<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
REFLECT SCIENTIFIC, INC. AND
IMAGE ACQUISITION CORP.
AND
SMITHGALL AND ASSOCIATES, INC. dba Image Labs International AND
BRIAN
SMITHGALL
November 15, 2006
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS
AGREEMENT AND PLAN OF MERGER (the "Agreement") is dated as of
November 15, by and among Reflect Scientific, Inc. a Utah
corporation
("Parent"); Image Acquisition Corp., a Georgia corporation and
wholly-owned
subsidiary of Parent ("Merger Subsidiary"); Smithgall and
Associates, Inc. dba
Image Labs International, a Georgia corporation qualified to do business as a
foreign corporation in Montana (the "Company"); and Brian
Smithgall
("Smithgall") the Company's sole shareholder (the "Company
Shareholder").
WHEREAS, the Company is a manufacturer and developer of factory
automation equipment (the "Business"); and
WHEREAS, the Boards of Directors of Parent, Merger Subsidiary and
the
Company, and the shareholders of Merger Subsidiary and the Company,
have
approved the merger of the Merger Subsidiary with and into the
Company (the
"Merger") upon the terms and subject to the conditions set forth
herein; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger
will qualify as a reorganization within the meaning of Section
368(a)(1)(A)
and (a)(2)(D) of the Internal Revenue Code of 1986, as amended (the
"Code");
and
WHEREAS, the parties hereto desire to make certain
representations,
warranties, and agreements in connection with the Merger and also
to prescribe
various conditions to the Merger;
NOW,
THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants, and agreements
contained
herein, the parties hereto agree as follows:
ARTICLE 1
THE MERGER; CONVERSION OF SHARES
1.1
The Merger.
Subject to the terms
and conditions of this
Agreement, at the Effective Time (as defined in Section 1.2
hereof), the
Merger Subsidiary will be merged with and into the Company in
accordance with
the provisions of the Georgia Business Corporation Code (the
"Georgia Code"),
whereupon the separate corporate existence of the Merger Subsidiary
will
cease, and the Company will continue as the surviving
corporation
(the "Surviving Corporation"). From and after the Effective Time,
the
Surviving Corporation will possess all the rights, privileges,
powers and
franchises and be subject to all the restrictions, disabilities and
duties of
the Company and Merger Subsidiary, all as more fully described in
the Georgia
Code.
1.2
Effective Time.
As soon as practicable
after each of the
conditions set forth in Article 5 and Article 6 has been satisfied
or waived,
the Company and Merger Subsidiary will file, or cause to be filed,
with the
Secretary of State of the State of Georgia, an Agreement of Merger
for the
Merger, which Agreement of Merger will be in the form required by
and executed
in accordance with the applicable provisions of the Georgia Code.
The Merger
will become effective at the time such filing is made or, if agreed
to by
Parent, Merger Subsidiary and the Company, such later time or date
set forth
in the Agreement of Merger (the "Effective Time").
1.3 Closing.
(a) Unless this
Agreement has been terminated and the
transactions contemplated herein have been abandoned pursuant to
Article
7
hereof, the closing of the Merger (the "Closing") will take place
at a
time
and on a date (the "Closing Date") to be specified by the
parties,
which will be no later than December 31, 2006 (the "Termination
Date"),
unless mutually agreed otherwise in writing; provided, however,
that all
of
the conditions provided for in Articles 5 and 6 hereof shall
have
been
satisfied or waived by such date. The Closing will be held at
the
offices of Burningham & Burningham, Suite 205, 455 East 500
South
Street, Salt Lake City, Utah 84111, or such other place as the
parties
may
agree, at which time and place the documents and instruments
necessary or appropriate to effect the transactions contemplated
herein
will
be exchanged by the parties. Except as otherwise provided
herein,
all
actions taken at the Closing will be deemed to have been taken
simultaneously.
(b) At the Closing,
Parent shall issue and exchange with the
Company Shareholder as consideration for all shares of Company
Common
Stock (as defined in Section (1.4(a)), 525,000 shares of Parent
Common
Stock (as defined in Section (1.4(a)) (the "Merger Consideration"
as
defined in Section 1.4(a)). The shares of Parent Common
Stock
referenced in this Agreement and exchangeable with the Company
Shareholder shall be "restricted securities" as defined in Rule 144
of
the
Securities and Exchange Commission (the "SEC"). Parent shall assume
no
Company debt owed to the Company Shareholder. Parent shall pay to
the
Company Shareholder $200,000 by wire in accordance with the
wiring
information set forth in Section 8.6. Parent shall be able to
demonstrate to the satisfaction of Company Shareholder that it
has
raised or is in the process of raising approximately $1,000,000 in
cash
funding to support the Catpro Business Segment owned by the Company
and
to
be operated as a separate division within the Company as a
wholly-
owned subsidiary of the Parent.
(c) Additional
Consideration. As further consideration for the
Merger, Parent shall (i) pay the Company Shareholder a 2.5% Running
Earnout Purchase Price (the "Running EOPP") as a contingent
purchase
price based upon the gross revenues earned after Closing by the
Company's "Manufacturing," "Value Added Re-sales" and "Custom
Engineering" business segments (the "PP Business Segments"),
excluded,
without qualification, for the purpose of calculating revenues on
which
Running EOPP is payable, are any revenues produced by the
Company's
"Catpro" business segment (the "Catpro Business Segment").
The Running
EOPP
shall be paid quarterly within 45 days days of the end of each
quarter so long as
Parent owns and operates the PP Business Segments of
the
Company and in the event of a sale or merger of the PP Business
Segments, the Running EOPP obligation shall remain an integral part
of
the
PP Business Segments, the Running EOPP shall be paid to Company
Shareholder for the period of his life by the owner of the PP
Business
Segments; and (ii) the Parent shall pay quarterly a 2.5%
Performance
Contingent Purchase Price (the 'Performance CPP') based upon
the
performance of the PP Business Segments in the prior quarter
provided
the
PP Business Segments achieve an Earnings Before Interest and
Taxes
("EBIT" as defined below) of 10% in the relevant quarter.
Performance
CPP
shall be paid within 45 days following the quarter and shall be
paid
so
long as the Parent owns and operates the PP Business Segments and
so
long
as the Company Shareholder remains an employee of the Parent.
Late
payments of Running EOPP or Performance CPP shall bear interest at
the
lesser of the prime rate as listed in the Wall Street Journal,
Western
Edition plus 6 percentage points or eighteen percent (18%).
(i) Audit Rights.
Parent shall maintain complete and accurate
financial and other records necessary to comply with this
Section 1.3(c). Parent shall submit written reports on a
quarterly basis to the Company Shareholder. The Company
Shareholder shall have the right to, through independent
accountants of his own choosing and at his own expense,
audit the financial and other records of the Parent at
reasonable times, at least once per fiscal year, to
determine compliance with this Section 1.3(c). In the event
such audit reveals that Parent has not accurately or
adequately complied with this Section 1.3(c), the costs of
said audit shall be borne by Parent and the maximum amount
payable under Section 1.3(c) above, shall become immediately
due and payable.
(ii) The Company Shareholder is a third party beneficiary with
respect to Section 1.3(c) of this Agreement with full rights
to enforce this Section of the Agreement against Parent to
his benefit.
(iii)Parent shall use its reasonable efforts to support the
Business.
(iv) Notwithstanding anything contained in this Agreement to
the
contrary, the obligations of this Section 1.3(c) shall
survive the termination of this Agreement, provided Parent
still owns the Business.
(v) For purposes of
the Performance CPP minimum EBIT threshold,
EBIT shall be defined as Earnings Before Interest and State
&
Federal Income Taxes calculated according to the following
clarifications and specificities.
The Earnings of the PP Business Segments shall be calculated
in accordance with GAAP as GAAP Net Income, consistent with
the historical practices of the Company.
The following shall be added back to EBIT (without
duplication) to the extent they are included as expenses
therein. Expenses are
not to include commissions paid to
brokers in connection with the sale of the business.
* all
expenses which are expensed, whether immediately
or after having been capitalized by the Company,
relating specifically to the acquisition contemplated
hereunder, including, without limitation, expenses in
connection with any acquisition indebtedness and any
refinancing of such indebtedness and interest expense
incurred on acquisition indebtedness;
*
amortization expenses relating to the consummation of
the transactions contemplated hereunder and any
non-compete fee expensed in connection with the
transaction;
* any
additional depreciation, amortization or other
expenses resulting from the write-up of, or the change
in the depreciation schedules used with respect to,
any assets (including without limitation goodwill and
other intangibles) acquired hereunder or in any
acquisition by the Company after the Closing;
* all
legal, accounting, financial, actuarial, and other
fees and expenses incurred by the Company in
connection with the calculation of the Running EOPP or
Performance CPP;
* all
Running EOPP and Performance CPP paid pursuant to
1.3(c)(ii) above
* any
employment-related costs associated with personnel
required by the Parent or any of Parent's affiliates
(other than the Company) to be employed by the Company
that the Company would not otherwise have employed;
* any
employee termination or other costs arising out of
a consolidation of services or facilities or other
rationalization of the Company subsequent to the
acquisition contemplated hereunder by the Company that
the Company would not otherwise have initiated or that
does not result in a net increase in EBIT
* the
amount by which the EBIT have been reduced as a
result of the making of any loan by the Company to the
Parent or any of Parent's affiliates or otherwise
required by Parent, or any guaranty or indemnity given
by the Company for the obligations of third parties,
except to the extent such guarantees or indemnities
were given in the ordinary course of the Company's
business;
* any
other payment or liability of the Company incurred
by the Company at the direction of the Parent or any
of Parent's affiliates (other than the Company) made
or created other than in the bona fide interest of
increasing the EBIT of the Company; and
* any
Parent administrative or corporate overhead
charges to the Company. However, any expenses that are
initiated by the PP Business Segments to the Parent
for support of its business operation or any other
expenses that the Company Shareholder and Parent
mutually agree are required to support the PP Business
Segments shall be included.
Any dispute arising out of the calculation of EBIT and
adjustments thereof shall be settled by arbitration through
the use of an independent accounting firm acceptable to both
parties who shall share the costs equally.
Attached hereto as Exhibit 1.3(c) is a sample of how EBIT
will be calculated, subject to the provisions of this
paragraph.
(d)
Further Covenants.
(i)
Parent will provide
approximately $1,000,000 to support the
post-Merger Catpro Business Segment, as outlined in Section
6.10.
(ii) Parent will appoint Smithgall and Eric Pierson, both of
whom
are to be employed by Parent as provided in Section 6.4(c)
and (d), respectively, as a condition to the Closing of the
Merger, to the Parent's steering committee.
(iii)Parent will use reasonable efforts to seek continued
funding
of its consolidated operations to support additional related
business opportunities.
(iv) The Company and Smithgall shall guarantee at Closing that
the Company has $115,000 in inventory, $25,000 in cash in
the Company's business account to be utilized for continuing
Company Business operations or work in progress. In
addition, Smithgall shall guarantee that the Company has the
unused balance of Customer Deposits available and that the
Company has no liabilities of any type or nature whatsoever
at Closing other than the corresponding liability for the
Customer Deposit.
(v) Smithgall shall
retain all Company accounts receivable and
prepaid expenses, and shall personally assume and pay all
liabilities of the Company of any type or nature whatsoever
existing at Closing, including but not limited to payroll
liability to the date of Closing, provided, however, that
Parent will assume the liability related to the Customer
Deposit. Smithgall
shall retain future benefit of WIP (net
of Cost in Excess of
Billing less Billing in Excess of
Costs). See Exhibit
1.3(d)(v) for example of Balance Sheet
showing split.
Smithgall shall receive those WIP amounts
upon billing and receipt from customer to be adjusted by WIP
Adjustment Schedule as described in 1.3(d)(vi).
(vi)The Company Shareholder and Parent shall prepare within
thirty (30) days after the Closing Date a schedule, which
identifies all of the Company's existing long-term contracts
that are being accounted for by percentage of completion
methods as of the Closing Date ("WIP"). This Schedule shall
be referred to as the "WIP Schedule" and shall identify,
with respect to each contract identified thereon (each a
"WIP Contract"), the contract amount, the estimated total
costs and gross profit, the amounts billed to date, the
costs to date and the over and under billed calculations.
The calculation of the contract amount shall include amounts
for contract change orders, but only to the extent these
change orders are signed or there exists other valid
documentation which verifies the Company's entitlement to
such amounts. In
preparing the WIP Schedule, the Company
Shareholder and Parent shall prepare a cost-to-complete
analysis for each of the WIP Contracts on the WIP Schedule
and determine the accuracy of the amounts and estimates
contained herein, and the net over-billed and under-billed
amounts. The WIP
Schedule and the cost-to-complete analysis
shall be attached hereto as Exhibit 1.3(d)(vi). The value
of the WIP determined by the Parent and the Company
Shareholder on Exhibit 1.3(d)(vi) shall be included in and
correspond with the WIP-related line items on the Closing
Balance Sheet.
At the end of each calendar quarter following the Closing
Date and continuing until each of the WIP Contracts are
"Complete" or "Completed" as defined below, the Company
Shareholder and Parent shall prepare a schedule (the "WIP
Adjustment Schedule") which describes the actual results on
the WIP Contracts which are Completed during that quarter,
including a calculation of the actual profit or loss on such
contracts. The Parent
and the Company Shareholder will
jointly calculate the actual profit or loss on the WIP
Contract(s) that is/are Complete. The Company Shareholder
and Parent shall share pro-rata in the profits and losses of
the WIP Contract.
Shareholders' pro-rata share of the
actual profit or loss shall be the percentage calculated by
dividing costs as stated in the WIP Schedule by the total
costs in the WIP Adjustment Schedule prepared for the WIP
Contract that was Completed. Parent's pro-rata share of the
actual profit or loss shall be the percentage calculated by
dividing the total costs in the WIP Adjustment Schedule,
less the costs shown on the WIP Schedule, by the total costs
in the WIP Adjustment Schedule for the WIP Contract that was
Completed. If the
Company Shareholder's pro-rata share of
the profits and losses exceeds the profit already
recognized, then the Parent shall pay the net profit, less
any profit recognized for those same contracts in the WIP
Schedule, to the Company Shareholder within ten (10) days of
such calculation by the Company Shareholder and Parent.
If
the Company Shareholder's pro-rata share of profits and
losses exceeds the profit already recognized then,the
Company Shareholder shall credit against future Runnning
EOPP or Performacne CPP payments the net loss, less any loss
recognized for those same contracts in the WIP Schedule, to
the Parent within ten (10) days of such calculation by the
Company Shareholder and Parent. A contract is "Complete" or
"Completed" when all valid billings on such contract have
been submitted and paid (or written off by the Company), all
costs on such contract have been incurred and paid, and
there exists valid and complete contract documentation for
all contract amounts (with respect to such contract) set
forth on the WIP Schedule. The parties recognize the
complexity of accounting in connection with this article
1.3d(vi) and therefore if the foregoing results in an undue
hardship on either party then the Parent and Company will
mutually agree to settle all work in progress at the Closing
in a fair an equitable manner.
(vii)The Company's financial statements shall be auditable in
accordance with the Public Company Accounting Oversight
Board (the "PCAOB") standards, and Smithgall and Parent
shall divide equally the cost and expense of any pre-Closing
audited or reviewed financial statements of the Company that
are required to be filed by Parent with the SEC as a result
of the Closing.
(viii)In the event that the PP Business Segments perform
unpaid research and development services for other business
divisions within Parent but will not market or sell such
related products then the business segment of Parent making
use of the result of such R&D shall share revenues with the
PP Business Segments in such manner that shall reasonably
represent the contribution of the PP Business Segments to
the final product.
1.4
Conversion of
Interests. Subject to
the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Merger and
without any
action on the part of the Company and/or the Merger Subsidiary:
(a)
All of the shares of
the Company (the "Company Common Stock")
issued and outstanding immediately prior to the Effective Time
(except for
Company Common Stock referred to in Section 1.4(c) hereof) will be
converted
into the right of the Company Shareholder to receive 525,000 shares
of common
stock of the Parent as described in Paragraph 1.3(b) (the "Parent
Common
Stock"). The amount of
Parent Common Stock into which shares of Company
Common Stock is converted is referred to herein as the "Merger
Consideration."
(b)
All stock options,
warrants, convertible debt, other convertible
securities or other rights to acquire shares of the Company
(collectively the
"Company's Convertible Securities") outstanding at the Effective
Time, whether
or not exercisable and whether or not vested, and all of which are
listed on
the "Company Disclosure Schedule" as defined in Section 2.1 hereof,
shall be
canceled.
(c)
Each share of Company
Common Stock issued and outstanding
immediately prior to the Effective Time that is then owned
beneficially or of
record by Parent, Merger Subsidiary, or any direct or indirect
subsidiary of
Parent or the Company will be canceled without payment of any
consideration
therefore and without any conversion thereof. Furthermore, at the Effective
Time, one thousand (1,000) shares of Company Common Stock shall be
issued to
Parent.
(d)
Except as expressly
set forth herein, each share of any other
equity interest of the Company (other than Company Common Stock)
will be
canceled without payment of any consideration therefore and without
any
conversion thereof.
(e)
Each share of common
stock of Merger Subsidiary ("Merger
Subsidiary Common Stock"), issued and outstanding immediately prior
to the
Effective Time will be canceled as of the Effective Time.
1.5
Exchange of Company
Common Stock.
(a) At the Closing,
the Company will arrange for each
holder of record (a "Company Shareholder") of Company Common
Stock
outstanding immediately prior to the Effective Time to deliver
to
the Parent appropriate evidence of such holder's Company Common
Stock ("Company Certificates"), together with an appropriate
assignment signed by such holders, in exchange for the number
of
whole shares of Parent Common Stock into which such interests
have
been converted as provided in Section 1.4(a), and the Company
Certificate(s) so surrendered will be canceled.
(b) All shares of
Parent Common Stock issued upon the
surrender for exchange of shares of Company Common Stock in
accordance with the terms hereof will be deemed to have been
issued in full satisfaction of all rights pertaining to such
Company Common Stock.
(c) As of the
Effective Time, the holders of Company
Certificates representing shares of Company Common Stock will
cease to have any rights as Company Shareholder, except such
rights, if any, as they may have pursuant to the Georgia Code.
Except as provided above, until such Company Certificates are
surrendered for exchange, each such Company Certificate will,
after the Effective Time, represent for all purposes only the
right to receive certificates representing the number of whole
shares of Parent Common Stock into which Company Common Stock
shall have been converted pursuant to the Merger as provided in
Section 1.4(a).
(d) No fractional
shares of Parent Common Stock will be
issued upon the surrender for exchange of Company Certificates.
1.6
Articles of
Incorporation of the Surviving Corporation. The
Articles of Incorporation of the Merger Subsidiary as in effect
immediately
prior to the Effective Time will be the Articles of Incorporation
of the
Surviving Corporation.
1.7
Bylaws of the
Surviving Corporation.
The Bylaws of the Merger
Subsidiary, as in effect immediately prior to the Effective Time,
will be the
Bylaws of the Surviving Corporation until thereafter amended in
accordance
with applicable law.
1.8
Directors and Officers
of the Surviving Corporation and Parent.
The directors and officers of Merger Subsidiary, as of the
Effective Time,
shall be designated as the directors and officers of the
Surviving
Corporation.
1.9
Bylaws of the Parent.
The Bylaws of the
Parent shall be amended
to facilitate the addition of the Company's Business, as
necessary.
1.10
Dissenting Interests. There are no dissenters'
rights of
appraisal under Sections 14-2-1301 through 14-2-1332 of the Georgia
Code or
otherwise, as the Company Shareholder, its sole stockholder, is
required to
execute and deliver this Agreement as a condition of the Closing,
and
accordingly, Smithgall hereby waives any such rights, without
qualification.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY
SHAREHOLDER
The
Company and the Company Shareholder hereby represent and warrant
to
Parent and Merger Subsidiary as follows:
2.1
Disclosure Schedule.
The disclosure
schedule attached hereto as
Exhibit 2.1 (the "Company Disclosure Schedule") is divided into
sections that
correspond to the sections of this Article 2. The Company Disclosure
Schedule
comprises a list of all exceptions to the truth and accuracy of,
and of all
disclosures or descriptions required by, the representations and
warranties
set forth in the remaining sections of this Article 2.
2.2
Corporate
Organization, etc. The
Company is a corporation duly
organized, validly existing and in good standing under the laws of
the State
of Georgia with the requisite corporate power and authority to
carry on its
business as it is now being conducted and to own, operate and lease
its
properties and assets and is duly qualified or licensed to do
business as a
foreign corporation in good standing in every other jurisdiction in
which the
character or location of the properties and assets owned, leased or
operated
by it or the conduct of its business requires such qualification or
licensing,
except in such jurisdictions in which the failure to be so
qualified or
licensed and in good standing would not, individually or in the
aggregate,
have a Material Adverse Effect (as defined below) on the Company.
The Company
Disclosure Schedule contains a list of all jurisdictions in which
the Company
is qualified or licensed to do business and includes complete and
correct
copies of the Company's articles of incorporation and bylaws.
The Company
does not own or control any capital stock of any corporation or any
interest
in any partnership, joint venture or other entity.
2.3
Capitalization.
The authorized capital
securities of the Company
is set forth in the Company Disclosure Schedule. The number of shares of
Company Common Stock outstanding, as of the date of this Agreement
and as set
forth in the Company Disclosure Schedule, represent all of the
issued and
outstanding capital securities of the Company. All issued and outstanding
shares of Company Common Stock are duly authorized, validly issued,
fully paid
and nonassessable and are without, and were not issued in violation
of,
preemptive rights.
Except as set forth in the Company Disclosure Schedule,
there are no shares of Company Common Stock or other equity
securities of the
Company outstanding or any securities convertible into or
exchangeable for
such interests, securities or rights. Other than as set forth on the
Company
Disclosure Schedule and pursuant to this Agreement, there is no
subscription,
option, warrant, call, right, contract, agreement, commitment,
understanding
or arrangement to which the Company is a party, or by which it is
bound, with
respect to the issuance, sale, delivery or transfer of the capital
securities
of the Company, including any right of conversion or exchange under
any
security or other instrument. The Company has no subsidiaries.
2.4
Authorization.
The Company has all
requisite corporate power and
authority to enter into, execute, deliver and perform its
obligations under
this Agreement. This
Agreement has been duly and validly executed and
delivered by the Company and is the valid and binding legal
obligation of the
Company enforceable against the Company in accordance with its
terms, subject
to bankruptcy, moratorium, principles of equity and other
limitations limiting
the rights of creditors generally.
2.5
Non-Contravention.
Except as set forth in
the Company Disclosure
Schedule, neither the execution, delivery and performance of this
Agreement,
and each other agreement to be entered into in connection with this
Agreement,
nor the consummation of the transactions contemplated herein
will:
(a) violate, contravene or be in conflict with any provision of
the
articles of incorporation or bylaws of the Company;
(b) be in conflict with, or constitute a default, however
defined (or an event which, with the giving of due notice or lapse
of
time, or both, would constitute such a default), under, or cause
or
permit the
acceleration of the maturity of, or give rise to any right of
termination, cancellation, imposition of fees or penalties under
any
debt, note, bond, lease, mortgage, indenture, license,
obligation,
contract, commitment, franchise, permit, instrument or other
agreement
or
obligation to which the Company is a party or by which the Company
or
any
of the Company's properties or assets is or may be bound;
(c) result in the creation or imposition of any pledge, lien,
security interest, restriction, option, claim or charge of any
kind
whatsoever ("Encumbrances") upon any property or assets of the
Company
under any debt, obligation, contract, agreement or commitment to
which
the
Company is a party or by which the Company or any of the
Company's
assets or properties are bound; or
(d) materially violate any statute, treaty, law, judgment,
writ,
injunction, decision, decree, order, regulation, ordinance or
other
similar authoritative matters (referred to herein individually as
a
"Law" and collectively as "Laws") of any foreign, federal, state
or
local governmental or quasi-governmental, administrative,
regulatory or
judicial court, department, commission, agency, board, bureau,
instrumentality or other authority (referred to herein individually
as
an
"Authority" and collectively as "Authorities").
2.6
Consents and
Approvals. Except as
set forth in the Company
Disclosure Schedule, with respect to the Company, no consent,
approval, order
or authorization of or from, or registration, notification,
declaration or
filing with ("Consent") any individual or entity, including without
limitation
any Authority, is required in connection with the execution,
delivery or
performance of this Agreement by the Company or the consummation by
the
Company of the transactions contemplated herein.
2.7
Financial Statements.
The Company Disclosure
Schedule contains a
copy of the financial statement of the Company as of the year ended
December
31, 2005, and the period ended June 30, 2006 (the "Financial
Statements").
Except as disclosed therein or in the Company Disclosure Schedule,
the
aforesaid Financial Statements fairly present the financial
position of the
Company as of the dates thereof, and the income or loss for the
periods then
ended.
2.8
Absence of Undisclosed
Liabilities. The
Company does not have any
material liabilities, obligations or claims of any kind whatsoever,
whether
secured or unsecured, accrued or unaccrued, fixed or contingent,
matured or
unmatured, known or unknown, direct or indirect, contingent or
otherwise and
whether due or to become due (referred to herein individually as a
"Liability"
and collectively as "Liabilities"), other than: (a) Liabilities
that are fully
reflected or reserved for in the balance sheet; (b) Liabilities
that are set
forth on the Company Disclosure Schedule; (c) Liabilities incurred
by the
Company in the ordinary course of business after the date of the
balance sheet
and consistent with past practice; (d) Liabilities in an amount not
to exceed
($1,000) individually or in the aggregate unless such amounts are
disclosed on
the Company Disclosure Schedule; or (e) Liabilities for express
executory
obligations to be performed after the Closing under the contracts
described in
Section 2.14 of the Company Disclosure Schedule.
2.9
Absence of Certain
Changes. Except as set
forth in the Company
Disclosure Schedule, since June 30, 2006, the Company has owned and
operated
its assets, properties and business in the ordinary course of
business and
consistent with past practice. Without limiting the generality of
the
foregoing, subject to the aforesaid exceptions:
(a) the Company has
not experienced any change that has had or
could reasonably be expected to have a Material Adverse Effect on
the
Company; and
(b) the Company has
not suffered (i) any loss, damage,
destruction or other property or casualty (whether or not covered
by
insurance) or (ii) any loss of officers, employees, dealers,
distributors, independent contractors, customers or suppliers,
which had
or
may reasonably be expected to result in a Material Adverse Effect
on
the
Company.
2.10
Assets. Except as set forth in the Company Disclosure Schedule,
the Company has good and marketable title to all of its assets and
properties,
whether or not reflected in the balance sheet or acquired after the
date
thereof (except for properties sold or otherwise disposed of since
the date
thereof in the ordinary course of business and consistent with
past
practices), that relate to or are necessary for the Company to
conduct its
business and operations as currently conducted (collectively, the
"Assets"),
free and clear of any mortgage, pledge, lien, security interest,
conditional
or installment sales agreement, encumbrance, claim, easement, right
of way,
tenancy, covenant, encroachment, restriction or charge of any kind
or nature
(whether or not of record) (a "Lien"), other than (i) liens
securing specific
Liabilities shown on the balance sheet with respect to which no
breach,
violation or default exists; (ii) mechanics,' carriers,' workers'
or other
like liens arising in the ordinary course of business; (iii)
minor
imperfections of title that do not individually or in the
aggregate, impair
the continued use and operation of the Assets to which they relate
in the
operation of the Company as currently conducted; and (iv) liens for
current
taxes not yet due and payable or being contested in good faith by
appropriate
proceedings ("Permitted Liens").
2.11
Receivables and Payables.
Except as set forth in Section 1.3(d), there are no liabilities
and there will be no liabilities in an amount greater than $1,000
at the time
of Closing.
2.12
Intellectual Property Rights. The Company owns or has the
unrestricted right to use, and the Company Disclosure Schedule
contains a
detailed listing of, all patents, patent applications, patent
rights,
registered and unregistered trademarks, trademark applications,
trade names,
service marks, service mark applications, copyrights, internet
domain names,
computer programs and other computer software, inventions,
know-how, trade
secrets, technology, proprietary processes, trade dress, software
and formulae
(collectively, "Intellectual Property Rights") used in, or
necessary for, the
operation of its Business as currently conducted or proposed to be
conducted.
Except as set forth on the Company Disclosure Schedule, to the
Company's
knowledge, the use of all Intellectual Property Rights necessary or
required
for the conduct of the Business of the Company as presently
conducted and as
proposed to be conducted does not infringe or violate the
Intellectual
Property Rights of any person or entity. Except as described on the
Company
Disclosure Schedule, to the Company's knowledge: (a) the Company
does not own
or use any Intellectual Property Rights pursuant to any written
license
agreement; (b) the Company has not granted any person or entity any
rights,
pursuant to a written license agreement or otherwise, to use the
Intellectual
Property Rights; (c) the Company owns, has unrestricted right to
use and has
sole and exc
