UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
X QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
_ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-24541
CORGENIX MEDICAL CORPORATION
(Name of Small Business Issuer in its Charter)
Nevada 93-1223466
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
12061 Tejon Street, Westminster, Colorado 80234
(Address of principal executive offices, including zip code)
(303) 457-4345
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
The number of shares of Common Stock outstanding was 5,321,319 as of May 11,
2004.
Transitional Small Business Disclosure Format. Yes _ No X
2
CORGENIX MEDICAL CORPORATION
March 31, 2004
TABLE OF CONTENTS
Page
Part I
Financial Information
Item 1. Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Controls and Procedures 17
Part II
Other Information
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of
Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Certifications 63
Signature Page 66
3
PART I
Item 1. Consolidated Financial Statements
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
-------------------------------------------------------------------
March 31, June 30,
2004 2003
(Unaudited)
Assets
Current Assets:
Cash and equivalents $ 488,462 342,377
Accounts receivable, less allowance for
doubtful accounts of $13,000 758,660 628,717
Inventories 927,193 815,222
Prepaid expenses 46,861 42,788
---------------------------------
Total current assets 2,221,176 1,829,104
Equipment:
Capitalized software costs 122,855 122,855
Machinery and laboratory equipment 585,935 585,935
Furniture, fixtures, leaseholds and office 510,503 503,787
equipment ---------------------------------
1,219,293 1,212,577
Accumulated depreciation and amortization (883,816) (789,564)
---------------------------------
Net equipment 335,477 423,013
---------------------------------
Intangible assets:
Patents, net of accumulated amortization of 116,694 172,566
$1,000,850 and $944,978
Goodwill 13,677 13,677
---------------------------------
Net intangible assets 130,371 186,243
---------------------------------
Due from officer 12,000 12,000
Other assets 124,261 105,356
---------------------------------
Total assets $2,823,285 2,555,716
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of notes payable $ 985,385 378,683
Current portion of capital lease obligations 66,959 95,881
Accounts payable 469,089 618,934
Accrued payroll and related liabilities 197,022 180,630
Accrued interest 120,402 99,660
Accrued liabilities 96,848 105,392
---------------------------------
Total current liabilities 1,935,705 1,479,180
Notes payable, excluding current portion 273,012 373,167
Capital lease obligations, excluding current 18,361 61,504
portion ---------------------------------
Total liabilities 2,227,078 1,913,851
Redeemable common stock, 880,282 shares issued
and outstanding at March 31,
2004, aggregate redemption value of $500,000,
net of unaccreted discount and issuance
costs of $86,558 and $151,474 413,442 348,526
Stockholders' equity:
Preferred stock, $0.001 par value.
Authorized 5,000,000 shares, none issued or
outstanding - -
Common stock, $0.001 par value. Authorized
40,000,000 shares; issued and outstanding
5,319,340 and 5,304,607 shares at March 31
and June 30, respectively 4,406 4,391
Additional paid-in-capital 4,947,173 4,930,576
Accumulated deficit (4,759,724) (4,642,297)
Accumulated other comprehensive income (loss) (9,090) 669
--------------------------------
Total stockholders' equity 182,765 293,339
---------------------------------
Total liabilities and
stockholders' equity $2,823,285 2,555,716
=============================
See accompanying notes to consolidated financial statements.
5
4
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
(Loss)
Three Months Ended Nine Months Ended
March 31, March 31, March 31, March 31,
2004 2003 2004 2003
--------------------------------------------
(Unaudited) (Unaudited)
Net sales $1,355,973 1,171,320 3,745,041 3,904,889
Cost of sales 419,341 389,948 1,337,146 1,266,121
--------------------------------------------
Gross profit 936,632 781,372 2,407,895 2,638,768
Operating expenses:
Selling and marketing 327,612 399,194 981,705 1,100,854
Research and development 193,254 210,666 563,482 635,900
General and
administrative 305,982 268,945 846,029 895,996
----------------------------------------------
Total expenses 826,848 878,805 2,391,216 2,632,750
Operating income
(loss) 109,784 (97,433) 16,679 6,018
Interest expense, net 21,395 27,622 69,190 80,963
----------------------------------------------
Net income (loss) 88,389 (125,055) (52,511) (74,945)
Accretion of discount on
redeemable common stock 21,639 21,639 64,917 64,918
----------------------------------------------
Net income (loss)
available to common
stockholders $ 66,750 (146,694) (117,428) (139,863)
==============================================
Net income (loss) per
share, basic $ 0.01 (0.03) (0.02) (0.03)
Net income (loss) per
share, diluted $ 0.01 (0.03) (0.02) (0.03)
Weighted average shares
outstanding,
Basic (note 3) 5,307,084 5,245,348 5,300,216 5,225,814
Weighted average shares
outstanding,
diluted (note 3) 5,971,572 5,245,348 5,300,216 5,225,814
===============================================
Net income (loss) $ 88,389 (125,055) (52,511) (74,945)
Other comprehensive income
(loss)- foreign
currency translation (9,322) 5,000 (9,759) (23,937)
-----------------------------------------------
Total comprehensive
income (loss) $ 79,067 (120,055) (62,270) (98,882)
===============================================
See accompanying notes to consolidated financial statements.
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the nine months ended March 31, 2004
Common Accumulated
Stock, Additional other Total
$0.001 paid-in Accumulated comprehensive stockholders'
par capital deficit income equity
Balance at June 30,
2003 $ 4,391 4,930,576 (4,642,297) 669 293,339
Issuance of common
stock and stock
options for
services 15 16,597 16,612
Foreign currency translation (9,759) (9,759)
Accretion of discount
on redeemable common stock (64,916) (64,916)
Net income (loss) (52,511) (52,511)
--------
---------------------------------------------------------------
Balance at March 31,
2004 $ 4,406 4,947,173 (4,759,724) (9,090) 182,765
===============================================================
CONFIDENTIAL
CORGENIX MEDICAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
-------------------------------------------------------------------
Nine Months Ended
March 31, March 31,
2004 2003
---------------------
(Unaudited)
Cash flows from operating activities:
Net loss $ (52,511) (74,945)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 148,041 160,114
Equity instruments issued
for services 10,643 22,153
Changes in operating assets and liabilities:
Accounts receivable (112,351) 76,527
Inventories (108,804) (136,283)
Prepaid expenses and
other assets (22,059) (7,711)
Accounts payable (183,315) (195,807)
Accrued payroll and
related liabilities 18,644 32,852
Accrued interest and
other liabilities 7,803 91,666
-----------------------
Net cash used in
operating activities (293,909) (31,434)
-----------------------
Cash flows used in investing activities:
Purchases of equipment (3,370) (26,127)
------------------------
Cash flows from financing activities:
Proceeds from issuance of common
stock, redeemable common stock,
warrants and exercise of stock
options 5,990 500,000
Proceeds from issuance of notes
payable 666,031 69,100
Payments on notes payable (159,295) (249,977)
Payments on capital lease obligations (72,064) (78,140)
Payments for costs of issuance of
common stock (22) (15,248)
------------------------
Net cash provided by
financing activities 440,640 225,735
-----------------------
Net increase (decrease) in
cash and cash equivalents 143,361 168,174
Impact of foreign currency translation
adjustment on cash 2,695 (23,937)
Cash and cash equivalents at beginning
of period 342,406 164,378
----------------------
Cash and cash equivalents at end of
period $488,462 308,615
======================
Supplemental cash flow disclosures:
Cash paid for interest $ 49,089 64,740
Noncash investing and financing
activity--
Equipment acquired under capital
leases $ - 47,477
---------------------
See accompanying notes to consolidated financial statements.
CORGENIX MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Corgenix Medical Corporation (which we refer to as Corgenix or the Company) is
engaged in the research, development, manufacture, and marketing of in vitro
(outside the body) diagnostic products for use in disease detection and
prevention. The Company currently sells 73 diagnostic products (the "Diagnostic
Products") on a worldwide basis to hospitals, clinical laboratories, commercial
reference laboratories, and research institutions.
The Company's corporate headquarters is located in Westminster, Colorado.
Corgenix has two wholly owned operating subsidiaries:
o Corgenix, Inc., established in 1990 and located in
Westminster, Colorado. Corgenix, Inc. is responsible
for sales and marketing activities for North America
and Japan, and also conducts product development,
product support, regulatory affairs and product
manufacturing of the Diagnostic Products.
o Corgenix (UK) Ltd., is located in Peterborough, England. Corgenix UK
manages the Diagnostic Business' international sales and marketing
activities except for distribution in North America and Japan which
is under the responsibility of Corgenix, Inc.
On August 5, 2003 (as amended October 21, 2003), the Company entered into a
letter of intent to merge with Genesis Bioventures, Inc. (which we refer to as
GBI) a biomedical development company focused on the development of diagnostic
tests ("Merger Transaction"). On March 12, 2004, the Company and Genesis signed
a definitive merger agreement to effectuate the merger. The parties are seeking
to close the merger transaction on or before August 31, 2004.
If the merger is consummated, then Genesis would issue 14 million shares in
exchange for 100% of Corgenix's outstanding shares. On March 24, 2004 Genesis
advanced $500,000 to the Company in the form of a Convertible Promissory Note
("Bridge Note"), for on-going business operations as well as merger transaction
related expenses. Pursuant to the main provisions of the Bridge Note, interest
will not accrue on the principal balance of the Bridge Note unless and until the
merger closing does not occur, in which case the interest will accrue at the
prime rate at the time of such termination and from said date of termination.
Upon a merger termination, the unpaid principal plus accrued interest thereon is
payable in four fully amortized semi-annual payments, with the first payment due
on October 31, 2004. Depending upon the reason for a merger termination, the
lender (Genesis) may elect to convert the unpaid principal balance of the Note
plus accrued but unpaid interest thereon (if any) into shares of common stock of
Corgenix, at a conversion price of $.40 per share if the merger termination is
due to the unrightful refusal to close by Corgenix, or at a conversion price of
$.568 per share if the merger termination is for any other reason. The terms of
the merger agreement provide that Corgenix's current management team will assume
the responsibility of managing the combined entity, which will continue to be
known as Genesis Bioventures, Inc. and will be headquartered in Westminster,
Colorado, the location of Corgenix's current corporate headquarters. In
addition, the proposed merger is conditioned upon certain closing conditions,
including approval by the stockholders of each company, the successful
completion of a second round of merger related financing in the amount of at
least 6 million dollars (which we refer to as the Takeout Financing). The
foregoing dates and amounts of these provisions may be waived at the discretion
of Corgenix. The Takeout Financing would provide the combined companies with
funding to continue to develop and further expand their respective technologies
and sales and marketing activities. Finally, in the event of a breach of the
Merger Agreement, the breaching party may be liable for up to $1,500,000 of
liquidated damage penalties.
The accompanying consolidated financial statements have been prepared without
audit and in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of the Company's management, the financial
statements include all adjustments (consisting of normal recurring accruals and
adjustments) required to present fairly the Company's financial position at
March 31, 2004 and June 30, 2003 and the results of operations for each of the
three and nine month periods ended March 31, 2004 and 2003, and the cash flows
for each of the nine month periods then ended. The operating results for the
three and nine months ended March 31, 2004 are not necessarily indicative of the
results that may be expected for the year ended June 30, 2004. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB for the fiscal
year ended June 30, 2003.
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with accounting principles generally accepted in the United States of
America. Significant assumptions inherent in the preparation of the accompanying
financial statements include, but are not limited to, revenue recognition and
allowances for doubtful accounts, the provision for excess and obsolete
inventories, and commitments and contingencies. Actual results could differ from
those estimates.
2. SOFTWARE
The Company accounts for its internally developed software in compliance with
Statement of Position 98-1 ("SOP 98-1"), Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 defines the types of
computer software project costs that may be capitalized. All other costs are
expensed in the period incurred. In order for costs to be capitalized, the
computer software project must be intended to create a new system or add
identifiable functionality to an existing system.In the quarter ended December
31, 2001, the Company began development of a business-to-business web site
(Corgenix On Line) for its core business reference laboratory and hospital
customers and potential customers worldwide. The website is intended eventually
to allow customers to place orders for the Company's diagnostic products, pay
for said orders, and track the status of such orders. It will also give full
specification and details on all of the Company's diagnostic test kits. To date,
all products and enhancements thereto have utilized proven technology. The
direct internal and external costs of developing the related software, other
than initial design and other costs incurred during the preliminary project
stage, were capitalized until the software was completed at the end of September
2002. Through September 2002, all products and enhancements thereto utilized
proven technology. Such capitalized amounts, which amounted to $122,855, began
to be amortized on a straight-line basis over a three-year period commencing in
October 2002. No further additions to this project are anticipated.
3. EARNINGS PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common shares
outstanding. Diluted earnings (loss) per share is computed by dividing net
income (loss) available to common stockholders by the weighted average number of
common shares outstanding increased for the dilutive effect of potentially
dilutive securities outstanding during the period. The dilutive effect of stock
options, warrants and their equivalents is calculated using the treasury stock
method
The components of basic and diluted income (loss) per share are as
follows:
3 months 3 months 9 months 9 months
ended ended ended ended
March 31, March 31, March 31, March 31,
2004 2003 2004 2003
Net income (loss) available
to common stockholders $66,750 (146,694) (117,428) (139,863)
===========================================
Common and common equivalent shares outstanding:
Historical common shares
outstanding for basic
income (loss) per share at
beginning of period 5,299,671 5,231,713 5,271,192 4,333,095
Weighted average common
shares issued during
the period 7,413 13,635 29,024 892,719
---------------------------------------------
Weighted average common
shares-basic 5,307,084 5,245,348 5,300,216 5,225,814
Dilutive effect of
potentially dilutive
securities Outstanding 664,488 - - -
--------------------------------------------
Weighted average common
shares-diluted 5,971,572 5,245,348 5,300,216 5,225,814
Net income (loss)per
share-basic $ 0.01 (0.03) (0.02) (0.03)
=============================================
Net income (loss)per
share-diluted $ 0.01 (0.03) (0.02) (0.03)
=============================================
4. INCOME TAXES
A valuation allowance was provided for deferred tax assets, as the Company
is unable to conclude under relevant accounting standards that it is more
likely than not that deferred tax assets will be realizable.
5. SEGMENT INFORMATION
The Company has two segments of business: domestic and international
operations. International operations primarily transact sales with customers
in Europe and continents other than North America, while domestic operations
transact sales primarily in North America. Sales to a Japanese strategic
partner (which ceased inb November 2002) for sales in Japan, emanating from
the United States, have historically also been included in the domestic
business segment. The following table sets forth selected financial data for
these segments for the three and nine month periods ended March 31, 2004 and
2003.
Three Months Ended March 31, Nine Months Ended March 31,
Domestic Intl. Total Domestic Intl. Total
Net 2004 $ 1,022,509 333,464 1,355,973 2,873,996 871,045 3,745,041
sales 2003 $ 903,647 267,673 1,171,320 3,061,539 843,350 3,904,889
--------------------------------------------------------------
Net income
(loss) 2004 $ (5,965) 94,354 88,389 (252,468) 199,957 (52,511)
2003 (209,423) 84,368 (125,055) (277,321) 202,376 (74,945)
--------------------------------------------------------------
Depreciation
and
amortization
2004 $ 49,444 512 49,956 146,502 1,539 148,041
2003 $ 45,413 481 56,917 124,496 1,442 160,114
---------------------------------------------------------------
Interest expense,
net 2004 $ 19,918 1,477 21,395 62,204 6,986 69,190
2003 $ 20,607 7,015 27,622 64,765 16,198 80,963
--------------------------------------------------------------
Segment
assets 2004 $2,411,152 412,133 2,823,285 2,411,152 412,133 2,823,285
June 30, 2003 $2,097,844 457,872 2,555,716 2,097,844 457,872 2,555,716
===============================================================
6. REDEEMABLE COMMON STOCK
On July 1, 2002, the Company entered into an agreement (which we refer to as the
MBL Agreement) with Medical & Biological Laboratories Co., Ltd. ("MBL"), a
strategic partner and manufacturer of autoimmune diagnostic kits located in
Nagoya, Japan, under which the Company sold 880,282 shares of its $.001 par
value common stock to MBL for gross proceeds of $500,000. Net proceeds to the
Company after issuance costs were $484,746. Under the MBL Agreement, MBL was
also granted a put option pursuant to which MBL could cause the Company to
repurchase the common stock sold to MBL under the MBL Agreement. Thus, the
common stock sold has been designated "redeemable common stock." The put option
requires the stock to be repurchased at the original purchase price, payable in
either a lump-sum purchase or financed over a six-month period. The put option
is exercisable by MBL any time after the termination or expiration of the
distribution agreement between the Company and RhiGene, MBL's U.S. subsidiary,
upon any merger or consolidation of the Company with another corporation wherein
the Company's stockholders own less than 50% of the surviving corporation or
upon any sale or other disposition of all or substantially all of the Company's
assets. In March 2004, MBL's representative to the Company's Board of Directors
voted in favor of the execution of the Merger Agreement by the Company's
management. MBL's approval of the eventual merger is not required, and they have
given the Company verbal assurance that they expect to vote their shares in
favor of the merger at the upcoming shareholders meeting. The present
distribution agreement with RhiGene expires on March 31, 2005, though the
distribution agreement may be renewed or extended prior to that time.
Pursuant to the agreement with MBL, as long as MBL holds at least 50% of the
common stock purchased under the MBL agreement, MBL must give its written
consent with respect to the payment of any dividend, the repurchase of any of
the Company's equity securities, the liquidation or dissolution of the Company
or the amendment of any provision of the Company's Articles of Incorporation or
Bylaws that would adversely affect the rights of MBL under the stock purchase
transaction documents. MBL was granted certain anti-dilution rights with respect
to stock issuances not registered under the Securities Act. MBL also received
piggyback registration rights along with certain demand registration rights.
In addition, as part of the MBL Agreement and for no additional consideration,
MBL was issued warrants to purchase an additional 880,282 shares of Common Stock
at a price of $.568 per share, which is equal to an aggregate amount of
$500,000. These warrants expire on July 3, 2007 and may be exercised in whole or
in part at any time prior to their expiration. The estimated fair value of the
warrant upon issuance was calculated as $401,809 using the Black-Scholes model
with the following assumptions: no expected dividend yield, 143% volatility,
risk free interest rate of 4.2% and an expected life of five years. The gross
proceeds of $500,000 were allocated $277,221 to redeemable common stock and
$222,779 to the related warrants based on the relative fair values of the
respective instruments to the fair value of the aggregate transaction. Issuance
costs and the discount attributed to the warrants upon issuance are being
accreted on the interest method over the 33-month period prior to the presently
expected first date on which the put option may be exercised, which is the
present expiration date of the distribution agreement between the Company and
RhiGene.
7. STOCK COMPENSATION
Effective January 1, 1999, the Company adopted an Employee Stock Purchase Plan
("ESPP") to provide eligible employees an opportunity to purchase shares of its
common stock through payroll deductions, up to 10% of eligible compensation. The
ESPP is registered under Section 423 of the Internal Revenue Code of 1986. Each
quarter, participant account balances are used to purchase shares of stock at
the lesser of 85% of the fair value of shares on the first business day and last
business day of each quarter. No right to purchase shares shall be granted if,
immediately after the grant, the employee would own 5% or more of the total
combined voting power or value of all classes of stock. A total of 60,000 common
shares were registered with the Securities and Exchange Commission for purchase
under the ESPP. During September 2002, the Company determined that it had
inadvertently issued and registered more common stock under the ESPP than had
been authorized by stockholders of the Company. On December 11, 2002, the
Company's stockholders approved the Amended and Restated Employee Stock Purchase
Plan. 200,000 shares of Corgenix common stock are reserved for issuance under
the Amended and Restated Employee Stock Purchase Plan. Compensation expense is
recognized for the fair value of the employee's purchase rights. Compensation
expense recognized for the 15% discount on shares purchased under the Amended
and Restated Employee Stock Purchase Plan amounted to $553 and $782 for the
three months and $1,593 and $1,939 for the nine months ended March 31, 2004 and
2003, respectively. There were 4,936 and 15,361 shares issued under the Amended
and Restated Employee Stock purchase Plan during the three months and 33,415 and
33,697 shares issued during the nine months ended March 31, 2004 and 2003,
respectively.
In October 1999 and July 2000 the Company reserved a total of 200,000 shares of
its common stock for an Incentive Stock Option Plan for employees, directors and
consultants. Options are granted at the discretion of the board of directors
with an exercise price equal to or greater than the market value of the
Company's common stock on the grant date. On December 11, 2002, the Company's
stockholders approved the Amended and Restated 1999 Incentive Stock Plan and
reserved 800,000 shares of Corgenix common stock for issuance thereunder.
Had the Company determined compensation cost based on the fair value at the date
of grant for its stock options under SFAS No. 123, the Company's net income
would have been decreased or net loss would have been increased to the pro forma
amounts indicated as follows:
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
-----------------------------------
March 31, March 31, March 31, March 31,
2004 2003 2004 2003
--------------------------------------
Net income(loss) available
to common stockholders
as reported $ 66,750 (146,694) (117,428) (139,863)
Net income (loss)available
to common stockholders
pro forma 51,643 (159,909) (162,749) (179,508)
Net income (loss) per
share as reported 0.01 (0.03) (0.02) (0.03)
Net income (loss) per
share pro forma 0.01 (0.03) (0.03) (0.03)
Fair value was determined using the Black Scholes option - pricing model.
There were no stock options granted during the nine months ended March 31,
2004.
Item 2.
CORGENIX MEDICAL CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and accompanying notes included elsewhere
herein.
General
Since the Company's inception, we have been primarily involved in
the research, development, manufacturing and marketing/distribution of
diagnostic tests for sale to hospitals, clinical laboratories, commercial
reference laboratories and research institutions. We currently market 73
products covering autoimmune disorders, vascular diseases, infectious diseases,
liver disease and laboratory instrumentation. Our products are sold in the
United States, the UK and other countries through our marketing and sales
organization that includes contract sales representatives, internationally
through an extensive distributor network, and to several significant OEM
partners. We manufacture products for inventory based upon expected sales
demand, usually shipping products to customers within 24 hours of receipt of
orders. Accordingly, we do not operate with a customer order backlog. Except for
the fiscal year ended June 30, 1997 and the nine months ended March 31, 2004, we
have experienced revenue growth since our inception, primarily from sales of
products and contract revenues from strategic partners. Contract revenues
consist of licensing fees and milestone payments from research and development
agreements with strategic partners.
In fiscal year 1996, we began adding third-party OEM licensed products to
our diagnostic product line. Currently we sell 57 products licensed from or
manufactured by third party manufacturers. We expect to expand our relationships
with other companies in the future to gain access to additional products.
Although we have experienced growth in revenues every year except 1997 and
the nine months ended March 31, 2004, there can be no assurance that, in the
future, we will sustain revenue growth, current revenue levels, or achieve
profitability. Our results of operations may fluctuate significantly from
period-to-period as the result of several factors, including: (i) whether and
when new products are successfully developed and introduced, (ii) market
acceptance of current or new products, (iii) seasonal customer demand, (iv)
whether and when we receive research and development milestone payments and
license fees from strategic partners, (v) changes in reimbursement policies for
the products that we sell, (vi) competitive pressures on average selling prices
for the products that we sell, and (vii) changes in the mix of products that we
sell.
Critical Accounting Policies
The Company's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America
(which we refer to as GAAP). We believe that the policies identified below are
critical to the understanding of our results of operations. The preparation of
financial statements in conformity with GAAP requires our management to make
estimates and assumptions that affect reported amounts of assets, liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Management has made estimates and assumptions based on these policies.
We do not believe that there is a great likelihood that materially different
amounts would be reported if different assumptions were used. However, the
application of these policies involves judgments and assumptions as to future
events and, as a result, actual results could differ significantly from those
estimates.
Revenue Recognition
Revenue is recognized upon shipment of products. Revenue from research and
development contracts represents amounts earned pursuant to agreements to
perform research and development activities for third parties and is recognized
as earned as it becomes billable under the respective agreement.
Equipment and Software
Equipment and software are recorded at cost. Equipment under capital
leases is recorded initially at the present value of the minimum lease payments.
Depreciation and amortization is calculated primarily using the straight-line
method over the estimated useful lives of the respective assets which range from
3 to 7 years. The internal and external costs of developing and enhancing
software costs related to website development, other than initial design and
other costs incurred during the preliminary project stage, are capitalized until
the software has been completed. Such capitalized amounts are amortized
commencing when the website is placed in service on a straight-line basis over a
three-year period. When assets are sold, retired or otherwise disposed of, the
cost and related accumulated depreciation are eliminated from the accounts and a
gain or loss is recognized. Repair and maintenance costs are expensed as
incurred. We evaluate the realizability of our long-lived assets, including
property and equipment, whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Results of Operations
Three Months Ended March 31, 2004 compared to 2003
Net sales. Net sales for the three months ended March 31, 2004 were
$1,355,973, a $184,653 or 15.8% increase from $1,171,320 in the prior year.
Domestic sales increased 14.2% while sales to international distributors
decreased 24.6% from period to period. The principal reasons for the increase
were international and to a lesser extent, domestic increases in sales of
Hyaluronic Acid Test Kits plus domestic and to a lesser extent, international
increases in sales of test kits for certain vascular diseases. In addition,
phospholipids test kit sales increased slightly. However, the increases in the
lines mentioned above were somewhat offset by reductions in OEM sales.
Cost of sales. Cost of sales, as a percentage of sales, decreased to 30.9%
for the quarter ended March 31, 2004 from 33.3% in 2003 primarily due to
increased sales of Hyaluronic Acid Test Kits. Said sales were made at a higher
gross margin than other test kits in the product line. This was partially offset
by higher raw material costs associated with the new manufacturing format of the
Company's main product line.
Selling and marketing. Selling and marketing expenses decreased 17.9% or
$71,582 to $327,612 for the quarter ended March 31, 2004 from $399,194 in 2003.
The majority of this decrease involved decreases in labor-related, travel and
advertising costs resulting from cost controls and reductions put into place on
August 1, 2003. The remainder of the change resulted from individually minor
changes in other selling and marketing expenses
Research and development. Research and development expenses decreased
$17,412 or 8.3% to $193,254 for the quarter ended March 31, 2004 from $210,666
in 2003. The majority of this decrease involved reductions in labor-related
costs resulting from recently ended development projects in addition to the
August 1, 2003 company-wide cost controls and reductions mentioned above.
General and administrative. General and administrative expenses increased
$37,037 or 13.8% to $305,982 for the quarter ended March 31, 2004 from $268,945
in 2003, primarily due to increases in outside services, printing expenses, and
bank charges, offset to a large extent by reductions in other expense categories
resulting from cost controls and reductions which were recently put in place.
Interest expense. Interest expense decreased $6,227 or 22.5% to $21,395
for the quarter ended March 31, 2004 from $27,622 in 2003 due primarily to a
decrease in interest-bearing debt in addition to lower interest rates.
Accretion of discount on redeemable common stock. This item represents the
accretion of the discount on redeemable common stock over the 33-month period
from the date the stock was issued to the presently expected first date on which
the related embedded put option may be exercised. The redeemable common stock
was issued in July 2002.
Nine Months Ended March 31, 2004 compared to 2003
Net sales Net sales for the nine months ended March 31, 2004 were
$3,745,041, a $159,848 or 4.1% decrease from $3,904,889 in the prior year.
Domestic sales decreased 5.8% while sales to international distributors
increased 3.3% from period to period. The principal reasons for the slight
decrease was the loss of $132,000 in sales of Hyaluronic Acid Test Kits to
Fujirebio (formerly Chugai) as a result of the loss of Fujirebio in November
2002 as the principal Hyaluronic Acid Test Kits customer for distribution in
Japan. Sales to Fujirebio since November 2002 have been nil. The remaining
fluctuation in overall sales is due to decreases in OEM sales, almost entirely
offset by increases in vascular disease test kit sales.
Cost of sales. Cost of sales, as a percentage of sales, increased to 35.7%
for the nine months ended March 31, 2004 from 32.4% in 2003 primarily due to
higher raw material costs associated with the new manufacturing format of the
Company's main product line, partially offset by sales of Hyaluronic Acid Test
Kits, at higher margins, to customers other than Fujirebio.
Selling and marketing. Selling and marketing expenses decreased $119,149
or $10.8% to $981,705 for the nine months ended March 31, 2004 from $1,100,854
in 2003. The majority of this decrease involved decreases in labor-related,
travel and advertising costs resulting from cost controls and reductions put
into place on August 1, 2003. The remainder of the change resulted from
individually minor changes in other selling and marketing expenses
Research and development. Research and development expenses decreased
$72,418 or 11.4% to $563,482 for the nine months ended March 31, 2004 from
$635,900 in 2003. The majority of this decrease involved reductions in
labor-related costs and purchases and development costs resulting from recently
ended development projects in addition to the August 1, 2003 company-wide cost
controls and reductions mentioned above.
General and administrative. General and administrative expenses decreased
$49,967 or 5.6% to $846,029 for the nine months ended March 31, 2004 from
$895,996 in 2003, primarily due to cost controls and reductions which were
recently put in place. As a result of said cost controls, the largest reductions
came in two primary categories, outside services and printing expenses. The
remaining fluctuation is due to individually minor changes in other general and
administrative expenses.
Interest expense. Interest expense decreased $11,773 or 14.5% to $69,190
for the nine months ended March 31, 2004 from $80,963 in 2003 due primarily to a
decrease in interest-bearing debt in addition to lower interest rates.
Accretion of discount on redeemable common stock. This item represents the
accretion of the discount on redeemable common stock over the 33 month period
from the date the stock was issued to the presently expected first date on which
the related embedded put option may be exercised. The redeemable common stock
was issued in July 2002.
Liquidity and Capital Resources
Cash used in operating activities was $293,909 for the nine months ended
March 31, 2004 compared to cash used in operating activities of $31,434 during
the prior fiscal year's first nine months. The cash used in operations resulted
primarily from a substantial decrease in accounts payable plus increases in
accounts receivable and inventories. The decrease in accounts payable resulted
primarily from catch-up payments to vendors out of the proceeds of the $500,000
advance from Genesis. The Company believes that uncollectible accounts
receivable will not have a significant effect on future liquidity, as a
significant portion of our accounts receivable are due from enterprises with
substantial financial resources.
Net cash used by investing activities, the purchase of equipment, was
$3,370 for the nine months ended March 31, 2004 compared to $26,127 for the
prior fiscal year's first nine months. The decrease was mainly attributable to
reduced spending on manufacturing and laboratory equipment.
Net cash provided by financing activities amounted to $440,640 for the
nine months ended March 31, 2004 a substantial reduction from the $225,735
provided in the prior fiscal year. This increase in cash provided over the
comparable prior year was primarily due to increased proceeds from the issuance
of notes payable during the current period as a result of the $500,000 advance
from Genesis mentioned above plus increased draws on the Company's bank line of
credit. This increase was materially offset by the $500,000 redeemable common
stock proceeds received in the prior year.
Historically, we have financed our operations primarily through long-term
debt and by sales of redeemable common stock, and common stock. In March 2004,
as mentioned above, the Company received a $500,000 advance from Genesis. In
fiscal 2003 we raised $500,000 before offering costs through a private sale of
redeemable common stock and warrants.
We have also received financing for operations from sales of diagnostic
products and agreements with strategic partners. Accounts receivable increased
$129,943 or 20.7% to $758,660 at March 31, 2004 from $628,717 at June 30, 2003.
This increase at March 31, 2004 was primarily attributable to a sharp increase
in revenues in March 2004. Our accounts payable decreased $149,845 or 24.2% to
$469,089 from $618,934 at June 30, 2003 primarily as a result of catch-up
payments to vendors out of the proceeds of the $500,000 advance from Genesis.
Our future capital requirements will depend on a number of factors,
including the proposed merger with Genesis and the related Takeout Financing,
our profitability or lack thereof, the rate at which we grow our business and
our investment in proprietary research activities, the ability of our current
and future strategic partners to fund outside research and development
activities, our success in increasing sales of both existing and new products
and collaborations, expenses associated with unforeseen litigation, regulatory
changes, competition, technological developments, general economic conditions
and potential other future merger and acquisition activity. Our principal
sources of liquidity have been cash provided from operating and financing
activities, cash raised from the private sale of redeemable common and common
stock, the Bridge Note mentioned above, and long-term debt financing. If
completed, the Takeout Financing would provide approximately $6,000,000 to occur
concurrently with the consummation of the merger with Genesis, now estimated to
be on or about August 31, 2004. If, for any reason, the Takeout Financing and
the planned merger with Genesis do not occur, we will definitely need to
implement new expense reductions and seek new debt agreements and/or sell
additional equity securities in fiscal year 2005 to generate additional
operating capital, to develop the markets and obtain the regulatory approvals
for our products in the United States, and to pursue all of our strategic
objectives. We believe that our current availability of cash, working capital,
future proceeds from the issuance of common stock, debt financing and expected
cash flows from operations resulting from, if necessary, further expense
reductions, will be adequate to meet our ongoing needs for at least the next
twelve months. At March 31, 2004, cash on hand amounted to $488,462 compared to
$342,377 at June 30, 2003. At March 31, 2004, the Company had available
borrowings under its $400,000 bank line of credit of approximately $319,875 and
had drawn $294,104 on the line. The borrowings at June 30, 2003 were limited to
a maximum of $279,500 based upon the calculation of the accounts receivable
borrowing base. This estimate of our future capital requirements is a
forward-looking statement that is based on assumptions that involve varying
risks and uncertainties. Actual results may differ significantly from our
estimates.
Recently Issued Accounting Pronouncements
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity" (SFAS
No. 150). This statement establishes standards for how an entity classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. This statement applies specifically to a number of financial
instruments that companies have historically presented within their financial
statements either as equity or between the liabilities section and the equity
section, rather than as liabilities. This statement is effective for financial
instruments entered into or modified after May 31, 2003, and is otherwise
effective at the beginning of the first interim period beginning after June 15,
2003 which was subsequently extended. Management does not expect the adoption of
SFAS 150 to have a material impact on its financial condition, results of
operations or cash flows.
Item 3.
Controls and Procedures
Evaluation of disclosure controls and procedures.
----------------------------------------------------
The Company, under the supervision and with the participation
of the Company's management, including its Chief Executive Officer and Chief
Financial Officer, carried out an evaluation of the effectiveness of the design
and operation of the Company's disclosure controls and procedures (as defined in
Rules 240.13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the
"Exchange Act") as of a date within ninety days before the filing date of this
quarterly report (the "Evaluation Date"). Based upon this evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation Date, the Company's disclosure controls and procedures were effective
for the purposes of recording, processing, summarizing and timely reporting
information required to be disclosed by the Company in the reports that it files
under the Securities Exchange Act of 1934 and that such information is
accumulated and communicated to the Company's management in order to allow
timely decisions regarding required disclosure.
Changes in internal controls. There have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect the Company's disclosure controls and procedures subsequent
to the Evaluation Date, nor were there any significant deficiencies or material
weaknesses in the Company's internal controls.
Forward-Looking Statements and Risk Factors
This 10-QSB includes statements that are not purely historical and are
"forward-looking statements" within the meaning of Section 21E of the Securities
Act of 1934, as amended, including statements regarding our expectations,
beliefs, intentions or strategies regarding the future. All statements other
than historical fact contained in this 10-QSB, including, without limitation,
statements regarding our planned merger with Genesis, the Takeout Financing,
future product developments, strategic partnership expectations, technological
developments, research and development programs and distribution plans, are
forward-looking statements. All forward-looking statements included in this
10-QSB are based on information available to us on the date hereof, and we
assume no obligation to update such forward-looking statements. Although we
believe that the assumptions and expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to have been correct or that we will take any actions that may presently
be planned.
Certain factors that could cause actual results to differ materially from
those expected include the following:
There can be no assurance that the merger with Genesis will be consummated
or that if consummated, that the intended business benefits will be
realized.
The merger with Genesis is subject to, among other conditions, the
completion of a $6,000,000 financing. The parties are seeking such equity from
institutional parties. There is no assurance that such a financing will be
accomplished. In addition, in the event of a breach of the merger agreement, the
breaching party may be liable to the other party for up to $1,500,000 of
liquidated damages. There can be no assurance that if a breach occurs the
breaching party would be able to meet its liquidated damages obligations.
The merger of Genesis and the Company may not be completed for any variety
of reasons including, failure to obtain necessary shareholder approval, breach
by either of the parties, and failures to satisfy conditions to closing. Even if
the merger were consummated, the integration of the companies could prove to be
a complex, time consuming and expensive process and may result in disruption of
the business of the combined company. Following the merger, the combined company
must operate as a combined organization utilizing common information and
communication systems, operating procedures, financial controls, and human
resources practices. There may be substantial difficulties, costs and delays
involved in integrating the companies. Even if the two companies are able to
integrate operations, there can be no assurance that the anticipated synergies
will be achieved. The failure to consummate the merger, or achieve such
synergies could have a material adverse effect on the results of operations and
financial condition of Corgenix or the combined company.
We continue to incur losses and are likely to require additional
financing.
We have incurred operating losses and negative cash flow from operations
for most of our history. Losses incurred since our inception have aggregated
$4,759,724 and there can be no assurance that we will be able to generate
positive cash flows to fund our operations in the future or to pursue our
strategic objectives. Assuming no greater than anticipated uses of cash related
to the tentative merger with Genesis or other significant changes, we believe
that we will have sufficient cash to satisfy our needs for at least the next
twelve months. If we are not able to operate profitably and generate positive
cash flows, or complete the merger related Takeout Financing mentioned above, we
will undoubtedly need to raise additional capital to fund our operations. If we
do in fact need additional financing to meet our requirements, there can be no
assurance that we will be able to obtain such financing on terms satisfactory to
us, if at all. Alternatively, any additional equity financing may be dilutive to
existing stockholders, and debt financing, if available, may include restrictive
covenants. If adequate funds are not available, we might be required to limit
our research and development activities or our selling, marketing and
administrative activities any of which could have a material adverse effect on
the future of the business.
We depend upon collaborative relationships and third parties for product
development and commercialization.
We have historically entered into research and development agreements with
collaborative partners, from which we derived revenues in past years. Pursuant
to these agreements, our collaborative partners have specific responsibilities
for the costs of development, promotion, regulatory approval and/or sale of our
products. We will continue to rely on future collaborative partners for the
development of products and technologies. There can be no assurance that we will
be able to negotiate such collaborative arrangements on acceptable terms, if at
all, or that current or future collaborative arrangements will be successful. To
the extent that we are not able to establish such arrangements, we could
experience increased capital requirements or be forced to undertake such
activities at our own expense. The amount and timing of resources that any of
these partners devotes to these activities will generally be based on progress
by us in our product development efforts. Collaborative arrangements may be
terminated by the partner upon prior notice without cause and there can be no
assurance that any of these partners will perform its contractual obligations or
that it will not terminate its agreement. With respect to any products
manufactured by third parties, there can be no assurance that any third-party
manufacturer will perform acceptably or that failures by third parties will not
delay clinical trials or the submission of products for regulatory approval or
impair our ability to deliver products on a timely basis.
There can be no assurance of successful or timely development of
additional products.
Our business strategy includes the development of additional diagnostic
products both for the diagnostic business and consumer products business. Our
success in developing new products will depend on our ability to achieve
scientific and technological advances and to translate these advances into
commercially competitive products on a timely basis. Development of new products
requires significant research, development and testing efforts. We have limited
resources to devote to the development of products and, consequently, a delay in
the development of one product or the use of resources for product development
efforts that prove unsuccessful may delay or jeopardize the development of other
products. Any delay in the development, introduction and marketing of future
products could result in such products being marketed at a time when their cost
and performance characteristics would not enable them to compete effectively in
their respective markets. If we are unable, for technological or other reasons,
to complete the development and introduction of any new product or if any new
product is not approved or cleared for marketing or does not achieve a
significant level of market acceptance, our results of operations could be
materially and adversely affected.
Competition in the human medical diagnostics industry is, and is expected
to remain, significant.
Our competitors range from development stage diagnostics companies to
major domestic and international pharmaceutical companies. Many of these
companies have financial, technical, marketing, sales, manufacturing,
distribution and other resources significantly greater than ours. In addition,
many of these companies have name recognition, established positions in the
market and long standing relationships with customers and distributors.
Moreover, the diagnostics industry has recently experienced a period of
consolidation, during which many of the large domestic and international
pharmaceutical companies have been acquiring mid-sized diagnostics companies,
further increasing the concentration of resources. There can be no assurance
that technologies will not be introduced that could be directly competitive with
or superior to our technologies.
Our products and activities are subject to regulation by various
governments and government agencies.
The testing, manufacture and sale of our products is subject to regulation
by numerous governmental authorities, principally the United States Food and
Drug Administration and certain foreign regulatory agencies. Pursuant to the
Federal Food, Drug, and Cosmetic Act, and the regulations promulgated there
under, the FDA regulates the preclinical and clinical testing, manufacture,
labeling, distribution and promotion of medical devices. We are not able to
commence marketing or commercial sales in the United States of new products
under development until we receive clearance from the FDA. The testing for,
preparation of and subsequent FDA regulatory review of required filings can be a
lengthy, expensive and uncertain process. Noncompliance with applicable
requirements can result in, among other consequences, fines, injunctions, civil
penalties, recall or seizure of products, repair, replacement or refund of the
cost of products, total or partial suspension of production, failure of the
government to grant premarket clearance or pre-market approval for devices,
withdrawal of marketing clearances or approvals, and criminal prosecution.
There can be no assurance that we will be able to obtain necessary
regulatory approvals or clearances for our products on a timely basis, if at
all, and delays in receipt of or failure to receive such approvals or
clearances, the loss of previously received approvals or clearances, limitations
on intended use imposed as a condition of such approvals or clearances or
failure to comply with existing or future regulatory requirements could have a
material adverse effect on our business.
As a manufacturer of medical devices for marketing in the United States,
we are required to adhere to applicable regulations setting forth detailed good
manufacturing practice requirements, which include testing, control and
documentation requirements. We must also comply with Medical Device Report (MDR)
requirements, which require that a manufacturer reports to the FDA any incident
in which its product may have caused or contributed to a death or serious
injury, or in which its product malfunctioned and, if the malfunction were to
recur, it would be likely to cause or contribute to a death or serious injury.
We are also subject to routine inspection by the FDA for compliance with Quality
System Regulations (QSR) requirements, MDR requirements and other applicable
regulations. Labeling and promotional activities are subject to scrutiny by the
FDA and, in certain circumstances, by the Federal Trade Commission. We may incur
significant costs to comply with laws and regulations in the future, which may
have a material adverse effect upon our business, financial conditions and
results of operations.
Distribution of diagnostic products outside the United States is subject
to extensive government regulation. These regulations, including the
requirements for approvals or clearance to market, the time required for
regulatory review and the sanctions imposed for violations, vary from country to
country. We may be required to incur significant costs in obtaining or
maintaining foreign regulatory approvals. In addition, the export of certain of
our products that have not yet been cleared for domestic commercial distribution
may be subject to FDA export restrictions. Failure to obtain necessary
regulatory approval or the failure to comply with regulatory requirements could
have a material adverse effect on our business, financial condition and results
of operations.
We depend upon distribution partners for sales of diagnostic products in
international markets.
We have entered into distribution agreements with collaborative partners
in which we have granted distribution rights for certain of our products to
these partners within specific international geographic areas. Pursuant to these
agreements, our collaborative partners have certain responsibilities for market
development, promotion, and sales of the products. If any of these partners
fails to perform its contractual obligations or terminates its agreement, this
could have a material adverse effect on our business, financial condition and
results of operations.
Third party reimbursement for purchases of our diagnostic
products is uncertain.
In the United States, health care providers that purchase diagnostic
products, such as hospitals and physicians, generally rely on third party
payers, principally private health insurance plans, federal Medicare and state
Medicaid, to reimburse all or part of the cost of the puchase. Third party
payers are increasingly scrutinizing and challenging the prices charged for
medical products and services and they can affect the pricing or the relative
attractiveness of the product. Decreases in reimbursement amounts for tests
performed using our diagnostic products, failure by physicians and other users
to obtain reimbursement from third party payers, or changes in government and
private third party payers' policies regarding reimbursement of tests utilizing
diagnostic products, may affect our ability to sell our diagnostic products
profitably. Market acceptance of our products in international markets is also
dependent, in part, upon the availability of reimbursement within prevailing
health care payment systems.
Our success depends, in part, on our ability to obtain patents and license
patent rights, to maintain trade secret protection and to operate without
infringing on the proprietary rights of others.
There can be no assurance that our issued patents will afford meaningful
protection against a competitor, or that patents issued to us will not be
infringed upon or designed around by others, or that others will not obtain
patents that we would need to license or design around. We could incur
substantial costs in defending the Company or our licensees in litigation
brought by others. Our business could be adversely affected.
We may not be able to successfully implement our plans to acquire other
companies or technologies.
Our growth strategy may include the acquisition of complementary
companies, products or technologies. There is no assurance that we will be able
to identify appropriate companies or technologies to be acquired, to negotiate
satisfactory terms for such an acquisition, or to obtain sufficient capital to
make such acquisitions. Moreover, because of limited cash resources, we will be
unable to acquire any significant companies or technologies for cash and our
ability to effect acquisitions in exchange for our capital stock may depend upon
the market prices for our common stock. If we do complete one or more
acquisitions, a number of risks arise, such as short-term negative effects on
our reported operating results, diversion of management's attention,
unanticipated problems or legal liabilities, and difficulties in the integration
of potentially dissimilar operations. The occurrence of some or all of these
risks could have a material adverse effect on our business, financial condition
and results of operations.
We depend on suppliers for our products' components.
The components of our products include chemical and packaging supplies
that are generally available from several suppliers, except certain antibodies,
which we purchases from single suppliers. We mitigate the risk of a loss of
supply by maintaining a sufficient supply of such antibodies to ensure an
uninterrupted supply for at least three months. We have also qualified second
vendors for all critical raw materials and believe that we can substitute a new
supplier with respect to any of these components in a timely manner. There can
be no assurances that we will be able to substitute a new supplier in a timely
manner and failure to do so could have a material adverse effect on our
business, financial condition and results of operations.
We have only limited manufacturing experience with certain products.
Although we have manufactured over twelve million diagnostic tests based
on our proprietary applications of ELISA (enzyme linked immuno-absorbent assay)
technology, certain of our diagnostic products in consideration for future
development, incorporate technologies with which we have little manufacturing
experience. Assuming successful development and receipt of required regulatory
approvals, significant work may be required to scale up production for each new
product prior to such product's commercialization. There can be no assurance
that such work can be completed in a timely manner and that such new products
can be manufactured cost-effectively, to regulatory standards or in sufficient
volume.
Due to the specialized nature of our business, our success will be highly
dependent upon our ability to attract and retain qualified scientific and
executive personnel.
We believe our success will depend to a significant extent on the efforts
and abilities of Dr. Luis R. Lopez and Douglass T. Simpson, who would be
difficult to replace. There can be no assurance that we will be successful in
attracting and retaining such skilled personnel, who are generally in high
demand by other companies. The loss of, inability to attract, or poor
performance by key scientific and executive personnel may have a material
adverse effect on our business, financial condition and results of operations.
The testing, manufacturing and marketing of medical diagnostic devices
entails an inherent risk of product liability claims.
To date, we have experienced no product liability claims, but any such
claims arising in the future could have a material adverse effect on our
business, financial condition and results of operations. Potential product
liability claims may exceed the amount of our insurance coverage or may be
excluded from coverage under the terms of our policy or limited by other claims
under our umbrella insurance policy. Additionally, there can be no assurance
that our existing insurance can be renewed by us at a cost and level of coverage
comparable to that presently in effect, if at all. In the event that we are held
liable for a claim against which we are not insured or for damages exceeding the
limits of our insurance coverage, such claim could have a material adverse
effect on our business, financial condition and results of operations.
There has, to date, been no active public market for our Common Stock, and
there can be no assurance that an active public market will develop or be
sustained.
Although our Common Stock has been traded on the OTC Bulletin Board(R)
since February 1998, the trading has been sporadic with insignificant volume.
Moreover, the over-the-counter markets for securities of very small
companies historically have experienced extreme price and volume fluctuations.
These broad market fluctuations and other factors, such as new product
developments, trends in our industry, the investment markets, economic
conditions generally, and quarterly variation in our results of operations, may
adversely affect the market price of our common stock. In addition, our common
stock is subject to rules adopted by the Securities and Exchange Commission
regulating broker-dealer practices in connection with transactions in "penny
stocks." As a result, many brokers are unwilling to engage in transactions in
our Common Stock because of the added disclosure requirements.
There are risks associated with fluctuating exchange rates.
Our financial statements are presented in US dollars. At the end of each
fiscal quarter and the fiscal year, we convert the financial statements of
Corgenix UK, which operates in pounds sterling, into US dollars, and consolidate
them with results from Corgenix, Inc. We may, from time to time, also need to
exchange currency from income generated by Corgenix UK. Foreign exchange rates
are volatile and can change in an unknown and unpredictable fashion. Should the
foreign exchange rates change to levels different than anticipated by us, our
business, financial condition and results of operations may be materially
adversely affected.
CORGENIX MEDICAL CORPORATION
Part II
Other Information
Item 1. Legal Proceedings
Corgenix is not a party to any material litigation or legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
a. Index to and Description of Exhibits
Exhibit
Number Description of Exhibit
3.1 Articles of Incorporation, as amended, filed with the Company's
Registration Statement on Form 10-SB filed June 29, 1998, and
incorporated herein by reference.
3.2 Bylaws, filed with the Company's Registration Statement on Form 10-SB
filed June 29, 1998, and incorporated herein by reference.
10.4 License Agreement dated June 30, 2001 between Chugai
Diagnostic Science Co., Ltd. and Corgenix Medical
Corporation, filed with the Company's Form 10-KSB, and
incorporated herein by reference.
10.5 Office Lease dated May 5, 2001 between Crossroads West
LLC/Decook Metrotech LLC and Corgenix, Inc., filed with
the Company's Form-10KSB, and incorporated herein by
reference.
10.6 Guarantee dated November 1, 1997 between William George Fleming,
Douglass Simpson and Geoffrey Vernon Callen, filed with the Company's
Registration Statement on Form 10-SB filed June 29, 1998, and
incorporated herein by reference.
10.7 Employment Agreement dated April 1, 2001 between Luis R. Lopez and the
Company, filed with the Company's Form 10-KSB, and incorporated herein
by reference.
10.8 Employment Agreement dated April 1, 2001 between Douglass T. Simpson
and the Company, filed with the Company's Form 10-KSB, and incorporated
herein by reference.
10.9 Employment Agreement dated April 1, 2001 between Ann L. Steinbarger and
the Company, filed with the Company's Form 10-KSB, and incorporated
herein by reference.
10.10 Employment Agreement dated April 1, 2001 between Taryn G. Reynolds and
the Company, filed with the Company's Form 10-KSB, and incorporated
herein by reference.
10.11 Employment Agreement dated April 1, 2001 between Catherine (O'Sullivan)
Fink and the Company, filed with the Company's Form 10-KSB, and
incorporated herein by reference.
10.12 Consulting Contract dated May 22, 1998 between Wm. George Fleming, Bond
Bio-Tech, Ltd. and the Company, filed as Exhibit 10.16 to the Company's
Registration Statement on Form 10-SB filed June 29, 1998, and
incorporated herein by reference.
10.13 Stock Purchase Agreement dated September 1, 1993 between
Chugai Pharmaceutical Co., Ltd. and REAADS Medical
Products, Inc., filed as Exhibit 10.17 to the Company's
Registration Statement on Form 10-SB filed June 29, 1998,
and incorporated herein by reference.
10.14 Note dated January 6, 1997 between REAADS Medical Products, Inc. and
Eagle Bank, filed with the Company's Registration Statement on Form
10-SB filed June 29, 1998, and incorporated herein by reference.
10.15 Form of Indemnification Agreement between the Company and its directors
and officers, filed with the Company's Registration Statement on Form
10-SB/A-1 filed September 24, 1998 and incorporated herein by
reference.
10.16 Warrant agreement dated June 1, 2000 between the Company and Taryn G.
Reynolds, filed with the Company's Form 10-KSB, and incorporated herein
by reference..
10.17 Employment Agreement dated March 1, 2001 between William H. Critchfield
and the Company, filed with the Company's filing on Form 10-QSB for the
fiscal quarter ended March 31, 2001.
10.19 Consulting Agreement dated September 29, 2002 between Eiji Matsuura,
Ph.D and the Company, filed with the Company's Form 10-QSB, and
incorporated herein by reference.
10.20 License Agreement dated September 29, 2002 between Eiji Matsuura, Ph.D
and the Company, filed with the Company's Form 10-QSB, and incorporated
herein by reference.
10.21 Extension to Business Development & Consulting Services Agreement dated
November 27, 2002 by and between Ascendiant capital Group, LLC and the
Company, filed with the Company's Form 10-QSB, and incorporated herein
by reference.
10.23 Amended and Restated 1999 Incentive Stock Plan filed with the Company's
filing of Proxy Statement Schedule 14A Information, and incorporated
herein by reference.
10.24 Amended and Restated Employee Stock Purchase Plan, filed with the
Company's filing of Proxy Statement Schedule 14A Information, and
incorporated herein by reference.
10.25* Agreement and Plan of Merger dated as of March 12, 2004 by and among
Genesis Bioventures, Inc., GBI Acquisition Corporation and Corgenix
Medical Corp.*
10.26 Promissory note dated October 1, 2001 between W.G. Fleming and Corgenix
UK, Ltd. filed with the Company's Form 10-QSB, and incorporated herein
by reference.
10.27 Promissory note dated October 1, 2001 between W.G. Fleming and Corgenix
UK, Ltd. filed with the Company's Form 10-QSB, and incorporated herein
by reference.
10.28 Warrant Agreement dated October 11, 2001, between Phillips V. Bradford
and the Company, filed with the Company's Form 10-QSB, and incorporated
herein by reference.
10.29 Warrant Agreement dated October 11, 2001 between Charles F. Ferris and
the Company, filed with the Company's Form 10-QSB, and incorporated
herein by reference.
10.30 Underlease Agreement dated October 3, 2001 between G.V. Calen, A.G.
Pirmohamed and Corgenix UK, Ltd,. filed with the Company's Form 10-QSB,
and incorporated herein by reference.
10.31 Distribution Agreement and OEM Agreement dated March 14, 2002 between
RhiGene, Inc., and the Company, filed with the Company's Form 10-QSB,
and incorporated herein by reference.
21.1 Subsidiaries of the Registrant, filed as Exhibit 21.1 to the Company's
Registration Statement on Form 10-SB, filed June 29, 1998.
31.1* Certification pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.
32.1* Certification by Chief Executive Officer pursuant to 18 U.S.C. Section
1350, or adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2* Certification by Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, or adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
* Filed Herewith
---------------------------------------
(b) Reports on Form 8-K.
None
Exhibit 10.25
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 12, 2004
AMONG
GENESIS BIOVENTURES, INC.
GBI ACQUISITION CORPORATION
AND
CORGENIX MEDICAL CORP.
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of March 12, 2004
("Agreement Date"), by and among GENESIS BIOVENTURES, INC., a New York
corporation ("PARENT" or "GBI"), GBI ACQUISITION CORP.), a Delaware corporation
and a wholly owned subsidiary of PARENT ("Acquisition Corp."), and CORGENIX
MEDICAL CORPORATION, a Nevada corporation ("TARGET" or "Corgenix"). Certain
capitalized terms used herein shall have the meanings as set forth in Article
XIII hereof.
WHEREAS, the parties hereto have entered into a Letter of Intent dated
July 31, 2003, as amended, with respect to a prospective combination of the
business of TARGET with PARENT;
WHEREAS, the combination is subject to a financing condition;
WHEREAS, the parties currently believe that PARENT has a reasonable
opportunity to satisfy the financing condition, and wish to express their mutual
obligation with respect to the terms of the transactions, subject to the
conditions thereof;
WHEREAS, the parties hereto desire to effect the merger of TARGET with and
into ACQUISITION CORP. (the "Merger") pursuant to the applicable provisions of
the Delaware General Corporation Law (the "DGCL"):
WHEREAS, the Board of Directors of each of PARENT, ACQUISITION CORP. and
TARGET have approved the Merger and the terms and conditions of this Agreement
and have determined that the Merger is in the best interests of their respective
stockholders;
WHEREAS, PARENT, as sole stockholder of ACQUISITION CORP. has approved the
Merger for Acquisition Corp.
WHEREAS, the Board of Directors of each of PARENT and TARGET have directed
that this Agreement and the Merger be submitted to, and have recommended that
they be approved by, their respective stockholders; and
WHEREAS, the parties intend that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein, the parties hereto
intending to be legally bound hereby agree as follows:
THE MERGER
The Merger. Subject to and upon the terms and conditions of this Agreement and
in accordance with the DGCL, at the Effective Time (as defined in Section 1.2
hereof), TARGET shall be merged with and into ACQUISITION CORP., which shall be
the surviving corporation (sometimes hereinafter referred to as the "Surviving
Corporation") in the Merger.
Effective Time. If all the conditions to the Merger set forth in Articles VIII
and IX hereof shall have been fulfilled or waived in accordance herewith and
this Agreement has not been terminated as provided in Article XIV hereof, on the
Closing Date the parties hereto shall cause certificates of merger in the form
required by the DGCL and the Nevada Business Corporation Act ("NBCA") (the
"Merger Filings"), to be duly prepared and executed and filed in accordance with
the DGCL and NBCA. The Merger shall become effective at the time the Merger
Filings are filed with the Secretary of State of the State of Delaware in
accordance with the DGCL, or at such later time which the parties hereto have
agreed upon and designated in such filing as the effective time of the Merger
(the "Effective Time").
Effect of the Merger. From and after the Effective Time, the Merger shall have
all the effects set forth in the DGCL. Without limiting the generality of the
foregoing, at the Effective Time, by virtue of the Merger, all properties,
rights, privileges, powers and franchises of TARGET and ACQUISITION CORP. shall
vest in the SURVIVING CORPORATION and all debts, liabilities and duties of
TARGET and ACQUISITION CORP. shall become the debts, liabilities and duties of
the SURVIVING CORPORATION. Supplementary Action. If at any time after the
Effective Time, any further assignments or assurances in law or any other things
are necessary or desirable to vest or to perfect or confirm of record in the
SURVIVING CORPORATION the title to any property or rights of TARGET or
ACQUISITION CORP., or otherwise to carry out the provisions of this Agreement,
the officers and directors of the SURVIVING CORPORATION are hereby authorized
and empowered, in the name of and on behalf of TARGET and ACQUISITION CORP., to
execute and deliver any and all things necessary or proper to vest or to perfect
or confirm title to such property or rights in the SURVIVING CORPORATION, and
otherwise to carry out the purposes and provisions of this Agreement.
THE SURVIVING CORPORATION
Certificate of Incorporation of the SURVIVING CORPORATION. The Certificate of
Incorporation of ACQUISITION CORP. as in effect at the Effective Time shall be
the certificate of incorporation of the SURVIVING CORPORATION until thereafter
amended in accordance with such certificate and applicable Law, except that, as
of the Effective Time, Article I of such Certificate of Incorporation shall be
amended to read as follows: "The name of the corporation is CORGENIX MEDICAL
CORPORATION." Bylaws of the SURVIVING CORPORATION. The Bylaws of ACQUISITION
CORP. as in effect at the Effective Time shall be the bylaws of the SURVIVING
CORPORATION until thereafter amended in accordance with such bylaws and
applicable Law. Directors and Officers of the SURVIVING CORPORATION. The
directors and officers of TARGET at the Effective Time shall be the directors
and officers of the SURVIVING CORPORATION until their respective successors are
duly elected and qualified in accordance with the SURVIVING CORPORATION
certificate of incorporation, bylaws and applicable Law.
CONSIDERATIONS; CONVERSION OF SHARES
Merger Consideration. The aggregate consideration payable by the PARENT in
the Merger to holders of shares of TARGET capital stock ("TARGET Capital
Stock"), shall consist of Fourteen Million (14,000,000) shares (the "Merger
Shares") of the Common Stock, $0.0001 par value per share, of PARENT ("PARENT
Common Stock"). Immediately prior to the transactions contemplated hereunder,
PARENT shall have contributed the Merger consideration to the capital of
ACQUISITION CORP. for issuance upon the Closing. Conversion of TARGET Capital
Stock.
Exchange Ratio for Common Stock. Each share of Common Stock, par value $.001 per
share, of TARGET (the "TARGET Common Stock") issued and outstanding immediately
prior to the Effective Time will be canceled and extinguished and automatically
converted (subject to Section 3.4) into the right to receive shares of PARENT
Common Stock as per an exchange ratio which shall be determined by dividing the
full amount of all of such issued and outstanding Capital Stock of TARGET by
14,000,000 (the "Exchange Rate").
TARGET Treasury Shares. At the Effective Time, all shares of TARGET Common Stock
that are issued and held in TARGET's treasury immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holder thereof, cease to be outstanding and shall be cancelled without payment
of consideration therefor.
Common Stock Options, Common Stock Warrants, and Convertible or Exchangeable
Securities. Each of the Common Stock Options and Warrants of TARGET and any
other securities of TARGET convertible or exchangeable for Common Stock
(collectively "Common Stock Warrants") outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into Common Stock Warrants of like terms and
tenor to acquire PARENT Common Stock, the Shares purchasable and exercise price
adjusted in accordance with the Exchange Ratio (such PARENT Common Stock
Warrants received on conversion being referred to as "PARENT Merger Warrants").
To the extent any TARGET Common Stock Warrant by its terms accelerates and
becomes fully exercisable upon occurrence of the Merger, the PARENT Merger
Warrant received in exchange therefore shall be fully exercisable following the
Merger. Schedule 3.1(c) sets forth a list of the Common Stock Warrants of TARGET
outstanding as of December 31, 2003, and the corresponding number of Common
Stock Warrants of PARENT (including number of Shares purchasable and exercise
price) as adjusted in accordance with the Exchange Ratio. No Warrants may be
issued by TARGET after December 31, 2003 without the consent of PARENT. Schedule
3.1(c) will be updated at Closing to reflect the Common Stock Warrants of TARGET
outstanding as of the Closing Date (and the corresponding number of Common Stock
Warrants of PARENT to be received in exchange therefore in accordance with the
Exchange Ratio). Between the date hereof and the Effective Time, TARGET shall
take no action, without the express prior written consent of PARENT, to issue
any Common Stock Warrants or to accelerate the date on which any Common Stock
Warrant vests or becomes exercisable, convertible or exchangeable, or to amend
or modify any of the other terms and conditions thereof (including the exercise,
conversion or exchange price).
TARGET has no shares of capital stock other than TARGET Common Stock or Common
Stock Warrants. If, at the effective time, there shall be any shares of TARGET
Capital Stock other than TARGET Common Stock or Common Stock Warrants, all such
shares of TARGET Capital Stock which are not TARGET Common Stock or Common Stock
Warrants issued and outstanding immediately prior to the Effective Time will be
automatically converted (subject to Section 3.4) into the right to receive
shares of PARENT Common Stock as determined by the Board of Directors of TARGET
provided, by way of clarification, that in no event shall PARENT be required to
pay Merger consideration with a greater number of Merger Shares than as fixed
pursuant to Section 3.1 of this Agreement.
Upon conversion of the outstanding TARGET Capital Stock in accordance with this
Section 3.1, all such shares shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist; and each
certificate formerly representing any such shares shall thereafter represent
only the right to receive the Merger Shares into which the shares represented by
such Certificate have been converted in accordance with this Section 3.1.
Certificates previously representing shares of TARGET Capital Stock shall be
exchanged for certificates representing whole shares of PARENT Common Stock and
cash in lieu of any fractional share, without interest, issued in consideration
therefor upon the surrender of such certificates in accordance with Section 3.4
hereof.
Common Stock of ACQUISITION CORP. Each share of common stock, par value $0.001
per share, of ACQUISITION CORP. issued and outstanding immediately prior to the
Effective Time shall by virtue of the Merger and without any action on the part
of ACQUISITION CORP. be converted into one validly issued, fully-paid and
non-assessable share of common stock of the SURVIVING CORPORATION.
Other Capital Stock of ACQUISITION CORP. ACQUISITION CORP. shall have no shares
of Capital Stock other than Common Stock issued and outstanding at or
immediately prior to the Effective Time. Dissenters' Rights. If holders of
TARGET Capital Stock are entitled to dissenters' rights in connection with the
Merger under the NBCA, any shares of TARGET Capital Stock ("Dissenting Shares")
held by persons who have complied with all requirements for perfecting
dissenter's rights under the NBCA ("Dissenting Stockholders") shall not be
converted into or represent the right to receive the Merger Shares but shall be
converted into the right to receive such consideration as may be determined to
be due with respect to such Dissenting Shares pursuant to the NBCA. TARGET shall
give PARENT prompt notice of any demand received by TARGET for appraisal of
shares of TARGET Capital Stock, withdrawals of such demands and any instruments
served pursuant to the NBCA and received by TARGET with respect to Dissenting
Shares, and PARENT shall have the right to participate in all negotiations and
proceedings with respect to any such demand. TARGET agrees that, except with the
prior written consent of PARENT, it will not voluntarily make any payment with
respect to, or settle or offer to settle, any such demands.
Each Dissenting Stockholder who, pursuant to the provisions of the NBCA,
becomes entitled to payment of the fair value of shares of TARGET Capital Stock
shall receive payment therefore (but only after the value therefore shall have
been agreed upon or finally determined pursuant to such provisions). If, after
the Effective Time, any Dissenting Stockholder shall effectively withdraw or
lose (through failure to perfect or otherwise) its dissenter's rights under the
NBCA, then, as of the later of the Effective Time or the occurrence of such
event, such Dissenting Stockholder's shares of TARGET Capital Stock shall
automatically be converted into the right to receive the appropriate Merger
Shares as set forth in Section 3.1 above.
Exchange of Certificates. At the Closing, or as soon as practicable thereafter,
the TARGET Stockholders shall surrender their certificate(s), duly endorsed, for
cancellation as of the Effective Time. On the Closing Date or as soon as
practicable thereafter, PARENT will cause its transfer agent to issue to each
holder of TARGET surrendering a certificate a certificate representing the
number of whole shares of PARENT Common Stock to which such holder is entitled
pursuant to Section 3.1. (a) No certificates or scrip representing fractional
shares of PARENT Common Stock shall be issued as part of the Merger Shares. All
fractional shares of PARENT Common Stock that a TARGET Stockholder would
otherwise be entitled to receive as part of the Merger Shares shall be
aggregated and if a fractional share results from such aggregation, TARGET
Stockholders entitled to .50 of a Share or greater shall receive one additional
full Share, provided that such formula shall not increase the merger
consideration required to be paid by PARENT.
(b) If any Merger Shares are to be delivered to a person other than the person
in whose name the Certificate(s) for shares of TARGET Capital Stock surrendered
for exchange are registered, it shall be a condition to the payment of such
Merger Shares that (i) the Certificate(s) so surrendered shall be transferable,
and shall be properly assigned, endorsed or accompanied by appropriate stock
powers, (ii) the person requesting such transfer shall pay any transfer or other
taxes payable by reason of the foregoing, and (iii) such transfer shall
otherwise be proper.
(c) In the event that any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of fact by the person claiming such Certificate
to be lost, stolen or destroyed (which affidavit shall contain a indemnity in
favor of PARENT on customary terms and conditions applicable to such
affidavits), PARENT shall issue in exchange for such lost, stolen or destroyed
Certificate the appropriate Merger.
(d) Notwithstanding anything to the contrary in this Section 3.5, none of
PARENT, the SURVIVING CORPORATION or any party hereto shall be liable to any
person for any shares or amounts properly delivered or paid to a public official
pursuant to any applicable abandoned property, escheat or similar Law.
(e) Any portion of the Merger Shares that remains unclaimed by former
stockholders of TARGET for six months after the Effective Time shall be
delivered to the SURVIVING CORPORATION. Any former stockholder of the TARGET who
has not complied with this Article 3 shall thereafter look only to the SURVIVING
CORPORATION for payment of their share of PARENT Common Stock and other
consideration accruing therefrom.
Dividends. No dividends or other distributions shall be declared or made prior
to the Effective Time with respect to PARENT Common Stock.
Adjustments. If, subsequent to the Agreement Date but prior to the Effective
Time, PARENT changes the number of shares of PARENT Common Stock issued and
outstanding as a result of a stock split, reverse stock split, stock dividend,
recapitalization, subdivision, reclassification, combination, exchange or other
similar change with a record date prior to the Effective Time, the Exchange
Ratio and the number of Merger Shares shall be proportionately and equitably
adjusted to reflect the effect of any such stock split, reverse stock split,
stock dividend, recapitalization or other similar change; provided, that in no
event shall any adjustment be made solely as a result of an increase in the
authorized capital stock of PARENT or as a result of the issuance of shares by
PARENT in connection with any financing approved by PARENT and TARGET.
REPRESENTATIONS AND WARRANTIES OF THE PARENT
The PARENT, for itself and Acquisition Corp., hereby jointly and severally
represent and warrant to TARGET as of the date hereof and as of the Closing
Date, as follows, each of such representations and warranties being true and
correct except as expressly set forth in the Disclosure Schedule delivered by
PARENT to TARGET prior to the execution and delivery of this Agreement and which
is specifically deemed a part of, and incorporated by reference in, this
Agreement (such Disclosure Schedule being sometimes hereafter referred to as the
"PARENT Disclosure Schedule"), provided, that it is understood and agreed TARGET
is not required to undertake any independent investigation to determine the
truth, accuracy, and completeness of the representations and warranties made by
the PARENT, and that no due diligence investigation undertaken by TARGET shall
in any way be deemed to ascribe any knowledge to TARGET different from, or in
addition to, the following representations and warranties made to TARGET, or to
reduce, effect, or eliminate TARGET's reliance upon such representations and
warranties:
Corporate Status; Corporate Records. Each of PARENT and ACQUISITION CORP., and
any of PARENT'S Subsidiaries (i) is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation set
forth on the Schedule 4.1, (ii) has the corporate power and authority to own,
lease and operate its properties and assets and to conduct and carry on its
business as it is now being conducted and operated and (iii) is duly qualified
or licensed to conduct business as a foreign corporation and is in good standing
in all jurisdictions that require such qualification or licensing, except where
the failure to be so qualified or licensed or to be in good standing will not
have a Material Adverse Effect on PARENT. Schedule 4.1 sets forth a true and
complete list of each of the Subsidiaries of the PARENT, indicating which are
held directly and indirectly and, if indirectly, how the interests in any such
Subsidiary are held. True and complete copies of the Certificate of
Incorporation, as amended to date, and Bylaws, as amended to date, of PARENT and
of ACQUISITION CORP., have been provided to TARGET. The stock ledgers of PARENT
and of ACQUISITION CORP. contain accurate and complete records of all issuances,
transfers and cancellations of shares of the capital stock of PARENT and of
ACQUISITION CORP., respectively.
Capitalization of PARENT .
The authorized capital stock of the PARENT consists of the classes of
securities, and the number of shares of each such class authorized, issued and
outstanding, and the outstanding Common Stock Warrants (and their respective
exercise, strike or conversion prices, dates of issuance, term, and any
provisions regarding dilution or adjustment), are as are set forth on Schedule
4.2(a). All of the issued and outstanding shares of capital stock of the PARENT
have been duly authorized and validly issued, are fully paid and non-assessable
and were validly offered, issued, sold, and delivered by. Upon consummation of
the Merger, the shares of PARENT Common Stock to be issued in exchange for
TARGET Capital Stock in accordance with this Agreement will be, when so issued,
duly authorized, validly issued, fully paid and nonassessable. PARENT has no
liability (or potential liability) to any Person for any dividends that have
been declared or accrued and remain unpaid. Except as set forth in Schedule
4.2(b), there are no outstanding rights, options or warrants to acquire capital
stock of PARENT, or convertible securities convertible or exchangeable into
Capital Stock of PARENT (sometimes herein collectively referred to as "Common
Stock Warrants") as of December 31, 2003. No Common Stock Warrants have been, or
will be issued by PARENT after December 31, 2003 without the consent of TARGET.
Except as set forth in Schedule 4.2(c), (i) there are no outstanding or existing
proxies, voting agreements, voting trusts, preemptive rights, rights of first
refusal, rights of first offer, rights of co-sale or tag-along rights,
stockholder agreements to which PARENT is a party or other rights,
understandings or arrangements regarding the voting or disposition of the
capital stock of PARENT to which PARENT is a party or any other restrictions
(other than normal restrictions on transfer under applicable federal and state
securities laws) applicable to any of PARENT's outstanding stock or other
securities or to the conversion of any shares of capital stock of PARENT in the
Merger pursuant to any agreement or obligation to which PARENT or any of its
stockholders is a party; and (ii) PARENT has not granted or agreed to grant to
any person or entity any rights (including piggyback registration rights) to
have any capital securities of PARENT, including, without limitation, any Common
Stock Warrants or any securities underlying the same, registered with under the
Securities Act or any other Law. Except as set forth in Schedule 4.2(d), no
Common Stock Warrants of PARENT (i) are subject to acceleration or automatic
vesting as a result of the occurrence of the Merger, or (ii) contain any
provision accelerating the vesting of the right to exercise, exchange or convert
the same upon a merger or consolidation involving PARENT, an issuance or sale of
PARENT Capital Stock, any sale of all or substantially all of PARENT's assets or
any business combination or similar transactions involving or causing a change
of control of PARENT.
Except as set forth on Schedule 4.2(e), PARENT owns all of the issued and
outstanding capital stock of its Subsidiaries, free and clear of all Liens.
The authorized capital stock of Acquisition Corp. consists of the classes of
securities, and the number of shares of each such class authorized, issued and
outstanding, as are set forth on Schedule 4.2(f). All of the issued and
outstanding shares of capital stock of Acquisition Corp. have been duly
authorized and validly issued, are fully paid and non-assessable. Authorization;
Enforceability.
(a) PARENT and ACQUISITION CORP. have the corporate power and authority to
execute and deliver this Agreement and all documents to which either is or will
be a party in order to perform its respective obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby
(the "Transaction Documents"). The execution, delivery and performance of this
Agreement and the Transaction Documents has been duly authorized by all
necessary corporate action on the part of each of PARENT and ACQUISITION CORP.
except to the extent that the consummation of the transactions contemplated by
this Agreement requires stockholder approval by the stockholders of PARENT, as
contemplated by this Agreement.
(b) This Agreement has been duly executed and delivered by each of PARENT
and ACQUISITION CORP. and has been approved by the Boards of Directors of PARENT
and ACQUISITION CORP., and subject to the terms and conditions set forth hereof,
constitutes, and, when fully executed and delivered, each Transaction Document
will constitute, a valid and binding obligation of PARENT and ACQUISITION CORP.
(as applicable), enforceable against them in accordance with its terms, except
as the same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general application affecting the
enforcement of creditors' rights generally and general equitable principles
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
(c) A true and correct copy of the resolutions of the Board of Directors
of PARENT and ACQUISITION CORP. approving the Agreement and Merger will have
been furnished to TARGET prior to the Closing.
(d) The restrictions contained in Section 203 of the DGCL applicable to a
"business combination" (as defined in such Section 203) will not apply to the
execution, delivery or performance of this Agreement or to the consummation of
the Merger.
No Violation. The execution, delivery and performance of this Agreement and the
Transaction Documents by the PARENT and ACQUISITION CORP. do not and will not
(i) conflict with or violate any provision of respective certificates of
incorporation or bylaws, each as amended to date; (ii) violate or breach any
provision of, or result, through the mere passage of time, in a violation of, or
result in the termination or acceleration of, or diminishment of rights under or
a change in terms of, or entitle any party to terminate, accelerate or diminish
rights or change terms (whether after the giving of notice or lapse of time or
both) under, be in conflict with or constitute or result in a default (or an
event which, with notice or lapse of time or both, would constitute such a
default) under, or result in the imposition of any Lien upon or with respect to
the stock or any assets, business or properties of any of either PARENT or
ACQUISITION CORP. pursuant to, any instrument, commitment or obligation to which
either of them is a party or by which either any of their respective assets is
bound or subject, or violate or conflict with any other restriction of any kind
or character to which PARENT or ACQUISITON CORP. is subject or bound; (iii)
violate any Order to which either is a party or it or its respective properties
or assets is subject or bound; or (iv) violate any Law, except for such
violations, breaches conflicts or defaults that will not have a Material Adverse
Effect on PARENT.
Consents, etc. No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any Governmental
Authority or any other person or entity on the part of the PARENT is required in
connection with the execution, delivery and performance by PARENT or ACQUISITION
CORP. of this Agreement and the Transaction Documents, except (a) stockholder
approvals contemplated by this Agreement, which approval shall have been
obtained prior to Closing, (b) filings required to comply with applicable
securities Laws, (c) the Merger Filings, and (d) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, will not have a Material Adverse Effect on PARENT and will not prevent,
materially alter or delay any of the transactions contemplated by this Agreement
or the Transaction Documents. SEC Filings and Financial Statements.
PARENT has previously delivered to TARGET and to TARGET's counsel a copy of
PARENT's most recent Report on Form 10-KSB for the period ended December 31,
2002 (the "PARENT 10KSB"), its subsequent Reports on Form 10-QSB filed
subsequent to the end of the last annual period (the "PARENT 10Qs"), its Reports
on Form 8-K filed subsequent to the end of the last annual period (the "PARENT
8Ks"), PARENT's other reports and proxy statements, if any, filed by PARENT with
the SEC pursuant to Sections 13, 14 or 15(d) of the Exchange Act subsequent to
the end of the last annual period reported on in the PARENT 10KSB (the "PARENT
Proxy and Other Reports"), and PARENT's other registration statements, reports,
notices and filings filed with the SEC pursuant to the Exchange Act or the
Securities Act during the period subsequent to the end of the last annual period
reported on in the PARENT 10KSB or, in the case of registration statements filed
pursuant to the Securities Act prior to such last annual period, such
registration statements if such registration statements are still effective
("PARENT'S Securities Act Filings and Exchange Act Reports"), sometimes
hereafter referred to as PARENT "SEC Filings".
PARENT will also provide TARGET with drafts of such PARENT SEC Filings prepared
for filing on any date on or after the Agreement Date not less than two (2)
business days prior to effecting any such filing.
As of the date on which each one was filed and as of the date hereof, each
PARENT SEC Filing (i) complied in all material respects with the applicable
requirements of the Securities Act, the Exchange Act, other applicable
securities Laws, and the rules and regulations of the SEC thereunder applicable
to such SEC Filings and (ii) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
Since December 31, 2002, PARENT has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Exchange Act, and all such documents were
filed within the time periods specified in the Exchange Act.
As of their respective dates, the PARENT Financial Statements included in the
PARENT SEC filings complied as to form in all material respects with the
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. The PARENT Financial Statements have been prepared
in accordance with GAAP, consistently applied, during the periods involved and
fairly present in all material respects the consolidated financial position of
PARENT as of the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments which would not be material in amount or
effect). PARENT keeps proper books, records and accounts in accordance with GAAP
which (i) are in all material respects true, complete and correct, (ii) have
been maintained in accordance with good business practices, and (iii) are stated
in reasonable detail and accurately and fairly reflect the basis for the PARENT
Financial Statements. PARENT maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are executed
in accordance with management's general or specific authorization; (B)
transactions are recorded as necessary (x) to permit preparation of financial
statements in conformity with generally accepted accounting principles or any
other criteria applicable to such statements, (y) to maintain accountability for
assets, and (C) the amount recorded for assets on the books and records of
PARENT is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. Since December 31,
2002, neither PARENT nor ACQUISITION CORP. have incurred any liabilities or
obligations of any nature, whether or not accrued, absolute, contingent or
otherwise ("Liabilities"), other than (i) Liabilities reflected on, or reserved
against in, the PARENT Financial Statements, and (ii) Liabilities incurred since
December 31, 2002 in the ordinary course of business.
Absence of Certain Changes or Events; Conduct of Business. Except as set forth
in Schedule 4.7(a) since December 31, 2002, PARENT has not done or suffered any
of the following: amended or otherwise changed its Certificate of Incorporation
or Bylaws; issued, sold, pledged, disposed of or encumbered, or authorized the
issuance, sale, pledge, disposition or encumbrance of, any shares of its capital
stock of any class or any Common Stock Warrants; reclassified, combined, split,
subdivided or redeemed, purchased or otherwise acquired, directly or indirectly,
any PARENT capital stock; declared, set aside, made or paid any dividend or
other distribution, whether payable in cash, stock, property or otherwise, with
respect to any PARENT capital stock; acquired (including, without limitation,
for cash or shares of stock, by merger, consolidation or acquisition of stock or
assets) any interest in any corporation, partnership or other business
organization or division thereof or any assets, or made any investment either by
purchase of stock or securities, contributions of capital or property transfer,
or purchased any property or assets of any other Person; made any loans or
advances to any other Person; borrowed any amount or incurred or became subject
to any Liabilities (absolute, accrued or contingent), other than current
Liabilities incurred in the ordinary course of business and Liabilities under
contracts entered into in the ordinary course of business in accordance with
past practice; assumed, guaranteed or endorsed the obligations of any Person, or
entered into any "make-well" or "make-whole" or other agreements in support of
the credit of any Person, except in the ordinary course of business consistent
with past practice; discharged or satisfied any material Lien or adverse claim
or paid any Liability (absolute, accrued or contingent), other than current
Liabilities shown on the PARENT Audited Balance Sheet and current Liabilities
incurred since the date of the PARENT Audited Balance Sheet in the ordinary
course of business in accordance with past practice; mortgaged, pledged or
subjected to any material Lien or adverse claim any of its properties or assets,
except for Liens for taxes not yet due and payable or otherwise in the ordinary
course of business in accordance with past practice; except in the ordinary
course of its business, sold, assigned or transferred any of its assets,
tangible or intangible, having a value in any single transaction in excess of
$50,000; suffered any extraordinary losses or waived any rights of material
value other than in the ordinary course of business in accordance with past
practice; made any capital expenditures or commitments therefor other than in
the ordinary course of business consistent with past practice or in an amount
less than $50,000; entered into any other transaction other than in the ordinary
course of business consistent with past practice in an amount less than $50,000,
or any material transaction, whether or not in the ordinary course of business;
suffered any damages, destruction or casualty loss, whether or not covered by
insurance, affecting any of the properties or assets of PARENT, which could,
individually or in the aggregate, have or result in a Material Adverse Effect;
made any material change in the nature or operations of the business of the
PARENT; participated in any transaction that would have a Material Adverse
Effect or otherwise acted outside the ordinary course of business in any
material fashion; entered into, amended, terminated or canceled any Contract, or
relinquished any material rights thereunder, other than, in the ordinary course
of business, consistent with past practice, (provided, that for this purpose no
Contract pursuant to which the PARENT ENTITIES have any rights to own or use any
intellectual property in their business (other than "off-the-shelf" software)
shall be deemed immaterial); in respect of any instrument, commitment or
obligation to which PARENT is a party or by which any of its respective assets
is bound or subject, did any of the following: violated or breached any
provision thereof,
taken any action or omitted to take any action which, immediately or after the
passage of time, could result in a violation thereof, or result in the
termination or acceleration thereof, default thereunder, or diminishment of
rights under or a change in terms thereof, or entitle any third party to declare
a default, terminate, accelerate or diminish rights or change terms (whether
after the giving of notice or lapse of time or both) thereunder;
result in the imposition of any Lien upon or with respect to the stock or any
assets, business or properties of PARENT; or
violate or conflict with any other restriction of any kind or character to which
PARENT, or any of its respective properties or assets, is subject or bound;
changed any accounting policies or procedures or made any change in any
accounting methods or systems of internal accounting controls, except as may be
appropriate to conform to changes in GAAP; made any Tax election, other than in
the ordinary course of business consistent with past practice; paid, discharged
or satisfied any Liens, claims, debts, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of due and payable liabilities reflected or
reserved against in the PARENT Financial Statements, as appropriate, or
liabilities incurred after December 31, 2002 in the ordinary course of business
and consistent with past practice; entered into any Contract or transaction with
or for the benefit of, or made any loan or advance to or for the benefit of, any
of its directors, officers, stockholders, Affiliates or Associates or any entity
in which any such director, officer, stockholder, Affiliate or Associate, or
their respective Affiliates or Associates, has a direct or indirect interest,
whether or not in the ordinary course of business; or entered into any
agreement, commitment or understanding, whether in writing or otherwise, to take
or authorize any of the foregoing actions or any action which would make any
representation or warranty in this Article IV untrue or incorrect in any
respect. No Material Adverse Change. Since December 31, 2002, there has not been
any Material Adverse Change in the business and financial condition PARENT,
taken as a whole, or any other event or condition of any character that has had
or will have a Material Adverse Effect on PARENT, taken as a whole. Litigation.
Except as set forth in Schedule 4.9: There are no Legal Proceedings pending or,
to PARENT's Knowledge, threatened against PARENT or ACQUISITION CORP.
challenging the Merger, or seeking to restrain or prohibit the consummation of
the Merger. There are no Legal Proceedings pending or, to PARENT's Knowledge,
threatened, against PARENT, its business or its assets which, if determined
adversely to such PARENT ENTITY, will have a Material Adverse Effect on PARENT.
There are no Legal Proceedings pending or, to PARENT's Knowledge, threatened,
against (i) any of PARENT's officers, directors, employees, consultants or
agents in their capacity as such or relating to their employment services or
relationship with PARENT or (ii) any PARENT ENTITY's officers, directors,
employees, consultants or agents in their capacity as such or relating to their
employment services or relationship with such PARENT. There is no Order of any
Governmental Authority outstanding against PARENT or any of the PARENT ENTITIES.
There is no Order of any Governmental Authority or arbitrator outstanding or, to
PARENT's Knowledge, threatened against any of PARENT's officers, directors,
employees, consultants or agents in their capacity as such or relating to their
employment services or relationship with. None of such persons have pled nolo
contendre to or been convicted of any criminal violation of any securities Law
or any felony, or been barred by any Governmental Authority (including, without
limitation, the SEC or the FDA) or self-regulatory organization or national
securities exchange (including, without limitation, the American Stock
Exchange). Ownership and Operations of ACQUISITION CORP. PARENT owns all of the
issued and outstanding capital stock of ACQUISITION CORP. Each outstanding share
of capital stock of ACQUISITION CORP. is duly authorized, validly issued, fully
paid and non-assessable and each such share owned by PARENT is free and clear of
all encumbrances of any nature whatsoever. ACQUISITION CORP. was formed solely
for the purpose of engaging in the transactions contemplated hereby, has engaged
in no other business activities and has conducted its operations only as
contemplated hereby. Tax Matters. Except as set forth in Section 4.11: Except as
set forth on Schedule 4.11(a) PARENT has paid or caused to be paid all Taxes
(including estimated Taxes) and other assessments due on or prior to the
Agreement Date. Without limiting the generality of the foregoing, PARENT has
duly paid state and local sales and use Taxes in all states in which it is
required to report and pay such Taxes. No additional Tax assessment against
PARENT has been heretofore proposed or, to PARENT's Knowledge, threatened by any
Governmental Authority for which provision has not been made on its balance
sheet. PARENT has timely filed all Tax Returns required by applicable Law and
all such Tax Returns are true and correct in all material respects, and (ii)
such Tax Returns are not subject to penalties under Section 6662 of the Code,
relating to accuracy-related penalties (or any corresponding provision of the
state, local or foreign Tax law) or any predecessor provision of law. An
extension of time within which to file any Tax Return that has not been filed
has not been requested or granted. PARENT has not had any Tax deficiency
assessed against it. No tax audit is currently in progress and there is no
unassessed deficiency proposed or, to the PARENT's Knowledge, threatened
against. PARENT has withheld or collected from each payment made to each of its
employees, whether in cash, stock or in kind, the full amount of all Taxes
(including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the proper
Governmental Authority or authorized depositories. No material special charges,
penalties, fines, liens or other similar encumbrances have been asserted against
PARENT with respect to the payment or failure to pay any Taxes which have not
been paid or received without further liability to PARENT. PARENT (i) has not
been a member of an affiliated group of corporations, within the meaning of
Section 1504 of the Code and(ii) has not agreed to make nor is it required to
make any adjustments under Section 481(a) of the Code by reason of a change in
accounting method or otherwise. PARENT has no plan or intention to liquidate
ACQUISITION CORP. following the Merger or to cause ACQUISITION CORP. to sell or
otherwise dispose of any assets of TARGET acquired in the Merger, except for
dispositions made in the ordinary course of business or transfers described in
Code Section 368(a)(2)(C) and the Treasury Regulations issued thereunder.
Following the Merger, ACQUISITION CORP. will not issue additional shares that
would result in PARENT losing control of ACQUISITION CORP. within the meaning of
Section 368(c) of the Internal Revenue Code. PARENT has no plan or intention to
reacquire any of its stock issued in the Merger. Contracts. Except as set forth
on Schedule 4.12(a) PARENT is not in default, violation or jeopardy of
cancellation for breach or other non-performance in respect of any Contract:
which is material to the business, assets, properties, condition
(financial or otherwise), liabilities, rights, obligations,
operations, business or prospects of the PARENT; and
every other Contract, as follows:
between PARENT and any officer, director or key employee or
consultant of PARENT;
between PARENT and any PARENT ENTITY;
all Intellectual Property created by or on behalf of PARENT or in
which PARENT acquired an ownership interest or license of rights;
any Contract which may not be canceled by PARENT without penalty upon notice of
30 days or less or which provides for payments by or to PARENT in an amount in
excess of $25,000 over the term of the Contract;
any Contract containing any covenant limiting in any respect the right of PARENT
to engage in any line of business or in any jurisdiction or to compete with any
Person or granting any exclusive distribution rights;
any Contract relating to the disposition or acquisition by PARENT after the
Agreement Date of a material amount of assets not in the ordinary course of
business;
any Contract pursuant to which PARENT has any material ownership interest in any
corporation, partnership, joint venture or other business enterprise; or
any Contract restricting, directly or indirectly, PARENT's right to use
Intellectual Property, other than such restrictions imposed by manufacturers of
software which is mass-produced for the general public market and is available
commercially in "shrink-wrap" packages.
Intellectual Property.
PARENT IP Rights. PARENT owns, or has the valid right or license to use,
possess, sell or license free and clear of all Liens, all Intellectual Property
necessary or required for the conduct of its business as presently conducted and
as presently proposed to be conducted (such Intellectual Property being
hereinafter collectively referred to as the "PARENT IP Rights"), and such rights
to use, possess, distribute sell or license are sufficient for the conduct of
such business.
Patents. Schedule 4.13(b) separately identifies each Patent, if any, owned or
licensed by PARENT or in which PARENT has an interest specifying as to each
item, as applicable: the title; the jurisdiction(s) in which the item is issued
or registered or in which an application for issuance or registration has been
filed; the issuance, registration, or application numbers and dates; and as to
Patents to which PARENT holds a right to use under license, the material terms
and conditions of such license, including, scope of license rights, required
license fees and any minimum fees, and term of the license.
Trademarks. Schedule 4.13(c) separately identifies each Trademark, if any, owned
or licensed by PARENT specifying as to each item, as applicable: the title; the
jurisdiction(s) in which the item is issued or registered or in which an
application for issuance or registration has been filed; and the issuance,
registration, or application numbers and dates. Copyrights. Schedule 4.13(d)
separately identifies each Copyright, if any, owned or licensed by PARENT
specifying as to each item, as applicable: the title; the jurisdiction(s) in
which the item is issued or registered or in which an application for issuance
or registration has been filed; and the issuance, registration, or application
numbers and dates; and as to Copyrights to which PARENT holds a right to use
under license, the material terms and conditions of such license, including,
scope of license rights, required license fees and any minimum fees, and term of
the license.
Trade Secrets. Schedule 4.13(e) separately identifies each Trade Secret owned or
licensed by PARENT specifying as to each such Trade Secret the generic nature
thereof without describing the Trade Secret itself.
Protection of Trade Secrets. PARENT has taken all reasonable precautions to
protect the secrecy, confidentiality, and value of its Trade Secrets and the
proprietary nature and value of its Intellectual Property. Confidentiality
Agreements with Key Persons. Each present or past key employee, officer,
consultant or any other person who developed any part of any PARENT product or
any Intellectual Property that is or will be made, used or sold by the PARENT
has executed a valid and enforceable Confidentiality Agreement with the PARENT.
No Infringement by PARENT. To the Knowledge of the PARENT, none of the
Intellectual Property, products or services owned, used, developed, provided,
sold or licensed by the PARENT, or made for, used or sold by or licensed to the
PARENT by any Person or currently under development for PARENT, or the marketing
or distribution of any such products or services, infringes upon or otherwise
violates any Intellectual Property rights of others, nor has PARENT received any
notice of any claim of any such infringement, nor does PARENT have Knowledge of
any reasonable basis for any such claim.. No Infringement Upon PARENT's IP
Rights. To the Knowledge of the PARENT, no Person is infringing upon or
otherwise violating the Intellectual Property rights of the PARENT. No Breach by
Employees or Consultants. No employee, consultant or independent contractor of
PARENT: (i) is in violation of any material term or covenant of any employment
contract, patent disclosure agreement, invention assignment agreement,
non-disclosure agreement, non-competition agreement or any other contract or
agreement with any other party by virtue of such employee's, consultant's, or
independent contractor's being employed by, or performing services for, PARENT.
Neither PARENT's employment of its employees, nor the use by PARENT of the
services of any consultant or independent contractor, subjects PARENT to any
material liability to any third party. Royalties; Fees; Honoraria. To PARENT's
Knowledge, there are no royalties, honoraria, fees or other payments payable by
PARENT to any third person by reason of the ownership, use, possession, license,
sale, marketing, advertising or disposition of any PARENT IP Rights. No Default.
Neither the execution, delivery and performance of this Agreement nor the
consummation of the Merger and the other agreements and transactions
contemplated hereby and/or by the Transaction Documents will: (i) constitute a
breach, violation or default by PARENT under any material instrument, contract,
license or other agreement governing any PARENT IP Rights; (ii) cause the
forfeiture or termination of, or give rise to a right of forfeiture or
termination of, any PARENT IP Rights; or (iii) impair the right of PARENT to
use, possess, sell or license any PARENT IP Rights or portion thereof. Employee
and Employee Benefit Matters. Neither the PARENT nor any entity which is or was
under common control maintains or contributes to, or has within the preceding
six years maintained or contributed to, or may have any liability with respect
to any employee benefit plan subject to Title IV of Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 412 of the Code or any
"multiple employer plan" within the meaning of the Code or ERISA. PARENT does
not and has not sponsored, maintained or contributed to any "employee benefit
plan", as defined in Section 3(3) of ERISA (including, but not limited to,
employee benefit plans which are not subject to the provisions of ERISA)
("Plan"). Except as set forth in Schedule 4.14, PARENT is not a party to any
collective bargaining agreement, profit sharing, stock option, stock purchase,
pension, bonus, incentive, retirement, incentive award plan or arrangement,
vacation policy, severance pay policy or agreement for severance pay,
accelerated vesting or similar benefits following termination of employment or
upon the execution of this Agreement or the Closing, deferred compensation
agreement or arrangement, consulting agreement, employment contract, medical
reimbursement, life insurance or other benefit plan, agreement, arrangement,
program, practice or understanding ("Benefit Program"). The PARENT does not have
any obligations to provide or any direct or indirect, whether contingent or
otherwise, with respect to the provision of health or death of any current or
former employees. Schedule 4.14 lists all of PARENT's full-time or part-time
employees. There are no existing or, to PARENT's Knowledge, threatened labor
disputes. PARENT owes no wages, bonuses, commissions, taxes, penalties or
assessments, owed to, or arising out of the employment of, any officer,
director, employee or other person or consultant. PARENT is in compliance in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages and hours, occupational
safety and health, and is not engaged in any unfair labor or unfair employment
practices. There is no unfair labor practice charge or complaint or any other
matter against (or to PARENT's Knowledge, involving) PARENT pending or, to
PARENT's Knowledge, threatened before any Governmental Authority. No agreement,
arbitration or court decision or governmental order to which PARENT is a party
or, to PARENT's Knowledge, to which it or any of its properties or assets is
bound or subject in any way limits or restricts PARENT from relocating or
closing any of its operations. Environmental Laws. PARENT is not in violation of
any applicable Environmental Law and PARENT is not and will not be required to
make any expenditures to comply with any Environmental Law. Insurance. Schedule
4.16 sets forth a true and complete list of all insurance policies (including
the self-insurance retentions and deductibles under those policies) in force
naming PARENT as an insured or beneficiary or as a loss payable payee or for
which PARENT has paid or is obligated to pay all or part of the premiums. PARENT
has not received written notice of any pending or threatened cancellation or
material premium increase (retroactive or otherwise) with respect thereto, and,
PARENT is in compliance with all conditions contained therein. There are no
pending claims against such insurance by PARENT as to which insurers are
defending under reservation of rights or have denied liability, and there exists
no material claim under such insurance that has not been properly filed by
PARENT. The insurance policies maintained by PARENT are adequate in scope and
amount to cover all prudent and reasonably foreseeable risks which may arise in
the conduct of their business as currently conducted and as proposed to be
conducted. Related Party Transactions. Except as set forth on Schedule 4.17, no
director, officer or other Affiliate or Associate of PARENT or any entity in
which any such director, officer or other Affiliate or Associate, has any direct
or indirect material interest in, or owns any beneficial interest in any Person
(other than a publicly held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less than 1% of the
stock of which is beneficially owned by any such persons) that has any direct or
indirect interest in: (i) any property (real, personal or mixed), tangible, or
intangible, used or currently intended to be used in, the business or operations
of PARENT or any PARENT ENTITY, (ii) any Contract, or any other arrangement or
understanding with, or relating to, the business or operations of PARENT, or any
Person with which PARENT has a business relationship; (iii) any loan,
arrangement, understanding, agreement or contract for or relating to
indebtedness of PARENT or (iv) any Person that competes with PARENT. Trading in
PARENT Common Stock. Except as set forth on Schedule 4.18, during the six month
period prior to the Agreement Date, none of PARENT, any holder of 5% or more of
the shares of PARENT, or any officer or director of PARENT or any such other
affiliate of PARENT, has directly or indirectly purchased or sold (including
short sales) any shares of PARENT Common Stock (or any put, call, option or
derivative security or the like relating thereto) in any transactions. FDA
Matters. After due investigation, (i) the PARENT currently has no reasonable
basis to believe that any Governmental Authority, including, but not limited to,
the United States Food and Drug Administration (the "FDA"), will ultimately
prohibit the marketing, sale, license or use in the United States or elsewhere
of any product developed, produced or marketed by the PARENT or with third
parties (each, a "Product"), (ii) the PARENT knows of no product or process
which the FDA has prohibited from being marketed or used in the United States
which in function and composition is substantially similar to any Product, (iii)
the PARENT has no Product on clinical hold nor any reason to expect that any
Product is likely to be placed on clinical hold, (iv) the PARENT has disclosed
to the TARGET all submissions to the FDA made by the PARENT and the FDA
responses (and other material correspondence received from or submitted to the
FDA by the PARENT), including, but not limited to, all FDA warning letters,
regulatory letters and notice of adverse finding letters and the relevant
responses, received by the PARENT or any agent thereof relative to the
development of its Products, (v) none of the PARENT or, to the PARENT's
Knowledge, its employees, its Affiliates or its agents, has ever been
sanctioned, formally or otherwise, by the FDA, and (vi) there has not been any
suspensions or debarments by the FDA or other federal departments and state
regulatory bodies against the PARENT or, to the PARENT's Knowledge, any current
or former employees of the PARENT. Investment Company. The PARENT is not an
"investment company" or an "affiliated person" of, or "promoter" or "principal
underwriter" for an investment company, within the meaning of the Investment
Company Act of 1940, as amended. Compliance. The PARENT Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and is listed on the
American Stock Exchange, and the PARENT has taken no action designed to, or
likely to have the effect of, terminating the registration of the PARENT Common
Stock under the Exchange Act or delisting the Common Stock from the American
Stock Exchange. The PARENT has complied with all requirements with respect to
the issuance of the Merger Shares and the listing thereof on the American Stock
Exchange except for the matters identified on Schedule 4.21, which include,
among other things, matters required as a condition to Closing which can't be
consummated at the date of this Agreement, all of which matters will be complied
with prior to the Closing. The PARENT has not taken and will not, in violation
of applicable law, take, any action outside the ordinary course of business
designed to or that might reasonably be expected to cause or result in unlawful
manipulation of the price of the PARENT Common Stock to facilitate the sale or
resale of the Merger Shares. Broker's or Finder's Commissions. No investment
banker, finder, broker, agent, financial person or other intermediary has acted
on behalf of the PARENT in connection with the Merger, this Agreement, or the
transactions contemplated hereby and thereby.
REPRESENTATIONS AND WARRANTIES OF TARGET
TARGET hereby represents and warrants to PARENT and to ACQUISITION CORP.
as of the date hereof and as of the Closing Date, as follows, each of such
representations and warranties being true and correct, except as expressly set
forth in the Disclosure Schedule delivered by TARGET to PARENT prior to the
execution and delivery of this Agreement and which is specifically deemed a part
of, and incorporated by reference in, this Agreement (such Disclosure Schedule
being sometimes hereafter referred to as the "TARGET Disclosure Schedule"),
provided, that it is understood and agreed PARENT is not required to undertake
any independent investigation to determine the truth, accuracy, and completeness
of the representations and warranties made by the TARGET, and that no due
diligence investigation undertaken by PARENT shall in any way be deemed to
ascribe any knowledge to PARENT different from, or in addition to, the following
representations and warranties made to PARENT, or to reduce, effect or eliminate
PARENT's reliance upon such representations and warranties:
Corporate Status; Corporate Records. Each of TARGET and TARGETS Subsidiaries (i)
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation set forth on the Schedule 5.1, (ii) has the
corporate power and authority to own, lease and operate its properties and
assets and to conduct and carry on its business as it is now being conducted and
operated and (ii) is duly qualified or licensed to conduct business as a foreign
corporation and is in good standing in all jurisdictions that require such
qualification or licensing, except where the failure to be so qualified or
licensed or to be in good standing will not have a Material Adverse Effect on
TARGET. Schedule 5.1 sets forth a true and complete list of each of the
Subsidiaries of the TARGET, indicating which are held directly and indirectly
and, if indirectly, how the interests in any such Subsidiary are held. True and
complete copies of the Certificate of Incorporation, as amended to date, and
Bylaws, as amended to date, of TARGET has been provided to PARENT. The stock
ledgers of TARGET contain accurate and complete records of all issuances,
transfers and cancellations of shares of the capital stock of TARGET.
Capitalization of TARGET and of each of TARGET's Subsidiaries. The authorized
capital stock of the TARGET consists of the classes of securities, and the
number of shares of each such class authorized, issued and outstanding, and the
outstanding Common Stock Warrants (and their respective exercise, strike or
conversion prices, dates of issuance, term, and any provisions regarding
dilution or adjustment), are as are set forth on Schedule 5.2(a). All of the
issued and outstanding shares of capital stock of the TARGET have been duly
authorized and validly issued, are fully paid and non-assessable and were
offered, issued, sold, and validly delivered by TARGET. Except as set forth in
Schedule 5.2(b), there are no outstanding rights, options or warrants to acquire
capital stock of TARGET, or convertible securities convertible or exchangeable
into Capital Stock of TARGET (herein collectively referred to as "Common Stock
Warrants of TARGET") . Except as set forth in Schedule 5.2(c), (i) there are no
outstanding or existing proxies, voting agreements, voting trusts, preemptive
rights, rights of first refusal, rights of first offer, rights of co-sale or
tag-along rights, stockholder agreements to which TARGET is a party or other
rights, understandings or arrangements regarding the voting or disposition of
the capital stock of TARGET to which TARGET is a party or any other restrictions
(other than normal restrictions on transfer under applicable federal and state
securities laws) applicable to any of TARGET's outstanding stock or other
securities or to the conversion of any shares of capital stock of TARGET in the
Merger pursuant to any agreement or obligation to which TARGET or any of its
stockholders is a party; and (ii) TARGET has not granted or agreed to grant to
any person or entity any rights (including piggyback registration rights) to
have any capital securities of TARGET, including, without limitation, any Common
Stock Warrants or any securities underlying the same, registered with under the
Securities Act or any other Law. Except as set forth in Schedule 5.2(d), no
Common Stock Warrants of TARGET (i) are subject to acceleration or automatic
vesting as a result of the occurrence of the Merger, or (ii) contain any
provision accelerating the vesting of the right to exercise, exchange or convert
the same upon a merger or consolidation involving TARGET, an issuance or sale of
TARGET Capital Stock, any sale of all or substantially all of TARGET's assets or
any business combination or similar transactions involving or causing a change
of control of TARGET. Except as set forth on Schedule 5.2(e), TARGET owns all of
the issued and outstanding capital stock of its Subsidiaries, free and clear of
all Liens. The authorized capital stock of the TARGET ENTITIES other than TARGET
consists of the classes of securities, and the number of shares of each such
class authorized, issued and outstanding, as are set forth on Schedule 5.2(f).
All of the issued and outstanding shares of capital stock of each of such TARGET
ENTITIES have been duly authorized and validly issued, are fully paid and
non-assessable. Authorization; Enforceability.
(a) TARGET has the corporate power and authority to execute and deliver
this Agreement and all Transaction Documents to which it is or will be a party
and to perform its respective obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Transaction Documents has
been duly authorized by all necessary corporate action on the part of TARGET
except that the consummation of the transactions contemplated by this Agreement
requires stockholder approval by the stockholders of TARGET, as contemplated by
this Agreement
(b) This Agreement has been duly executed and delivered by TARGET and, has
been approved by the Boards of Directors of TARGET, and subject to the terms and
conditions set forth hereof, constitutes, and, when fully executed and
delivered, each Transaction Document will constitute, a valid and binding
obligation of TARGET (as applicable), enforceable against them in accordance
with its terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws of general
application affecting the enforcement of creditors' rights generally and general
equitable principles regardless of whether such enforceability is considered in
a proceeding at law or in equity.
(c) A true and correct copy of the resolutions of the Board of Directors
of TARGET approving the Agreement and Merger will have been furnished to PARENT
prior to the Closing.
(d) DGCL applicable to a "business combination" (as defined in such
Section 203) will not apply to the execution, delivery or performance of this
Agreement or to the consummation of the Merger.
No Violation. The execution, delivery and performance of this Agreement and the
Transaction Documents by TARGET does not and will not (i) conflict with or
violate any provision of its certificate of incorporation or bylaws, each as
amended to date; (ii) violate or breach any provision of, or result, through the
mere passage of time, in a violation of, or result in the termination or
acceleration of, or diminishment of rights under or a change in terms of, or
entitle any party to terminate, accelerate or diminish rights or change terms
(whether after the giving of notice or lapse of time or both) under, be in
conflict with or constitute or result in a default (or an event which, with
notice or lapse of time or both, would constitute such a default) under, or
result in the imposition of any Lien upon or with respect to the stock or any
assets, business or properties of TARGET pursuant to, any instrument, commitment
or obligation to TARGET is a party or by any of its assets is bound or subject,
or violate or conflict with any other restriction of any kind or character to
which TARGET is subject or bound; (iii) violate any Order to which TARGET is a
party or it or its respective properties or assets is subject or bound; or (iv)
violate any Law, except for such violations, breaches conflicts or defaults that
will not have a Material Adverse Effect on TARGET. Consents, etc. No consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any Governmental Authority or any other
person on the part of the TARGET is required in connection with the execution,
delivery and performance by TARGET of this Agreement and the Transaction
Documents, except (a) stockholder approvals contemplated by this Agreement,
which approval shall have been obtained prior to Closing, (b) filings required
to comply with applicable securities Laws, (c) the Merger Filings, and (d) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, will not have a Material Adverse Effect on PARENT and will
not prevent, materially alter or delay any of the transactions contemplated by
this Agreement or the Transaction Documents. SEC Filings and Financial
Statements.
TARGET has previously delivered to PARENT and to PARENT's counsel a copy of
TARGET's most recent Report on Form 10-KSB for the period ended June 30, 2003
(the "TARGET 10KSB"), its subsequent Reports on Form 10-QSB filed subsequent to
the end of the last annual period (the "TARGET 10Qs"), its Reports on Form 8-K
filed subsequent to the end of the last annual period (the "TARGET 8Ks"),
TARGET's other reports and proxy statements, if any, filed by PARENT with the
SEC pursuant to Sections 13, 14 or 15(d) of the Exchange Act subsequent to the
end of the last annual period reported on in the TARGET 10KSB (the "TARGET Proxy
and Other Reports"), and TARGET's other registration statements, reports,
notices and filings filed with the SEC pursuant to the Exchange Act or the
Securities Act during the period subsequent to the end of the last annual period
reported on in the PARENT 10KSB or, in the case of registration statements filed
pursuant to the Securities Act prior to such last annual period, such
registration statements if such registration statements are still effective
("TARGET'S Securities Act Filings and Exchange Act Reports"), sometimes
hereafter referred to as TARGET "SEC Filings".) As of the date on which each one
was filed and as of the date hereof, each TARGET SEC Filing (i) complied in all
material respects with the applicable requirements of the Securities Act, the
Exchange Act, other applicable securities Laws, and the rules and regulations of
the SEC thereunder applicable to such SEC Filings and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Since June 30, 2003,
TARGET has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act, and all such documents were filed within the time periods
specified in the Exchange Act. As of their respective dates, the TARGET
Financial Statements included in the TARGET SEC filings complied as to form in
all material respects with the applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. The TARGET
Financial Statements have been prepared in accordance with GAAP, consistently
applied, during the periods involved and fairly present in all material respects
the consolidated financial position of TARGET as of the dates thereof and the
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments which
would not be material in amount or effect). TARGET keeps proper books, records
and accounts in accordance with GAAP which (i) are in all material respects
true, complete and correct, (ii) have been maintained in accordance with good
business practices, and (iii) are stated in reasonable detail and accurately and
fairly reflect the basis for the TARGET Financial Statements. TARGET maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with management's
general or specific authorization; (B) transactions are recorded as necessary
(x) to permit preparation of financial statements in conformity with generally
accepted accounting principles or any other criteria applicable to such
statements, (y) to maintain accountability for assets, and (C) the amount
recorded for assets on the books and records of TARGET is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. Since June 30, 2003, TARGET has not incurred any
liabilities or obligations of any nature, whether or not accrued, absolute,
contingent or otherwise ("Liabilities"), other than Liabilities reflected on, or
reserved against in, the PARENT Financial Statements, and Liabilities incurred
since June 30, 2003 in the ordinary course of business. Absence of Certain
Changes or Events; Conduct of Business. Except as set forth in Schedule 5.7(a)
since June 30, 2003, TARGET has not done or suffered any of the following:
amended or otherwise changed its Certificate of
Incorporation or Bylaws;
issued, sold, pledged, disposed of or encumbered, or authorized the
issuance, sale, pledge, disposition or encumbrance of, any shares of its
capital stock of any class or any Common Stock Warrants;
reclassified, combined, split, subdivided or redeemed, purchased or
otherwise acquired, directly or indirectly, any TARGET capital stock;
declared, set aside, made or paid any dividend or other distribution,
whether payable in cash, stock, property or otherwise, with respect to
any TARGET capital stock;
acquired (including, without limitation, for cash or shares of stock,
by merger, consolidation or acquisition of stock or assets) any interest
in any corporation, partnership or other business organization or
division thereof or any assets, or made any investment either by purchase
of stock or securities, contributions of capital or property transfer, or
purchased any property or assets of any other Person;
made any loans or advances to any other Person; borrowed any amount
or incurred or became subject to
any Liabilities (absolute, accrued or contingent), other than current
Liabilities incurred in the ordinary course of business and Liabilities
under contracts entered into in the ordinary course of business in
accordance with past practice;
assumed, guaranteed or endorsed the obligations of any Person, or
entered into any "make-well" or "make-whole" or other agreements in
support of the credit of any Person, except in the ordinary course of
business consistent with past practice;
discharged or satisfied any material Lien or adverse claim or paid
any Liability (absolute, accrued or contingent), other than current
Liabilities shown on the TARGET Audited Balance Sheet and current
Liabilities incurred since the date of the TARGET Audited Balance Sheet
in the ordinary course of business in accordance with past practice;
mortgaged, pledged or subjected to any material Lien or adverse claim
any of its properties or assets, except for Liens for taxes not yet due
and payable or otherwise in the ordinary course of business in accordance
with past practice;
except in the ordinary course of its business, sold, assigned or
transferred any of its assets, tangible or intangible, having a value in
any single transaction in excess of $50,000;
suffered any extraordinary losses or waived any rights of material
value other than in the ordinary course of business in accordance with
past practice;
made any capital expenditures or commitments therefor other than in
the ordinary course of business consistent with past practice or in an
amount less than $50,000;
entered into any other transaction other than in the ordinary course
of business consistent with past practice in an amount less than $50,000,
or any material transaction, whether or not in the ordinary course of
business;
suffered any damages, destruction or casualty loss, whether or not
covered by insurance, affecting any of the properties or assets of
TARGET, which could, individually or in the aggregate, have or result in
a Material Adverse Effect;
made any material change in the nature or operations of
the business of the TARGET;
participated in any transaction that would have a Material Adverse
Effect or otherwise acted outside the ordinary course of business in any
material fashion;
entered into, amended, terminated or canceled any Contract, or
relinquished any material rights thereunder, other than, in the ordinary
course of business, consistent with past practice, (provided, that for
this purpose no Contract pursuant to which the TARGET ENTITIES have any
rights to own or use any intellectual property in their business (other
than "off-the-shelf" software) shall be deemed immaterial);
in respect of any instrument, commitment or obligation to which
TARGET is a party or by which any of its respective assets is bound or
subject, did any of the following:
(A) violated or breached any provision thereof, (B) taken any
action or omitted to take any
action which, immediately or after the passage of time, could result
in a violation thereof, or result in the termination or acceleration
thereof, default thereunder, or diminishment of rights under or a
change in terms thereof, or entitle any third party to declare a
default, terminate, accelerate or diminish rights or change terms
(whether after the giving of notice or lapse of time or both)
thereunder;
(C) result in the imposition of any Lien upon or with respect to
the stock or any assets, business or properties of TARGET; or
(D) violate or conflict with any other restriction of any kind
or character to which TARGET, or any of its respective properties or
assets, is subject or bound;
changed any accounting policies or procedures or made any change in
any accounting methods or systems of internal accounting controls, except
as may be appropriate to conform to changes in GAAP;
made any Tax election, other than in the ordinary course of business
consistent with past practice;
paid, discharged or satisfied any Liens, claims, debts, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of due and
payable liabilities reflected or reserved against in the TARGET Financial
Statements, as appropriate, or liabilities incurred after June 30, 2003
in the ordinary course of business and consistent with past practice;
entered into any Contract or transaction with or for the benefit of,
or made any loan or advance to or for the benefit of, any of its
directors, officers, stockholders, Affiliates or Associates or any entity
in which any such director, officer, stockholder, Affiliate or Associate,
or their respective Affiliates or Associates, has a direct or indirect
interest, whether or not in the ordinary course of business; or
entered into any agreement, commitment or understanding, whether in
writing or otherwise, to take or authorize any of the foregoing actions
or any action which would make any representation or warranty in this
Article IV untrue or incorrect in any respect.
No Material Adverse Change. Since June 30, 2003, there has not been any Material
Adverse Change in the business and financial condition TARGET, taken as a whole,
or any other event or condition of any character that has had or will have a
Material Adverse Effect on TARGET, taken as a whole.
Litigation. Except as set forth in Schedule 5.9: There are no Legal Proceedings
pending or, to TARGET's Knowledge, threatened against TARGET challenging the
Merger, or seeking to restrain or prohibit the consummation of the Merger. There
are no Legal Proceedings pending or, to TARGET's Knowledge, threatened, against
TARGET, its business or its assets which, if determined adversely to TARGET,
will have a Material Adverse Effect on TARGET.
There are no Legal Proceedings pending or, to TARGET's Knowledge, threatened,
against (i) any of TARGET's officers, directors, employees, consultants or
agents in their capacity as such or relating to their employment services or
relationship with TARGET or (ii) any TARGET ENTITY's officers, directors,
employees, consultants or agents in their capacity as such or relating to their
employment services or relationship with such TARGET. There is no Order of any
Governmental Authority outstanding against TARGET or any of the TARGET ENTITIES.
There is no Order of any Governmental Authority or arbitrator outstanding or, to
TARGET's Knowledge, threatened against any of TARGET's officers, directors,
employees, consultants or agents in their capacity as such or relating to their
employment services or relationship with. None of such persons have pled nolo
contendre to or been convicted of any criminal violation of any securities Law
or any felony, or been barred by any Governmental Authority (including, without
limitation, the SEC or the FDA) or self-regulatory organization or national
securities exchange (including, without limitation, the American Stock
Exchange). Tax Matters. Except as set forth in Section 5.10: Except as set forth
on Schedule 5.10(a) TARGET has paid or caused to be paid all Taxes (including
estimated Taxes) and other assessments due on or prior to the Agreement Date.
Without limiting the generality of the foregoing, TARGET has duly paid state and
local sales and use Taxes in all states in which it is required to report and
pay such Taxes. No additional Tax assessment against TARGET has been heretofore
proposed or, to TARGET's Knowledge, threatened by any Governmental Authority for
which provision has not been made on its balance sheet. TARGET has timely filed
all Tax Returns required by applicable Law and all such Tax Returns are true and
correct in all material respects, and (ii) such Tax Returns are not subject to
penalties under Section 6662 of the Code, relating to accuracy-related penalties
(or any corresponding provision of the state, local or foreign Tax law) or any
predecessor provision of law. An extension of time within which to file any Tax
Return that has not been filed has not been requested or granted. TARGET has not
had any Tax deficiency assessed against it. No tax audit is currently in
progress and there is no unassessed deficiency proposed or, to the TARGET's
Knowledge, threatened against.
TARGET has withheld or collected from each payment made to each of its
employees, whether in cash, stock or in kind, the full amount of all Taxes
(including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the proper
Governmental Authority or authorized depositories. No material special charges,
penalties, fines, liens or other similar encumbrances have been asserted against
TARGET with respect to the payment or failure to pay any Taxes which have not
been paid or received without further liability to TARGET. TARGET (i) has not
been a member of an affiliated group of corporations, within the meaning of
Section 1504 of the Code and (ii) has not agreed to make nor is it required to
make any adjustments under Section 481(a) of the Code by reason of a change in
accounting method or otherwise.
Contracts.
Except as set forth on Schedule 5.11(a) TARGET is not in default, violation or
jeopardy of cancellation for breach or other non-performance in respect of any
Contract:
(i) which is material to the business, assets, properties, condition
(financial or otherwise), liabilities, rights, obligations,
operations, business or prospects of the TARGET; and
(ii) every other Contract, as follows: (A) between TARGET and any
officer, director or
key employee or consultant of TARGET;
(B) between TARGET and any affiliate of TARGET;
(C) all Intellectual Property created by or on behalf of TARGET
or in which TARGET acquired an ownership interest or license of
rights;
(D) any Contract which may not be canceled by TARGET without
penalty upon notice of 30 days or less or which provides for payments
by or to TARGET in an amount in excess of $25,000 over the term of
the Contract;
(E) any Contract containing any covenant limiting in any respect
the right of TARGET to engage in any line of business or in any
jurisdiction or to compete with any Person or granting any exclusive
distribution rights;
(F) any Contract relating to the disposition or acquisition by
TARGET after the Agreement Date of a material amount of assets not in
the ordinary course of business;
(G) any Contract pursuant to which TARGET has any material
ownership interest in any corporation, partnership, joint venture or
other business enterprise; or
(H) any Contract restricting, directly or indirectly, TARGET's
right to use Intellectual Property, other than such restrictions
imposed by manufacturers of software which is mass-produced for the
general public market and is available commercially in "shrink-wrap"
packages.
Intellectual Property.
TARGET IP Rights. TARGET owns, or has the valid right or license to use,
possess, sell or license free and clear of all Liens, all Intellectual Property
necessary or required for the conduct of its business as presently conducted and
as presently proposed to be conducted (such Intellectual Property being
hereinafter collectively referred to as the "TARGET IP Rights"), and such rights
to use, possess, distribute sell or license are sufficient for the conduct of
such business.
Patents. Schedule 5.12(b) separately identifies each Patent, if any, owned or
licensed by TARGET or in which TARGET has an interest specifying as to each
item, as applicable: the title; the jurisdiction(s) in which the item is issued
or registered or in which an application for issuance or registration has been
filed; and the issuance, registration, or application numbers and dates; and as
to Patents to which TARGET holds a right to use under license, the material
terms and conditions of such license, including, scope of license rights,
required license fees and any minimum fees, and term of the license.
Trademarks. Schedule 5.12(c) separately identifies each Trademark, if any, owned
or licensed by TARGET specifying as to each item, as applicable: the title; the
jurisdiction(s) in which the item is issued or registered or in which an
application for issuance or registration has been filed; and the issuance,
registration, or application numbers and dates. Copyrights. Schedule 5.12(d)
separately identifies each Copyright, if any, owned or licensed by TARGET
specifying as to each item, as applicable: the title; the jurisdiction(s) in
which the item is issued or registered or in which an application for issuance
or registration has been filed; and the issuance, registration, or application
numbers and dates; and as to Copyrights to which TARGET holds a right to use
under license, the material terms and conditions of such license, including,
scope of license rights, required license fees and any minimum fees, and term of
the license.
Trade Secrets. Schedule 5.12(e) separately identifies each Trade Secret owned or
licensed by TARGET specifying as to each such Trade Secret the generic nature
thereof without describing the Trade Secret itself.
Protection of Trade Secrets. TARGET has taken all reasonable precautions to
protect the secrecy, confidentiality, and value of its Trade Secrets and the
proprietary nature and value of its Intellectual Property. Confidentiality
Agreements with Key Persons. Each present or past key employee, officer,
consultant or any other person who developed any part of any TARGET product or
any Intellectual Property that is or will be made, used or sold by the TARGET
has executed a valid and enforceable Confidentiality Agreement with the TARGET.
No Infringement by TARGET. To the Knowledge of the TARGET, none of the
Intellectual Property, products or services owned, used, developed, provided,
sold or licensed by the TARGET, or made for, used or sold by or licensed to the
TARGET by any Person or currently under development for TARGET, or the marketing
or distribution of any such products or services, infringes upon or otherwise
violates any Intellectual Property rights of others, nor has TARGET received any
notice of any claim of any such infringement, nor does TARGET have Knowledge of
any reasonable basis for any such claim.. No Infringement Upon TARGET's IP
Rights. To the Knowledge of the TARGET, no Person is infringing upon or
otherwise violating the Intellectual Property rights of the TARGET. No Breach by
Employees or Consultants. No employee, consultant or independent contractor of
TARGET: (i) is in violation of any material term or covenant of any employment
contract, patent disclosure agreement, invention assignment agreement,
non-disclosure agreement, non-competition agreement or any other contract or
agreement with any other party by virtue of such employee's, consultant's, or
independent contractor's being employed by, or performing services for, TARGET.
Neither TARGET's employment of its employees, nor the use by TARGET of the
services of any consultant or independent contractor, subjects TARGET to any
material liability to any third party. Royalties; Fees; Honoraria. To TARGET's
Knowledge, there are no royalties, honoraria, fees or other payments payable by
TARGET to any third person by reason of the ownership, use, possession, license,
sale, marketing, advertising or disposition of any TARGET IP Rights. No Default.
Neither the execution, delivery and performance of this Agreement nor the
consummation of the Merger and the other agreements and transactions
contemplated hereby and/or by the Transaction Documents will: (i) constitute a
breach, violation or default by TARGET under any material instrument, contract,
license or other agreement governing any TARGET IP Rights; (ii) cause the
forfeiture or termination of, or give rise to a right of forfeiture or
termination of, any TARGET IP Rights; or (iii) impair the right of TARGET to
use, possess, sell or license any TARGET IP Rights or portion thereof.
Employee/Employee Benefit Matters. Neither the TARGET nor any entity which is or
was under common control maintains or contributes to, or has within the
preceding six years maintained or contributed to, or may have any liability with
respect to any employee benefit plan subject to Title IV of Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 412 of the Code or
any "multiple employer plan" within the meaning of the Code or ERISA. TARGET
does not and has not sponsored, maintained or contributed to any "employee
benefit plan", as defined in Section 3(3) of ERISA (including, but not limited
to, employee benefit plans which are not subject to the provisions of ERISA)
("Plan"). Except as set forth in Schedule 5.13, TARGET is not a party to any
collective bargaining agreement, profit sharing, stock option, stock purchase,
pension, bonus, incentive, retirement, incentive award plan or arrangement,
vacation policy, severance pay policy or agreement for severance pay,
accelerated vesting or similar benefits following termination of employment or
upon the execution of this Agreement or the Closing, deferred compensation
agreement or arrangement, consulting agreement, employment contract, medical
reimbursement, life insurance or other benefit plan, agreement, arrangement,
program, practice or understanding ("Benefit Program"). The TARGET does not have
any obligations to provide or any direct or indirect, whether contingent or
otherwise, with respect to the provision of health or death of any current or
former employees. Schedule 5.13 lists all of TARGET's full-time or part-time
employees. There are no existing or, to TARGET's Knowledge, threatened labor
disputes. TARGET owes no wages, bonuses, commissions, taxes, penalties or
assessments, owed to, or arising out of the employment of, any officer,
director, employee or other person or consultant. TARGET is in compliance in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages and hours, occupational
safety and health, and is not engaged in any unfair labor or unfair employment
practices. There is no unfair labor practice charge or complaint or any other
matter against (or to TARGET's Knowledge, involving) TARGET pending or, to
TARGET's Knowledge, threatened before any Governmental Authority. No agreement,
arbitration or court decision or governmental order to which TARGET is a party
or, to TARGET's Knowledge, to which it or any of its properties or assets is
bound or subject in any way limits or restricts TARGET from relocating or
closing any of its operations. Environmental Laws. TARGET is not in violation of
any applicable Environmental Law and TARGET is not and will not be required to
make any expenditures to comply with any Environmental Law. Insurance. Schedule
5.15 sets forth a true and complete list of all insurance policies (including
the self-insurance retentions and deductibles under those policies) in force
naming TARGET as an insured or beneficiary or as a loss payable payee or for
which TARGET has paid or is obligated to pay all or part of the premiums. TARGET
has not received written notice of any pending or threatened cancellation or
material premium increase (retroactive or otherwise) with respect thereto, and,
TARGET is in compliance with all conditions contained therein. There are no
pending claims against such insurance by TARGET as to which insurers are
defending under reservation of rights or have denied liability, and there exists
no material claim under such insurance that has not been properly filed by
TARGET. The insurance policies maintained by TARGET are adequate in scope and
amount to cover all prudent and reasonably foreseeable risks which may arise in
the conduct of their business as currently conducted and as proposed to be
conducted. Related Party Transactions. Except as set forth on Schedule 5.16, no
director, officer or other Affiliate or Associate of TARGET or any entity in
which any such director, officer or other Affiliate or Associate, has any direct
or indirect material interest in, or owns any beneficial interest in any Person
(other than a publicly held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less than 1% of the
stock of which is beneficially owned by any such persons) that has any direct or
indirect interest in: (i) any property (real, personal or mixed), tangible, or
intangible, used or currently intended to be used in, the business or operations
of TARGET, (ii) any Contract, or any other arrangement or understanding with, or
relating to, the business or operations of TARGET, or any person with which
TARGET has a business relationship; (iii) any loan, arrangement, understanding,
agreement or contract for or relating to indebtedness of TARGET or (iv) any
Person that competes with TARGET. Trading in TARGET Common Stock. Except as set
forth on Schedule 5.17, during the six month period prior to the Agreement Date,
none of TARGET, any holder of 5% or more of the shares of TARGET, or any officer
or director of TARGET or any other affiliate of TARGET, has directly or
indirectly purchased or sold (including short sales) any shares of TARGET Common
Stock (or any put, call, option or derivative security or the like relating
thereto) in any transactions. FDA Matters. After due investigation, (i) the
TARGET currently has no reasonable basis to believe that any Governmental
Authority, including, but not limited to, the United States Food and Drug
Administration (the "FDA"), will ultimately prohibit the marketing, sale,
license or use in the United States or elsewhere of any product developed,
produced or marketed by the TARGET or with third parties (each, a "Product"),
(ii) the TARGET knows of no product or process which the FDA has prohibited from
being marketed or used in the United States which in function and composition is
substantially similar to any Product, (iii) the TARGET has no Product on
clinical hold nor any reason to expect that any Product is likely to be placed
on clinical hold, (iv) the TARGET has disclosed to the PARENT all submissions to
the FDA made by the TARGET and the FDA responses (and other material
correspondence received from or submitted to the FDA by the TARGET), including,
but not limited to, all FDA warning letters, regulatory letters and notice of
adverse finding letters and the relevant responses, received by the TARGET or
any agent thereof relative to the development of its Products, (v) none of the
TARGET or, to the TARGET's Knowledge, its employees, its Affiliates or its
agents, has ever been sanctioned, formally or otherwise, by the FDA, and (vi)
there has not been any suspensions or debarments by the FDA or other federal
departments and state regulatory bodies against the TARGET or, to the TARGET's
Knowledge, any current or former employees of the TARGET. Investment Company.
The TARGET is not an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for an investment company, within the
meaning of the Investment Company Act of 1940, as amended. Broker's or Finder's
Commissions. No investment banker, finder, broker, agent, financial person or
other intermediary has acted on behalf of the TARGET in connection with the
Merger, this Agreement, or the transactions contemplated hereby and thereby.
Limitation on Liability for Change of Control Payments. TARGET shall have
obtained waivers from its Executives of the change of control lump-sum payment
provisions in their existing employment agreements or in the absence of any of
such waivers TARGET shall adjust the Lump Sum Payment provisions not waived, so
that not more than a maximum of One Hundred and Twenty Thousand ($120,000)
Dollars is payable to former Executives of TARGET upon any change of control in
connection with the Merger.
INTERIM OPERATIONS
Conduct of Business by TARGET Pending the Merger. TARGET hereby covenants and
agrees that, between the Agreement Date and the Effective Time, (i) TARGET shall
operate its business only in the ordinary course consistent with past practice
and will not engage in any new line of business or enter into any new Contract,
transaction or activity or make any commitment except in the ordinary course of
business consistent with past practice, or take any action which would result in
a breach of its representations, warranties, covenants and agreements pursuant
to this Agreement; (and in no event will TARGET make any expenditure or other
financial commitment over $25,000.00 without the prior written consent of
PARENT, such consent not to be unreasonably withheld or delayed); and (ii)
TARGET shall use commercially reasonable efforts to preserve intact its business
organization, to keep available the services of its current officers, employees
and consultants, and to preserve its present relationships with customers,
suppliers and other persons with which it has business relations.
Conduct of Business by PARENT Pending the Merger. PARENT hereby covenants and
agrees that, between the Agreement Date and the Effective Time, (i) PARENT shall
operate its business only in the ordinary course consistent with past practice
and will not engage in any new line of business or enter into any new Contract,
transaction or activity or make any commitment except in the ordinary course of
business consistent with past practice, or take any action which would result in
a breach of its representations, warranties, covenants and agreements pursuant
to this Agreement (and in no event will PARENT make any expenditure or other
financial commitment over $25,000.00 without the prior written consent of
TARGET, such consent not to be unreasonably withheld or delayed); (ii) PARENT
shall use commercially reasonable efforts to preserve intact its business
organization, to keep available the services of its current officers, employees
and consultants, and to preserve its present relationships with customers,
suppliers and other persons with which it has business relations; and (iii)
PARENT shall not, directly or indirectly, issue, sell, transfer or otherwise
dispose of any securities of PARENT, or enter into any option, warrant,
convertible instrument or other oral or written agreement or understanding to do
the same, without reasonable prior written notice to TARGET and prior written
consent by TARGET. PARENT acknowledges and agrees that TARGET may object to the
actual terms or conduct of any offering proposed by PARENT if such offering
would materially interfere with the consummation of public offerings to
financing the business plans of PARENT and TARGET post-closing, or would
materially change the management or control of PARENT or the condition of
PARENT, or TARGET's expectations with respect to the same (including, without
limitation, the anticipated percentage ownership of PARENT by TARGET
stockholders as of the Closing). Approval of Stockholders. Both PARENT and
TARGET shall take, as promptly as reasonably practicable, and prosecute with all
due and appropriate speed such other steps reasonably necessary to obtain all
stockholder approvals, and regulatory approvals, required for the consummation
of the Merger and the other transactions contemplated by this Agreement,
including, specifically, in the case of PARENT, the filing of applicable
preliminary proxy materials with the SEC as promptly as practicable and, in any
case, by April 30, 2004, and the mailing of definitive final proxy materials to
stockholders as soon as practicable and permissible in anticipation of a meeting
of the shareholders of PARENT to be held as promptly as practicable and
permissible but, in any case, on or before July 30, 2004, or such later date as
may be approved by the parties, for approval of the Merger and the other
aforesaid transactions.
ADDITIONAL AGREEMENTS
As used in this Section 7 and elsewhere in this Agreement GBI means PARENT,
and Corgenix or CONX means TARGET. 7.1 Best Efforts; Cooperation; Further
Assurances. Each of the parties hereto shall use commercially reasonable efforts
to take, or cause to be taken, all appropriate actions, and to do, or cause to
be done, all things necessary, proper or advisable under applicable Laws to
consummate and make effective the transactions contemplated herein, including,
without limitation, (i) cooperating with the other in the preparation and filing
of all forms, notifications, reports and information, if any, required or
reasonably deemed advisable pursuant to any Law or the rules of the American
Stock Exchange, in connection with the transactions contemplated by this
Agreement; (ii) using commercially reasonable efforts to obtain all licenses,
permits, consents, approvals, authorizations, qualifications and orders of any
Governmental Authority or other Persons (including, without limitation, parties
to Contracts with TARGET or PARENT) as are necessary for the consummation of the
transactions contemplated hereby (provided, that nothing herein shall require
PARENT or TARGET, as the case may be, to amend, modify or terminate any material
Contract, or take or refrain from taking any action with respect to its business
as currently conducted or as proposed to be conducted, to obtain any such
license, permit, consent, approval, authorization, qualification or orders);
(iii) making on a prompt and timely basis all governmental or regulatory
notifications and filings required to be made by it for the consummation of the
transactions contemplated hereby; (iv) defending all legal proceedings
challenging this Agreement or the consummation of the transactions contemplated
hereby and to lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby; and (v) executing and delivering such additional
instruments and other documents and taking such further actions as may be
necessary or appropriate to effectuate, carry out and comply with all of the
terms of this Agreement and the transactions contemplated hereby. In this
connection, each party expressly covenants and agrees to prepare and furnish to
the other as promptly as reasonably practicable following the execution and
delivery of this Agreement and, in any case, not less than ten (10) business
days prior to the date upon which PARENT is filing with the SEC proxy materials
for the approval of the transactions contemplated hereby, the business
description, and in form reasonably necessary and appropriate to permit PARENT
to include the same in its SEC proxy materials and other required SEC filings
pertaining to the transactions contemplated hereby in compliance with applicable
SEC rules and regulations.
7.2 Access to Information. From the Agreement Date to the Effective Time, each
party hereto shall (and shall cause its directors, officers, employees,
auditors, counsel and agents to) afford the other party hereto and the other
party's officers, employees, auditors, counsel and agents reasonable access on
reasonable notice during business hours, without undue disruption of operations,
to all assets, properties, books, records, accounts, contracts and documents of
or relating to such providing party and such other information as the receiving
party may reasonably request concerning the businesses, finances and properties
of such providing party and its operations. Until the Effective Time, all
confidential information provided pursuant to this Section 7.2 will be subject
to the confidentiality agreement previously executed by PARENT and TARGET (the
"Confidentiality Agreement") and the provisions of Section 15.11 hereof. 7.3
Notification of Certain Matters. Each of PARENT and TARGET promptly shall give
written notice to the other of (i) any material change in the normal course of
its business; (ii) the receipt by it of notice of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) or the receipt by it of a notice of the institution or the threat
of litigation or other legal proceedings involving it; and (iii) the occurrence
or non-occurrence of any other event which causes, or would be reasonably likely
to cause, any representation or warranty by it contained herein to be untrue or
inaccurate in any respect, or any covenant, condition or agreement of it
contained herein not to be complied with or satisfied in any respect. 7.4
Publicity. No press release or other public announcement related to this
Agreement or the transactions contemplated hereby shall be issued by any party
without the prior written approval of the other parties hereto, except that (i)
PARENT may make such public disclosure which it believes in good faith to be
required by applicable Law or the rules of the American Stock Exchange after
reasonable prior consultation with TARGET and (ii) TARGET may make such public
disclosure which it believes in good faith to be required by applicable Law or
the rules of the NASD after reasonable prior consultation with PARENT.
7.5 Exclusive Dealings. From the Agreement Date until the Effective Time, or
earlier termination of this Agreement as provided in Article XIV hereof, none of
PARENT, TARGET or their respective Affiliates, Associates, directors, officers,
agents, employees, advisors, counsel or other representatives (collectively,
"Representatives") shall, nor shall PARENT or TARGET authorize or permit any of
their respective Representatives to, directly or indirectly: (i) solicit,
encourage, initiate or participate in any negotiations or discussions with
respect to, or respond to (other than a simple response that none can be made),
any offer or proposal to acquire all or any part of PARENT or TARGET, as the
case may be, whether by asset purchase, license, joint venture, stock purchase,
business combination or otherwise (a "Competing Transaction"), (ii) disclose any
information concerning itself not customarily disclosed to any Person and which
information one could reasonably assume would be used for the purposes of
formulating an offer or proposal for a Competing Transaction, (iii) cooperate
with any Person to make any such offer or proposal, (iv) agree to or endorse any
Competing Transaction, or (v) authorize any Representatives to take any action
prohibited by this Section. Each of PARENT and TARGET shall use its prudent
business efforts, including (if necessary) the taking of legal action, at its
cost and expense, to cause its respective Representatives to refrain from taking
any action prohibited by this Section. Each of PARENT and TARGET shall promptly
notify the other of any inquiry or contact with any Person with respect to an
actual or potential Competing Transaction, the identity of the person making the
contact and the material terms of any such contact. Each of PARENT and TARGET
agrees that during the period in which this Section shall apply, it will not
take or permit any material changes in its business, assets, liabilities, or
condition, financial or otherwise, or enter into any agreement or understanding
to do the same, except as expressly permitted under this Agreement.
7.6 Trading in PARENT or TARGET Common Stock. From the Agreement Date until the
Effective Time, neither PARENT or TARGET nor any of their Representatives will,
directly or indirectly, purchase or sell (including short sales) any shares of
PARENT or TARGET Common Stock (or any put, call, option or derivative security
or the like relating thereto).
7.7 PARENT Board of Directors.
(a) PARENT shall take all necessary steps such that at Closing the Board of
Directors of PARENT and of ACQUISITION CORP. each initially shall consist
of eight (8) persons, at least four (4) of whom shall be "independent
directors" within the meaning of applicable rules and regulations of the
SEC and the American Stock Exchange, as follows:
(i) Four (4) of the directors, including two (2) independents, shall be
nominees selected by E. Greg McCartney ("PARENT Co-Chair");
(ii) Four (4) of the directors, including two (2) independents, shall be
selected by Dr. Luis Lopez ("TARGET Co-Chair");
(iii) Messrs. McCartney and Lopez shall be Co-Chairpersons of the Board;
(iv) All of the directors so chosen will agree in writing with one
another that neither they nor any one on their respective behalf will
undertake or act, including, without limitation, the solicitation of
any vote or proxy, to alter the "balanced" nature of the Board of
Directors during the three years following the effective date of the
merger Transaction.
(b) Management Team. The initial post merger management team of the PARENT shall
include, but not be limited to, the following persons:
Dr. Luis R. Lopez, Co-Chairman and Chief Scientific Officer E. Greg
McCartney, Co-Chairman Douglass T. Simpson, CEO and President William H.
Critchfield, V.P. and CFO Catherine A. Fink, Ph.D., V.P. and General
Manager Ann L. Steinberger, V.P., Sales & Marketing Taryn G. Reynolds,
V.P., Facilities & Technology
(c) Treatment of CONX/GBI Employees. It is anticipated that the
status quo for all PARENT and TARGET employees as of the Closing Date
shall be retained for at least 60 days post Closing, that key employees of
GBI who are not continued thereafter will be provided with up to eighteen
(18) months severance pay (with severance payments to such GBI employees
not to exceed $600,000 in the aggregate, and such severance to be paid
ratably (in the same ratio as each such employee's current salary
payments) over the severance period applicable to each such GBI employee),
and that the Vancouver office will continue to be an office of the Company
but solely to assist management in financing transactions and principally
occupied by E. Greg McCartney, GBI Co-Chairman. A list of the key
employees of PARENT who would be entitled to participate in any such
severance pay has been provided to TARGET by PARENT. PARENT will provide
to TARGET not less than ten (10) business days prior to the Closing with a
Severance Payment Schedule setting forth the severance payment amounts and
schedule for payment thereof to the GBI employees so entitled and
consistent with the provisions of this Section 7.7(c).
(d) Executive Options and Employment Agreement. Concurrently with the
Closing PARENT will enter into employment agreements with the following
key employees of TARGET: Dr. Luis R. Lopez, Douglass T. Simpson, William
H. Critchfield, Dr. Catherine A. Fink, Ann L. Steinberger, Taryn G.
Reynolds (each an "Executive" and collectively the "Executives") pursuant
to which, in addition to any other compensation such Executives are
entitled to, they shall receive options to purchase an aggregate of three
(3) million shares of GBI's Common Stock (the "Executive Options"). The
TARGET Board shall determine the allocation of such options, and TARGET
will provide to PARENT a schedule thereof not less than ten (10) days
prior to the Closing Date. The employment agreement with each Executive
will be on the same terms and conditions as that existing under each such
Executive's current employment agreement with TARGET, except that (i)
salary and cash bonus compensation may be adjusted upward as agreed by
PARENT and such Executive and (ii) the severance period for termination
without cause will be extended to 18 months (from 12 months). Each option
agreement shall provide for 3 year vesting (33 1/3%) per year starting
from the date of grant and an initial exercise price equal 100% of the
current fair market value of GBI's common stock at the time of Closing.
Existing options of TARGET will be exchanged or converted to options for
PARENT common stock with a number of option shares and an exercise price
equivalent to that under the prior TARGET option adjusted to reflect the
exchange ratio in the Merger, as described in Section 3.1(a) above.
7.8 Transition Procedure. The Executive Offices of the Surviving
Corporation subsequent to the Closing shall be the current offices of TARGET. As
it consolidates the executive and corporate office functions and operations of
the post-Merger PARENT to the current offices of TARGET in Westminster,
Colorado, PARENT (as the Surviving Corporation) will execute the following
transition procedure:
(a) So long as it is reasonably practicable, and for at least six (6)
months, the Surviving Corporation shall also maintain an office for financial
and investor affairs in Vancouver, Canada, at which E. Greg McCartney and
necessary staff will be based.
(b) For a period of sixty (60) days following the Closing Date,
PARENT will make no material change in the operations of the Surviving Company
and its constituent companies.
(c) Prior to the Closing, management of TARGET will conduct and
analysis and review of the consolidated operations, assets, employment,
facilities and resources of the Surviving Corporation, and prepare a
post-Merger transition plan for the Surviving Corporation (the "Transition
Plan"), such Plan to consider, among other items, the following issues: (i)
consolidated operations of the Surviving Corporation to
assess the desired operating structure and
resource allocations for the Surviving
Corporation post-Merger;
(ii) headcount adjustments which may be necessary during the
initial six-month post-Merger period;
(iii) facility closing and other asset allocation adjustments
deemed necessary to occur during the six (6) month
post-Merger period;
(iv) the status and manning of the Vancouver, B.C. office and
Ann Arbor, Michigan offices; and
(v) staffing requirements to achieve the business objectives of
the Surviving Corporation for the period
commencing six (6) months after the Closing,
including the possible functional/skill-set
areas for which the Surviving Corporation may
require consulting services and associated
consulting offers to be made for services
desired on a less than full-time basis.
ARTICLE VIII.
CONDITIONS TO THE OBLIGATIONS OF PARENT AND ACQUISITIONS CORP.
The obligations of PARENT and Acquisition Corp to effect the Merger and
the other transactions contemplated hereunder shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions, any
or all of which may be waived in whole or in part by PARENT:
8.1 Accuracy of Representations and Warranties and Compliance with Obligations;
Disclosure Schedule. The representations and warranties of TARGET contained in
this Agreement shall be true and correct in all material respects at and as of
the Effective Time with the same force and effect as though made at and as of
that time except that those representations and warranties which address matters
only as of a particular date shall have been true and correct as of such date.
TARGET shall have performed and complied in all material respects with all of
its obligations required by this Agreement to be performed or complied with at
or prior to the Effective Time. TARGET shall have delivered to PARENT and
ACQUISITION CORP. a certificate, dated as of the Closing Date and signed by its
President, to the effect of the foregoing.
8.2 Corporate Matters. TARGET shall have delivered to PARENT: (a) copies of the
Certificate of Incorporation and Bylaws of TARGET as in effect immediately prior
to the Effective Time; (b) copies of resolutions adopted by the Board of
Directors and stockholders of TARGET authorizing this Agreement and the
consummation of the transactions contemplated hereby; and (c) a certificate of
good standing of TARGET issued by the Secretary of State of Nevada and each
other state in which TARGET is qualified to do business as of a date not more
than ten (10) days prior to the Closing Date, certified in the case of
subsections (a) and (b) of this Section 8.2 as of the Closing Date by the
President of TARGET as being true, correct and complete.
8.3 No Adverse Proceedings. No Governmental Authority or other regulatory body
shall have enacted, issued, promulgated, enforced or entered any Law or Order
(whether temporary, preliminary or permanent) which is then in effect and has
the effect of making illegal, materially restricting or preventing or
prohibiting the Merger or the transactions contemplated by this Agreement. No
Legal Proceeding shall be overtly threatened or pending against the PARENT
COMPANIES or TARGET before any court or Governmental Authority which seeks to
restrain, prohibit, invalidate or collect damages arising out of the Merger or
any other transaction contemplated hereby or obtain damages or other relief from
any such party, in connection with this Agreement or the consummation of the
transactions contemplated hereby. 8.4 Consents and Approvals. TARGET shall have
delivered to PARENT copies of (a) all, if any, consents, approvals, orders and
authorizations of, and all registrations, qualifications, designations,
declarations or filings with, any Governmental Authority or other Persons
required in connection with the execution and delivery by TARGET of this
Agreement or the consummation by TARGET of the transactions contemplated hereby
and (b) all consents to the transactions contemplated hereby and waivers of
rights to terminate or modify any Contracts, rights or obligations of TARGET
from any Person from whom such consent or waiver is required under any Contract
or instrument, or who, as a result of the transactions contemplated hereby,
would have such rights to terminate or modify such Contracts or instruments,
either by the terms thereof or as a matter of Law. 8.5 Securities Offerings. The
offering and issuance of shares of PARENT Common Stock in the Merger shall be in
compliance with the Securities Act and all other applicable securities Laws to
the satisfaction of PARENT and TARGET and each of their respective counsel.
TARGET and holders of TARGET Capital Stock shall have taken all steps reasonably
required by PARENT to ensure such compliance. TARGET shall have delivered to
PARENT such documentation as may be reasonably required to establish compliance
under the Securities Act and all other applicable securities Laws in connection
with the issuance of Merger Shares and other consideration by PARENT pursuant to
this Agreement. 8.6 Financial Statements. PARENT shall have received TARGET's
Financial Statements (such Financial Statements to be as of a date not more than
60 days prior to the anticipated Closing Date of the Merger), together with an
agreement by TARGET's independent public accountant, in customary form, to the
effect that such accountants will cooperate, on customary terms and conditions,
as may be necessary or appropriate for the inclusion of TARGET's Financial
Statements in any report required by the SEC to be filed by PARENT with respect
to the Merger, this Agreement, and the transactions contemplated thereby. 8.7 No
Material Adverse Change. Between the Agreement Date and the Effective Time,
there shall not have been any Material Adverse Change with respect to TARGET,
and TARGET shall have delivered to PARENT a certificate to such effect, dated as
of the Closing Date and signed by an executive officer of TARGET. 8.8
Governmental Consents. TARGET shall have delivered to
PARENT copies of (a) all consents, approvals, orders and authorizations of, and
all registrations, qualifications, designations, declarations or filings with,
any Governmental Authority required in connection with the execution and
delivery by TARGET of this Agreement or the consummation by TARGET of the
transactions contemplated hereby and (b) all consents to the transactions
contemplated hereby and waivers of rights to terminate or modify any Contracts,
rights or obligations of TARGET, from any Person from whom such consent or
waiver is required under any Contract or instrument, or who, as a result of the
transactions contemplated hereby, would have such rights to terminate or modify
such Contracts or instruments, either by the terms thereof or as a matter of
Law.
8.9 PARENT Stockholder Approval. The stockholders of the PARENT shall have
approved the Merger, this Agreement, and the transactions contemplated thereby,
in accordance with the PARENT's Certificate of Incorporation and Bylaws, the New
York Business Corporation Law or the DGCL, as applicable, applicable securities
Laws, and the rules and regulations of the American Stock Exchange, and not
revoked such approval.
8.10 (There is no Section 8.10.)
8.11 Lock-Up Agreements. At Closing, PARENT shall have received Lock-Up
Agreements, substantially in the form of Exhibit 8.11 hereto and reasonably
acceptable to PARENT in form and in substance, executed by each of the officers
and directors of TARGET and each Person who is the beneficial holder of 5% or
more of the TARGET Common Stock, to the effect that for 180 day period of time
after the Closing none of them will dispose of shares of PARENT Common Stock.
8.12 Board of Directors of PARENT and ACQUISITION CORP.. Contemporaneously with
the Closing, the Board of Directors of PARENT and ACQUISITION CORP. shall have
been constituted as required by Section 7.7.
8.13 TARGET Stockholder Approval. The stockholders of the TARGET shall have
approved the Merger, this Agreement, and the transactions contemplated thereby,
in accordance with the TARGET's Certificate of Incorporation and Bylaws, Nevada
corporate law, and applicable securities Laws.
8.14 Target Executive Change of Control Waivers. TARGET shall have obtained
waivers from its Executives of the change of control lump-sum payment provisions
in their existing employment agreements.
ARTICLE IX.
CONDITIONS TO THE OBLIGATIONS OF TARGET
The obligations of TARGET to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions, any
or all of which may be waived in whole or in part by TARGET:
9.1 Accuracy of Representations and Warranties and Compliance with Obligations;
Disclosure Letter. The representations and warranties of the PARENT COMPANIES
contained in this Agreement shall be true and correct in all material respects
and as of the Effective Time with the same force and effect as though made at
and as of that time except that those representations and warranties which
address matters only as of a particular date shall have been true and correct as
of such date. Each of the PARENT COMPANIES shall have performed and complied in
all material respects with all of its obligations required by this Agreement to
be performed or complied with at or prior to the Effective Time. Each of the
PARENT COMPANIES shall have delivered to TARGET a certificate, dated as of the
Closing Date and signed by an executive officer, to the effect of the foregoing.
The Disclosure Schedule of the PARENT COMPANIES shall not have been amended in
such a manner so as not to be acceptable to TARGET in form and in substance.
9.2 Corporate Matters. PARENT shall have delivered to TARGET: (a) copies of the
Certificate or Articles of Incorporation and Bylaws of each of PARENT and
ACQUISITION CORP. as in effect immediately prior to the Effective Time; (b)
copies of resolutions adopted by the Board of Directors of PARENT and the Board
of Directors and stockholder of ACQUISITION CORP. authorizing this Agreement and
the consummation of the transactions contemplated hereby; and (c) a certificate
of good standing of PARENT issued by the Secretary of State of the State of New
York and a certificate of good standing of ACQUISITION CORP. issued by the
Secretary of State of the State of Delaware, in each case as of a date not more
than ten (10) days prior to the Closing Date, certified in the case of
subsections (a) and (b) of this Section 9.2 as of the Closing Date by an
executive officer of PARENT as being true, correct and complete. The Certificate
or Articles of Incorporation and Bylaws of each of PARENT and ACQUISITION CORP.
shall be satisfactory to TARGET and its counsel in form and in substance.
9.3 No Adverse Proceedings. No Governmental Authority or other regulatory body
shall have enacted, issued, promulgated, enforced or entered any Law or Order
(whether temporary, preliminary or permanent) which is then in effect and has
the effect of making illegal, or preventing or prohibiting the Merger or the
transactions contemplated by this Agreement. No Legal Proceeding shall be
overtly threatened or pending against the PARENT COMPANIES or TARGET before any
court or Governmental Authority which seeks to restrain, prohibit, invalidate or
collect damages arising out of the Merger or any other transaction contemplated
hereby or obtain damages or other relief from any such party, in connection with
this Agreement or the consummation of the transactions contemplated hereby. 9.4
Consents and Approvals. PARENT shall have delivered to TARGET copies of (a) all
consents, approvals, orders and authorizations of, and all registrations,
qualifications, designations, declarations or filings with, any Governmental
Authority or other Persons required in connection with the execution and
delivery by PARENT and ACQUISITION CORP. of this Agreement or the consummation
by PARENT COMPANIES of the transactions contemplated hereby and (b) all consents
to the transactions contemplated hereby and waivers of rights to terminate or
modify any Contracts, rights or obligations of PARENT and ACQUISITION CORP. from
any Person from whom such consent or waiver is required under any Contract or
instrument, or who, as a result of the transactions contemplated hereby, would
have such rights to terminate or modify such Contracts or instruments, either by
the terms thereof or as a matter of Law. 9.5 Registration. The offering and
issuance of shares of PARENT Common Stock in the Merger shall be in compliance
with the Securities Act and all other applicable federal and state securities
Laws to the reasonable satisfaction of TARGET and its counsel. The offering and
issuance of the PARENT Merger Options and the shares of PARENT Common Stock
receivable on exercise of thereof shall be in registered in compliance with the
Securities Act and all other applicable federal and state securities Laws to the
reasonable satisfaction of TARGET and its counsel. 9.6 No Material Adverse
Change. Between the Agreement Date and the Effective Time, there shall not have
been any Material Adverse Change with respect to PARENT or ACQUISITION CORP.,
and PARENT shall have delivered to TARGET a certificate to such effect, dated as
of the Closing Date and signed by an executive officer. 9.7 Financial
Statements. TARGET shall have received PARENT's audited financial statements as
of December 31, 2003 and PARENT shall have received TARGET's unaudited financial
statements as of December 31, 2003 together with an agreement by TARGET's
independent public accountant, in customary form, to the effect that such
accountants will cooperate, on customary terms and conditions, as may be
necessary or appropriate for the inclusion of TARGET's Financial Statements in
any report required by the SEC to be filed by PARENT with respect to the Merger,
this Agreement, and the transactions contemplated thereby. 9.8 Governmental
Consents. PARENT shall have delivered to TARGET copies of (a) all consents,
approvals, orders and authorizations of, and all registrations, qualifications,
designations, declarations or filings with, any Governmental Authority required
in connection with the execution and delivery by PARENT of this Agreement or the
consummation by PARENT of the transactions contemplated hereby and (b) all
consents to the transactions contemplated hereby and waivers of rights to
terminate or modify any Contracts, rights or obligations of PARENT from any
Person from whom such consent or waiver is required under any Contract or
instrument, or who, as a result of the transactions contemplated hereby, would
have such rights to terminate or modify such Contracts or instruments, either by
the terms thereof or as a matter of Law. 9.9 Stockholder Approval. The
stockholders of TARGET shall have approved the Merger, this Agreement, and the
transactions contemplated thereby, in accordance with the TARGET's Certificate
of Incorporation and Bylaws, the Nevada Business Corporation Law, and applicable
securities laws and not revoked such approval. 9.10 Lock-Up Agreements. At
Closing, TARGET shall have received Lock-Up Agreements, substantially in the
form of Exhibit 8.11 hereto and reasonably acceptable to TARGET and its counsel
in form and in substance, executed by each of the officers and directors of
PARENT and each Person who is the beneficial holder of 5% or more of the PARENT
Common Stock, to the effect that for a 180 day period of time after the Closing
none of them will dispose of shares of PARENT Common Stock. 9.11 Board of
Directors of PARENT and ACQUISITION CORP.. Contemporaneously with the Closing,
the Board of Directors of PARENT and ACQUISITION CORP. shall have been
constituted as required by Section 7.7. 9.12 PARENT Common Stock Listing. At
Closing, the PARENT Common Stock shall continue to be listed for trading on the
American Stock Exchange, there shall be no proceedings to terminate that listing
pending or threatened, and PARENT shall have no Knowledge of any basis therefor,
and PARENT shall have delivered a certificate of its President to TARGET,
certifying the same to be true and correct. 9.13 New Equity Financing. PARENT
shall have obtained at least Six Million ($6,000,000) Dollars of new equity
financing prior to the Closing. 9.14 Employment Agreements. PARENT shall have
delivered to all required key executives signed employment agreements related to
their employment by PARENT, and PARENT shall have issued, in accordance with the
instructions of TARGET, the options to TARGET executives required by Section
7.7(d). 9.15 Tax Returns Filed. PARENT shall have filed with all applicable
taxing authorities PARENT's Tax Returns for the fiscal years ended December 31,
2001 and December 31, 2002. 9.16 D&O Insurance. PARENT shall have procured and
shall have in force for the benefit of its directors and officers D&O insurance
with liability coverage of not less than $4,000,000 individually and in the
aggregate. 9.17 Executive Options. PARENT shall have amended its executive stock
option plan or adopted a new stock option plan authorizing the issuance of up to
an additional 7,000,000 shares of its common stock, and such action shall have
been approved by request consent of PARENT's stockholders. The shares of PARENT
Common Stock issuable upon exercise of the Executive Options will be registered
under all applicable provisions of the Securities Act of 1933 pursuant to a duly
filed and effective Form S-8 of PARENT promptly after the Closing. 9.18
Independent Auditor Review. PARENT shall be current in all required independent
auditor reviews, audits and reports regarding PARENT's financial statements and
public company reports. ARTICLE X. CLOSING
10.1 Closing. Unless this Agreement shall have been terminated pursuant to the
provisions of Article XIV hereof, the closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of PARENT
1A-3033 King George Hwy. Surrey, BC, Canada V4P 1B8, at 10:00 am., local time,
on July 30, 2004 or the date which is three (3) business days after all
conditions to closing have been satisfied or are first capable of being
satisfied, but in no event later than August 31, 2004 unless otherwise mutually
agreed by the parties to this Agreement. The date on which the Closing occurs is
referred to as the "Closing Date." The Closing shall be deemed completed as of
12:01 a.m. on the morning of the Closing Date. 10.2 Deliveries by TARGET. At or
prior to the Closing, TARGET shall deliver (or cause to be delivered) to PARENT:
(a) each certificate or other letter, agreement and other document or
instruments required to be delivered by TARGET to PARENT in accordance with
Article VIII hereof; (b) constructive access to the stock book(s), stock
ledger(s) and minute book(s) of TARGET; (c) constructive access to all originals
and copies of agreements, instruments, documents, deeds, books, records, files,
tax returns and other data and information within the possession of TARGET; (d)
evidence satisfactory to PARENT that with respect to each of TARGET's accounts,
credit lines, safe deposits boxes or vaults the authority of all individuals
with respect thereto has been terminated, other than those individuals
designated by PARENT in writing; (e) the Merger Filings, duly executed by
TARGET; and (f) such other documents, instruments, agreements and all
certificates and other evidence as PARENT or its counsel may reasonably request
as to the satisfaction of the conditions to PARENT's obligations set forth
herein. 10.3 Deliveries by PARENT. At or prior to the Closing, PARENT shall
deliver (or cause to be delivered) to TARGET: (a) each certificate or other
letter, agreement and other document or instruments required to be delivered by
PARENT to TARGET or to TARGET's stockholders in accordance with Article IX
hereof; (b) the Merger Filings, duly executed by ACQUISITION CORP.; (c) the
Certificates (evidencing the Merger Shares), to the extent the conditions for
delivery of the same at Closing set forth in Article III shall have been
satisfied, for delivery to the applicable TARGET stockholders; and (d) such
other documents, instruments, agreements and all certificates and other evidence
as TARGET or its counsel may reasonably request as to the satisfaction of the
conditions to TARGET's obligations set forth herein. ARTICLE XI. TRANSFER
RESTRICTIONS; COMPLIANCE WITH SECURITIES LAWS
11.1 Limitation on Disposition of Shares. It is anticipated that the
shares of PARENT Common Stock to be issued to the TARGET Stockholders pursuant
to the Merger shall have been registered under the Securities Act, and may be
freely sold, transferred or otherwise disposed of, by TARGET shareholders other
than as provided by the Lock-Up Agreements.
11.2 Legend. All certificates representing shares of PARENT Common Stock
issued pursuant to the Merger shall be issued without stop and without legend.
ARTICLE XII.
SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS
12.1 Survival. All representations, warranties and covenants of PARENT COMPANIES
and TARGET contained in this Agreement will survive the Effective Time and
remains operative and in full force and effect, regardless of any investigation
made by or on behalf of either party, for one year after the Closing Date. 12.2
The parties agree that if there shall arise, subsequent to the Closing, any
dispute with respect to the Representations and Warranties given by either party
to the other that such dispute shall be resolved by mediation or binding
arbitration, if required.
(a) If a claim is first made by one or more former shareholders of TARGET on
behalf of TARGET against PARENT, the situs of the mediation or arbitration shall
be Vancouver, Canada, and if a claim is first made by one or more existing
shareholders of PARENT on behalf of PARENT against TARGET, the situs of the
mediation or arbitration shall be Denver, Colorado. (b) The claiming party shall
name its mediator. The responsive party shall then name its mediator. The
mediators shall meet in private and informally with the parties. The mediators
may, if they can agree, propose by joint recommendation any equitable adjustment
to share ownership as may be feasible and appropriate under all of the facts and
circumstances. The mediators shall be persons of good reputation in the business
community, who are each independent from the appointing party, though they may
have other business or social relationships with the appointing party or
affiliates.
(c) If the mediators cannot make a joint recommendation, or if the Surviving
Corporation cannot pragmatically implement the mediators joint recommendation,
the dispute shall be referred by the mediators to a mutually appointed third
person who, together with the mediators shall constitute an arbitration panel.
The arbitration panel shall hold one or more hearings, if necessary, take
evidence and render a determination. The determination of the arbitration shall
be final and binding and shall be enforceable in any court of competent
jurisdiction. ARTICLE XIII.
DEFINITIONS
13.1 Each of the terms used in this Agreement with full capitalization or
initial capitalization have been defined in this Agreement in the Section
wherein such term was initially used.
ARTICLE XIV.
TERMINATION/TERMINATION PAYMENT
14.1 Termination. This Agreement may be terminated at
-----------
any time prior to the Closing Date solely:
(a) by mutual consent of the boards of directors of GBI and Corgenix;
(b) by Corgenix (acting through its board of directors), on the one hand, or by
GBI (acting through its board of directors), on the other hand, if the
transactions contemplated by this Agreement to take place at or prior to the
Closing shall not have been consummated by July 30, 2004 (including, but not
limited to, failure by GBI to consummate the $6,000,000 equity capital raise),
unless the failure of such transactions to be consummated is due to the failure
of the party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be performed by it
prior to or on the Closing Date;
(c) by Corgenix (acting through its board of directors) if a material breach or
default shall be made by GBI in the observance or in the due and timely
performance of any of the representations, covenants, agreements or conditions
contained herein, and the curing of such default shall not have been made on or
before the Closing Date; or
(d) by GBI (acting through its board of directors) if a material breach or
default shall be made by Corgenix in the observance or in the due and timely
performance of any of the representations, covenants, agreements or conditions
contained herein, and the curing of such default shall not have been made on or
before the Closing Date.
14.2 Termination Payment in Event of Certain Terminations.
(a) Due to Corgenix Breach. In the event Corgenix fails to consummate the
Merger and such failure constitutes a breach of Corgenix's obligations
under this Agreement, Corgenix will pay to GBI the "Applicable
Termination Payment" (defined below).
(b) Due to GBI Breach. In the event GBI fails to consummate the
-----------------
Merger and such failure constitutes a breach of GBI's
obligations under this Agreement, GBI will pay to
Corgenix the Applicable Termination Payment, and GBI
additionally will reimburse Corgenix for any and all
sums, if any, required to be paid by Corgenix in respect
of the Note payable by Corgenix to GBI in the principal
amount of Five Hundred Thousand ($500,000) Dollars (the
"Corgenix Note"), including any interest paid thereon.
(c) Due to Business Combination Transaction. If there is a
---------------------------------------
change in control of either Corgenix or GBI prior to the
termination of this Agreement, or if either Corgenix or
GBI, over the objections of the other, unrightfully
refuses to proceed with the Merger, or refuses to proceed
to Closing of the Merger because it intends to proceed
with a "business combination transaction" with any other
party (or actually proceeds with such a business
combination transaction with another party within six (6)
months after any such unrightful refusal to proceed),
then the party (or its successor in any business
combination transaction) which has unrightfully refused
to proceed with the Merger (the "Refusing Party") shall
be obligated to pay a break-up fee to the other party
equal to such Refusing Party's Applicable Termination
Payment as liquidated damages for any such unrightful
refusal to proceed with the Transaction. In addition,
in the event of any unrightful refusal by Corgenix to
proceed with the Merger, at the sole election of GBI, the
Corgenix Note may be converted into 1,250,000 additional
Common Shares of Corgenix at a conversion price of $.40
per Share subject to adjustment in accordance with the
provisions of the Corgenix Note. If the Merger does not
close for any reason (other than an unrightful refusal to
close by Corgenix), the Note will convert to a fixed
two-year term note ("Term Note"), bearing interest at the
prime rate in effect as of the date of termination of the
Merger, and fully-amortized over four semi-annual
payments of principal and accrued interest. In such
event, the Term Note will be convertible, at the election
of GBI, into Common Stock of Corgenix at a conversion
price of $.568 per Share. As used herein, a "business
combination transaction" means and includes any stock
purchase, asset purchase, merger, consolidation, reverse
merger, or other corporate transaction by a party with a
non-party to this Agreement as a result of which a change
of control occurs as to such party or non-party or the
Merger transaction is vitiated.
(d) If Termination is due to Schedule Amendment.
(i) Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation, and
right (subject to Section 14(b) below), until the Closing Date, to
supplement or amend promptly the Schedules of such party, with
respect to any matter hereafter arising or discovered that, if
existing or known at the date of this Agreement, would have been
required to be set forth or described in such Schedules.
(ii) Upon and after the effectiveness of the Registration Statement
or, if earlier, the first distribution of a preliminary prospectus
in connection with the Merger, no amendment or supplement to a
Schedule prepared by Corgenix, on the one hand, or GBI, on the
other hand, that constitutes or reflects an event or occurrence
that would have a Material Adverse Effect may be made unless both
parties consent to such amendment or supplement. In the event that
a party seeks to amend or supplement a Schedule pursuant to this
Section 14 and the other party does not consent to such amendment
or supplement, this Agreement shall terminate.
(iii) For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions to
Closing of the Merger have been fulfilled, the Schedules hereto
shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 14.4. No party to this Agreement shall be
liable to any other party if this Agreement shall be terminated
pursuant to the provisions of this Section 14.4, except that,
notwithstanding anything to the contrary contained in this
Agreement, if Corgenix on the one hand, or GBI on the other hand,
proposes to amend or supplement a Schedule that results in a
termination of this Agreement pursuant to Section 14(b) and such
amendment or supplement arises out of or reflects facts or
circumstances which amount to a Material Adverse Event that (i)
such party knew or should have known about at the time of
execution of this Agreement and such party omitted to include such
facts or circumstances in the Schedules in bad faith or as a
consequence of intentional misrepresentation, or omission, or
gross negligence, or (ii) if such amendment or supplement has been
proposed without justification in bad faith, and as a result of
such amendment or supplement the other party by right terminates
this Agreement, the party that made such amendment or supplement
shall (i) pay the other party the "Applicable Termination
Payment", and (ii) pay or reimburse the other party for all of the
legal, accounting and other out-of-pocket costs reasonably
incurred by such other party in connection with this Agreement.
(e) Applicable Termination Payment Defined. If payable by Corgenix, the
"Applicable Termination Payment" shall be $1,500,000. If payable by GBI, the
"Applicable Termination Payment" shall be $1,000,000.
(f) Payment to Trustee for Bridge Notes. If at the time of an event
requiring the payment of an Applicable Termination Payment the Notes due to
investors pursuant to PARENT's Private Placement Memorandum (the "Memorandum")
dated December 1, 2003 (the "Bridge Notes") to Investors remain outstanding, the
Applicable Termination Payment so payable shall be delivered to any escrowee
appointed by (i) the Placement Agent or (ii) holders of a majority in principal
amount, of the Notes.
ARTICLE XV.
GENERAL PROVISIONS
15.1 Notices. All notices and other communications required or permitted under
this Agreement shall be in writing and will be either hand delivered in person,
sent by telecopier, sent by certified or registered first class mail, postage
pre-paid, or sent by nationally recognized express courier service. Such notices
and other communications will be effective (i) upon receipt if hand delivered or
sent by telecopier, (ii) five (5) days after mailing if sent by mail, and (iii)
one (1) day after dispatch if sent via next day service by express courier, to
the following addresses, or such other addresses as any party may notify the
other parties in accordance with this Section:
(a) if to the PARENT Genesis Bioventures, Inc. : 1A-3033 King
George Highway,
Surrey, BC, Canada V4P 1B8
Attn: E. Greg McCartney,
President
Telephone: (604) 542-0820
Facsimile: (604) 542-0821
With a copy to: D. David Cohen, Esq.
Jericho Atrium
500 North Broadway
Suite 133
Jericho, New York 11753
Telephone: (516) 933-1700
Facsimile: (516) 933-8454
(b) if to TARGET, to: Corgenix Medical
Corporation 12061 Tejon Street Westminster,
Colorado 80234 Attn: Douglas T. Simpson
Telephone: (303) 453-8946 Facsimile: (303)
252-9212
With a copy to: The Erickson Law Firm, P.C.
Attn: Steven A. Erickson, Esq.
Denver Office
1899 Wynkoop
Suite 900
Denver, Colorado 80202
Telephone: (303) 302-4524
Facsimile: (303) 568-7506
15.2 Entire Agreement. This Agreement (including the Exhibits and the parties
respective Disclosure Schedules) and other documents delivered at the Closing
pursuant hereto, contains the entire understanding of the parties in respect of
its subject matter and supersedes all prior agreements and understandings (oral
or written) between or among the parties with respect to such subject matter,
except that the NDA between the parties shall continue to be in full force and
effect through the Effective Time except to the extent that it conflicts with
the terms of this Agreement, in which case the terms of this Agreement would
control. The Exhibits and Disclosure Schedules constitute a part hereof as
though set forth in full above. 15.3 Expenses. Except as set forth in this
Section 15.3 or as otherwise provided in this Agreement, the parties hereto
shall pay their own fees and expenses, including their own legal, accounting,
consulting and financial advisory fees, incurred in connection with this
Agreement or any transaction contemplated hereby, whether or not the Merger is
consummated, except as the parties may otherwise hereafter agree in writing.
15.4 Amendment. This Agreement (including the Disclosure Schedules and Exhibits)
may not be modified, amended, supplemented, canceled or discharged, except by
written instrument executed by all parties. The Agreement may be amended by the
parties hereto at any time before or after approval of the stockholders of
PARENT or TARGET; but, after such approval, no amendment will be made which by
applicable Law requires the further approval of the stockholders of PARENT or
TARGET without obtaining such further approval.
15.5 Waiver. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision, nor shall any waiver be implied from
any course of dealing between the parties. No extension of time for performance
of any obligations or other acts hereunder or under any other agreement shall be
deemed to be an extension of the time for performance of any other obligations
or any other acts. The rights and remedies of the parties under this Agreement
are in addition to all other rights and remedies, at law or equity, that they
may have against each other.
15.6 Binding Effect; Assignment. The rights and obligations of this Agreement
shall bind and inure to the benefit of the parties and their respective
successors and assigns. Without prejudice to the rights and remedies otherwise
available to any party to this Agreement, each party to this Agreement shall be
entitled to equitable relief by way of injunction or otherwise, without the
necessity of having to post bond, if the other party or any of its
Representatives breach or threaten to breach Sections 7.4, 7.5, 7.6 or 15.11 of
this Agreement. Nothing expressed or implied herein shall be construed to give
any other person any legal or equitable rights hereunder except as expressly
provided herein. Except as expressly provided herein, the rights and obligations
of this Agreement may not be assigned by TARGET or PARENT. Notwithstanding the
foregoing, the stockholders of TARGET shall be deemed to be third party
beneficiaries of this Agreement. 15.7 Interpretation. When a reference is made
in this Agreement to an article, section, paragraph, clause, schedule or
exhibit, such reference shall be deemed to be to this Agreement unless otherwise
indicated. The headings contained herein and on the schedules are for reference
and convenience purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or the schedules. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." Time shall be of the essence in this
Agreement.
15.8 Severability. Any term or provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction only, be
ineffective only to the extent of such prohibition or unenforceability, and
shall not invalidate the remaining provisions hereof or affect the validity or
enforceability of such provision in any other jurisdiction. 15.9 Governing Law;
Interpretation. This Agreement shall be construed in accordance with and
governed for all purposes by the internal laws of the State of New York
applicable to contracts executed and to be wholly performed within such state,
except Merger related provisions governed by the DGCL. The parties hereto hereby
agree that any suit or proceeding arising under this Agreement, or in connection
with the consummation of the transactions contemplated hereby, shall be brought
solely in a federal or state court located in the CITY and State of New York. By
its execution hereof, both the PARENT COMPANIES and the TARGET hereby consent
and irrevocably submit to the in personam jurisdiction of the federal and state
courts located in the CITY and State of New York and agree that any process in
any suit or proceeding commenced in such courts under this Agreement may be
served upon it personally or by certified or registered mail, return receipt
requested, or by Federal Express or other courier service, with the same force
and effect as if personally served upon the applicable party in New York and in
the city or county in which such other court is located. The parties hereto each
waive any claim that any such jurisdiction is not a convenient forum for any
such suit or proceeding and any defense of lack of in personam jurisdiction with
respect thereto.
15.10 Arm's Length Negotiations. Each party herein expressly represents and
warrants to all other parties hereto that: (a) before executing this Agreement,
said party has fully informed itself of the terms, contents, conditions and
effects of this Agreement; (b) said party has relied solely and completely upon
its own judgment in executing this Agreement; (c) said party has had the
opportunity to seek and has obtained the advice of counsel before executing this
Agreement; (d) said party has acted voluntarily and of its own free will in
executing this Agreement; (e) said party is not acting under duress, whether
economic or physical, in executing this Agreement; and (f) this Agreement is the
result of arm's length negotiations conducted by and among the parties and their
respective counsel.
15.11 Confidentiality. PARENT and TARGET each recognize that they have received
and will receive confidential information concerning the other during the course
of the Merger negotiations and preparations. Accordingly, PARENT and TARGET each
agree (a) to use its respective commercially reasonable efforts to prevent the
unauthorized disclosure of any confidential information concerning the other
that was or is disclosed during the course of such negotiations and
preparations, and is clearly designated in writing as confidential at the time
of disclosure, (b) to not make use of or permit to be used any such confidential
information other than for the purpose of effectuating the Merger and related
transactions, and (c) comply fully with the terms of the Confidentiality
Agreement. The obligations of this Section will not apply to information that
(i) is or becomes part of the public domain, (ii) is disclosed by the disclosing
party to third parties without restrictions on disclosure, (iii) is received by
the receiving party from a third party without breach of a nondisclosure
obligation to the other party, (iv) is necessary or desirable in connection with
a Legal Proceeding or to enforce one parties rights under this Agreement and the
Transaction Documents or (v) is required to be disclosed by Law. If this
Agreement is terminated, all copies of documents containing confidential
information shall be returned by the receiving party to the disclosing party.
15.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument. Facsimile signatures shall be deemed
suitable evidence of execution.
(Execution Page Follows)
WHEREFORE, the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
GENESIS BIOVENTURES, INC.
By:______________________________
Name: E. Greg McCartney
Title: President
GBI ACQUISITION CORP.
By:______________________________
Name: E. Greg McCartney
Title: President
CORGENIX MEDICAL CORPORATION
By:______________________________
Name: Dr. Luis Lopez
Title: Chairman
Exhibit 31.1
CERTIFICATION
I, Luis R. Lopez, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Corgenix
Medical Corporation.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The small business issuer's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and
have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed
under our supervision, to ensure that material
information relating to the small business issuer,
including its consolidated subsidiaries, is made known
to us by others within those entities, particularly
during the period in which this quarterly report is
being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that
occurred during the small business issuer's most recent
fiscal quarter (the small business issuer's fourth
fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officers and I have
disclosed , based on our most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors and
the audit committee of registrant's board of directors:
(a) All significant deficiencies in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: May 12, 2004
/S/Luis R. Lopez
Chief Executive Officer
Exhibit 31.1
CERTIFICATION
I, Douglass T. Simpson, President, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Corgenix Medical
Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The small business issuer's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and
have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed
under our supervision, to ensure that material
information relating to the small business issuer,
including its consolidated subsidiaries, is made known
to us by others within those entities, particularly
during the period in which this quarterly report is
being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c. Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d. Disclosed in this report any change in the small business
issuer's internal control over financial reporting that
occurred during the small business issuer's most recent
fiscal quarter (the small business issuer's fourth
fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officers and I have
disclosed , based on our most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors and
the audit committee of registrant's board of directors:
a. All significant deficiencies in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: May 12, 2004
/S/Douglass T. Simpson
President
Exhibit 31.1
CERTIFICATION
I, William H. Critchfield, Chief Financial Officer certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Corgenix
Medical Corporation.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The small business issuer's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and
have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed
under our supervision, to ensure that material
information relating to the small business issuer,
including its consolidated subsidiaries, is made known
to us by others within those entities, particularly
during the period in which this quarterly report is
being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c. Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d. Disclosed in this report any change in the small business
issuer's internal control over financial reporting that
occurred during the small business issuer's most recent
fiscal quarter (the small business issuer's fourth
fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officers and I have
disclosed , based on our most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors and
the audit committee of registrant's board of directors:
a. All significant deficiencies in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: May 12, 2004
/S/William H. Critchfield
Chief Financial Officer
Exhibit 32.1
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED
STATES CODE
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of Title 18, United States Code), the
undersigned officers of Corgenix Medical Corporation, a Nevada corporation (the
"Company"), does hereby certify with respect to the Quarterly Report of the
Company on Form 10-QSB for the quarter ended March 31, 2004 as filed with the
Securities an Exchange Commission (the "10-QSB Report") that:
i. the 10-QSB Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
ii. the information contained in the 10-QSB Report fairly presents,
in all material respects, the financial condition and results of
operations of the Company.
Dated: May 12, 2004
This Certification is made solely for purposes of 18 U.S.C. Section 1350,
subject to the knowledge standard contained therein, and not for any other
purpose.
A signed original of this written statement required by Section 906 of the
Sarbanes-Oxley Act has been provided to the Company and will be retained
by the Company and furnished to the Securities and Exchange Commission or
its staff upon request. This written statement shall not be deemed to be
"filed" as part of the quarterly report on Form 10-QSB that it
accompanies.
/S/Luis R. Lopez
Chief Executive Officer
Exhibit 32.2
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED
STATES CODE
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of Title 18, United States Code), the
undersigned officers of Corgenix Medical Corporation, a Nevada corporation (the
"Company"), does hereby certify with respect to the Quarterly Report of the
Company on Form 10-QSB for the quarter ended March 31, 2004 as filed with the
Securities an Exchange Commission (the "10-QSB Report") that:
iii. the 10-QSB Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
iv. the information contained in the 10-QSB Report fairly presents,
in all material respects, the financial condition and results of
operations of the Company.
Dated: May 12, 2004
This Certification is made solely for purposes of 18 U.S.C. Section 1350,
subject to the knowledge standard contained therein, and not for any other
purpose.
A signed original of this written statement required by Section 906 of the
Sarbanes-Oxley Act has been provided to the Company and will be retained
by the Company and furnished to the Securities and Exchange Commission or
its staff upon request. This written statement shall not be deemed to be
"filed" as part of the quarterly report on Form 10-QSB that it
accompanies.
/S/William H. Critchfield
Chief Financial Officer
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORGENIX MEDICAL CORPORATION
May 12, 2004 By: /s/ Luis R. Lopez
------------------------
Luis R. Lopez, M.D.
Chairman andChief Executive Officer