target Preferred Shares have been duly authorized and are validly issued,
fully paid, and nonassessable, free and clear of all Encumbrances. Other than as
set forth in Schedule 3.2 which shall be updated through the date of the Closing
for future sales of Target Debentures and issuance of Target Options, if any,
there are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require the Target to issue, sell, or otherwise cause to
become outstanding any of its capital stock (collectively, "DERIVATIVE
SECURITIES"). There are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to the Target.
Schedule 3.2 contains a complete list of the holders of and the date of issuance
of the Target Shares and the Derivative Securities and the number of securities
held by each. None of the Target Shares or Derivative Securities was issued in
violation of the Securities Act or any other Legal Requirement. Other than as
set forth in Schedule 3.2, no registration rights have been given to any holder
of capital stock or Derivative Securities. The Target does not have any Contract
to acquire any equity securities or other securities of any Person or any direct
or indirect equity or ownership interest in any other business.
3.3 AUTHORIZATION OF TRANSACTION.
The Target has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its obligations
hereunder; provided, however, that the Target cannot consummate the Merger
unless and until it receives the Requisite Stockholder Approval. This Agreement
constitutes the valid and legally binding obligation of the Target, enforceable
in accordance with its terms and conditions.
3.4 NONCONTRAVENTION.
Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will, directly or
indirectly, (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Target is subject or any provision of the
charter or bylaws of Target or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which Target is a party or by which it is bound or to which any of its assets
is subject (or result in the imposition of any Security Interest upon any of its
assets) or (iii) cause Target to become subject to, or to become liable for the
payment of, any tax, or (iv) cause any of the assets owned by Target to be
reassessed or revalued by any taxing authority or other Governmental Body. Other
than in connection with the Delaware General Corporation Law, the Securities
Exchange Act, the Securities Act, and the state securities laws, Target does not
need to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement. Except as
set forth in Schedule 3.4, Target will not be required to give any notice to or
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the transactions
contemplated herein.
3.5 FINANCIAL STATEMENTS.
Buyer has received audited consolidated balance sheets of Target's
predecessor companies as of December 31 in each of the two years ended 2002 and
2003, and the related audited consolidated statements of income, changes in
8
stockholders' equity, and cash flow for each of the fiscal years then ended,
including the notes thereto, together with the report thereon of DeCoria,
Maichel & Xxxxxx, independent certified public accountants (collectively,
"AUDITED STATEMENTS"); an audited balance sheet of the Target as at March 31,
2005, (the "INTERIM BALANCE SHEET") and the related audited statements of
income, changes in stockholders' equity, and cash flow for the six months then
ended, including the notes thereto, together with the report thereon of DeCoria,
Maichel & Xxxxxx, independent certified public accountants; and an unaudited
consolidated balance sheet of the Target and its predecessors, as applicable, as
at September 30, 2004 and the unrelated unaudited consolidated statements of
income, changes in stockholders' equity and cash flow for the nine months then
ended, including the notes thereto. Such financial statements and notes do and
shall fairly present the financial condition and the results of operations,
changes in stockholders' equity, and cash flow of the Target or its predecessor
companies, as applicable, as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with GAAP. The
financial statements referred to in this SECTION 3.5 shall reflect the
consistent application of such accounting principles throughout the periods
involved. No financial statements of any Person other than the Target and its
predecessor companies are required by GAAP to be included in the consolidated
financial statements of the Target.
3.6 BOOKS AND RECORDS.
The minute books of the Target contain accurate and complete records of all
meetings held of, and corporate action taken by, the stockholders, the Board of
Directors, and committees of the Board of Directors of the Target, and no
meeting of any such stockholders, Board of Directors, or committee has been held
for which minutes have not been prepared and are not contained in such minute
books. At the Closing, all of those books and records will be in the possession
of the Target.
3.7 TITLE TO PROPERTIES; ENCUMBRANCES.
Schedule 3.7 contains a complete and accurate list of all real property,
leaseholds, or other interests therein owned by Target. The Target owns (with
good and marketable title in the case of real property, subject only to the
matters permitted by the following sentence) all the properties and assets
(whether real, personal, or mixed and whether tangible or intangible) that it
purports to own, including all of the properties and assets reflected in the
Audited Statements and the Interim Balance Sheet (except for assets held under
capitalized leases disclosed in Schedule 3.7 and personal property sold since
the date of the Audited Statements and the Interim Balance Sheet, as the case
may be, in the Ordinary Course of Business), and all of the properties and
assets purchased or otherwise acquired by the Target since the date of the
Audited Statements (except for personal property acquired and sold since the
date of the Audited Statements in the Ordinary Course of Business and consistent
with past practice). All material properties and assets reflected in the Audited
Statements and the Interim Balance Sheet are free and clear of all Security
Interests other than as set forth in Schedule 3.7.
3.8 CONDITION AND SUFFICIENCY OF ASSETS.
The equipment of the Target is in good operating condition and repair, and
is adequate for the uses to which it is being put. The equipment will be
sufficient for the continued conduct of the Target's business after the Closing
in substantially the same manner as conducted prior to the Closing.
3.9 NO UNDISCLOSED LIABILITIES.
Except as set forth in Schedule 3.9, the Target has no liabilities or
obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent, or otherwise) except for current liabilities incurred in
the Ordinary Course of Business.
9
3.10 TAXES.
(a) Except as set forth in Schedule 3.10, the Target and its predecessor
companies have filed or caused to be filed (on a timely basis since inception of
the Target and its predecessors) all Tax Returns that are or were required to be
filed by or with respect to any of them, either separately or as a member of a
group of corporations, pursuant to applicable Legal Requirements. Target has
delivered to Buyer copies of all such Tax Returns filed since inception of the
Target and its predecessor companies. The Target and its predecessor companies
have paid all taxes that have become due pursuant to those Tax Returns or
otherwise, or pursuant to any assessment received by Target and its predecessor
companies, except such taxes, if any, as are listed in Schedule 3.10 and are
being contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the Audited Statements and on the
Interim Balance Sheet.
(b) The charges, accruals, and reserves with respect to Taxes on the
respective books of Target are adequate (determined in accordance with GAAP) and
are at least equal to Target's liability for Taxes. All taxes that Target is or
was required by Legal Requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
(c) All Tax Returns filed by (or that include on a consolidated basis)
Target and its predecessor companies are true, correct, and complete. There is
no tax sharing agreement that will require any payment by Target and its
predecessor companies after the date of this Agreement.
3.11 NO MATERIAL ADVERSE CHANGE.
Since the date of the Interim Balance Sheet, there has not been any
material adverse change in the business, operations, properties, prospects,
assets, or condition of Target, and no event has occurred or circumstance exists
that may result in such a material adverse change.
3.12 EMPLOYEE BENEFITS.
(a) Target is not a party to or obligated to contribute to any employee
benefit plan as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA") (an "EMPLOYEE BENEFIT PLAN"), guaranteed annual
income plan, fund or arrangement, or any collective bargaining agreement, or any
other agreement, plan or arrangement similar to or in the nature of the
foregoing, oral or written.
(b) There has not been any (i) termination or partial termination of any
Employee Pension Benefit Plan maintained by Target (or any person, firm or
corporation which is or was under common control within the meaning of Section
4001(b) of ERISA, with Target (hereinafter called "AFFILIATE") during the period
of such common control, at a time when Title IV of ERISA applied to such Plan,
(ii) commencement of any proceeding to terminate any such Plan pursuant to
ERISA, or otherwise, or (iii) written notice given to Target or any affiliate of
the intention to commence or seek the commencement of any such proceeding, which
(under (i)) resulted or (under (ii) or (iii) would result in an insufficiency of
plan assets necessary to satisfy benefit commitments under Title IV of ERISA or
benefits vested under the Plan. Neither Target nor any affiliate has incurred
withdrawal liability, complete or partial, under the Multiemployer Pension Plan
Amendments Act of 1980 on or prior to the date hereof.
3.13 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
(a) Except as set forth in Schedule 3.13:
(i) Target is, and at all times since inception has been, in full
compliance with each Legal Requirement that is or was applicable to it or to the
conduct or operation of its business or the ownership or use of any of its
assets;
10
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result in a violation by
Target of, or a failure on the part of Target to comply with, any Legal
Requirement, or (B) may give rise to any obligation on the part of Target to
undertake, or to bear all or any portion of the cost of, any remedial action of
any nature; and
(iii) Target has not received, at any time since inception, any notice
or other communication (whether oral or written) from any Governmental Body or
any other Person regarding (A) any actual, alleged, possible, or potential
violation of, or failure to comply with, any Legal Requirement, or (B) any
actual, alleged, possible, or potential obligation on the part of Target to
undertake, or to bear all or any portion of the cost of, any remedial action of
any nature.
(b) Schedule 3.13 contains a complete and accurate list of each
Governmental Authorization that is held by Target or that otherwise relates to
the business of, or to any of the assets owned or used by, Target. Each
Governmental Authorization listed or required to be listed in Schedule 3.13 is
valid and in full force and effect. Except as set forth in Schedule 3.13:
(i) Target is, and at all times since inception has been, in full
compliance with all of the terms and requirements of each Governmental
Authorization identified or required to be identified in Schedule 3.13;
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time) (A) constitute or result directly or indirectly
in a violation of or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in Schedule 3.13, or
(B) result directly or indirectly in the revocation, withdrawal, suspension,
cancellation, or termination of, or any modification to, any Governmental
Authorization listed or required to be listed in Schedule 3.13;
(iii) Target has not received, at any time since inception, any notice
or other communication (whether oral or written) from any Governmental Body or
any other Person regarding (A) any actual, alleged, possible, or potential
violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization; and
(iv) all applications required to have been filed for the renewal of
the Governmental Authorizations listed or required to be listed in Schedule 3.13
have been duly filed on a timely basis with the appropriate Governmental Bodies,
and all other filings required to have been made with respect to such
Governmental Authorizations have been duly made on a timely basis with the
appropriate Governmental Bodies.
The Governmental Authorizations listed in Schedule 3.13 collectively
constitute all of the Governmental Authorizations necessary to permit Target to
lawfully conduct and operate its business in the manner it currently conducts
and operates such business and to permit the Target to own and use its assets in
the manner in which it currently owns and uses such assets.
3.14 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Schedule 3.14, there is no pending Proceeding:
(i) that has been commenced by or against Target or that otherwise
relates to or may affect the business of, or any of the assets owned or used by,
Target; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, the Merger.
(1) No such Proceeding has been Threatened, and (2) no event has occurred
or circumstance exists that may give rise to or serve as a basis for the
commencement of any such Proceeding. Target has delivered to Buyer copies of all
pleadings, correspondence, and other documents relating to each Proceeding
listed in Schedule 3.14. The Proceedings listed in Schedule 3.14 will not have a
11
material adverse effect on the business, operations, assets, condition, or
prospects of Target.
(b) Except as set forth in Schedule 3.14:
(i) there is no Order to which any of the Target, or any of the assets
owned or used by Target, is subject; and
(ii) no officer, director, agent, or employee of Target is subject to
any Order that prohibits such officer, director, agent, or employee from
engaging in or continuing any conduct, activity, or practice relating to the
business of Target.
(c) Except as set forth in Schedule 3.14
(i) Target is, and at all times since inception has been, in full
compliance with all of the terms and requirements of each Order to which it, or
any of the assets owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may constitute
or result in (with or without notice or lapse of time) a violation of or failure
to comply with any term or requirement of any Order to which Target, or any of
the assets owned or used by Target is subject; and
(iii) Target has not received, at any time since inception, any notice
or other communication (whether oral or written) from any Governmental Body or
any other Person regarding any actual, alleged, possible, or potential violation
of, or failure to comply with, any term or requirement of any Order to which
Target, or any of the assets owned or used by Target, is or has been subject.
3.15 ABSENCE OF CERTAIN CHANGES AND EVENTS.
Except as set forth in Schedule 3.15 since March 31, 2005, Target has
conducted its business only in the Ordinary Course of Business and there has not
been any:
(a) change in Target's authorized or issued capital stock; grant of
any Derivative Securities of Target; grant of any registration rights; purchase,
redemption, retirement, or other acquisition by Target of any shares of any such
capital stock; or declaration or payment of any dividend or other distribution
or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of Target;
(c) payment or increase by Target of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the Ordinary
Course of Business) employee or entry into any employment, severance, or similar
Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of Target;
(e) damage to or destruction or loss of any asset or property of
Target, whether or not covered by insurance, materially and adversely affecting
the properties, assets, business, financial condition, or prospects of Target,
taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint venture,
credit, or similar agreement, or (ii) any Contract or transaction involving a
total remaining commitment by or to Target of at least $10,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of Target or
mortgage, pledge, or imposition of any lien or other encumbrance on any material
12
asset or property of Target, including the sale, lease, or other disposition of
any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to
Target in excess of $10,000;
(i) material change in the accounting methods used by Target; or
(j) agreement, whether oral or written, by Target to do any of the
foregoing.
3.16 CONTRACTS; NO DEFAULTS.
(a) Schedule 3.16 contains a complete and accurate list of:
(i) each Contract that involves performance of services or delivery of
goods or materials by Target of an amount or value in excess of $10,000;
(ii) each Contract that involves performance of services or delivery
of goods or materials to Target of an amount or value in excess of $10,000;
(iii) each Contract that was not entered into in the Ordinary Course
of Business and that involves expenditures or receipts of Target in excess of
$10,000;
(iv) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Contract affecting the ownership of,
leasing of, title to, use of, or any leasehold or other interest in, any real or
personal property (except personal property leases and installment and
conditional sales agreements having a value per item or aggregate payments of
less than $10,000 and with terms of less than one year);
(v) each licensing agreement or other Contract with respect to
patents, trademarks, copyrights, or other intellectual property, including
agreements with current or former employees, consultants, or contractors
regarding the appropriation or the non-disclosure of any of the Intellectual
Property Assets;
(vi) each collective bargaining agreement and other Contract to or
with any labor union or other employee representative of a group of employees;
(vii) each joint venture, partnership, and other Contract (however
named) involving a sharing of profits, losses, costs, or liabilities by Target
with any other Person;
(viii) each Contract containing covenants that in any way purport to
restrict the business activity of Target or any Affiliate of Target or limit the
freedom of Target or any Affiliate of Target to engage in any line of business
or to compete with any Person;
(ix) each Contract providing for payments to or by any Person based on
sales, purchases, or profits, other than direct payments for goods;
(x) each power of attorney that is currently effective and
outstanding;
(xi) each Contract entered into other than in the Ordinary Course of
Business that contains or provides for an express undertaking by Target to be
responsible for consequential damages;
(xii) each Contract for capital expenditures in excess of $10,000;
(xiii) each written warranty, guaranty, or other similar undertaking
with respect to contractual performance extended by Target other than in the
Ordinary Course of Business; and
(xiv) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
13
Schedule 3.16 sets forth reasonably complete details concerning such
Contracts, including the parties to the Contracts and the amount of the
remaining commitment of the Target under the Contracts.
(b) Except as set forth in Schedule 3.16:
(i) no officer, director or shareholder who was in excess of five
percent (5%) of the capital stock of the Target (and no Related Person of the
foregoing) has nor may it acquire any rights under, any Contract that relates to
the business of, or any of the assets owned or used by, Target; and
(ii) no officer, director, agent, employee, consultant, or contractor
of Target is bound by any Contract that purports to limit the ability of such
officer, director, agent, employee, consultant, or contractor to (A) engage in
or continue any conduct, activity, or practice relating to the business of
Target, or (B) assign to Target or to any other Person any rights to any
invention, improvement, or discovery.
(c) Except as set forth in Schedule 3.16, each Contract identified or
required to be identified in Schedule 3.16 is in full force and effect and is
valid and enforceable in accordance with its terms.
(d) Except as set forth in Schedule 3.16:
(i) Target is, and at all times since inception has been, in full
compliance with all applicable terms and requirements of each Contract under
which Target has or had any obligation or liability or by which Target or any of
the assets owned or used by such Target is or was bound;
(ii) each other Person that has or had any obligation or liability
under any Contract under which Target has or had any rights is, and at all times
since inception has been, in full compliance with all applicable terms and
requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give Target or any other Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Contract; and
(iv) Target has not given to or received from any other Person, at any
time since inception, any notice or other communication (whether oral or
written) regarding any actual, alleged, possible, or potential violation or
breach of, or default under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate or outstanding
rights to renegotiate any material amounts paid or payable to Target under
current or completed Contracts with any Person and no such Person has made
written demand for such renegotiation.
3.17 INSURANCE.
(a) On or before Closing, Target will deliver to Buyer:
(i) true and complete copies of all policies of insurance to which
Target is a party or under which Target, or any director of Target, is or has
been covered at any time since inception;
(ii) true and complete copies of all pending applications for policies
of insurance; and
(iii) any statement by the auditor of Target's financial statements
with regard to the adequacy of such entity's coverage or of the reserves for
claims.
(b) Schedule 3.17 describes:
(i) any self-insurance arrangement by or affecting Target, including
any reserves established thereunder;
14
(ii) any contract or arrangement, other than a policy of insurance,
for the transfer or sharing of any risk by Target; and
(iii) all obligations of the Target to third parties with respect to
insurance (including such obligations under leases and service agreements) and
identifies the policy under which such coverage is provided.
(c) Except as set forth on Schedule 3.17:
(i) All policies to which Target is a party or that provide coverage
to Target, or any director or officer of Target:
(A) shall be valid, outstanding, and enforceable;
(B) shall be issued by an insurer that is financially sound and
reputable;
(C) taken together, shall provide adequate insurance coverage for
the assets and the operations of the Target for all risks normally insured
against by a Person carrying on the same business or businesses as Target;
(D) shall be sufficient for compliance with all Legal
Requirements and Contracts to which Target is a party or by which any of them is
bound;
(E) shall continue in full force and effect following the
consummation of the Merger; and
(F) shall not provide for any retrospective premium adjustment or
other experienced-based liability on the part of Target.
(ii) As of Closing, Target will have received (A) any refusal of
coverage or any notice that a defense will be afforded with reservation of
rights, or (B) any notice of cancellation or any other indication that any
insurance policy is no longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to perform its obligations
thereunder.
(iii) The Target shall have paid all premiums due, and have otherwise
performed all of its respective obligations, under each policy to which Target
is a party or that provides coverage to Target or any director thereof.
(iv) The Target shall give notice to the insurer of all claims that
may be insured thereby.
3.18 ENVIRONMENTAL MATTERS.
Except as disclosed in Schedule 3.18, Target (i) is currently in compliance
with all applicable environmental laws, and has obtained all permits and other
authorizations needed to operate its facilities, (ii) has not violated any
applicable environmental law, (iii) is unaware of any present requirements of
any applicable environmental law which is due to be imposed upon it which will
increase its cost of complying with the environmental laws, (iv) all past
on-site generation, treatment, storage and disposal of waste, including
hazardous waste, by Target and its predecessors has been done in compliance with
the currently applicable environmental laws; and (v) all past off-site
treatment, storage and disposal of waste, including hazardous waste, generated
by Target and its predecessors has been done in compliance with the currently
applicable environmental laws. As used in this Agreement, the terms (i)
"Environmental Laws" include but are not limited to any federal, state or local
law, statute, charter or ordinance, and any rule, regulation, binding
interpretation, binding policy, permit, order, court order or consent decree
issued pursuant to any of the foregoing, which pertains to, governs or otherwise
15
regulates any of the following activities, and (ii) "Waste," "Hazardous
Substance," and "Hazardous Waste" include any substance defined as such by any
applicable environmental law.
3.19 EMPLOYEES.
(a) Schedule 3.19 contains a complete and accurate list of the following
information for each employee or director of Target, including each employee on
leave of absence or layoff status; employer; name; job title; current
compensation paid or payable and any change in compensation since March 31,
2005; vacation accrued; and service credited for purposes of vesting and
eligibility to participate under Target's pension, retirement, profit-sharing,
thrift-savings, deferred compensation, stock bonus, stock option, cash bonus,
employee stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare, or vacation plan,
employee pension benefit plan or employee welfare benefit plan, or any other
employee benefit plan or any plan for directors.
(b) No employee or director of Target is a party to, or is otherwise bound
by, any agreement or arrangement, including any confidentiality, noncompetition,
or proprietary rights agreement, between such employee or director and any other
Person ("PROPRIETARY RIGHTS AGREEMENT") that in any way adversely affects or
will affect (i) the performance of his duties as an employee or director of the
Target, or (ii) the ability of Target to conduct its business, including any
Proprietary Rights Agreement with the Target by any such employee or director.
No employee of Target has terminated employment since March 31, 2005.
(c) Schedule 3.19 also contains a complete and accurate list of the
following information for each retired employee or director of the Target, or
their dependents, receiving benefits or scheduled to receive benefits in the
future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other benefits.
3.20 LABOR RELATIONS; COMPLIANCE.
Since inception, Target has not been and is not a party to any collective
bargaining or other labor Contract. Target has complied in all respects with all
Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. Target is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
3.21 INTELLECTUAL PROPERTY.
(a) Intellectual Property Assets. The term "Intellectual Property Assets"
includes:
(i) Target's name, all fictional business names, trading names,
registered and unregistered trademarks, service marks, and applications
(collectively, "MARKS");
(ii) all patents, patent applications, and inventions and discoveries
that may be patentable (collectively, "PATENTS");
(iii) all copyrights in both published works and unpublished works
(collectively, "COPYRIGHTS");
(iv) all rights in mask works (collectively, "RIGHTS IN MASK WORKS");
and
(v) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, "TRADE SECRETS"); owned, used, or
licensed by Target as licensee or licensor.
16
(b) Agreements. Schedule 3.21 contains a complete and accurate list and
summary description, including any royalties paid or received by the Target, of
all Contracts relating to the Intellectual Property Assets to which Target is a
party or by which Target is bound, except for any license implied by the sale of
a product and perpetual, paid-up licenses for commonly available software
programs with a value of less than $10,000 under which Target is the licensee.
There are no outstanding and no threatened disputes or disagreements with
respect to any such agreement.
(c) Know-How Necessary for the Business.
(i) The Intellectual Property Assets are all those necessary for the
operation of the Target's business as it is currently conducted or as reflected
in the business plan given to Buyer by Target. Target is the owner of all right,
title, and interest in and to each of the Intellectual Property Assets, free and
clear of all Security Interests, equities or other adverse claims, and has the
right to use without payment to a third party all of the Intellectual Property
Assets.
(ii) Except as set forth in Schedule 3.21, all former and current
employees of Target have executed written Contracts with Target that assign to
Target all rights to any inventions, improvements, discoveries, or information
relating to the business of Target. No employee of Target has entered into any
Contract that restricts or limits in any way the scope or type of work in which
the employee may be engaged or requires the employee to transfer, assign, or
disclose information concerning his work to anyone other than the Target.
(d) Patents.
(i) Schedule 3.21 contains a complete and accurate list and summary
description of all Patents. Target is the owner of all right, title, and
interest in and to each of the Patents, free and clear of all liens, security
interests, charges, encumbrances, and other adverse claims.
(ii) All of the issued Patents are currently in compliance with formal
legal requirements (including payment of filing, examination, and maintenance
fees and proofs of working or use), are valid and enforceable, and are not
subject to any maintenance fees or taxes or actions falling due within ninety
days after the Closing Date.
(iii) No Patent has been or is now involved in any interference,
reissue, reexamination, or opposition proceeding.
(iv) All products made, used, or sold under the Patents have been
marked with the proper patent notice.
(e) Trademarks.
(i) Schedule 3.21 contains a complete and accurate list and summary
description of all Marks. Target is the owner of all right, title, and interest
in and to each of the Marks, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims.
(ii) All Marks that have been registered with the United States Patent
and Trademark Office are currently in compliance with all formal legal
requirements (including the timely post-registration filing of affidavits of use
and incontestability and renewal applications), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due within
ninety days after the Closing Date.
(iii) No Xxxx has been or is now involved in any opposition,
invalidation, or cancellation.
(iv) All products and materials containing a Xxxx xxxx the proper
federal registration notice where permitted by law.
(f) Copyrights.
17
(i) Schedule 3.21 contains a complete and accurate list and summary
description of all Copyrights. Target is the owner of all right, title, and
interest in and to each of the Copyrights, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims.
(ii) All the Copyrights have been registered and are currently in
compliance with formal legal requirements, are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within
ninety days after the date of Closing.
(iii) All works encompassed by the Copyrights have been marked with
the proper copyright notice.
(g) Trade Secrets.
(i) With respect to each Trade Secret, the documentation relating to
such Trade Secret is current, accurate, and sufficient in detail and content to
identify and explain it and to allow its full and proper use without reliance on
the knowledge or memory of any individual.
(ii) The Target has taken all reasonable precautions to protect the
secrecy, confidentiality, and value of their Trade Secrets.
(iii) Target has good title and an absolute (but not necessarily
exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the
public knowledge or literature, and, to Target's Knowledge, have not been used,
divulged, or appropriated either for the benefit of any Person (other than the
Target) or to the detriment of the Target. No Trade Secret is subject to any
adverse claim or has been challenged or threatened in any way.
3.22 CERTAIN PAYMENTS.
Since inception, neither Target nor any director, officer, agent, or
employee of Target, or other Person associated with or acting for or on behalf
of Target, has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or services
(i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, (iii) to obtain special concessions or
for special concessions already obtained, for or in respect of Target or any
Affiliate of Target, or (iv) in violation of any Legal Requirement, (b)
established or maintained any fund or asset that has not been recorded in the
books and records of the Target.
3.23 RELATIONSHIPS WITH RELATED PERSONS.
Except as set forth in Schedule 3.23, no Related Person of Target has, or
since inception of the Target has had, any interest in any property (whether
real, personal, or mixed and whether tangible or intangible), used in or
pertaining to the Target's business. No Related Person of Target is, or since
inception of the Target has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i) had
business dealings or a material financial interest in any transaction with
Target, or (ii) engaged in competition with Target with respect to any line of
the products or services of Target (a "COMPETING BUSINESS") in any market
presently served by Target except for less than one percent of the outstanding
capital stock of any Competing Business that is publicly traded on any
recognized exchange or in the over-the-counter market. Except as set forth in
Schedule 3.23, no Related Person of Target is a party to any Contract with, or
has any claim or right against, Target.
3.24 BROKERS' FEES.
Other than as set forth in Schedule 3.24, Target has no any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
18
3.25 TAX TREATMENT.
Neither the Target nor any of its Affiliates has taken or agreed to take
any action, or is aware of any fact or circumstance, that would prevent the
Merger from qualifying as a reorganization within the meaning of Section 368 of
the Internal Revenue Code (a "368 REORGANIZATION"). The Target operates at least
one significant historic business line, or owns at least a significant portion
of its historic business assets, in each case within the meaning of Treasury
Regulation 1.368-1(d).
3.26 DISCLOSURE.
(a) The Target PPM will comply with the Securities Act in all material
respects. The Target PPM will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they will be made,
not misleading; provided, however, that the Target makes no representation or
warranty with respect to any information that the Buyer and the Transitory
Subsidiary will supply specifically for use in the Target PPM.
(b) No representation or warranty of Target in this Agreement omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances in which they were made, not misleading.
(c) No notice given pursuant to SECTION 9.8 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE TRANSITORY
SUBSIDIARY AND THE MAJOR BUYER SHARHOLDERS.
4.A. The Buyer and the Transitory Subsidiary represent and warrant, and
each of the Major Buyer Shareholders represents, to the Target that the
statements contained in this SECTION 4.A are correct and complete as of the date
of this Agreement and will be correct and complete (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this SECTION 4.A), except as set forth in the Disclosure Schedule.
The Disclosure Schedule will be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this SECTION 4:
4.A.1. ORGANIZATION.
The Buyer and the Transitory Subsidiary are, and will as of the Closing
Date be, corporations duly organized, validly existing, and in good standing
under the laws of the jurisdiction of their respective incorporations;
4.A.2. NO BROKERS' FEES.
Neither the Buyer nor the Transitory Subsidiary have any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which the Target
could become liable or obligated; and
4.A.3. BUYER'S SECURITIES.
(a) The entire authorized capital stock of the Buyer consists of
200,000,000 Buyer Shares, of which 74,956,441 Buyer Shares are issued and
outstanding and none are held in treasury as of the date of execution of this
Agreement;
19
(b) all of the issued and outstanding Buyer Shares have been duly
authorized and are validly issued, fully paid, and nonassessable;
(c) the Buyer Securities to be delivered at Closing pursuant to SECTION 2
have been duly authorized and are validly issued, fully paid, and
non-assessable;
(d) Buyer only has one class of common stock which is not divided into
series, and these Buyer Securities represent, on a fully diluted basis, not less
than eighty-two percent (82%) of Buyer's total outstanding securities, whether
voting or non-voting;
(e) except as may be disclosed in Schedule 4.A.3, there are no outstanding
or authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights or contracts or commitments that could
require Buyer to issue, sell, or otherwise cause to become outstanding any of
its capital stock, and there are no outstanding authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Buyer
(collectively, "BUYER DERIVATIVE SECURITIES"); and
(f) as of the Closing, there shall not be any issued Buyer Derivative
Securities and any Buyer Derivative Securities not exercised prior to the
Closing shall be cancelled and rendered null and void; PROVIDED THAT the
representations of Xx. Xxxxxxxxx in this paragraph are made solely on the basis
of his Knowledge.
4.B. The Buyer and the Transitory Subsidiary warrant, and Xxxxxxx
represents to the Target that the following statements contained in this SECTION
4.B are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
SECTION 4.B), except as set forth in the Disclosure Schedule.
4.B.1. NO BUSINESS CONDUCTED.
Since September, 1999, Buyer has conducted no business, sales or marketing
activities nor generated any revenue.
4.B.2. UNDISCLOSED LIABILITIES.
Neither Buyer nor Transitory Subsidiary will have any liability (whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due)
as of the Closing.
4.B.3. AUTHORIZATION OF TRANSACTION.
The Buyer and the Transitory Subsidiary have full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform their respective obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Buyer and the
Transitory Subsidiary, enforceable in accordance with its terms and conditions.
4.B.4. DISCLOSURE.
Any information supplied by the Buyer for inclusion in the Target PPM and
any filing made by Buyer with the SEC regarding the Merger will comply with the
Securities Act and Securities Exchange Act, as applicable, in all material
respects. Such disclosures will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
20
made therein, in the light of the circumstances under which they will be made,
not misleading; provided, however, that the Buyer and the Transitory Subsidiary
make no representation or warranty with respect to any information that the
Target will supply specifically for use in any SEC filings.
4.C. The Buyer and the Transitory Subsidiary warrant, and Xxxxxxx
represents to his Knowledge to the Target that the following statements
contained in this SECTION 4.C are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this SECTION 4.C), except as set forth in the Disclosure
Schedule.
4.C.1. FILINGS WITH THE SEC.
(a) Buyer has delivered or otherwise made available to Target true and
complete copies of (i) the Buyer's annual reports on Form 10-KSB for its fiscal
years ended September 30, 2004, 2003 and 2002, (ii) the Buyer 10-QSBs for its
fiscal quarters ended December 31, 2004 and Xxxxx 00, 0000, (xxx) its proxy or
information statements relating to meetings of, or actions taken without a
meeting by, the shareholders of the Buyer held since September 30, 2004, and
(iv) all of its other reports, statements, schedules and registration statements
(and all exhibits, attachments, schedules and appendixes filed with the
foregoing) filed with the SEC since September 30, 2004 (the documents referred
to in this SECTION 4.C.1(A), collectively, the "BUYER SEC DOCUMENTS"). The Buyer
has timely filed all forms, reports and documents required to be filed by the
Buyer pursuant to any relevant securities statutes, regulations and rules. None
of the Buyer's Subsidiaries is subject to the periodic reporting requirements of
the Securities Exchange Act or is otherwise required to file any forms, reports
or registration statements with the SEC, any state or local securities
regulatory agency.
(b) As of its filing date, each Buyer SEC Document complied, and each such
Buyer SEC Document filed subsequent to the date hereof will comply, as to form
in all material respects with the applicable requirements of the Securities Act
and the Securities Exchange Act, as the case may be.
(c) As of its filing date (or, if amended or superseded by a filing prior
to the date hereof, on the date of such filing), each Buyer SEC Document filed
did not, and each such Buyer SEC Document filed subsequent to the date hereof
and prior to the Closing Date will 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 the light of the circumstances under which they were
made, not misleading.
4.C.2. FINANCIAL STATEMENTS.
The Buyer has filed a Quarterly Report on Form 10-QSB for the fiscal
quarter ended March 31, 2005 (the "MOST RECENT FISCAL QUARTER END") and an
Annual Report on Form 10-KSB for the fiscal year ended September 30, 2004. The
financial statements included in or incorporated by reference into these Buyer
SEC Documents (including the related notes and schedules) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby and present fairly the financial condition of the Buyer as of
the indicated dates and the results of operations of the Buyer for the indicated
periods; provided, however, that the interim statements are subject to normal
year-end adjustments.
4.C.3. BOOKS AND RECORDS.
The books and records of the Buyer, in all material respects, (i) have been
maintained in accordance with good business practices on a basis consistent with
prior years, (ii) state in reasonable detail the material transactions and
dispositions of the assets of the Buyer and (iii) accurately and fairly reflect
the basis for the consolidated financial statements of the Buyer filed with the
Buyer SEC Documents. The Buyer has (i) designed and maintains disclosure
controls and procedures (as defined in the Securities Exchange Act) to ensure
21
that material information relating to the Buyer is made known to management of
the Buyer by others within those entities, in a timely manner, and that no
changes are required at this time, and (ii) designed and maintains a system of
internal controls over financial reporting sufficient to provide reasonable
assurances regarding the reliability of financial reporting and the preparation
of financial statements, including that (A) transactions are executed in
accordance with management's general or specific authorization; and (B)
transactions are recorded as necessary (x) to permit preparation of consolidated
financial statements in conformity with GAAP and (y) to maintain accountability
of the assets of the Buyer. The management of the Buyer has disclosed, based on
its most recent evaluation, to the Buyer's auditors and the Buyer's Board of
Directors (i) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Buyer's ability to record,
process, summarize and report financial data and have identified for the Buyer's
auditors any material weaknesses in internal controls and (ii) any fraud,
whether or not material, that involves management or other employees who have a
significant role in the Buyer's internal controls. A summary of any such
disclosure made by management to the Buyer's auditors and Board is set forth on
Schedule 4.C.3. There have been no significant changes in the Buyer's internal
controls or in other factors that could significantly affect the Buyer's
internal controls, or any significant deficiencies or material weaknesses in
such internal controls requiring corrective actions.
4.C.4. NO CONTRAVENTION.
Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which either the Buyer or the Transitory Subsidiary is subject or any
provision of the charter or bylaws of either the Buyer or the Transitory
Subsidiary or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
either the Buyer or the Transitory Subsidiary is a party or by which it is bound
or to which any of its assets is subject. Other than in connection with the
provisions of the Minnesota Business Corporation Act, the Delaware General
Corporation Law, the Securities Exchange Act, the Securities Act, and the state
securities laws, neither the Buyer nor the Transitory Subsidiary needs to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
4.C.5. REPORTING COMPANY STATUS.
Buyer files reports with the SEC pursuant to Section 12(g) of the
Securities Exchange Act. The Buyer has a duly filed all material and documents
required to be filed pursuant to all reporting obligations under either Section
13(a) or 12(g) of the Exchange Act.
4.C.6. NO INJUNCTIONS.
Neither Buyer, nor any of its present officers or present directors have,
during the past five (5) years, been the subject of any injunction, cease and
desist order, assurance of discontinuance, suspension or restraining order,
revocation or suspension of a license to practice a trade, occupation or
profession, denial of an application to obtain or renew same, any stipulation or
consent to desist from any act or practice, any disciplinary action by any court
or administrative agency, nor has Buyer or any of its present officers or
present directors knowingly violated any state or federal laws regulating the
offering and sale of securities.
4.C.7. ANTITAKEOVER STATUTES AND RIGHTS AGREEMENT; DISSENTERS RIGHTS.
The provisions of Section 671 of the Minnesota Business Corporations Act do
not apply to this Agreement, the Merger, or any of the transactions contemplated
hereby and no other antitakeover or similar statute or regulation applies or
22
purports to apply to any such transactions. No other "control share
acquisition," "fair price," "moratorium" or other antitakeover laws or
regulations enacted under U.S. state or federal laws apply to this Agreement,
the Merger, or any of the transactions contemplated hereby. In addition, there
are no available dissenters or appraisal rights for Buyer Security holders for
the Merger or the transactions contemplated by this agreement.
4.C.8. ABSENCE OF CERTAIN CHANGES.
Since the Most Recent Fiscal Quarter End, Buyer has conducted no operations
and, except as disclosed to the Target in writing prior to the date hereof,
there has not been:
(a) any event, occurrence, development or state of circumstances or facts
that has had or would reasonably be expected to have, individually or in the
aggregate, a material adverse effect on Buyer;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Buyer, or any
repurchase, redemption or other acquisition by Buyer of any outstanding shares
of capital stock or other securities of, or other ownership interests in, Buyer;
(c) any split, combination or reclassification of any capital stock of the
Buyer or any issuance or the authorization of any issuance of any securities of
the Buyer;
(d) any amendment of any material term of any outstanding security of
Buyer;
(e) any change in any method of accounting or accounting principles or
practice by Buyer, except for any such change required by reason of a concurrent
change in GAAP or Regulation S-X under the Securities Exchange Act; or
(f) any contract, agreement, arrangement or understanding by Buyer to do
any of the things described in the preceding clauses (a) through (e).
4.C.9. COMPLIANCE WITH LAWS AND COURT ORDERS.
Buyer is and has been in compliance with, and is not under investigation
with respect to and has not been threatened to be charged with or given notice
of any violation of, any applicable law, rule, regulation, judgment, injunction,
order or decree, except for violations that would not reasonably be expected to
be material to Buyer.
4.C.10. TAX TREATMENT.
Neither Buyer nor any of its Affiliates has taken or agreed to take any
action, or is aware of any fact or circumstance, that would prevent the Merger
from qualifying as a 368 Reorganization.
23
4.C.11. LITIGATION.
Except as set forth in Schedule 4.C.11, there is no action, suit,
investigation or proceeding (or any basis therefore) pending against, or
threatened against or affecting, Buyer, any present or former officer, director
or employee of Buyer or any Person for whom Buyer may be liable or any of its
properties before any court or arbitrator or before or by any governmental body,
agency or official, domestic, foreign or supranational, that, if determined or
resolved adversely in accordance with the plaintiff's demands, would reasonably
be expected to be material to Buyer or that in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the Merger or any of the other
transactions contemplated hereby.
4.C.12. AGREEMENTS, CONTRACTS AND COMMITMENTS.
Neither Buyer nor any other party to a Buyer Contract (as defined below) is
in breach, violation or default under, and Buyer has not received written notice
that it has breached, violated or defaulted under, any of the terms or
conditions of any of the agreements, contracts or commitments to which Buyer is
a party or by which they are bound (any such agreement, contract or commitment,
a "BUYER CONTRACT"), except for breaches, violations or defaults that,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on Buyer.
5. COVENANTS.
The Parties agree as follows with respect to the period from and after the
execution of this Agreement.
5.1 GENERAL.
Each of the Parties will use its best efforts to take all action and to do
all things necessary in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
closing conditions set forth in SECTION 6 below).
5.2 NOTICES AND CONSENTS.
The Target will give any notices to third parties, and will use its best
efforts to obtain any third party consents, that the Buyer may request in
connection with the matters referred to in SECTION 3.4 above.
5.3 REGULATORY MATTERS AND APPROVALS.
Each of the Parties will give any notices to, make any filings with, and
use its best efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters referred to
in SECTION 3.4 and SECTION 4.C.4 above. Without limiting the generality of the
foregoing:
(a) Securities Act, Securities Exchange Act, and State Securities Laws.
Buyer and the Target will mutually prepare and file with the SEC any filings
required under the Securities Exchange Act relating to the Merger. The filing
Party in each instance will use its best efforts to respond to the comments of
the SEC thereon and will make any further filings (including amendments and
supplements) in connection therewith that may be necessary. The Buyer will
provide the Target, and the Target will provide the Buyer, with whatever
information and assistance in connection with the foregoing filings that the
filing Party may request. The Target will take all actions that may be necessary
under state securities laws in connection with the offering and issuance of the
Buyer Securities.
(b) Target Special Meeting. The Target will call a special meeting of its
stockholders (the "SPECIAL MEETING"), as soon as practicable to consider and
vote upon the adoption of this Agreement and the approval of the Merger in
accordance with the Delaware General Corporation Law. The Target will mail the
Target PPM to its stockholders as soon as practicable. The Target PPM will
24
contain the affirmative recommendation of the board of directors of the Target
in favor of the adoption of this Agreement and the approval of the Merger.
Target shall use its best efforts and in good faith shall solicit the favorable
vote by its stockholders concerning this Agreement and the Certificate of
Merger.
(c) Buyer Special Meeting. The Buyer will call a special meeting of its
Board of Directors (the "SPECIAL MEETING"), or if permitted, will obtain a
Consent in Lieu of Meeting as soon as practicable to approve the short form
merger having the effect of changing Buyer's name to IsoRay, Inc., a 30:1
reverse stock split and the creation and the designation of preferred stock.
(d) Buyer Information. Buyer shall furnish to Target all information
concerning Buyer and Transitory Subsidiary required to be included in the Target
PPM.
(e) Blue Sky Laws. Target shall comply with all applicable state securities
laws relating to the distribution of Buyer Securities to holders of Target
Securities pursuant to this Agreement.
5.4 OPERATION OF BUSINESS.
Neither the Target, nor the Buyer nor its Subsidiaries shall engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business. Without limiting the generality of the foregoing:
(a) other than as set forth in this Agreement, neither the Target, nor the
Buyer nor its Subsidiaries will authorize or effect any change in its charter or
bylaws;
(b) other than as set forth in this Agreement, neither the Target, nor the
Buyer nor its Subsidiaries will grant any options, warrants, or other rights to
purchase or obtain any of its capital stock or issue, sell, or otherwise dispose
of any of its capital stock (except upon the conversion or exercise of options,
warrants, and other rights currently outstanding);
(c) neither the Target, nor the Buyer nor its Subsidiaries will declare,
set aside, or pay any dividend or distribution with respect to its capital stock
(whether in cash or in kind), or, other than as set forth in this Agreement,
redeem, repurchase, or otherwise acquire any of its capital stock;
(d) the Target will not issue any note, bond, or other debt security or
create, incur, assume, or guarantee any indebtedness for borrowed money or
capitalized lease obligation outside the Ordinary Course of Business;
(e) the Target will not impose any Security Interest upon any of its assets
outside the Ordinary Course of Business;
(f) the Target will not make any capital investment in, make any loan to,
or acquire the securities or assets of any other Person outside the Ordinary
Course of Business;
(g) the Target will not make any change in employment terms for any of its
directors, officers, and employees outside the Ordinary Course of Business or
hire any new officer or employee or fire any existing officer or employee; and
(h) other than as set forth in this Agreement, the Target will not commit
to any of the foregoing.
5.5 FULL ACCESS.
Each of the Parties will (and will cause each of its Subsidiaries to)
permit representatives of the other Party to have full access to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to it and its Subsidiaries. Each of the Parties will
treat and hold as such any Confidential Information it receives from the other
25
Party in the course of the reviews contemplated by this SECTION 5.5, will not
use any of the Confidential Information except in connection with this
Agreement, and, if this Agreement is terminated for any reason whatsoever,
agrees to return to the other Party all tangible embodiments (and all copies)
thereof which are in its possession as obtained from the other Party.
5.6 NOTICE OF DEVELOPMENTS.
Each Party will give prompt written notice to the others of any material
adverse development causing a breach of any of its own representations and
warranties in SECTION 3 and SECTION 4 above. No disclosure by any Party pursuant
to this SECTION 5.6, however, shall be deemed to amend or supplement the
Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
5.7 EXCLUSIVITY.
The Target will not solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of the Target (including any
acquisition structured as a merger, consolidation, or share exchange); provided,
however, that the Target, and its directors and officers will remain free to
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing to the extent their fiduciary duties may require. The Target shall
notify the Buyer immediately if any Person makes any proposal, offer, inquiry,
or contact with respect to any of the foregoing.
6. CONDITIONS TO OBLIGATION TO CLOSE.
6.1 CONDITIONS TO OBLIGATION OF THE BUYER AND THE TRANSITORY SUBSIDIARY.
The obligation of the Buyer and the Transitory Subsidiary to consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
(a) this Agreement and the Merger shall have received the Requisite
Stockholder Approval and the number of Dissenting Shares shall not exceed five
percent (5%) of the number of outstanding Target Shares and Target Preferred
Shares on an aggregate basis;
(b) the Target shall have procured all of the third party consents
specified in SECTION 5.2 above;
(c) the representations and warranties set forth in SECTION 3 above shall
be true and correct in all material respects at and as of the Closing Date;
(d) the Target shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(e) no action, suit, or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement, (B)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of the Target to own the
capital stock of the Surviving Corporation and to control the Surviving
Corporation, or (D) affect adversely the right of the Surviving Corporation to
own its assets and to operate its businesses (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(f) the Target shall have issued 200,000 Target Shares to Xxxxxx Xxxx, LLC;
26
(g) the Target shall have obtained an executed Registration Rights
Agreement in the form attached hereto as EXHIBIT D granting certain registration
rights to Xxxxxxx Xxxxxxxxx and certain other Affiliates of Buyer and all
holders of Target Debentures for their shares of capital stock which they will
receive at an exercise price of $3.50 per Target Share;
(h) the Target shall have obtained executed lock-up agreements in the form
attached hereto as EXHIBIT B whereby all directors and officers of the Target
shall agree to lock-up the Buyer Shares for one (1) year after the Effective
Time (and stop transfer instructions shall be given to the stock transfer agent)
to be received by them; however, notwithstanding this SECTION 6.1(I), Buyer
Shares may be sold in private transactions pursuant to Section 4(1) of the
Securities Act if the transferee agrees to abide by the remaining term of the
lock-up agreement and if the transferee is approved by Buyer;
(i) During the period from March 31, 2004 to the Closing Date, there shall
not have occurred any material adverse change in the financial condition,
business or operation of Target taken as a whole;
(j) To insure that all agreements governing any options, warrants, or stock
appreciation rights, which have been granted by Target, are explicitly clear in
light of the proposed Merger, Target shall obtain prior to and as a condition of
Closing from each such holder of its options, warrants or stock appreciation
rights, a written confirmation or certification, in a form satisfactory to Buyer
and its counsel, specifying the number and exercise price of the Target options
as of the Closing Date of the Merger, for which options or warrants of Buyer
will be substituted pursuant to the Certificate of Merger, together with such
other clarifications or amendments as shall be mutually acceptable to the
parties;
(k) the Target shall have delivered to the Buyer and the Transitory
Subsidiary a certificate to the effect that each of the conditions specified
above in SECTIONS 6.1(A)-(J) is satisfied in all respects;
(l) the Buyer and the Transitory Subsidiary shall have received the
resignations, effective as of the Closing, of each director and officer of the
Target other than those set forth in the Certificate of Merger as directors and
officers of the Surviving Corporation;
(m) all actions to be taken by the Target in connection with consummation
of the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be satisfactory in form and substance to the Buyer and
the Transitory Subsidiary.
The Buyer and the Transitory Subsidiary may waive any condition specified in
this SECTION 6.1 if they execute a writing so stating at or prior to the
Closing.
6.2 CONDITIONS TO OBLIGATION OF THE TARGET.
The obligation of the Target to consummate the transactions to be performed
by it in connection with the Closing is subject to satisfaction of the following
conditions:
(a) the representations and warranties set forth in SECTION 4 above shall
be true and correct in all material respects at and as of the Closing Date;
(b) each of the Buyer and the Transitory Subsidiary shall have performed
and complied with all of its covenants hereunder in all material respects
through the Closing;
(c) no action, suit, or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement, (B)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of the Target to own the
capital stock of the Surviving Corporation and to control the Surviving
Corporation, or (D) affect adversely the right of the Surviving Corporation to
27
own its assets and to operate its businesses (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(d) the Target shall have received a total of One Million Dollars
($1,000,000) in Buyer Debentures from Xxxxxxx Xxxxxxxxx or his associates on or
before the closing and the Buyer and the Target shall have mutually agreed in
writing as to the sources of the One Million Dollars in financing;
(e) immediately prior to the Closing, there shall not be greater than
2,500,000 shares of Common Stock, issued and outstanding of Buyer and there
shall not be any Buyer Derivative Securities outstanding.
(f) Buyer shall have obtained an executed lock-up and escrow agreement in
the form attached hereto as EXHIBIT C whereby Xxxxxxx Xxxxxxxxx agrees to
lock-up the greater of 220,000 Buyer Shares or thirty percent (30%) of the total
number of Buyer Shares owned by him until one (1) year after the Effective Time;
(g) Xxxxxxx Xxxxxxxxx and Xxxxxx Xxxxxxx shall each have executed and
delivered to Target an escrow agreement in the forms attached hereto as EXHIBITS
E AND F whereby Xx. Xxxxxxxxx and Xx. Xxxxxxx each agree to escrow 50,000 Buyer
Shares immediately following the merger (post 30:1 reverse stock split), for a
period of three years from the Effective Time;
(h) Buyer shall have no assets, liabilities or contingent liabilities,
other than no less than $3,500 of cash reserves that are allocated for payment
for fractional shares resulting from the Buyer reverse stock split, and Xxxxxx
Xxxxxxx shall indemnify Buyer and Target against any expense or liability
incurred on account of Buyer's office lease in Minneapolis, Minnesota;
(i) Buyer shall have used its commercially reasonable efforts to apply for
and obtain a listing for its common stock on the Over-the-Counter Bulletin Board
and the Pink Sheets;
(j) Buyer shall be current on all filings with the SEC required under the
Securities Exchange Act;
(k) Buyer shall have adopted a stock option plan with substantially similar
terms to the existing Target stock option plans and shall have authorized
warrants to purchase both preferred and common stock with substantially similar
terms as the Target Warrants;
(l) Buyer shall have created preferred stock, designated such that its
material terms are substantially identical to that of the Target Preferred
Shares;
(m) each of the Buyer and the Transitory Subsidiary shall have delivered to
the Target a certificate to the effect that each of the conditions specified
above in SECTIONS 6.2(A)-(L) is satisfied in all respects;
(n) this Agreement and the Merger shall have received the Requisite
Stockholder Approval and the number of Dissenting Shares shall not exceed five
percent (5%) of the number of outstanding Target Shares and Target Preferred
Shares on an aggregate basis;
(o) the Target shall have received the resignations, effective as of the
Closing, of each director and officer of Buyer and of the Transitory Subsidiary;
and
(p) all actions to be taken by the Buyer and the Transitory Subsidiary in
connection with consummation of the transactions contemplated hereby and all
certificates, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and substance to
the Target.
The Target may waive any condition specified in this SECTION 6.2 if it executes
a writing so stating at or prior to the Closing.
28
7. INDEMNIFICATION.
7.1 INDEMNIFICATION.
Each of the Major Buyer Shareholders agree to indemnify and hold Target and its
officers, directors and affiliates, including but not limited to the Surviving
Corporation (the "INDEMNITEES") harmless against all claims, losses,
liabilities, damages, deficiencies, costs and expenses, including reasonable
attorneys' fees and expenses of investigation (hereinafter individually a "LOSS"
and collectively "LOSSES") incurred by Target, its officers, directors or
affiliates (including the Surviving Corporation) directly or indirectly as a
result of (i) any inaccuracy or breach of a representation or warranty of such
Major Buyer Shareholder contained in this Agreement, or (ii) any failure of such
Major Buyer Shareholder to perform or comply with any covenant contained in this
Agreement. The representations, warranties and covenants made by each Major
Buyer Shareholder in this Agreement shall survive for a period expiring on the
date that is thirty-six (36) months following the Closing (the "Survival Date")
and any action for a breach of a Major Buyer Shareholder's representations or
warranties, the failure of a Major Buyer Shareholder to comply with a covenant
hereunder or any Loss under this SECTION 7.1 must be made and filed by the
Survival Date. Any claim for a breach of a Major Buyer Shareholder's
representations or warranties, the failure of a Major Buyer Shareholder to
comply with a covenant hereunder or any Loss under this SECTION 7.1 which is not
made and filed by an Indemnitee prior to the Survival Date shall, from and after
the Survival Date, be deemed to have been waived by such Indemnitee and rendered
null and void and of no further force and effect.
7.2 WARRANTY OF NO CLAIMS.
Buyer hereby represents and warrants, and Xxxxxx Xxxxxxx hereby represents,
that to the best of its and his knowledge and belief, there is no known past
condition or set of facts relating to the executive officers and directors of
Buyer which will give rise to any claims, demands, obligations, actions or
causes of action, of any nature whatsoever, which a party may now have, or which
may hereafter accrue or otherwise be acquired, arising out of tort, contract,
securities, or other theories of liability related to the duties and obligations
imposed upon the executive officers and directors of Buyer.
7.3 BUYER INDEMNITY.
With respect to information provided by Buyer and Transitory Subsidiary to
Target for purposes of preparing the Target PPM to be delivered to Target's
stockholders, Buyer shall indemnify Target, its officers, directors and
controlling persons, if any, against all claims, losses, damages, liabilities
and expenses resulting from any untrue statement or alleged untrue statement of
a material fact made by Buyer or Transitory Subsidiary or from any failure on
the part of Buyer or Transitory Subsidiary to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
are made, not misleading.
7.4 INDEMNITY PROCEDURE.
Within 15 days after service upon an indemnified party of a summons or
other first legal process in connection with the commencement of any action
brought against it relating to the Target PPM, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
SECTION 7, notify the indemnifying party in writing of the commencement thereof;
the omission to notify the indemnifying party will relieve it from any liability
which it may have to any indemnified party under this Section (but not
otherwise) if the indemnifying party proves that it has been materially
prejudiced by such omission. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in and, to the
extent that it may wish, jointly with any other indemnifying party, similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
29
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
7.5 ESCROW ARRANGEMENTS.
(a) Escrow Fund. As security for the indemnity provided for in this ARTICLE
VII and pursuant to the terms of the escrow agreements attached hereto as
EXHIBITS E AND F ( the "ESCROW AGREEMENTS"), Xxxxxxx Xxxxxxxxx and Xxxxxx
Xxxxxxx will each have deposited with the Escrow Agent (as defined below) 50,000
Buyer Shares (post 30:1 stock split) immediately following the merger (the
"ESCROW SHARES") (plus any additional shares as may be issued upon any stock
split, stock dividend or recapitalization effected by Buyer after the Effective
Time with respect to the Escrow Shares) as soon as practicable after the
Effective Time. The Transitory Subsidiary as Escrow Agent (the "ESCROW AGENT"),
shall hold the Escrow Shares in an escrow fund (the "ESCROW FUND") to be
governed by the terms set forth herein.
(b) Escrow Period. Subject to the terms of the Escrow Agreement, the Escrow
Fund shall be in existence immediately following the Effective Time and shall
terminate at 11:59 p.m., Washington time on the Expiration Date, which shall be
the day that is three years after the Effective Date (the "ESCROW PERIOD").
(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund during
the Escrow Period, shall treat such fund as a trust fund in accordance with the
terms of the Escrow Agreement and not as the property of Buyer and shall hold
and dispose of the Escrow Fund only in accordance with the terms of the Escrow
Agreement.
(ii) Any Buyer Shares or other equity securities issued or distributed
by Buyer (including shares issued upon a stock split) ("NEW SHARES") in respect
of Buyer Shares in the Escrow Fund which have not been released from the Escrow
Fund shall be added to the Escrow Fund and become a part thereof. New Shares
issued in respect of shares of Buyer Shares which have been released from the
Escrow Fund shall not be added to the Escrow Fund but shall be distributed to
the record holders thereof. Cash dividends on Buyer Shares shall not be added to
the Escrow Fund but shall be distributed to the record holders thereof.
(iii) Xx. Xxxxxxxxx and Xx. Xxxxxxx shall have voting rights with
respect to Buyer Shares contributed to the Escrow Fund (and on any voting
securities added to the Escrow Fund in respect of such Buyer Shares). As the
record holder of such shares, the Escrow Agent shall vote such shares in
accordance with the instructions of Xx. Xxxxxxxxx and Xx. Xxxxxxx and shall
promptly deliver copies of all proxy solicitation materials to Xx. Xxxxxxxxx and
Xx. Xxxxxxx.
7.6 INDEMNIFICATION BY XXXXXXX.
Notwithstanding anything in this Agreement to the contrary, the
indemnification obligation of Xx. Xxxxxxx pursuant to this ARTICLE VII shall be
limited to the Buyer Shares owned by Xx. Xxxxxxx as of the Closing Date, and the
proceeds, if any, from a sale of such Buyer Shares by Xx. Xxxxxxx on or before
the Survival Date.
30
8. TERMINATION.
8.1 TERMINATION OF AGREEMENT.
Any of the Parties may terminate this Agreement with the prior
authorization of its board of directors (whether before or after stockholder
approval) as provided below:
(a) the Parties may terminate this Agreement by mutual written consent at
any time prior to the Effective Time;
(b) the Buyer and the Transitory Subsidiary may terminate this Agreement by
giving written notice to the Target at any time prior to the Effective Time (A)
in the event the Target has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the Buyer or the
Transitory Subsidiary has notified the Target of the breach, and the breach has
continued without cure for a period of 30 days after the notice of breach or (B)
if the Closing shall not have occurred on or before July 31, 2005, by reason of
the failure of any condition precedent under SECTION 6.1 hereof (unless the
failure results primarily from the Buyer or the Transitory Subsidiary breaching
any representation, warranty, or covenant contained in this Agreement);
(c) the Target may terminate this Agreement by giving written notice to the
Buyer and the Transitory Subsidiary at any time prior to the Effective Time (A)
in the event the Buyer or the Transitory Subsidiary has breached any material
representation, warranty, or covenant contained in this Agreement in any
material respect, the Target has notified the Buyer and the Transitory
Subsidiary of the breach, and the breach has continued without cure for a period
of 30 days after the notice of breach or (B) if the Closing shall not have
occurred on or before July 31, 2005, by reason of the failure of any condition
precedent under SECTION 6.2 hereof (unless the failure results primarily from
the Target breaching any representation, warranty, or covenant contained in this
Agreement) or (C) if the number of Dissenting Shares exceeds five percent (5%)
of the number of outstanding Target Shares and Target Preferred Shares on an
aggregate basis; or
(d) any Party may terminate this Agreement by giving written notice to the
other Parties at any time after the Target Special Meeting in the event this
Agreement and the Merger fail to receive the Requisite Stockholder Approval.
8.2 EFFECT OF TERMINATION.
If any Party terminates this Agreement pursuant to SECTION 8.1 above, all
rights and obligations of the Parties hereunder shall terminate without any
liability of any Party to any other Party (except for any liability of any Party
then in breach).
9. MISCELLANEOUS.
9.1 SURVIVAL.
Each of the representations, warranties, and covenants of the Parties shall
survive the Effective Time by two years.
9.2 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS.
No Party shall issue any press release or make any public announcement
relating to the subject matter of this Agreement without the prior written
approval of the other Parties; provided, however, that any Party may make any
public disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its best efforts to advise the other Party
prior to making the disclosure).
31
9.3 NO THIRD-PARTY BENEFICIARIES.
This Agreement shall not confer any rights or remedies upon any Person
other than the Parties and their respective successors and permitted assigns;
provided, however, that the provisions in SECTION 2 above concerning payment of
the Merger Consideration are intended for the benefit of the Target
Securityholders.
9.4 ENTIRE AGREEMENT.
This Agreement (including the documents referred to herein) constitutes the
entire agreement among the Parties and supersedes any prior understandings,
agreements, or representations by or among the Parties, written or oral, to the
extent they related in any way to the subject matter hereof.
9.5 SUCCESSION AND ASSIGNMENT.
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns. No
Party may assign either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of the other Parties.
9.6 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which together will constitute one and
the same instrument.
9.7 HEADINGS.
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 NOTICES.
All notices, requests, demands, claims, and other communications hereunder
will be in writing. Any notice, request, demand, claim, or other communication
hereunder shall be deemed duly given if (and then two business days after) it is
sent by registered or certified mail, return receipt requested, postage prepaid,
and addressed to the intended recipient as set forth below:
If to the Target: IsoRay Medical, Inc.
000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx XX 00000
Attn: Xxxxx Xxxxxx
Copy to: Xxxxxxx X. Xxxxxxxxxx, Esq.
Xxxxxx Xxxxxxxx, PLC
0000 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000-0000
If to the Buyer: Century Park Pictures Corporation
0000 XXX Xxxxxx
Xxxxxxxxxxx, XX 00000
Attn: Xxxxxx Xxxxxxx
32
Copy to: Xxxxxxx Meadow, Esq.
Firetag Law Firm, PC
0000 X. 00xx Xxxxxx
Xxxxxxx, XX 00000-0000
If to the Transitory Subsidiary: Century Park Transitory Subsidiary, Inc.
0000 XXX Xxxxxx
Xxxxxxxxxxx, XX 00000
Attn: Xxxxxx Xxxxxxx
Copy to: Xxxxxxx Meadow, Esq.
Firetag Law Firm, PC
0000 X. 00xx Xxxxxx
Xxxxxxx, XX 00000-0000
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
9.9 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
domestic laws of the State of Delaware without giving effect to any choice or
conflict of law provision or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Delaware.
9.10 AMENDMENTS AND WAIVERS.
The Parties may mutually amend any provision of this Agreement at any time
prior to the Effective Time with the prior authorization of their respective
boards of directors; provided, however, that any amendment effected subsequent
to stockholder approval will be subject to the restrictions contained in the
Delaware General Corporation Law. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
9.11 SEVERABILITY.
Any term or provision of this Agreement that is invalid or unenforceable in
any situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other situation or in
any other jurisdiction.
9.12 EXPENSES.
Each of the Parties will bear its own costs and expenses (including legal
fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby.
33
9.13 CONSTRUCTION.
The Parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires. The word "including" shall
mean including without limitation.
9.14 INCORPORATION OF EXHIBITS AND SCHEDULES.
The Exhibits and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
34
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
CENTURY PARK PICTURES CORPORATION
By:
--------------------------------------------
Xxxxxx Xxxxxxx, CEO
CENTURY PARK TRANSITORY SUBSIDIARY, INC.
By:
--------------------------------------------
ISORAY MEDICAL, INC.
By:
--------------------------------------------
Xxxxx Xxxxxx, CEO
MAJOR BUYER SHAREHOLDERS
-----------------------------------------------
Xxxxxx Xxxxxxx
-----------------------------------------------
Xxxxxxx Xxxxxxxxx
35
CERTIFICATE OF MERGER
MERGING
CENTURY PARK TRANSITORY SUBSIDIARY, INC.
INTO
ISORAY MEDICAL, INC.
Pursuant to the provisions of the Delaware General Corporation Law (the
"Delaware Act"), the undersigned companies adopt the following Certificate of
Merger for the purpose of merging Century Park Transitory Subsidiary, Inc. into
IsoRay Medical, Inc.
The following Certificate of Merger was approved by the shareholders of
each of the undersigned companies in the manner prescribed by the Delaware Act:
ARTICLE I.
MERGER
A. IsoRay Medical, Inc., formed under the laws of the state of Delaware
("Medical"), into which Century Park Transitory Subsidiary, Inc. ("Disappearing
Company"), formed under the laws of the state of Delaware (collectively
"Disappearing Company"), is hereby merged, on the effective date of the merger,
shall be the corporation to survive the merger and the name under which the
corporation will continue is "IsoRay Medical, Inc." Said corporation,
hereinafter sometimes called the "Surviving Corporation," shall be governed by
the laws of the state of Delaware. Its principal office will be located at 000
Xxxxx Xxxxxx, Xxxxx 000, Xxxxxxxx, Xxxxxxxxxx 00000. Medical and Disappearing
Company are sometimes referred to herein as the "Constituent Companies."
B. Executed counterpart copies of this Certificate of Merger and such
supporting documents as are required shall be filed as promptly as possible with
the Secretary of State of Delaware in accordance with the Merger Agreement
entered into between the Constituent Companies and certain other parties, dated
as of May ____, 2005 (the "Merger Plan"). Five o'clock p.m. (5:00 p.m.) Eastern
Time on the date of the filing with the Secretary of State of Delaware of this
Certificate of Merger shall be the effective time of the merger and is
hereinafter referred to as the "Effective Date."
C. The Merger Plan has been approved, adopted, certified, executed and
acknowledged by IsoRay Medical, Inc. and Century Park Transitory Subsidiary,
Inc. in accordance with the provisions of Section 251 of the General Corporation
Law of the State of Delaware.
1
The executed Merger Plan is on file at the principal office of the
Surviving Corporation, as listed in Article 1(A) above, and a copy of the Merger
Plan will be furnished at no cost, upon request, to any shareholder of the
Constituent Companies.
D. From the Effective Date, the merger shall have the effects provided
under Delaware law. Without limiting the generality of the foregoing, upon the
Effective Date the separate existence of the Disappearing Company shall cease,
and the Disappearing Company shall be merged with and into Medical. Medical
shall be the Surviving Corporation and the Surviving Corporation, without
further deed or action, shall possess all assets and property of every
description, and every interest herein wherever located and all rights,
privileges, immunities, powers, franchises and authority (of a public as well as
of a private nature) of each of the Constituent Companies and all obligations
belonging to or due each of the Constituent Companies. Title to any real estate
or any interest therein, vested in each Constituent Company, shall not revert or
in any way be impaired by reason of the merger. The Surviving Corporation shall
be liable for all of the obligations of each Constituent Company, including
liability to dissenting shareholders. Any claim existing, or action or
proceeding pending, by or against any Constituent Company may be prosecuted to
judgment, with right of appeal, as if the merger had not taken place, or the
Surviving Corporation may be substituted in place of the Disappearing Company.
The Surviving Corporation further agrees that it will promptly pay to the
dissenting shareholders of the Disappearing Company the amount, if any, to which
they shall be entitled under the provisions of the Delaware Act with respect to
the rights of dissenting shareholders. All rights of creditors of each
Constituent Company shall be preserved unimpaired, and all liens upon the
property of any Constituent Company shall be preserved unimpaired, but only on
the property affected by such liens immediately before the Effective Date.
Whenever a conveyance, assignment, transfer, deed or other instrument or act is
necessary to vest property or rights in the Surviving Corporation, the officers
of the respective Constituent Companies shall execute, acknowledge and deliver
such instruments and do such acts as may be necessary or required. For such
purposes, the existence of the Constituent Companies and the authority of their
respective officers and directors are continued, notwithstanding the merger.
ARTICLE II.
CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION
From and after the Effective Date, the Certificate of Incorporation of
IsoRay Medical, Inc., as recorded in the office of the Secretary of State of
Delaware at the Effective Date, shall be and become the Certificate of
Incorporation of the Surviving Corporation, until further amended pursuant to
the provisions of the Delaware Act.
ARTICLE III.
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
A. As of the Effective Date, the officers of the Surviving Corporation, who
shall hold office until their successors shall have been elected or appointed
and shall have been qualified, or as otherwise provided in its Bylaws, are as
follows:
2
President/CEO Xxxxx Xxxxxx
Secretary/Treasurer Xxxxx Xxxxxxxx
Chief Financial Officer Xxxxxxx Xxxxxx
The officers of the Surviving Corporation and their number may be changed from
time to time as provided by applicable state law and the bylaws of the Surviving
Corporation.
B. As of the Effective Date, the directors of the Surviving Corporation,
who shall hold office until their successors shall be duly elected or appointed
shall be Xxxxx Xxxxxx, Xxxxx Xxxxxxxx, Xxxxxxx Xxx, Xxxxx Xxxxxxxx, Xxxxxxx
Xxxxxxx, Xxxxx Xxxxxx and Xxxxxx Xxxxx. The directors of the Surviving
Corporation and their number may be changed from time to time as provided by the
Delaware Act and the Bylaws of the Surviving Corporation.
C. The first annual meeting of the shareholders of the Surviving
Corporation after the Effective Date shall be the next annual meeting provided
by the Bylaws of the Surviving Corporation.
D. If, on or before the Effective Date, a vacancy shall for any reason
exist in the Board of Directors of the Surviving Corporation, or in any of the
offices, such vacancy shall hereafter be filled in the manner provided in the
Certificate of Incorporation of the Surviving Corporation or in its Bylaws.
ARTICLE IV.
BYLAWS OF SURVIVING CORPORATION
From and after the Effective Date, the present Bylaws of IsoRay Medical,
Inc. shall be and become the Bylaws of the Surviving Corporation until the same
shall be altered, amended or repealed, or until new Bylaws shall be adopted, in
accordance with the provisions of the Delaware Act, the Bylaws and the
Certificate of Incorporation of the Surviving Corporation.
ARTICLE V.
CONVERSION OR CANCELLATION OF MEDICAL COMMON STOCK
AND PREFERRED STOCK ON MERGER
A. As of the Effective Date, by virtue of the merger of the
Constituent Companies:
(1) Without any action on the part of the holder thereof, each share of
common stock, $0.001 par value, of Century Park Transitory Subsidiary, Inc.
("Century Sub Common Stock") which is issued and outstanding immediately prior
to the Effective Date shall thereupon be converted into and become one fully
paid and nonassessable share of common stock, $0.001 par value, of IsoRay
Medical, Inc. ("Medical Common Stock"). Notwithstanding any other provisions of
this Agreement, any shares of Century Sub Common Stock which are unissued by
Disappearing Company immediately prior to the Effective Date shall not be
converted but shall be canceled.
3
(2) Without any action on the part of the holder thereof, each share of
Medical Common Stock which is issued and outstanding immediately prior to the
Effective Date shall thereupon and without any further action be retired and
canceled and become authorized and unissued shares of Medical Common Stock, and
by virtue of the merger shall be exchanged for fully paid and nonassessable
shares of common stock, $0.001 par value, of Century Park Pictures Corp., a
Minnesota corporation ("Century Park"), the parent corporation of Disappearing
Company ("Century Park Common Stock"), so that for every one (1) share of
Medical Common Stock then outstanding there will be issued ____ shares of
Century Park Common Stock. Notwithstanding any other provisions of this
Agreement, any shares of Medical Common Stock which are unissued by Medical
immediately prior to the Effective Date shall not be converted but shall be
canceled.
(3) Without any action on the part of the holder thereof, each share of
Series B preferred stock of Medical ("Medical Preferred Stock") which is issued
and outstanding immediately prior to the Effective Date shall thereupon and
without any further action be retired and canceled and become authorized and
unissued shares of Medical Preferred Stock, and by virtue of the merger shall be
exchanged for fully paid and nonassessable shares of preferred stock, $0.001 par
value, of Century Park ("Century Park Preferred Stock") so that for every one
(1) share of Medical Preferred Stock then outstanding there will be issued ___
shares of Century Park Preferred Stock. Notwithstanding any other provisions of
this Agreement, any shares of Medical Preferred Stock which are unissued by
Medical immediately prior to the Effective Date shall not be converted but shall
be canceled.
(4) The holders of certificates representing shares of Medical Common Stock
and Medical Preferred Stock shall cease to have any rights as shareholders of
Medical and the sole and indivisible right of such holders shall be the right to
receive (i) the number of whole shares of Century Park Common Stock and Century
Park Preferred Stock into which their shares of Medical Common Stock and Medical
Preferred Stock, shall have been converted by the merger as provided above, and
(ii) the corresponding right to receive the cash value of any fraction of a
share of Century Park Common Stock and Century Park Preferred Stock as provided
below.
(5) No certificates or scrip representing fractional shares of Century Park
Common Stock or Century Park Preferred Stock shall be issued upon the surrender
or exchange of Medical certificates, no dividend or other distribution of
Century Park shall relate to any fractional Century Park shares, and such
fractional Century Park share interests shall not entitle the owner thereof to
vote or to any other rights of a stockholder of Century Park. In lieu of any
fractional share of Century Park Common Stock or Century Park Preferred Stock
which a stockholder of Medical would be entitled to receive, the Exchange Agent
hereafter prescribed shall, upon surrender of a Medical Common Stock or Medical
Preferred Stock certificate, pay to the holder of Century Park Common Stock or
Century Park Preferred Stock certificates issued in exchange therefor, an amount
of cash (without interest) determined by multiplying (i) the price of Century
Park Common Stock which shall be $_____ or the price of Century Park Preferred
Stock which shall be $_____, times (ii) the fractional Century Park Common Stock
or Century Park Preferred Stock share interest to which such shareholder would
otherwise be entitled.
4
B. By virtue of the merger of the Constituent Companies:
(1) As soon as practicable after the Effective Date, Century Park shall
make available for exchange and conversion in accordance with this Article V, by
making available to the Exchange Agent (as hereafter prescribed) for the benefit
of the shareholders of Medical such number of shares of Century Park Common
Stock and Century Park Preferred Stock as shall be issuable in exchange for
outstanding shares of Medical Common Stock and Medical Preferred Stock (net of
the aggregate number of fractional shares of Century Park in lieu of which cash
will be paid). In addition, Century Park will make available to the Exchange
Agent, from time to time upon request of the Exchange Agent, such cash as may be
necessary to make the cash payments with respect to fractional shares of Century
Park Common Stock and Century Park Preferred Stock as provided above.
(2) As soon as practicable after the Effective Date, such bank or trust
company or transfer agent as Century Park may determine, acting as Exchange
Agent to effect the exchange of certificates (the "Exchange Agent"), shall mail
to each holder of record a certificate or certificates which immediately prior
to the Effective Date represented outstanding shares of Medical Common Stock and
Medical Preferred Stock (the "Certificates"), (i) a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent), and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing
Century Park Common Stock and Century Park Preferred Stock, and the cash payment
in lieu of fractional shares of Century Park Common Stock and Century Park
Preferred Stock as set forth above.
(3) After the Effective Date, there shall be no further registration of
transfers on the books of the Surviving Corporation of the shares of Medical
Common Stock and Medical Preferred Stock that were outstanding immediately prior
to the Effective Date. If, after the Effective Date, certificates representing
such shares or interests are presented to the Surviving Corporation, they shall
be canceled and exchanged for certificates representing shares of Century Park
Common Stock and Century Park Preferred Stock and for cash as provided in this
Article V.
C. The conversion ratio for converting the shares of Medical Common Stock
and Medical Preferred Stock into shares of Century Park Common Stock or Century
Park Preferred Stock shall be proportionately adjusted in the event of any stock
split, stock dividend, recapitalization, exchange, readjustment or combination
of shares or similar actions involving the Century Park Common or Preferred
Stock or Medical Common or Preferred Stock, having a record date occurring
between the date of execution of the Merger Plan and the Effective Date.
D. Upon the Effective Date, Century Park shall convert each outstanding
stock option to acquire one share of Medical Common Stock into an option to
acquire ____ shares of Century Park Common Stock, upon the same terms and
conditions as the stock option for Medical Common Stock was granted. Fractional
shares shall not be issued but shall be paid in cash as determined by Article V,
Section A(5) above. Notwithstanding the foregoing, each holder of outstanding
stock options to acquire shares of Medical Common Stock shall have the right,
5
prior to the Effective Date, to exercise such options and use the Medical Common
Stock so issued to be converted into Century Park Common Stock as provided
above.
E. Upon the Effective Date, Century Park shall convert each outstanding
warrant to acquire one share of Medical Preferred Stock into a warrant to
acquire ____ shares of Century Park Preferred Stock, upon the same terms and
conditions as the warrant for Medical Preferred Stock was granted. Fractional
shares shall not be issued but shall be paid in cash as determined by Article V,
Section A(5) above. Notwithstanding the foregoing, each holder of outstanding
warrants to acquire shares of Medical Preferred Stock shall have the right,
prior to the Effective Date, to exercise such warrants and use the Medical
Preferred Stock so issued to be converted into Century Park Preferred Stock as
provided above.
ARTICLE VI.
RIGHT TO AMEND CERTIFICATE OF INCORPORATION
The Surviving Corporation hereby reserves the right to amend, alter, change
or repeal Certificate of Incorporation in the manner now or hereafter prescribed
by statute or otherwise provided by law, and all rights and powers conferred in
the Certificate of Incorporation on shareholders, directors or officers of the
Surviving Corporation, or any other person whomsoever are subject to this
reserved power.
ARTICLE VII.
MISCELLANEOUS
This Certificate of Merger may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one instrument representing the Certificate of Merger.
6
Dated: June ____, 2005
IsoRay Medical, Inc., a Delaware corporation
By:
--------------------------------------------
Xxxxx Xxxxxx, President and CEO
ATTEST:
----------------------------------
Xxxxx Xxxxxxxx, Secretary
Dated: June ____, 2005
Century Park Transitory Subsidiary, Inc., a
Delaware corporation
By:
--------------------------------------------
____________________, President
ATTEST:
--------------------------------
_________________, Secretary
7
DISCLOSURE SCHEDULE
Schedule Description
-------- -----------
3.1 Organization, Qualification, and Corporate Power
STATEMENT IS COMPLETE, AND NEEDS NO FURTHER ADDITION.
3.2 Capitalization
SEE ATTACHED SCHEDULE 3.2.
3.3 Authorization of Transaction
STATEMENT IS COMPLETE, AND NEEDS NO FURTHER ADDITION.
3.4 Noncontravention
SEE ATTACHED SCHEDULE 3.4.
3.5 Financial Statements
TO BE INCLUDED AS AUDIT REPORT OF DECORIA, MAICHEL & XXXXXX.
3.6 Books and Records
STATEMENT IS COMPLETE, AND NEEDS NO FURTHER ADDITION.
3.7 Title to Properties; Encumbrances
SEE ATTACHED SCHEDULE 3.7.
3.8 Condition and Sufficiency of Assets
STATEMENT IS COMPLETE, AND NEEDS NO FURTHER ADDITION.
3.9 No Undisclosed Liabilities
STATEMENT IS COMPLETE, AND NEEDS NO FURTHER ADDITION.
3.10 Taxes
STATEMENT IS COMPLETE, AND NEEDS NO FURTHER ADDITION.
3.11 No Material Adverse Change
STATEMENT IS COMPLETE, AND NEEDS NO FURTHER ADDITION.
3.12 Employee Benefits
STATEMENT IS COMPLETE, AND NEEDS NO FURTHER ADDITION.
3.13 Compliance With Legal Requirements; Governmental Authorizations
SEE ATTACHED SCHEDULE 3.13.
3.14 Legal Proceedings; Orders
STATEMENT IS COMPLETE, AND NEEDS NO FURTHER ADDITION.
1
3.15 Absence of Certain Changes and Events
SEE ATTACHED SCHEDULE 3.15.
3.16 Contracts; No Defaults
SEE ATTACHED SCHEDULE 3.16.
3.17 Insurance
SEE ATTACHED SCHEDULE 3.17.
3.18 Environmental Matters
STATEMENT IS COMPLETE, AND NEEDS NO FURTHER ADDITION.
3.19 Employees
SEE ATTACHED SCHEDULE 3.19.
3.20 Labor Relations; Compliance
STATEMENT IS COMPLETE, AND NEEDS NO FURTHER ADDITION.
3.21 Intellectual Property
SEE ATTACHED SCHEDULE 3.21.
3.22 Certain Payments
STATEMENT IS COMPLETE, AND NEEDS NO FURTHER ADDITION.
3.23 Relationships with Related Persons
SEE ATTACHED SCHEDULE 3.23.
3.24 Broker's Fees
SEE ATTACHED SCHEDULE 3.24.
3.25 Tax Treatment
STATEMENT IS COMPLETE, AND NEEDS NO FURTHER ADDITION.
3.26 Disclosure
STATEMENT IS COMPLETE, AND NEEDS NO FURTHER ADDITION.
2
SCHEDULE 3.2
CAPITALIZATION
1. List of All Derivative Securities
SEE ATTACHED
2. List of All Target Shares
SEE ATTACHED
3. Registration Rights
The Company granted a one-time piggyback registration right for the common stock
(and the common stock issuable upon conversion of warrants) sold pursuant to the
Company's two private placement memoranda dated October 15, 2004.
The Company intends to grant a one-time demand and a one-time piggyback
registration right for (i) the shares of common stock issuable upon conversion
of the convertible debentures sold pursuant to the Company's private placement
memorandum dated January 31, 2005 and (ii) certain shares of Century Park common
stock (only if the merger is consummated). The agreement granting these rights
has not been finalized.
The Company intends to grant, after consummation of the merger, a one-time
piggyback registration right for twenty percent (20%) of the shares of common
stock held by each of the Company's shareholders prior to the merger.
3
SCHEDULE 3.4
NONCONTRAVENTION
1. Required Notices and Consents
The Company has an outstanding long-term note payable to Xxxxxx-Xxxxxxxx
Economic Development District in the amount of $230,000. Among covenants of that
loan is the condition that:
"(j) [IsoRay] will not purchase, retire, or acquire, except by gift, any of its
ownership interest, and it will not merge with any other corporation or business
entity except as approved by the BFEDD, except in the case of the normal sale or
acquiring of stock."
The Company has notified BFEDD with its intent to merge with the Buyer, and
BFEDD has provided a written waiver of this covenant as of March 31, 2005,
effective through June 30, 2006.
5
SCHEDULE 3.5
FINANCIAL STATEMENTS
To be included as audit report of DeCoria, Maichel & Xxxxxx.
6
SCHEDULE 3.7
TITLE TO PROPERTIES; ENCUMBRANCES
1. List of All Real Property, Leaseholds, or Other Interests
The Company owns no Real Property
2. Capitalized Leases
1. $75,000, four year lease with Nationwide Funding, LLC for glove box
2. $1,575, two year lease with Dell Financial for projector
3. $27,500, three year lease with VAResources for computer equipment
4. $430,000, 36 mo. Lease with Vencore for Hot cell.
3. Personal property sold since the date of the Audited Statements and the
Interim Balance Sheet
None
4. Properties and Assets purchased since the date of the Audited Statements
On April 4, 2005 a capital lease agreement was completed with Nationwide Funding
LLC, whereby the lessor will fund the $75,000 acquisition of a glove box being
built to the Company's specifications by Premier Technology, Inc. of Pocatello,
ID. This is a 48 month agreement with a minimum monthly lease payment of
$2,475.38.
On May 16, 2005 a capital lease agreement was completed with Vencore Solutions
LLC. This is a capital lease for a hot cell with a lease line in the amount of
$430,000. This is a 36 month lease, a provision of which is that the Company can
purchase the hot cell for fair market price, defined in the lease agreement as
not more than 15% of the initial fair value purchase price. Based on this
amount, for the first five months, the minimum monthly lease payment will be
$7,589.50. The minimum monthly lease payment increases to $15,910 for the
remaining 31 months, based on the entire value of the $430,000 lease line. In
connection with the lease agreement, the Company granted warrants to purchase
6,757 shares of the Company's common stock at $3.50/share. These warrants expire
after four years from the date of issuance.
5. Security Interests
1. As a condition of the $230,000 loan from Xxxxxx-Xxxxxxxx Economic
Development District, BFEDD has perfected a UCC security filing whose
Financing Statement describes their interest in property of the
Company as:
7
"In ALL of debtor's equipment including machinery and office equipment, together
with all parts, fittings, accessories, special tools, renewals or replacements
of all or any part thereof, either now or hereafter acquired and wheresoever
located, and all proceeds thereof; and IN ALL present and future accounts
receivable, chattel paper, security agreements and debts secured thereby,
documents, notes, drafts, instruments, contract rights, general intangibles, all
guarantees and security therefor and all returned goods; all present and
hereafter acquired Inventory wherever located, including, but not limited to,
raw materials, work in process and finished goods, goods held for sale or lease,
goods under lease or consignment held by others, and materials used or consumed
in Borrower's business; all proceeds and products of the foregoing, including
but limited to money, the Collateral account, goods, insurance proceeds, and
other tangible or intangible property received upon the sale or disposition of
the foregoing; all present and future patents, trade names and trademarks; all
present and future books and records pertaining to the foregoing and the
equipment containing said books and records."
2. As a condition of the $40,000 loan from Columbia River Bank, the bank
has perfected a UCC security filing whose Financing Statement
describes their interest in property of the Company as:
"Purchase Money Security Interest in UNITECH MYACHI LW 5A-IE LASER WELDER, MODEL
#8-800-01-01, SERIAL #04110099 and UNITECH MYACHI LW 15A-IE LASER WELDER, MODEL
#0-000-0000, SERIAL #04040181; whether any of the foregoing is owned now or
acquired later; all accessions, additions, replacements, and substitutions
relating to any of the foregoing; all records of any kind relating to any of the
forgoing; all proceeds relating to any of the foregoing (including insurance,
general intangibles and accounts proceeds)."
3. As a condition of the $395,000 line of credit from Columbia River
Bank, the bank and the Company have entered into a Commercial Security
Agreement which grants "All Inventory and Accounts Receivable" as
collateral to the LOC.
4. As a condition of the $365,000 aggregate notes payable to certain note
holders, the Company granted a security interest in all intangible
assets, including all patents, intellectual property or other
intangibles reasonably necessary to produce Cesium-131 and Yttrium-90
products, as collateral. This security interest has not been perfected
by a UCC-1 financing statement.
8
SCHEDULE 3.13
COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Noncompliance with Legal Requirements and Notices of Such Noncompliance
The Company believes it is in compliance with all legal requirements, and other
than the occasional notice of tardiness in paying a payroll tax xxxx (as a
result of an oversight, or miscalculation) has received no notices of
non-compliance. Any such outstanding notice of tardiness is non-material, with
individual and cumulative value of less than $1,000, and any outstanding issues
will be cured prior to the merger. Payroll taxes have historically been paid on
time, and that will continue to be the case.
(b) List of Governmental Authorizations
IsoRay Medical, Inc. Certificate of Incorporation State of Delaware June, 2004
IsoRay Medical, Inc. Master Business License State of Washington 2004 - 2005
IsoRay Medical, Inc. Richland City Business License City of Richland 2004 - 0000
XX Xxxxx Sealed Source License State of WA; Dept of Health October, 2004
Certificate of Authority (Foreign Profit Corporation) State of WA June 25, 2004
Approval to market Cesium 131 seed Food and Drug Admin. March 28, 2003
Notice of creation of separate payment code for Centers for Medicare &
Cs-131 source Medicaid Services October 30, 2003
Radioactive Materials License State of WA; Dept of Health July 19, 2004
(b)(i)-(iii) Noncompliance with Governmental Authorizations and Notices of
Such Noncompliance
The Company believes it is in compliance with all Governmental Authorizations,
and has received no notices of noncompliance.
Initiative 297, also known as the Cleanup Priority Act, became law in Washington
State on December 2, 2004 and was immediately challenged in court by the US
Department of Justice, primarily on constitutionality issues. The initiative was
aimed at the Department of Energy's Hanford Site in that it requires any mixed
waste disposal site to be cleaned up (if there has been a release to the
environment) before accepting any new waste not related to cleanup. The
definition of mixed waste was also expanded to include hazardous substances
released to the environment, and any material reasonably expected to become
waste. Currently, IsoRay's process generates small quantities of mixed
radioactive and hazardous waste.
IsoRay conducted a detailed analysis of I-297 and determined that our operations
at PNNL would be subject to I-297, because the facility is owned by the DOE and
any mixed waste generated would normally be disposed of at Hanford. Once
operations are moved to a private facility, any mixed waste generated would need
9
to be disposed of out of state as there is currently no permitted commercial
mixed waste disposal facility located in Washington, and thus I-297 would not
apply. Therefore, it is to our advantage to move our operations to a private
facility as quickly as possible.
However, other provisions of the Cleanup Priority Act could impact IsoRay's
operations, even in a private commercial facility, depending upon how they are
interpreted by regulators. Fortunately, we have been contacted by State
regulators and to date have received favorable interpretations. There is no
guarantee that future interpretations and rulemaking would be in IsoRay's favor.
In our opinion, the best outcome would be for I-297 to be struck down, on
constitutionality issues, in its entirety based on the arguments being made by
the U.S. Department of Justice.
10
SCHEDULE 3.15
ABSENCE OF CERTAIN CHANGES AND EVENTS
1. Changes and Events Since March 31, 2005
(a) The Company continues to raise cash through the Convertible Debenture
PPM dated 01/31/05, and has raised $430,000 in cash since March 31st. This
would provide holders of the Debentures with 122,857 shares of common stock
upon full conversion.
(b) A sales and marketing employee has given notice of his upcoming
resignation, and will leave the Company as of June 1, and will be returning
200,000 of his 300,000 options to purchase common stock back to the
Company, in accordance with a separation agreement that also provides for
payment of $17,500 to the employee.
(c) A sales and marketing employee will be awarded an additional lump sum
of $17,500 as part of a Management By Objective program instituted as of
September, 2004. This liability was not recorded as of March 31st as the
agreement to provide the bonus was part of an amendment to an employment
agreement dated April 24, 2005.
11
SCHEDULE 3.16
CONTRACTS; NO DEFAULTS
(a) List of Contracts (including parties to the Contracts and the amount of
remaining commitment of the Target under the Contracts)
COMPLETE, OTHER THAN:
(ii) Delivery of goods, services, materials to Target: o Employment agreements:
IsoRay Medical, Inc. has entered into employment agreements with Xxxxx
Xxxxxx, its CEO, Xxxxxxx Xxxxxx, its CFO, Xxxx Xxxxxxx, its Executive Vice
President, Sales and Marketing, Xxxxx Xxxxxx, its Manager of Projects, Xxxxxx
Xxxxx, its Vice President Strategic Planning, Xxxxx Xxxxxxxx, its Vice
President, Manufacturing and Production, Xxxxx Xxxxxxxxxx, its Vice President
Finance, Xxxxxx Xxxxx, PhD, its CTO, Xxxxx Xxxxxx, its CQO and Xxxx Xxxx, its
Chief Chemist.
The agreement with Xx. Xxxxxx provides for five years of employment as CEO,
subject to earlier termination or extension, at a base salary of $180,000
annually, subject to receipt by the IsoRay companies of at least $2,500,000 in
debt or equity investments after August 1, 2003. Xx. Xxxxxx was granted options
to purchase up to 610,000 shares of IsoRay Medical, Inc. common stock, with
160,000 of the options vested upon execution of the agreement as of August 1,
2004, and the remaining options vesting upon the occurrence of certain
milestones. Xx. Xxxxxx is also eligible to receive a bonus based on achievement
of performance goals established by the Board and certain fringe benefits.
The agreement with Xx. Xxxxxx provides for three years of employment as
CFO, commencing on August 1, 2004, and is subject to earlier termination. Xx.
Xxxxxx'x base salary is $42,000 annually, subject to increase to at least
$120,000 annually when the Board determines the Company has sufficient cash flow
to support the higher salary. Xx. Xxxxxx is also eligible to receive a bonus
based on achievement of performance goals established by the Board and certain
fringe benefits.
The agreement with Xx. Xxxxxxx provides for three years of employment as
Executive Vice President, Sales and Marketing, subject to earlier termination or
extension, at a base salary of $120,000 annually, which is subject to increase
at the discretion of the Board upon commencement of seed production. Xx. Xxxxxxx
was granted options to purchase 500,000 shares of IsoRay Medical, Inc. common
stock, with 167,000 of the options vested upon execution of the agreement as of
July 10, 2004, and the remaining options will vest at a rate of one-third per
year over the three year term of the agreement. Xx. Xxxxxxx is also eligible to
receive a bonus based on achievement of performance goals established by the
Board and certain fringe benefits.
The agreement with Xx. Xxxxxx provides for one year of employment as
Manager of Projects, commencing on August 1, 2004, and subject to earlier
termination. Xx. Xxxxxx'x base salary is $57,600 annually, and Xx. Xxxxxx is
eligible to receive a bonus based on achievement of certain performance goals
12
specified in his agreement with IsoRay Medical, Inc., and he is entitled to
certain fringe benefits.
The agreement with Xx. Xxxxx provides for one year of employment as Vice
President Strategic Planning, commencing on September 1, 2004, and subject to
earlier termination. Xx. Xxxxx'x base salary is $24,000 annually, and will be
adjusted to $86,400 annually, subject to receipt of sufficient funding. Xx.
Xxxxx is eligible to receive a bonus based on achievement of certain performance
goals specified in his agreement with IsoRay Medical, Inc., and he is entitled
to receive certain fringe benefits.
The agreement with Xx. Xxxxxxxx provides for three years of employment
commencing on September 1, 2004, and subject to earlier termination. Xx.
Xxxxxxxx'x base salary is approximately $46,000 annually, increasing to $120,000
annually upon receipt of sufficient funding, subject to possible adjustment as
provided in the agreement. Xx. Xxxxxxxx is eligible to receive two bonuses - one
based on achievement of performance goals established by the Board and one based
on achievement of certain performance goals specified in his agreement with
IsoRay Medical, Inc., and he is entitled to receive certain fringe benefits.
The agreement with Xx. Xxxxxxxxxx provides for one year of employment as
Vice President Finance, commencing on August 1, 2004, and subject to earlier
termination. Xx. Xxxxxxxxxx'x base salary varies from $48,000 to $120,000
annually based on the amount of equity and debt capital raised by IsoRay
Medical, Inc. after August 1, 2004. Xx. Xxxxxxxxxx is also eligible for a bonus
of two percent of the gross proceeds of all equity raised (or one percent of the
gross proceeds of all debt raised) in which Xx. Xxxxxxxxxx is an active
participant in the transaction, and an additional three percent of the gross
equity raised from sources identified by Xx. Xxxxxxxxxx and closed by Xx.
Xxxxxxxxxx. Xx. Xxxxxxxxxx is also entitled to certain fringe benefits, and was
granted options to purchase 100,000 shares of IsoRay Medical, Inc. common stock,
with 10,000 options vested upon execution of the agreement and the remaining
options vesting upon the occurrence of certain events.
The agreement with Xx. Xxxxx provides for three years of employment
commencing on October 1, 2004 subject to earlier termination. Xx. Xxxxx'x base
salary is approximately $102,000 annually, and will increase by $500 per month
until an annual salary of $120,000 is achieved. Xx. Xxxxx is eligible to receive
gully vested options to purchase up to 370,000 shares of common stock upon
achievement of certain performance goals on behalf of the Company, and he is
entitled to receive certain fringe benefits.
The agreement with Xx. Xxxxxx provides for two years of employment
commencing on August 1, 2004 subject to earlier termination. Xx. Xxxxxx'x base
salary is $48,000 annually, and will increase to $90,000 when the Company has
received sufficient cash from equity investments or reaches break-even,
whichever occurs first. Xx. Xxxxxx is also entitled to certain fringe benefits
and was granted options to purchase 50,000 shares of common stock. Additionally,
Xx. Xxxxxx is eligible for bonuses of up to $35,000 upon the Company's
completion of certain milestones.
The agreement with Xx. Xxxx provides for an "At Will" part-time employment
for an undefined term. Compensation is an hourly rate of $20.00. No other
benefits accrue. A trust controlled by Xx. Xxxx is the recipient of the proceeds
of the Royalty Agreement for Invention and Patent Application described below.
13
* Cooperative Research and Development Agreement (CRADA) No. 245 with
Battelle, as operator of Pacific Northwest National Laboratory, for
the purpose of developing a new, high purity, low waste, high
efficiency process for separation of yttrium-90 from strontium-90. The
fixed price for this CRADA is $80,297.00, which has already been paid
to Battelle. It is anticipated that this project will be completed by
September, 2005, and all funds will have been earned by Battelle, and
expensed by the Company by that time.
* Commercial Work for Others Agreement (CWFO) No. 45658 with Battelle
Memorial Institute, Pacific Northwest Division as operator of PNNL for
the purpose of supporting the Company's preparation, assembly, quality
control, and distribution of a limited number of Cs-131 seeds.
Essentially this is the initial production facility, including
ancillary production staff, where the Company's initial products are
manufactured. The project's term is December 31, 2006, although the
Company intends to move its production to an interim leased facility
currently under construction, which should be operable by September,
2005, and is further described in the Agreement with Pacific
EcoSolutions Total allowable expenses under this CWFO are $1,841,985,
of which approximately $870,000 has been paid, and $790,000 has been
expensed, leaving a pre-paid balance of approximately $80,000.
* A part-time, task-oriented, Independent Contractor Agreement with
Xxxxxx Xxxxxxxx, PhD, a significant shareholder of the Company, to
assist in the development of methods of deriving cost-effective
sources of enriched barium and irradiation services, and other
specific tasks as requested by the Company. Compensation is an hourly
rate of $20.00 plus credit at the rate of $28.00 toward convertible
debentures as described in the Private Placement Memorandum of January
31, 2005. This agreement terminates March 31, 2006, but may be
extended by mutual agreement.
* Agreement with Xxxxxx Xxxxxxxx to render legal work, on behalf of the
Company, in connection with the Merger (including filing the Form 8-K
relating to the Merger). The negotiated rate is $65,000, of which half
was paid as a retainer, with the balance due June 1, 2005 or at
consummation of the merger, whichever occurs first.
* Agreement to retain Xxxxxxxx Xxxxx as V.P. of International Finance to
provide consultation services regarding capital structure and
financing activities, which calls for a monthly retainer of not less
than $5,000, warrants to purchase common stock (already issued), and a
bonus of up to 8% of financing directly raised, less the $5,000
monthly retainer.
(iv) Leases and occupancy rental
14
* Agreement with Energy Northwest to lease 2,200 sq. ft. office and
non-radioactive laboratory space until December 31, 2005 for
$2,605.12/mo. The lease is renewable for an additional 12 mos.
* Agreement with Pacific EcoSolutions, Inc. to lease Bay #3 at 0000
Xxxxxxxx Xxxxxxxxx, Xxxxxxxx, XX for 25,800 shares of common stock for
12 months, commencing at the date of regulatory licensing approval.
This lease may be extended, by mutual agreement, on a month-by-month
basis.
(v) Licensing agreements with respect to IP:
* Royalty Agreement for Invention and Patent Application
A shareholder of the Company, Xxxx Xxxx, previously assigned his rights,
title and interest in an invention to IsoRay Products LLC in exchange for a
royalty equal to 1% of the Gross Profit, as defined, from the sale of
"seeds" incorporating the technology. The patent and associated royalty
obligation were transferred to the Company effective October 1, 2004 in
connection with the October 2004 merger and recapitalization transaction.
The Company must also pay a royalty of 2% of Gross Sales, as defined, for
any sub-assignments of the aforesaid patented process to any third parties.
The royalty agreement will remain in force until the expiration of the
patents on the assigned technology, unless earlier terminated in accordance
with the terms of the underlying agreement. To date, there have been no
product sales incorporating the technology and there is no royalty due
pursuant to the terms of the agreement.
* Patent and Know-How Royalty License Agreement
IsoRay Products LLC was the holder of an exclusive license to use certain
"know-how." This license was transferred to IsoRay Medical, Inc. in
connection with the October 2004 merger and recapitalization transaction.
The terms of the original license agreement required the payment of a
royalty based on the Net Factory Sales Price, as defined in the agreement,
of licensed product sales. Because the licensor's patent application was
ultimately abandoned, only a 1% "know-how" royalty based on Net Factory
Sales Price, as defined, remains applicable. To date, there have been no
product sales incorporating the licensed technology and there is no royalty
due pursuant to the terms of the agreement. A minimum annual royalty of
$4,000 will apply once product sales incorporating the licensed technology
commence.
(xii) Capital goods:
* Contract with Premier Technologies, Inc for $390,702, of which the
Company has paid $156,000, for a hot cell, with anticipated date of
15
completion in late June, 2005. Management has signed a capital lease
agreement on 05/06/05 in which Vencore Solutions LLC would assume the
financial obligations of this contract, and fund the entire expense,
and refund the Company for the amount pre-paid. This lease will be a
36 month obligation, and the minimum lease payment will be $7,589.50
for the first five months, and then increase to $15,910 for the
remaining 31 months.
* 04/16/05 Contract with Xxxxxx and Sons for construction of tenant
improvements to an interim manufacturing facility for the amount of
$365,760, of which $63,666.86 was completed and billed to the Company
as of 04/30/05. It is anticipated that the build-out will be completed
by July 31st, and that the balance of the obligation will be due by
then, if not before, according to a schedule of completion and
Contractor's Application For Payment.
(b) Officer, Director, and Shareholder Rights Under Contracts
None.
(c) True
(d) Noncompliance with Contracts and Notices of Breach
The Company did not comply with certain covenants contained in its Development
Loan Agreement with the Xxxxxx Xxxxxxxx Economic Development District, relating
to maintenance of certain financial ratios, limits on officer and director
compensation, purchase of fixed assets and incurrence of certain long-term
obligations. BFEDD has waived compliance with these conditions for the period of
March 31, 2005 through June 30, 2006.
16
SCHEDULE 3.17
INSURANCE
(a) Scope of Insurance Coverage
Copies of Insurance plans attached on CD.
(b)
(i) Self-insurance arrangements
None.
(ii) Contracts or arrangements, other than a policy of insurance, for the
transfer or sharing of any risk by Target
None.
(iii) All obligations of the Target to third parties with respect to
insurance and policies under which such coverage is provided.
None.
(d) List of refusals of coverage or any notice of cancellation of any insurance
policy
None.
17
SCHEDULE 3.19
EMPLOYEES
1. List of Employees and Directors
2. List of Retired Employees and Directors
None.
18
SCHEDULE 3.21
INTELLECTUAL PROPERTY
(b) List and Description of all contracts relating to Intellectual Property
Assets
Royalty Agreement for Invention and Patent Application
A shareholder of the Company previously assigned his rights, title and interest
in an invention to IsoRay Products LLC in exchange for a royalty equal to 1% of
the Gross Profit, as defined, from the sale of "seeds" incorporating the
technology. The patent and associated royalty obligation were transferred to the
Company effective October 1, 2004 in connection with the merger and
recapitalization transaction.
The Company must also pay a royalty of 2% of Gross Sales, as defined, for any
sub-assignments of the aforesaid patented process to any third parties. The
royalty agreement will remain in force until the expiration of the patents on
the assigned technology, unless earlier terminated in accordance with the terms
of the underlying agreement. To date, there have been no product sales
incorporating the technology and there is no royalty due pursuant to the terms
of the agreement.
(c) Patent and Know-How Royalty License Agreement
IsoRay Products LLC was the holder of an exclusive license to use certain
"know-how." This license was transferred to IsoRay Medical, Inc. in connection
with the October 2004 merger and recapitalization transaction. The terms of the
original license agreement required the payment of a royalty based on the Net
Factory Sales Price, as defined in the agreement, of licensed product sales.
Because the licensor's patent application was ultimately abandoned, only a 1%
"know-how" royalty based on Net Factory Sales Price, as defined, remains
applicable. To date, there have been product sales incorporating the licensed
technology and there may be a royalty due pursuant to the terms of the
agreement. A minimum annual royalty of $4,000 will apply once product sales
incorporating the licensed technology commence.
19
(d) List and Description of all Patents
(e) List and Description of all Marks
As above.
(f) List and Description of all Copyrights
None.
(g) Trade Secrets
True.
20
SCHEDULE 3.23
RELATIONSHIPS WITH RELATED PERSONS
1. Interest of Related Persons
We have had no material related party transactions. Previously Shukov and Press
owned 1/2 of the prototype laser welding equipment, but that has been abandoned,
and new equipment has taken its place. (They still have the shares for providing
the initial prototypes, however.)
Xxx Xxxxxxx, a Board Member, has a CPA firm that does some accounting assistance
for us, but that amounts to a few hundred dollars per month. During the nine
months ended March 31, 2005, the Company paid or accrued $3,825 for accounting
services performed to that company.
21
SCHEDULE 3.24
BROKER'S FEES
The Company has agreed to issue 200,000 shares of common stock to Xxxxxx
Xxxx, LLC upon the closing of the merger as a finder's fee.
22
