<PAGE> 1
As filed with the Securities and Exchange Commission on May 15, 2000
Registration No. 333-________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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REGISTRY MAGIC INCORPORATED
(Exact Name of registrant as specified in its charter)
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FLORIDA 7372 65-0623427
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
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6251 PARK OF COMMERCE BOULEVARD
BOCA RATON, FLORIDA 33487
(561) 367-0408
(Address, including ZIP Code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------
LAWRENCE COHEN
REGISTRY MAGIC INCORPORATED
6251 PARK OF COMMERCE BOULEVARD
BOCA RATON, FLORIDA 33487
(561) 367-0408
TELECOPIER: (561) 367-0608
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
--------------------
Copies to:
James M. Schneider, Esq. Terry D. Carlone, Esq.
Joel D. Mayersohn, Esq. Synergex International Corporation
Atlas Pearlman, P.A. 2330 Gold Meadow Way
350 East Las Olas Blvd., Suite 1700 Gold River, CA 95670
Fort Lauderdale, FL 33301 (916) 635-7300
(954) 763-1200 Telecopier: (916) 635-6549
Telecopier: (954) 766-7800
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable on or after the effective date of this Registration
Statement and the satisfaction of the conditions set forth in the merger
agreement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities To Be Registered Registered Per Unit Offering Price Fee
- --------------------------- ----------- ---------------- ----------------- ------------
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Common Stock, $0.001 par value 5,000,000(1) $1.50(3) $7,500,000(1) $1,980.00
Series A Preferred Stock, $0.01 par value 779,750(2) $2.00(4) $1,559,500(2)(4) $ 411.71
----------
Total $2,391.71
=========
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(1) Represents the maximum number of shares of Registry Magic Incorporated
("Registry") common stock issuable in connection with the merger (i) in
exchange for shares of Synergex International Corporation ("Synergex")
common shares (1,000,000 shares) and (ii) upon conversion of Registry
Series A convertible preferred stock (4,000,000 shares).
(2) Represents the maximum number of shares of Series A convertible
preferred stock issuable in connection with the merger.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c) adopted under the Securities
Act based upon the average of the closing bid and asked price as of May
11, 2000.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c) adopted under the Securities
Act based on the market price of Registrant's common shares into which
the preferred stock is convertible.
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
<PAGE> 3
Registry Magic Incorporated Synergex International Corporation
[logo] [logo]
MERGER PROPOSAL -- YOUR VOTE IS VERY IMPORTANT
The boards of directors of Registry Magic Incorporated ("Registry") and
Synergex International Corporation ("Synergex") have unanimously approved a
merger in which Synergex will become a wholly-owned subsidiary of Registry. The
parent company will be named Synergex International Corporation, and is expected
to benefit from the complementary strengths of Registry and Synergex.
In the merger, each share of Synergex common stock will be converted
into up to 1.28246 shares of Registry common stock and one share of Registry
Series A convertible preferred stock. The merger will not change the aggregate
number of shares held by Registry shareholders before the merger. Registry
shareholders' ownership percentage of the total shares of Registry outstanding
after the merger will decrease. Former shareholders of Synergex, assuming
conversion of all of the Series A convertible preferred shares at the minimum
conversion price of $2.00 per share, will own 5,000,000 shares of common stock
equivalent to approximately 48.2% of Registry. Registry shareholders will own
5,380,068 shares of common stock equivalent to approximately 51.8% of Registry.
This does not include options to purchase up to an additional 1,150,000 shares
of Registry's common stock to be issued to persons designated by Synergex and
mutually agreed to by Registry and Synergex at the effective time of the merger.
Shareholders of Synergex are being asked, at Synergex's special meeting
of shareholders, to approve:
- the merger agreement and the merger of Synergex with a
subsidiary of Registry.
Synergex's board of directors has unanimously approved the merger
agreement and the merger and declared them advisable and recommends that
shareholders vote to approve these proposals.
Shareholders of Registry are being asked, at Registry's special meeting
of shareholders, to approve:
- the possible issuance of in excess of 19.99% of the presently
issued and outstanding common stock of Registry upon the
conversion of Registry's Series A convertible preferred stock,
in connection with the proposed merger;
- a proposal to amend Registry's Articles of Incorporation
which would change the name of Registry to "Synergex
International Corporation";
- a proposal to amend Registry's 1999 Stock Option Plan to
increase the total number of shares of common stock available
under such plan from 500,000 shares to 2,000,000 shares.
Registry's board of directors has unanimously approved the stock
issuances, the Amended Articles of Incorporation and the amendment to the 1999
Stock Option Plan and declared them advisable and recommends that shareholders
vote to approve these proposals.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THE REGISTRY COMMON STOCK OR PREFERRED STOCK TO BE ISSUED IN THE MERGER OR
DETERMINED IF THIS JOINT PROXY STATEMENT AND PROSPECTUS IS ACCURATE OR ADEQUATE.
This proxy statement and prospectus is dated ____________, 2000 and is
first being mailed to shareholders on or about ______________, 2000.
<PAGE> 4
SYNERGEX INTERNATIONAL CORPORATION
2330 Gold Meadow Way
Gold River, California 95670
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD _________, 2000
To the Shareholders of Synergex International Corporation:
Take notice that a special meeting of shareholders of Synergex
International Corporation ("Synergex") will be held on __________, 2000, at
10:00 a.m., local time, at 2330 Gold Meadow Way, Gold River, California, to
consider and vote upon the following matters:
1. A proposal to approve and adopt the Agreement and Plan of
Merger, dated as of February 11, 2000, as amended, among Synergex, certain
shareholders of Synergex, Registry Magic Incorporated ("Registry") and a
wholly-owned subsidiary of Registry. Pursuant to the merger agreement, among
other things: (a) Synergex will be merged with and into the Registry subsidiary
corporation, and the Registry subsidiary corporation as the surviving
corporation will become a wholly-owned subsidiary of Registry, which will be
re-named "Synergex International Corporation, Delaware"; and (b) Shares of
Synergex common stock (other than shares for which appraisal rights are
perfected under the laws of the State of California) will be converted into and
become the right to receive: (i) up to 1.28246 shares of common stock of
Registry and one share of Series A convertible preferred stock of Registry for
each common share, and (ii) cash which will be paid in lieu of issuing
fractional shares of Registry common stock and preferred stock.
2. Any other business which may properly come before the special
meeting or any adjournment or postponement of the special meeting.
Synergex's board of directors has unanimously approved the merger
agreement and the merger and declared them advisable and recommends that
shareholders vote to approve these proposals.
These items of business are more fully described in the proxy statement
and prospectus, which is attached to and made a part of this notice, and which
you are urged to read carefully.
The board of directors has fixed the close of business on May ___, 2000
as the record date for determining shareholders entitled to notice of and to
vote at the special meeting and any adjournment or postponement of the special
meeting. Under California law approval of the merger agreement will require the
affirmative vote of the holders of a majority of the outstanding shares of
Synergex common stock.
BY ORDER OF THE BOARD OF DIRECTORS
Thomas J. Powers, Secretary
________________, 2000
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, YOU ARE URGED
TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT AND PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED
AT THE SPECIAL MEETING. ANY SHAREHOLDER ATTENDING THE SPECIAL MEETING MAY VOTE
IN PERSON EVEN IF THAT SHAREHOLDER HAS RETURNED A PROXY.
<PAGE> 5
REGISTRY MAGIC INCORPORATED
6251 Park of Commerce Boulevard
Boca Raton, Florida 33487
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD _______, 2000
To the Shareholders of Registry Magic Incorporated:
This shall serve as notice that a special meeting of shareholders of
Registry Magic Incorporated, a Florida corporation ("Registry"), will be held at
10:00 a.m., local time, on __________, 2000 at _____________________, Boca
Raton, Florida to consider and vote upon the following matters:
1. A proposal to approve the possible issuance of in excess of
19.99% of the presently issued and outstanding common stock of Registry upon the
conversion of Registry's Series A convertible preferred stock, in connection
with the proposed merger pursuant to which Synergex will become a wholly-owned
subsidiary of Registry.
2. A proposal to approve and adopt Amended Articles of
Incorporation, pursuant to which Registry's corporate name shall be changed to
"Synergex International Corporation". The Amended Articles of Incorporation will
become effective simultaneously with the closing of the merger. If the merger is
not completed for any reason, the Amended Articles of Incorporation will not
become effective.
3. A proposal to approve an amendment to our 1999 Stock Option
Plan to increase the total number of shares of common stock available for
issuance under such plan from 500,000 shares to 2,000,000 shares.
4. Any other business which may properly come before the special
meeting or any adjournment or postponement of the special meeting.
Registry's board of directors has unanimously approved the stock
issuances, the Amended Articles of Incorporation and the amendment to the 1999
Stock Option Plan, and recommends that you vote "FOR" approval of these
proposals. We have described these proposals in more detail in the accompanying
proxy statement and prospectus, which you should read in its entirety before
voting.
The board of directors has fixed the close of business on May __, 2000
as the record date for determining shareholders entitled to notice of and to
vote at the special meeting and any adjournment or postponement of the special
meeting. The proposal to issue shares of Registry common stock in the merger and
the proposal to approve the amendment to our 1999 Stock Option Plan must be
approved by a majority of the votes cast on the proposal. For this purpose, the
holders of at least a majority of all outstanding shares of Registry common
stock must be represented at the meeting. The proposal to approve and adopt
Amended Articles of Incorporation must be approved by the holders of a majority
of the outstanding shares of Registry common stock.
BY ORDER OF THE BOARD OF DIRECTORS
Lawrence Cohen, Chairman
_____________, 2000
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, YOU ARE URGED
TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT AND PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED
AT THE SPECIAL MEETING. ANY SHAREHOLDER ATTENDING THE SPECIAL MEETING MAY VOTE
IN PERSON EVEN IF THAT SHAREHOLDER HAS RETURNED A PROXY.
<PAGE> 6
TABLE OF CONTENTS
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Page
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WHERE YOU CAN FIND MORE INFORMATION................................................................
FORWARD-LOOKING STATEMENTS.........................................................................
QUESTIONS AND ANSWERS
ABOUT THE REGISTRY AND SYNERGEX MERGER..........................................................
SUMMARY............................................................................................
General...................................................................................
The Companies.............................................................................
Summary of the Transaction................................................................
RISK FACTORS.......................................................................................
THE SPECIAL MEETINGS...............................................................................
General...................................................................................
Matters to be Considered at the Registry Special Meeting..................................
Matters to be Considered at the Synergex Special Meeting..................................
Votes Required for Approval...............................................................
Voting and Quorum at the Special Meetings.................................................
Treatment of Abstentions..................................................................
Proxies - Registry........................................................................
Proxies - Synergex........................................................................
Procedure for Revocation of Proxies by Registry Shareholders..............................
Procedure for Revocation of Proxies by Synergex Shareholders..............................
Registry Dissenters' Rights...............................................................
Synergex Dissenters' Rights under California Law..........................................
Expenses of Solicitation..................................................................
Recommendation of the Board of Directors..................................................
THE MERGER.........................................................................................
Background of the Merger..................................................................
Registry..................................................................................
Synergex..................................................................................
Effects of the Merger.....................................................................
Financing the Merger......................................................................
Accounting Treatment......................................................................
Federal Income Tax Considerations in the United States....................................
Dissenters' Rights........................................................................
Interests of Persons in the Merger........................................................
Material Contracts Between Registry and Synergex..........................................
THE MERGER AGREEMENT...............................................................................
General...................................................................................
Effective Time of the Merger..............................................................
Exchange of Certificates..................................................................
Fractional Shares.........................................................................
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<PAGE> 7
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Representations...........................................................................
Conduct of Business Pending the Merger....................................................
Conditions to Consummation of the Merger..................................................
Termination...............................................................................
Expenses and Fees.........................................................................
Voting Agreements.........................................................................
Election Agreement........................................................................
COMPARATIVE PER SHARE MARKET PRICE DATA............................................................
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA...................................................
Selected Historical Condensed Financial Data - Registry...................................
Selected Historical Condensed Financial Data - Synergex...................................
Selected Unaudited Pro Forma Combined Financial Data......................................
Registry Magic Incorporated and Synergex International Corporation........................
BUSINESS OF REGISTRY...............................................................................
Introduction..............................................................................
Industry Background.......................................................................
Strategy..................................................................................
Products..................................................................................
Strategic Relationships...................................................................
Research and Development Expenses.........................................................
Sales and Marketing.......................................................................
Suppliers and Licensors...................................................................
Proprietary Rights........................................................................
Competition...............................................................................
Employees.................................................................................
Properties................................................................................
Legal Proceedings.........................................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - REGISTRY..................................................
Overview..................................................................................
Results of Operations.....................................................................
Liquidity and Capital Resources...........................................................
Impact of the "Year 2000" on Registry Products............................................
Recent Accounting Pronouncements..........................................................
DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRY.......................................................
Directors and Executive Officers..........................................................
Executive Compensation....................................................................
Option Grants in the Last Fiscal Year.....................................................
Aggregated Option Exercises in the Last Fiscal Year and the Fiscal
Year-End Option Values.................................................................
Employment Agreement......................................................................
Compensation of Directors.................................................................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................................................
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF REGISTRY......................................................................
DESCRIPTION OF CAPITAL STOCK.......................................................................
Common Stock..............................................................................
Preferred Stock...........................................................................
Certain Provisions of the Articles of Incorporation, Bylaws
and Florida Law........................................................................
Transfer Agent and Registrar..............................................................
BUSINESS OF SYNERGEX...............................................................................
General...................................................................................
Products and Services.....................................................................
Marketing, Sales and Distribution.........................................................
Customers.................................................................................
Customer and Reseller Support and Services................................................
Product and Service Development...........................................................
Competition...............................................................................
Proprietary Rights........................................................................
Manufacturing and Product Packaging.......................................................
Employees.................................................................................
Properties................................................................................
Legal Proceedings.........................................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - SYNERGEX..................................................
Overview..................................................................................
Results of Operations.....................................................................
Liquidity and Capital Resources...........................................................
Year 2000 Readiness.......................................................................
Recent Accounting Pronouncements..........................................................
Seasonality...............................................................................
DIRECTORS AND EXECUTIVE OFFICERS OF SYNERGEX.......................................................
Directors and Executive Officers..........................................................
Executive Compensation....................................................................
Option Grants in the Last Fiscal Year.....................................................
Aggregated Option Exercises in the Last Fiscal Years and the Fiscal
Year-End Option Values.................................................................
Employment Contracts......................................................................
Compensation of Directors.................................................................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................................................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF SYNERGEX......................................................................
COMPARISON OF RIGHTS OF HOLDERS OF SYNERGEX,
REGISTRY COMMON STOCK...........................................................................
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS........................................
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LEGAL OPINIONS.....................................................................................
EXPERTS............................................................................................
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FINANCIAL INFORMATION
Appendix A - Agreement and Plan of Merger, as amended
Appendix B - Voting Agreement, dated February 11, 2000, between Kenneth Lidster,
Michele Wong and Registry Magic Incorporated
Appendix C - Voting Agreement, dated February 11, 2000, between Alliant Holding
& Transfer Company and Synergex International Corporation
Appendix D - Chapter 13 of Division 1 of the California General Corporation Law
relating to Dissenters' Rights
iv
<PAGE> 10
WHERE YOU CAN FIND MORE INFORMATION
Registry files annual, quarterly and special reports, as well as
registration and proxy statements and other information, with the SEC. You may
read and copy any document filed with the SEC by Registry, including this
registration statement on Form S-4 and exhibits, at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington D.C. 20549 or at the SEC's regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048
and at CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. You can get further information from the SEC's Public Reference Room by
calling 1-800-SEC-0330. The SEC also maintains a Web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding companies like Registry that are filed electronically with the SEC.
This proxy statement and prospectus is part of a registration statement
on Form S-4 filed by Registry with the SEC under the Securities Act of 1933 with
respect to this offering of common and preferred stock. This proxy statement and
prospectus, which is a part of the registration statement on Form S-4, does not
contain all of the information filed with the SEC. For a fuller understanding of
this offering, you may wish to see the complete registration statement on Form
S-4 that may be obtained from the locations described above.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This proxy statement/prospectus contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
relate to expectations concerning matters that are not historical facts. Words
such as "projects," "believes," "anticipates," "plans," "expects," "intends,"
and similar words and expressions are intended to identify forward-looking
statements. Although Registry and Synergex each believe that such
forward-looking statements are reasonable, neither can assure you that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from such expectations are disclosed herein
including, without limitation, in the "Risk Factors" beginning on page ____. All
forward-looking statements are expressly qualified in their entirety by these
factors and all related cautionary statements. Neither Registry nor Synergex
undertake any obligation to update any forward-looking statements.
<PAGE> 11
QUESTIONS AND ANSWERS
ABOUT THE REGISTRY AND SYNERGEX MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: Registry and Synergex are proposing to merge because we believe the resulting
combination will create a stronger, more competitive company capable of
achieving greater financial strength, operational efficiencies, earning power
and growth potential than either company would have on its own.
Q: WHAT DO I NEED TO DO NOW?
A. Synergex and Registry shareholders should carefully read and consider the
information contained in this document, then fill out and sign your proxy card.
Please mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at the applicable meeting. Your
proxy card will instruct the persons named on the card to vote your shares at
the meeting as you direct on the card. The boards of directors of Registry and
Synergex have each unanimously recommended that shareholders vote in favor of
the proposed merger.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Just send a later-dated, signed proxy or proxy card to your company's
secretary before your meeting. Or, you can attend your meeting in person and
vote. You may also revoke your proxy by sending written notice to your company's
secretary before your meeting.
Q: IF MY BROKER HOLDS MY REGISTRY SHARES IN NOMINEE OR "STREET NAME," WILL MY
BROKER VOTE MY SHARES FOR ME?
A: Your broker will vote your Registry shares only if you provide instructions
on how to vote. You should follow the directions provided by your broker to vote
your shares.
Q: WHAT WILL SYNERGEX SHAREHOLDERS RECEIVE IN THE MERGER?
A: If the merger is consummated, Synergex shareholders will have the right to
receive, in exchange for each share of Synergex common stock they own (other
than shares as to which dissenters' rights are properly exercised under
California law), up to 1.28246 shares of Registry common stock and 1 share of
Registry Series A convertible preferred stock. Registry will not issue
fractional shares. Instead, Synergex shareholders will receive cash for any
fractional Registry share owed to them. The exact number of shares of Registry
common stock to be received will depend upon the number of shares of Synergex's
outstanding at the effective time of the merger. As of the date of the
prospectus there are 779,750 shares outstanding. Up to an additional 159,417
shares may be issued upon conversion of Synergex options. If all the options are
exercised, the exchange ratio will be 1.06477.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Synergex shareholders will receive written
instructions for exchanging their stock certificates. Registry shareholders will
keep their existing certificates. However, Registry shareholders may elect to
surrender their stock certificates in exchange for certificates reflecting the
new name for the corporation.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect to complete the merger shortly after receiving shareholder
approval at the meetings.
2
<PAGE> 12
Q: WHEN WILL SYNERGEX SHAREHOLDERS BE PERMITTED TO SELL THE REGISTRY SHARES
THEY RECEIVE IN THE MERGER?
A: Pursuant to the merger agreement, each Synergex shareholder will be entitled
to sell or transfer the Registry common stock received by that shareholder in
the merger as follows:
- 25% of such Registry common stock may be sold on or after the
90th day after the merger;
- an additional 25% of such Registry common stock may be sold
on or after the 180th day after the merger;
- an additional 25% of such Registry common stock may be sold
on or after the 270th day after the merger; and
- an additional 25% of such Registry common stock may be sold on
or after the 360th day after the merger.
However, those shareholders who are officers, directors, or otherwise
considered an "affiliate" of Synergex under the SEC rules immediately before the
merger or of Registry following the merger must also comply with Rule 144 of the
Securities Act of 1933, as amended.
Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO SYNERGEX
SHAREHOLDERS?
A: The exchange of shares by Synergex shareholders generally tend to be tax-free
to Synergex shareholders for federal income tax purposes. However, Synergex
shareholders will be subject to taxation with respect to cash received for
fractional or dissenting shares. To review certain federal income tax
consequences to Synergex shareholders in greater detail, see pages ____.
Synergex shareholders are urged to consult their own tax advisors as to the
specific tax consequences to them of the merger, including the applicable
federal, state, local and foreign tax consequences.
Q: ARE THERE ANY RISKS ASSOCIATED WITH THE MERGER?
A: The merger does involve risks. For a discussion of certain risk factors
that should be considered in evaluating the merger, see "Risk Factors" beginning
on page ____.
Q. WHO CAN HELP ANSWER MY QUESTIONS ABOUT THE MERGER?
A. If you have more questions about the merger, you should contact:
If to Registry to: Registry Magic Incorporated
6251 Park of Commerce Boulevard
Boca Raton, Florida 33487
Attention: Secretary
Telephone: (561) 367-0408
If to Synergex to: Synergex International Corporation
2330 Gold Meadow Way
Gold River, California 95670
Attention: Michele C. Wong
Telephone: (916) 635-7300
3
<PAGE> 13
SUMMARY
This summary highlights selected information from this joint proxy
statement and prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire joint proxy statement and prospectus and the documents to which we have
referred you.
GENERAL
This proxy statement and prospectus relate to the proposed merger of
Synergex with and into Registry's subsidiary corporation in accordance with the
merger agreement dated February 11, 2000, as amended. A copy of the merger
agreement is attached as Appendix A. As a result of the merger, Synergex will
become a wholly-owned subsidiary of Registry. The name of Registry will change
to "Synergex International Corporation" and Synergex shareholders will become
shareholders of Registry, which will be renamed Synergex International
Corporation.
THE COMPANIES
Synergex International Corporation ("Synergex") develops and markets
cross-platform application development and integration software and services
that enable independent software vendors ("ISVs") and businesses to create
portable, scalable client/server and internet business-to-business solutions.
Synergex's software products are available for numerous platforms including
Windows, VMS and various versions of UNIX. Synergex's Professional Services
Group offers worldwide consulting, programming, and educational services. More
than one million end-users of ISVs in 50 states and 80 countries rely on
applications built with Synergex's software tools and services.
There is no market for the Synergex common stock.
The address and telephone number for Synergex is: Synergex
International Corporation, 2330 Gold Meadow Way, Gold River, California 95670,
(916) 635-7300.
Registry was organized to design, develop, commercialize and market
proprietary products and services that exploit recent advances in speech
recognition technologies. The products currently offered by Registry enable a
user to speak into a telephone or to a computer in a natural conversational
manner and, in turn, have the product listen, understand and respond by
performing tasks or retrieving information.
Registry common stock trades on the Nasdaq SmallCap Market under the
symbol "RMAG". The quoted bid price range for Registry common stock during 1999,
and through _________ __, 2000, ranged from a high bid of $_____ to a low bid of
$_____. On _______ __, 2000, the closing bid price was $_____ and the closing
asked price was $_____.
The address and telephone number of Registry Magic Incorporated is:
6251 Park of Commerce Boulevard, Boca Raton, Florida 33487, (561) 367-0408.
SUMMARY OF THE TRANSACTION
STRUCTURE OF THE TRANSACTION (SEE PAGE __)
In the merger, Synergex will merge into a wholly-owned subsidiary of
Registry, and as a result, the surviving corporation will be a wholly-owned
subsidiary of Registry.
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The merger agreement, as amended, is attached to this proxy statement
and prospectus as Appendix A. We encourage you to read the merger agreement
carefully. The merger agreement is more fully discussed on page __ of this joint
proxy statement and prospectus.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE __)
Our respective obligations to complete the merger are subject to the
prior satisfaction or waiver of a number of conditions. If either Registry or
Synergex waives any conditions, we will each consider the facts and
circumstances at that time and make a determination as to whether a
resolicitation of proxies from shareholders is appropriate. The conditions that
must be satisfied or waived before the completion of the merger include the
following, subject to exceptions and qualifications:
- the merger agreement must be approved by Synergex
shareholders.
- the issuance of shares of Registry common stock in the merger
and an amendment of Registry's articles of incorporation
changing Registry's name to "Synergex International
Corporation" must be approved by Registry shareholders.
- subject to specified exceptions, our respective
representations and warranties in the merger agreement must be
true and correct.
- no material adverse change shall have occurred with respect to
Registry or Synergex and we must have complied with our
respective agreements in the merger agreement.
- the shares of Registry common stock to be issued to Synergex
shareholders in the merger must have been approved for listing
on the Nasdaq SmallCap Market.
For a more complete description of the conditions to completion of the
merger, see the section entitled "Conditions to the Merger" on page __ of this
proxy statement and prospectus.
REQUIRED VOTES FOR APPROVAL (SEE PAGES __ AND __)
Synergex
The holders of a majority of the outstanding shares of Synergex common
stock must approve the merger agreement. Synergex shareholders are entitled to
cast one vote per share of Synergex common stock owned as of __________, 2000,
the record date. On the closing date of the merger, the aggregate number of
shares with respect to which holders of Synergex's common stock shall have
sought dissenters' rights under the California General Corporate law shall not
have exceeded five (5%) percent of all outstanding Synergex shares.
Synergex shareholders holding 52.4% of Synergex common stock
outstanding as of the record date have agreed to vote in favor of the adoption
of the merger agreement. Directors and officers of Synergex collectively
beneficially owned approximately 83.5% of the outstanding Synergex common stock
as of the record date.
Registry
The holders of a majority of the votes cast at the Registry special
meeting must approve the issuance of Registry common stock in the merger and the
amendment to the 1999 Stock Option Plan and the holders of a majority of the
outstanding voting power of Registry common stock must approve the amendment of
Registry's articles of incorporation changing Registry's name to "Synergex
International Corporation". Registry shareholders are entitled to cast one vote
per share of Registry common stock owned as of May ______, 2000, the record
date.
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Registry shareholder, Alliant Holding & Transfer Company ("Alliant
Holding"), an affiliate of Lawrence Cohen, Chairman of Registry, has agreed to
vote in favor of the proposals to be voted upon at the Registry special meeting.
Alliant Holding beneficially owned approximately 31.4% of the outstanding
Registry common stock as of the record date. Directors and officers of Registry
collectively beneficially owned approximately 32.4% of the outstanding Registry
common stock as of the record date.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE __)
The merger agreement may be terminated by the mutual consent of our
boards of directors.
The merger agreement may also be terminated by either of us if, subject
to qualifications, the conditions to completion of the merger would not be
satisfied (1) because of a material breach of an agreement in the merger
agreement by the other or (2) because a representation or warranty of the other
party made in the merger agreement becomes untrue.
In addition, subject to qualifications, the merger agreement may be
terminated by either of us under any of the following circumstances:
- if the merger is not completed by September 30, 2000
- if a final court order prohibiting the merger is issued and is
not appealable
- if the Synergex shareholders do not approve the merger
agreement at the Synergex special meeting
- if the Registry shareholders do not approve the issuance of
shares pursuant to the merger and the amendment to the
articles of incorporation at the Registry special meeting
For a more complete description of the manner in which the merger
agreement may be terminated, see the section entitled "Termination" on page __
of this proxy statement and prospectus.
NO OTHER NEGOTIATIONS INVOLVING SYNERGEX (SEE PAGE __)
Until the merger is completed or the merger agreement is terminated,
Synergex has agreed, with limited exceptions, not to directly or indirectly
initiate or engage in discussions with another party regarding a business
combination with such other party while the merger is pending.
For a more complete description of these limitations on negotiations
with another party, see the sections entitled "Termination," "Reimbursement of
Expenses and Payment of Termination Fees by Synergex and Registry" and "No
Solicitation" on pages __, __ and __ of this proxy statement and prospectus and
the corresponding sections of the merger agreement.
THE VOTING AGREEMENTS (SEE PAGES __ AND __)
Kenneth Lidster and Michele Wong, each a director and officer of
Synergex, entered into an agreement with Registry that requires them to vote all
shares of Synergex common stock beneficially owned by them in favor of the
approval of the merger agreement. These Synergex shareholders were not paid
additional consideration in connection with the voting agreements.
The Synergex directors and officers who entered into the voting
agreements collectively held approximately 52.4% of the outstanding Synergex
common stock as of the record date.
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The Lidster and Wong voting agreement is attached to this proxy
statement and prospectus as Appendix B, and you are urged to read it in its
entirety.
Registry shareholder, Alliant Holding, an affiliate of Lawrence Cohen,
Chairman of Registry, entered into a voting agreement with Synergex. The voting
agreement requires Alliant Holding to vote all shares of Registry capital stock
beneficially owned by it in favor of the approval of the issuance of shares of
Registry common stock in the merger and the amendment of the Registry articles
of incorporation. Alliant Holding was not paid additional consideration in
connection with the voting agreement. Alliant Holding held approximately 31.4%
of the outstanding Registry common stock as of the record date.
The Alliant Holding voting agreement is attached to this proxy
statement and prospectus as Appendix C, and you are urged to read it in its
entirety.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE __)
Synergex shareholders will be subject to federal income tax on any cash
received for Synergex shares, including fractional shares. No federal income tax
should be due on the exchange of Synergex shares for Registry shares.
ACCOUNTING TREATMENT OF THE MERGER (SEE PAGE __)
We intend to account for the merger as a "purchase" for financial
accounting purposes, in accordance with generally accepted accounting
principles.
NO ANTITRUST APPROVAL REQUIRED TO COMPLETE THE MERGER (SEE PAGE __)
No filing is required for the merger under U.S. or foreign antitrust
laws.
ABILITY TO SELL REGISTRY STOCK (SEE PAGE __)
Pursuant to the terms of the merger agreement, each Synergex
shareholder will be entitled to sell or transfer the Registry common stock
received by that shareholder in the merger as follows:
- 25% of such Registry common stock may be sold on or after the
90th day after the merger;
- an additional 25% of such Registry common stock may be sold
on or after the 180th day after the merger;
- an additional 25% of such Registry common stock may be sold on
or after the 270th day after the merger; and
- an additional 25% of such Registry common stock may be sold on
or after the 360th day after the merger.
However, those shareholders who are officers, directors, or otherwise
considered an "affiliate" of Synergex under the SEC rules immediately before the
merger or of Registry following the merger must also comply with Rule 144 of the
Securities Act of 1933, as amended.
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COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Registry common stock is listed on the Nasdaq SmallCap market. On
February 15, 2000, the last full trading day prior to the public announcement of
the proposed merger, the closing bid price of Registry's common stock was $3.50
per share. On ________________, 2000, Registry's closing bid price was $______
per share. We urge you to obtain current market quotations.
RISK FACTORS
The merger involves a high degree of risk. In addition, by voting in
favor of the merger, Synergex shareholders will be choosing to invest in
Registry common stock. An investment in Registry common stock involves a high
degree of risk. In addition to the other information contained in this proxy
statement and prospectus, both Registry and Synergex shareholders should
carefully consider the following risk factors in deciding whether to vote for
the merger. The occurrence of any of the risks described below could materially
adversely affect the business, financial condition and results of operations of
Registry and Synergex, as applicable.
RISKS RELATING TO THE MERGER
ALTHOUGH REGISTRY AND SYNERGEX EXPECT THAT THE MERGER WILL RESULT IN
BENEFITS, THOSE BENEFITS MAY NOT OCCUR. The acquisition of Synergex by Registry
involves risks related to, among other things, the integration and management of
acquired technology, sales and marketing efforts, operations and personnel. The
integration of Registry and Synergex will 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 Registry and
Synergex, including:
- potential incompatibility of business cultures;
- product development delays caused by disruptions from the
merger;
- perceived adverse changes in business focus;
- potential lapses in internal and financial controls;
- the loss of key employees and diversion of the attention of
management from ongoing business concerns; and
- Synergex may not be successfully integrated, managed and
operated by Registry.
FAILURE TO ACHIEVE BENEFICIAL SYNERGIES COULD RESULT IN DECREASED
INCOME AND INCREASED OPERATING COSTS. Registry and Synergex have entered into
the merger agreement with the expectation that the merger will result in
beneficial synergies. Achieving these anticipated synergies and the potential
benefits underlying the two companies' reasons for the merger will depend on a
number of factors, some of which include:
- integration of research and development efforts;
- retention of technology staff;
- reduction of operating expenses due to consolidation of
operations;
- the ability of the combined company to increase sales of
Registry's products including those developed from the
Synergex technology;
- competitive factors, including technological advances attained
by competitors and patents granted to or contested by
competitors, which would result in competitors' ability to
compete against the combined companies more effectively;
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- significant litigation adverse to Synergex and Registry,
including, particularly, product liability litigation and
patent and trademark litigation; and
- the ability of the combined company to continue development
of Registry and Synergex products.
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
achieve such synergies could have a material adverse effect on the business,
results of operations and financial condition of the combined company.
THE VALUE AND NUMBER OF THE SHARES OF REGISTRY COMMON STOCK TO BE
RECEIVED IS NOT FIXED AND MAY DECLINE FROM ITS CURRENT VALUE. Because Registry
common stock is publicly traded, the value of a share of Registry common stock
may change on a daily basis. Therefore, the value and number of the shares of
Registry common stock each Synergex shareholder is to receive in the merger may
decline from the value and number as of the date of the Joint Proxy
Statement/Prospectus. Consequently, at the time of your shareholders' meeting,
you will not know the exact value of the Registry common stock Synergex
shareholders will receive when the merger is completed, or the exact number of
shares of Registry common stock into which the Series A Preferred Stock may be
converted thereafter. In addition, during the first 360 days after the merger,
each Synergex shareholder will be entitled to sell only limited amounts of the
common stock received by such shareholder in the merger.
SYNERGEX SHAREHOLDERS WILL HAVE REDUCED OWNERSHIP AND VOTING INTERESTS
AFTER THE MERGER. After the merger's completion, Synergex shareholders will own
a significantly smaller percentage of Registry than they currently hold of
Synergex. Consequently, they may be able to exercise less influence over the
management and policies of Registry than they currently exercise over Synergex.
SUBSTANTIAL SALES OF REGISTRY COMMON STOCK COULD ADVERSELY AFFECT ITS
MARKET PRICE. Registry cannot predict the effect, if any, that future sales of
shares of Registry common stock or the availability of such shares for future
sale will have on its market price from time to time. Although all of Synergex's
shareholders will be restricted from selling the shares of Registry common stock
they receive in the merger for a period of at least 90 days following the
merger, sales of substantial amounts of Registry common stock, or the perception
that such sales could occur, could adversely affect prevailing market prices for
the stock.
RISKS RELATED TO THE COMBINED COMPANY
WE DEPEND ON THE CONTINUED DEVELOPMENT OF CLIENT/SERVER AND INTERNET
SOLUTIONS SOFTWARE MARKET FOR OUR GROWTH. The market for advanced client/server
and Internet solutions software and, in particular, for our products and
services is:
- constantly evolving and is subject to rapid technological
changes;
- dependent on the introduction, growth, adoption and pricing of
client/server and Internet solutions software such as business
applications;
- subject to the technical knowledge and ability of users to
understand and use such software; and
- characterized by transforming technology and frequent new
product and service introductions.
DEVELOPING NEW PRODUCTS AND PRODUCT ENHANCEMENTS IS A COMPLEX AND
UNCERTAIN PROCESS REQUIRING HIGH LEVELS OF INNOVATION, AS WELL AS THE ACCURATE
ANTICIPATION OF TECHNOLOGICAL AND MARKET TRENDS. Broad market acceptance of our
products and our future success will depend in part on the following:
- our ability to educate users about the benefits of
client/server and Internet solutions software products and
services generally and the specific benefits of our products
and services;
- our ability to adapt to emerging industry standards and
respond to our competitors' product and service announcements;
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- our ability to develop and introduce competitive new products
and services and enhancements that meet changing customer
requirements and emerging industry standards; and
- our ability to increase brand-name recognition.
If we are not successful in meeting the goals listed above, we may not
be able to maintain or gain broad market acceptance for our products and
services. Further, a decline in demand for client/server and Internet solutions
software products and services generally, could occur as a result of competitive
technological change or other factors.
OUR REVENUE HAS BEEN DEPENDENT ON DEMAND FOR A FEW PRODUCTS. We have
historically had a substantial portion of our revenue generated from a few
products. Registry's Virtual Operator product family represented approximately
100% of revenue for the six months ended January 31, 2000. Synergex's Synergy/DE
Professional Series product family represented approximately 61% of its revenue
for the same time period. The likelihood that these products will continue to
contribute significant revenue to the combined company is subject to certain
risks, including:
- our ability to develop and introduce competitive new products
and services that meet changing customer requirements; and
- our ability to develop and introduce products and services
that meet emerging industry standards.
SIGNIFICANT CAPITAL REQUIREMENTS; POSSIBLE NEED FOR ADDITIONAL
FINANCING. We will continue to have significant capital requirements due to the
substantial costs associated with product development and refinement,
recruitment of skilled personnel and the marketing of innovative speech
recognition and business application products and related services. Our cash
requirements for the purpose of developing our products and services have been
substantial and, as a result, we have been dependent upon capital resources
provided by investors in order to finance our operations.
In the event we do not develop and refine our products and services on
a timely basis, we do not complete contracts for the provision of products and
technology in sufficient numbers or in the event our available capital is
insufficient to fund the implementation of our business plan and working capital
requirements, we may require additional financing. We have no current
arrangements with respect to, or potential sources of, additional financing and
we do not anticipate that existing shareholders will satisfy any portion of our
future financing requirements. We cannot assure you that any additional
financing will be available to us when needed, on commercially reasonable terms,
or at all. If we are unable to obtain additional financing when needed, this
would have a material adverse effect on us, including the curtailment of our
product and service development, marketing and expansion activities.
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ. Registry's common stock
is listed on the Nasdaq SmallCap Market. In order to continue to be listed on
Nasdaq, however, we must maintain at least $2,000,000 in net tangible assets
(total assets less total liabilities and goodwill) or $500,000 in net income in
the latest fiscal year or in two of the last three years or $35,000,000 in
market capitalization, a public float of at least 500,000 shares, a $1,000,000
market value of public float, a minimum bid price of $1.00 per share, at least
two market makers, at least 300 shareholders and at least two outside directors.
The failure to meet these maintenance criteria in the future may result in the
delisting of Registry's securities from Nasdaq, and Registry's common stock
would thereafter be traded in the non-Nasdaq over-the-counter market. As a
result of such delisting, an investor could find it more difficult to dispose of
or to obtain accurate quotations as to the market value of Registry's common
stock.
DIFFICULTIES IN MAINTAINING PROPRIETARY RIGHTS. Our success depends
upon our proprietary applications software technology which may be difficult to
protect. We currently rely on a combination of contractual rights, trade
secrets, know-how, trademarks, non-disclosure agreements and technical knowledge
to establish and protect our proprietary rights. The measures we have taken to
protect our proprietary rights may not be adequate to prevent misappropriation
of the technology or independent development by others of products with
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features based upon, or otherwise similar to, those of our products. We cannot
assure you that our technology does not and will not infringe on the proprietary
rights or trade secrets of others or that third parties will not assert
infringement claims, trade secret violations, competitive torts or other
proprietary rights violations against us in the future. In the case of
infringement, we could, under certain circumstances, be required to modify our
products or obtain licenses, which could require cash or other consideration. We
may not be able to do either in a timely manner or upon acceptable terms and
conditions, and this failure could have a material negative effect on us. We
cannot assure you that we will have the resources to defend or prosecute a
patent infringement or other proprietary rights infringement action.
WE NEED TO CONTINUE TO MAINTAIN AND BUILD OUR RELATIONSHIPS WITH
DISTRIBUTORS, INDEPENDENT SOFTWARE VENDORS AND OTHER RESELLERS. We expect to
continue to receive a substantial portion of our revenue from sales through our
independent distributors, independent software vendors ("ISV") and resellers,
but we anticipate that our dependence on any one distributor, ISV or reseller
will decrease in the future as we expand distribution channels. Our agreements
with distributors, ISVs and resellers are not exclusive; many of our
distributors, ISVs and resellers offer competitive products and services and are
not required to give our products or services priority. Each of our
distributors, ISVs and resellers can cease marketing our products or services
with limited notice and with little or no penalty. If we lose any one of our
independent distributors, ISVs or resellers, we may not be able to recruit
replacements. If our distributors, ISVs or resellers reduce or cease their
marketing and sales efforts on our behalf, our business, operating results and
financial condition may suffer. We may not be able to develop an effective
method of distributing our software products using newly emerging software
distribution channels, such as the Internet. Even if successful, the presence of
new distribution channels could adversely affect our existing distribution
channels and the prices of our products and services.
PRODUCT DEFECTS MAY HARM OUR BUSINESS. Our products are complex and may
contain certain software errors or failures which are detected only after we
begin to ship a product, especially when first introduced as new versions or
when enhancements are released. Although we conduct testing during product
development, we have at times been forced to delay commercial release of
software until problems were corrected and, in some cases, have provided
enhancements to correct errors in released software. Delay in commercial release
or correction of errors could lead to loss of revenue, credibility with
customers and market acceptance of our products. Despite our testing, and
testing by current and potential customers, errors may be found in software
after commencement of commercial shipments, resulting in loss or delay of
revenue or market acceptance, diversion of development resources, damage to our
reputation, or increased support costs.
WE DEPEND ON KEY PERSONNEL AND FACE RISKS ASSOCIATED WITH HIRING AND
RETAINING EMPLOYEES. We rely to a significant extent upon our senior management
team and other key employees. Competition for such employees is intense. We
cannot guarantee that we will be able to retain our key employees following the
merger. From time to time, we will need to hire additional or replacement
employees. We may not be successful in hiring, integrating or retaining new
employees.
AUTHORIZATION OF PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS. The
board of directors is authorized to issue an additional 4,220,000 shares of
preferred stock and to determine the dividend, liquidation, conversion,
redemption, and other rights, preferences, and limitations of such shares
without any further vote or action of the shareholders. Accordingly, our board
of directors has the power, without shareholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting, or other rights which
could negatively affect the voting power or other rights of the holders of the
common stock. In the event of issuance, the preferred stock could be utilized,
under certain circumstances, as a method of discouraging and delaying or
preventing a change in control of Registry.
OUR BUSINESS AND OPERATIONS MAY STILL SUFFER FROM PROBLEMS RELATED TO
THE YEAR 2000. Neither Registry nor Synergex has experienced disruptions in our
business or operations as a result of the onset of the year 2000. However, there
may still be systems and software products yet to display any year 2000
problems.
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RISKS RELATED TO REGISTRY
LIMITED OPERATING HISTORY; OPERATING LOSSES. Registry has received only
limited revenues from its inception in October 1995 through January 31, 2000.
Total revenues for the year ended July 31, 1999 and six months ended January 31,
2000 were $2,453,285 and $784,000, respectively. Registry has only a limited
history upon which you can evaluate its prospects and future performance.
Registry's prospects must be considered in light of the risks, expenses and
difficulties frequently involved in the operations and expansion of a new
business in an evolving industry which has not obtained widespread commercial
acceptance and which experiences rapid technological obsolescence and intense
competition.
From inception through January 31, 2000, Registry has incurred
cumulative losses of $9,953,268 and anticipates losses will continue during the
fiscal year ending July 31, 2000. Registry expects to incur significant
expenditures in connection with the development and marketing of speech
recognition applications which will likely result in losses until such time, if
ever, as Registry is able to obtain sufficient contracts for its speech
recognition products and services which will generate adequate sources of
revenue to support Registry's operations. Registry cannot assure you that
Registry's current business strategy will enable us to ever achieve profitable
operations.
RISKS RELATED TO SYNERGEX
SYNERGEX'S FUTURE GROWTH RATE MAY NOT REACH THE LEVELS REACHED IN PRIOR
YEARS. Synergex's revenue growth rate in 2000 and future periods may not
approach the levels attained in prior years. Because of the fixed portion of
some expenses that may be incurred, coupled with the possibility of slower
revenue growth, operating margins may decrease in 2000 from those attained in
1999.
Failure to achieve beneficial synergies could result in decreased
income and increased operating costs. Registry and Synergex have entered into
the merger agreement with the expectation that the merger will result in
beneficial synergies. Achieving these anticipated synergies and the potential
benefits underlying the two companies' reasons for the merger will depend on a
number of factors, some of which include:
- integration of research and development efforts;
- retention of technology staff;
- reduction of operating expenses due to consolidation of
operations;
- the ability of the combined company to increase sales of
Registry's products including those developed from the
Synergex technology;
- competitive factors, including technological advances attained
by competitors and patents granted to or contested by
competitors, which would result in competitors' ability to
compete against the combined companies more effectively;
- significant litigation adverse to Synergex and Registry,
including, particularly, product liability litigation and
patent and trademark litigation; and
- the ability of the combined company to continue development of
Registry and Synergex products and services.
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THE SPECIAL MEETINGS
GENERAL
This proxy statement and prospectus constitutes the Management
Information Circular provided to shareholders of Synergex in connection with the
solicitation of proxies from holders of shares of Synergex common stock for use
at the special meeting of shareholders of Synergex.
This proxy statement and prospectus is being furnished to holders of
common stock of Registry in connection with the solicitation of proxies by our
board of directors for use at our special meeting of shareholders.
This proxy statement and prospectus and the accompanying forms of proxy
are first being mailed to Registry and Synergex shareholders on or about
__________, 2000.
MATTERS TO BE CONSIDERED AT THE REGISTRY SPECIAL MEETING
The Registry special meeting will be held to consider and vote upon for
the following proposals:
- A proposal to approve the possible issuance of in excess of
19.99% of the presently issued and outstanding common stock of
Registry upon the conversion of Registry's Series A
convertible preferred stock in connection with the proposed
merger pursuant to which Synergex will become a wholly-owned
subsidiary of Registry;
- A proposal to adopt Amended Articles of Incorporation of
Registry, pursuant to which Registry's corporate name will be
changed to "Synergex International Corporation". The Amended
Articles of Incorporation will become effective upon
completion of the merger. If the merger is not completed for
any reason whatsoever, the Amended Articles of Incorporation
will not become effective;
- A proposal to approve an amendment to our 1999 Stock Option
Plan to increase the total number of shares of common stock
available for issuance under such plan from 500,000 shares to
2,000,000; and
- To transact any other business which may properly come before
the special meeting or any adjournments or postponements of
the special meeting.
MATTERS TO BE CONSIDERED AT THE SYNERGEX SPECIAL MEETING
The Synergex special meeting will be held for the following purposes;
- To consider and vote upon a proposal under California law to
approve the merger agreement among a Registry subsidiary
corporation, Registry, Synergex and certain shareholders of
Synergex, which includes the merger of Synergex with and into
the Registry subsidiary corporation; and
- To transact any other business which may properly come before
the special meeting or any adjournments or postponements of
the special meeting.
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VOTES REQUIRED FOR APPROVAL
The proposals to issue shares of Registry common stock in the merger
and the proposal to approve the amendment to the 1999 Stock Option Plan must be
approved by a majority of the votes cast, assuming at least a majority of the
outstanding stock is represented at the meeting. The proposal to adopt Amended
Articles of Incorporation must be approved by the holders of a majority of the
outstanding shares of Registry common stock.
The merger must be approved by the affirmative vote of the holders of a
majority of the outstanding shares of Synergex common stock. On the closing date
of the merger, the aggregate number of shares with respect to which holders of
Synergex's common stock shall have sought dissenters' rights under the
California General Corporation law shall not have exceeded five (5%) percent of
all outstanding Synergex shares.
VOTING AND QUORUM AT THE SPECIAL MEETINGS
The boards of directors of Registry and of Synergex have each fixed May
__, 2000 as the record date for the determination of shareholders entitled to
notice of and to vote at the special meetings of Registry and Synergex.
Accordingly, only holders of record of shares of Registry common stock or shares
of Synergex common stock on the record date will be entitled to notice of and to
vote at the respective special meetings. As of the record date, there were
________ shares of Registry common stock outstanding, held by approximately
_____ holders of record, and 779,750 shares of Synergex common stock held by
approximately 33 registered holders of record. Each holder of record of Registry
and Synergex common stock on the record date is entitled to one vote per share
on each proposal properly submitted to a vote at the special meeting of Registry
shareholders. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of both Registry and Synergex
common stock is necessary to constitute a quorum at each of the special
meetings.
TREATMENT OF ABSTENTIONS
Abstentions and broker non-votes will be counted as shares present for
purposes of determining the presence or absence of a quorum at the Registry and
Synergex special meetings. Broker non-votes are shares held by brokers or
nominees that are represented at a meeting but with respect to which the broker
or nominee is not empowered to vote on a particular matter.
PROXIES - REGISTRY
The Registry proxy accompanying this proxy statement and prospectus is
solicited on behalf of the Registry board of directors for use at the special
meeting. You are requested to complete, date, and sign the accompanying proxy
and promptly return it in the accompanying envelope to Registry's transfer
agent, American Stock Transfer & Trust Company or otherwise mail it to Registry.
Registry shareholders who hold their Registry common stock in the name of a
bank, broker or other nominee should follow the instructions provided by their
bank, broker or nominee on voting their shares. All shares of Registry common
stock that are entitled to vote and are represented at the special meeting by
properly executed proxies received prior to or at the special meeting, and are
not revoked, will be voted at the special meeting in accordance with the
instructions indicated on the proxies. If the instruction is to abstain and in
the case of a broker non-vote, the shares represented by the proxy will be
deemed to be present at the special meeting but will not be voted with respect
to the merger, thus having the same effect as a vote against the merger. If no
instructions are indicated, the proxy will be voted FOR approval of the merger.
In the event that a quorum is not present at the time the Registry
meeting is convened, or if for any other reason we believe that additional time
should be allowed for the solicitation of proxies, we may adjourn the Registry
meeting with or without a vote of the shareholders. If we propose to adjourn the
Registry meeting by a vote of the shareholders, the persons named in the
enclosed form of proxy will vote all shares of Registry common stock for which
they have voting authority in favor of an adjournment.
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The Registry board of directors does not presently intend to bring any
other business before the special meeting and, so far as is known to Registry's
board of directors, no other matters are to be brought before the special
meeting. As to any business that may properly come before the special meeting,
however, it is intended that proxies, in the form enclosed, will be voted in
accordance with the judgment of the persons voting the proxies.
PROXIES - SYNERGEX
The Synergex proxy accompanying this proxy statement and prospectus is
solicited by the management of Synergex for use at the special meeting. You are
requested to complete, date, and sign the accompanying proxy and promptly return
it in the accompanying envelope to Synergex. The persons named in the form of
proxy enclosed with the notice of the special meeting are Kenneth Lidster,
Chairman of the Board of Synergex, and Michele Wong, President, Chief Executive
Officer and a director of Synergex.
The proxy must be in writing and must be signed by the Synergex
shareholder or his/her attorney authorized in writing, or, if the Synergex
shareholder is a corporation, the proxy must be signed under its corporate seal
or by a duly authorized officer or attorney of the corporation authorized in
writing.
PROCEDURE FOR REVOCATION OF PROXIES BY REGISTRY SHAREHOLDERS
If you have given us a proxy, you may revoke it at any time before it
is exercised at the special meeting by
- delivering a written notice to the corporate Secretary,
bearing a date later than the date of the proxy, stating that
the proxy is revoked;
- signing and delivering a proxy relating to the same shares and
bearing a later date than the date of the previous proxy prior
to the vote at the special meeting; or
- attending the special meeting and voting in person.
If you attend the meeting and do not vote, you will not automatically
revoke a proxy given previously, and any revocation during the meeting will not
affect votes previously taken. Registry shareholders who hold their common stock
in the name of a bank, broker or other nominee should follow the instructions
provided by their bank, broker or nominee to revoke previously voted shares.
PROCEDURE FOR REVOCATION OF PROXIES BY SYNERGEX SHAREHOLDERS
A Synergex shareholder who has submitted a proxy may revoke it. In
addition to revocation in any other manner permitted by law, a proxy may be
revoked by an instrument in writing signed by the Synergex shareholder or
his/her attorney authorized in writing, or, if the Synergex shareholder is a
corporation, signed under its corporate seal or by an officer or attorney of the
corporation authorized in writing, and depositing the instrument either at the
registered office of Synergex, 2330 Gold Meadow Way, Gold River, California
95670, at any time up to and including the last business day preceding the day
of the special meeting, or any adjournment thereof at which the proxy is to be
used, or with the Chairman of the special meeting on the day of the special
meeting or any adjournment thereof at which the proxy is to be used. Upon such
deposit the proxy will be revoked as to any matter in respect of which a vote
has not already been cast.
The form of proxy enclosed with the notice of the special meeting
affords a means for Synergex shareholders to specify the manner in which shares
of Synergex common stock registered in their name will be voted. If appointed
proxy, Kenneth Lidster and Michele Wong will vote the shares or withhold from
voting the shares as specified by the Synergex shareholder on any ballot that
may be called for. THE SHARES WILL BE VOTED IN FAVOR OF APPROVAL OF EACH MATTER
FOR WHICH NO SPECIFICATION HAS BEEN
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GIVEN. THE FORM OF PROXY ENCLOSED WITH THE NOTICE OF THE SPECIAL MEETING CONFERS
DISCRETIONARY AUTHORITY UPON THE PERSONS APPOINTED PROXY THEREUNDER TO VOTE ON
AMENDMENTS OR VARIATIONS TO MATTERS IDENTIFIED IN THE NOTICE OF MEETING, AND ON
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING. At the date hereof,
management of Synergex knows of no such amendment, variation or other matter
which may come before the special meeting.
REGISTRY DISSENTERS' RIGHTS
Holders of Registry common stock do not have a right to dissent to the
merger and receive compensation for their shares.
SYNERGEX DISSENTERS' RIGHTS UNDER CALIFORNIA LAW
Under the law of California, if you are a holder of Synergex common
stock who (a) does not vote in favor of the merger, (b) delivers a demand for
payment within 10 days after the vote on the proposed merger at the Synergex
special meeting, and (c) submits the share certificates for endorsement or
dissenting shares within 30 days after the date of the notice of shareholder
approval of the merger, you may demand a cash payment for the "fair value" of
your shares of Synergex common stock. If we cannot agree to an appropriate "fair
value," the matter would be determined in judicial proceedings. We cannot
predict what the determination of "fair value" would be if it is determined in
judicial proceedings. In order to exercise this right, you must comply with each
of the procedural requirements of Sections 1300 through 1312 of the California
Corporations Code, which are attached to this proxy statement and prospectus as
Appendix D. A description of the applicable requirements is provided in "The
Merger Dissenters' Rights, page __." The failure to take any of the steps
required in a timely manner will result in a loss of your dissenters' rights.
EXPENSES OF SOLICITATION
Synergex will reimburse up to $25,000 to Registry for the cost of
printing, mailing and filing this proxy statement and prospectus estimated to be
$________. In addition to solicitation by mail, our directors, officers, and
employees may solicit proxies from shareholders by telephone, facsimile, or in
person, following the original mailing of the proxies and other soliciting
materials. We will also make arrangements with custodians, nominees, and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares held of record by custodians, nominees, and fiduciaries, and we will
reimburse those holders for their reasonable expenses.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The boards of directors of both Registry and Synergex have unanimously
approved the merger agreement and the merger. The Synergex board of directors
has recommended that the holders of Synergex common stock vote FOR approval and
adoption of the merger agreement and the consummation of the transactions
described in this proxy statement and prospectus and found the terms of the
merger agreement to be fair to, and in the best interests of, their respective
companies and their shareholders. The Registry board of directors has
recommended that holders of Registry common stock vote FOR approval of the
possible issuance of in excess of 19.99% of the presently issued and outstanding
common stock of Registry upon conversion of Registry's Series A convertible
preferred stock, FOR approval of the Amended Articles of Incorporation, and FOR
approval of the Amended 1999 Stock Option Plan.
The matters to be considered at the special meetings are of great
importance to our shareholders. Accordingly, shareholders of both companies are
urged to read and carefully consider the information presented in this proxy
statement and prospectus and to complete, date, sign, and promptly return the
enclosed proxy in the enclosed postage-paid envelope, whether or not you intend
to attend the special meeting.
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THE MERGER
BACKGROUND OF THE MERGER
Beginning in June 1998, Synergex began discussions with various
potential business partners regarding the possible acquisition of such parties
or acquisition by Synergex. None of these discussions resulted in consummation
of an agreement.
Beginning in October 1999, Registry began discussions with other
parties regarding a possible merger with Registry. Registry began these
discussions in conjunction with its board of directors reviewing the correct
strategic path for its future growth. About that time, Synergex became aware of
Registry's discussions.
On November 5, 1999 Michele Wong, Synergex's President and CEO and
David Dickson, Vice President, Marketing and Business Development, met with
Bruce Carlsmith, President of Registry, at Synergex's offices in Gold River,
California. Ms. Wong and Mr. Dickson presented the history of Synergex, as well
as the strategic direction of the company. The parties had preliminary
discussions on the merits of a possible business combination, and agreed to
reflect upon the discussions and meet at a later date to pursue the matter
further.
On November 17, 1999, Michele Wong and David Dickson visited Bruce
Carlsmith at Registry's offices in Boca Raton, Florida. Mr. Carlsmith presented
Registry's business plans and demonstrations of Registry's products. The parties
further discussed the merits of a possible business combination, including the
integration of Registry's voice technology into the business applications
developed by Synergex's ISVs. The parties were joined by Lawrence Cohen,
Registry's Chairman of the Board.
On November 22, 1999, Michele Wong spoke with David Kaye, a consultant
representing Registry, regarding the possible pursuit of a business combination
between Synergex and Registry.
On November 23, 1999, Michele Wong sent a letter to Lawrence Cohen
proposing a merger between Synergex and Registry. Included with the letter was a
document entitled "Summary of Principal Terms for a Merger of Synergex
International Corporation and Registry Magic, Inc." outlining the proposed terms
of the merger.
On November 24, 1999, Bruce Carlsmith visited Synergex's office to meet
several members of Synergex's management team and to further discuss a possible
combination of the companies.
November 28, 1999, Michele Wong received correspondence from David Kaye
stating that he had been authorized, subject to the approval of Registry's Board
of Directors, by Lawrence Cohen to negotiate a merger between the two companies.
Mr. Kaye and Ms. Wong discussed the various terms proposed by Synergex. At the
conclusion of that discussion, Mr. Kaye agreed to send comments to Ms. Wong
proposing specific changes to the November 23 term sheet.
On December 3, 1999, Michele Wong received proposed changes from David
Kaye to the term sheet. A meeting was scheduled for Thursday, December 9, 1999
at Synergex's headquarters to finalize the term sheet.
On December 4, 1999, Michele Wong responded to Registry's proposed
changes. The remaining open issues principally regarded the conversion price of
the preferred shares and the restrictions on sale of the common stock.
On December 9, 1999, Lawrence Cohen and David Kaye met with Michele
Wong, David Dickson, Terry Carlone, Synergex's General Counsel, and James Bain,
Synergex's Chief Financial Officer, at Synergex's offices. The parties discussed
the terms and structure of the merger and finalized the term sheet. The parties
agreed that Synergex would prepare a draft of a letter of intent.
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On December 10, 1999, Michele Wong and Kenneth Lidster, Synergex's
Chairman of the Board, met with Lawrence Cohen and David Kaye. Ms. Wong
delivered the first draft of the letter of intent to Mr. Cohen and Mr. Kaye and
the parties discussed in general the terms.
Between December 10, 1999 and December 16, 1999, the parties negotiated
the terms of the letter of intent. The negotiations included discussions with
counsel for both parties.
On December 14, 1999, Synergex's Board of Directors met to discuss the
possible merger with Registry. The board resolved to authorize Michele Wong to
sign the letter of intent.
On December 15, 1999, Registry's Board of Directors authorized Mr.
Cohen to sign the letter of intent.
On December 16, 1999, the letter of intent was signed.
On December 29, 1999, Bruce Carlsmith and John Falcone, Registry's Vice
President of Research and Development, visited Synergex's offices and met with
Scott Luttgen, Synergex's Vice President of Research and Development, and other
members of Synergex's technical staff. The parties shared technical and product
information for purposes of reciprocal technical due diligence.
On January 3 and 4, 2000, James Bain, Synergex's Chief Financial
Officer, and Mark Mahlmann, Synergex's Senior Accounting Manager, visited
Registry's office to conduct financial due diligence.
On January 11, 2000, the parties exchanged the first drafts of a
proposed definitive merger agreement.
On January 19, 2000, Michele Wong and Terry Carlone, held a conference
call with David Kaye and Lawrence Cohen regarding the terms of the proposed
merger.
On January 31, 2000 the parties signed an extension of the letter of
intent to February 21, 2000 to give the parties more time to finalize the
definitive agreement.
On February 8, 2000, Michele Wong and David Dickson met with Registry's
Board of Directors. Ms. Wong and Mr. Dickson presented Synergex's long term
business strategy and discussed with the Registry board of directors issues
relating to the proposed merger.
On February 11, 2000, the merger agreement was signed.
At a Synergex board of directors meeting on February 16, 2000,
Synergex's directors and its legal advisors discussed the terms of the merger
agreement and related agreements. Financial analyses relating to the proposed
merger were reviewed. Following discussion, Synergex's board of directors
unanimously determined that the proposed merger was advisable and unanimously
approved the merger agreement, and resolved to recommend that Synergex
shareholders approve the agreement of merger.
At a Registry board of directors meeting on February __, 2000,
Registry's directors approved the merger agreement.
REGISTRY
Registry's board of directors has approved the merger agreement and the
consummation of the merger. In reaching its decision, Registry's board of
directors has identified several potential benefits of the merger, including the
following:
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- Registry's shareholders would have the opportunity to
participate in the potential for growth of the combined
company after the merger;
- the merger will provide an opportunity for Registry to
reposition itself as a business-to-business provider;
- the combined experience, financial resources, size and breadth
of product offerings of the combined company will allow the
combined company to respond more quickly and effectively to
technological change, increased competition and market demand
in an industry experiencing rapid innovation and change;
- the combination of Synergex's products with Registry's
products will provide a secondary channel for voice
technology; and
- the creation of a combined management team may allow the
combined company to provide more experienced marketing,
communication, product management and development.
In its evaluation of the merger, the Registry board of directors
reviewed several factors, including, but not limited to, the following:
- historical information concerning Synergex's and Registry's
respective businesses, prospects, financial performance and
condition, operations, technology, management and competitive
position;
- Registry's management's view of the financial condition,
results of operations and businesses of Registry and Synergex
before and after giving effect to the merger;
- the consideration to be received by Synergex shareholders in
the merger and the relationship between the consideration and
consideration paid in comparable merger transactions;
- the belief that the terms of the merger agreement, including
the parties' representations, warranties and covenants and the
conditions to their respective obligations, are reasonable;
- reports from management, legal and financial advisors as to
the results of the due diligence investigation of Synergex.
SYNERGEX
Synergex's board of directors has determined that the terms of the
merger are fair to, and in the best interests of, Synergex and its shareholders.
Accordingly, Synergex's board of directors has approved the merger agreement and
the consummation of the merger. In reaching its decision, Synergex's board of
directors has identified several potential business benefits to the merger,
including the ability to:
- expand Synergex and Registry's penetration of high value,
corporate and large ISV customers;
- create a competitive advantage in the government vertical
market;
- accelerate Synergex's business-to-business growth strategy
through use of Registry's voice applications;
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- add and expand Registry's speech technology for applications
enabled by Synergex's business-to-business initiatives;
- use Synergex's and Registry's complementary research and
development skills, experience and domain knowledge in
developing the business-to-business market; and
- accelerate Synergex's growth strategy through the capital
markets accessible as a public company;
Synergex's board of directors also identified and considered a variety
of potential negative factors in its deliberations concerning the merger,
including, but not limited to:
- the risk to Synergex's shareholders that the value to be
received by Synergex shareholders in the merger could decrease
significantly due to the fixed exchange ratio;
- the risk that the potential benefits sought in the merger
might not be fully realized;
- the ability of Registry to negotiate with other companies
regarding an alternative transaction; and
- the possibility that the merger might not be consummated.
Among other factors considered by Synergex's board in its deliberations
were the following:
- historical information concerning Synergex's and Registry's
respective financial performance, results of operations,
assets, liabilities, operations, technology, management and
competitive position, including public reports available for
Registry filed with the Securities and Exchange Commission;
- Synergex management's view of the financial condition, results
of operations, businesses and prospects of the combined
company after giving effect to the merger;
- current market conditions and historical trading information
with respect to Synergex and Registry common stock;
- comparable merger transactions in the relevant market; and
- the terms and conditions of the merger agreement, the stock
option agreement, the voting and election agreements and the
percentage of Registry shares represented by the shareholders
who signed the voting and election agreements.
After due consideration, Synergex's board of directors believed that
the overall risks associated with the proposed merger were outweighed by the
potential benefits of the merger. Synergex's board of directors does not intend
the foregoing discussion of information to be exhaustive, but believes the
discussion to include the material factors that it considered. In view of the
complexity and wide variety of information and factors, both positive and
negative, that it considered, Synergex's board of directors did not find it
practical to quantify or otherwise assign relative or specific weights to the
factors considered. However, after taking into consideration all of the factors
set forth above, Synergex's board of directors concluded that the merger
agreement and merger were fair to, and in the best interests of, Synergex and
its shareholders and that Synergex should proceed with the merger.
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EFFECTS OF THE MERGER
When the merger is completed, Synergex will be merged with and into
RMAG Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Registry. The shareholders of Synergex will have the right to receive an
aggregate of approximately 1,000,000 shares of Registry common stock and 779,750
shares of Series A convertible preferred stock, subject to adjustment for any
dissenters' shares. Immediately after the merger, the Synergex shareholders will
hold approximately 15.7% of the issued and outstanding shares of Registry common
stock and 100% of the Series A convertible preferred stock. Synergex
shareholders will control approximately 15.7% of the voting power of Registry
following the merger.
Registry and Synergex initially reached the exchange ratio estimating
the relative net values of the two companies, using the financial statements and
market capitalizations of each company. Each share of outstanding Synergex
common stock, except for shares held by shareholders who dissent, will be
exchanged for up to 1.28246 shares of Registry common stock and one share of
Registry Series A convertible preferred stock. The common stock exchange ratio
equals the number of Registry shares of common stock to be issued to Synergex
common shareholders as a result of the merger divided by the number of shares of
Synergex common stock outstanding before the merger.
Following the merger, the board of directors of Registry will consist
of:
- Lawrence Cohen
- Cornelia Eldridge
- Renney Senn
- David Kaye
- Kenneth Lidster
- Michele Wong
- an additional director to be named
Lawrence Cohen is currently the acting Chief Executive Officer and
Martin Scott, Principal Accounting Officer and Treasurer of Registry. Both
Messrs. Cohen and Scott will resign their respective positions following the
effective time of the merger, Mr. Cohen will continue as Chairman of the Board.
The executive officers of Registry following the merger are expected to be:
Michele C. Wong, President and Chief Executive Officer; James S. Bain, Vice
President and Chief Financial Officer; David F. Dickson, Vice President,
Marketing and Business Development; William J. Mooney, Vice President, Sales; N.
Scott Luttgen, Vice President, Research and Development; and Terry D. Carlone,
General Counsel.
The business backgrounds of the directors and officers of Registry
after the merger are set forth elsewhere in this proxy statement and prospectus.
The Amended Articles of Incorporation to be adopted by Registry
shareholders at the meeting and the Bylaws of Registry as of the effective time
of the merger, and the designation of the Registry Series A convertible
preferred stock to be issued in the merger will govern the rights, duties and
privileges of all Registry shareholders subsequent to the merger. Any material
differences between the rights set forth in the Articles of Incorporation and
bylaws of Synergex and those set forth in the Registry Amended Articles of
Incorporation and bylaws are described under "Comparison of Rights of Holders Of
Synergex and Registry Common Stock" at page __.
Neither Registry nor Synergex solicited or obtained a third party
opinion on the fairness of the merger to the Synergex shareholders, from a
financial point of view, relying instead on the business judgment of the board
of directors.
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FINANCING THE MERGER
The merger will be a stock-for-stock transaction. Shareholders of
Synergex will receive shares of the common and preferred stock of Registry in
exchange for their shares of Synergex common stock. Cash will be paid to
Synergex shareholders instead of fractional shares, which is not expected to be
material. Except for $25,000 to be reimbursed by Synergex for the cost of
printing, mailing and filing this proxy statement and prospectus, expenses and
other costs incurred by Registry in connection with the merger will be paid from
funds currently available, while Synergex will pay its expenses from its own
assets.
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase, with RMAG Acquisition
Corp. as the acquiror, in accordance with generally accepted accounting
principles. Under this method of accounting, the purchase price will be
allocated to assets acquired and liabilities assumed based on their estimated
fair values. The income or loss of Synergex will not be included in the
operating results of Registry prior to completion of the merger. See "Unaudited
Pro Forma Combined Condensed Financial Statements."
FEDERAL INCOME TAX CONSIDERATIONS IN THE UNITED STATES
Consequences of the Merger to Registry and Synergex shareholders
The following discussion summarizes the material United States federal
income tax considerations relevant to the exchange of shares of Synergex common
stock for Registry common and preferred stock under the merger. This discussion
is based on currently existing provisions of the Internal Revenue Code of 1986
(the "Code"), existing and proposed Treasury Regulations under the Code, and
current administrative rulings and court decisions, all of which are subject to
change. Any change in the Code and Treasury Regulations, which may or may not be
retroactive, could alter the tax consequences to Registry, Synergex, or
Synergex's shareholders as described in this discussion.
Synergex shareholders should be aware that this discussion does not
deal with all United States federal income tax considerations that may be
relevant to particular Synergex shareholders in light of their particular
circumstances, like shareholders who are dealers in securities, who are subject
to the alternative minimum tax provisions of the Code, who are foreign persons,
who do not hold their Synergex stock as capital assets, or who acquired their
shares in connection with stock option or stock purchase plans or in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of the merger under foreign, state, or local tax
laws. Nor does the following discussion address the tax consequences of
transactions effectuated prior or subsequent to, or concurrently with, the
merger. This is so whether or not any of those transactions are undertaken in
connection with the merger, including without limitation any transaction in
which shares of Synergex common stock are acquired or in which shares of
Registry common or preferred stock are disposed. Accordingly, Synergex
shareholders are urged to consult their own tax advisors as to the specific tax
consequences to them of the merger, including the applicable federal, state,
local, and foreign tax consequences.
The merger is intended to constitute a reorganization. If the merger
qualifies as a reorganization, then, subject to the limitations and
qualifications referred to in this discussion, they will generally result in the
following federal income tax consequences:
- no gain or loss will be recognized by Synergex's shareholders
solely upon their receipt of Registry common and preferred
stock in exchange for Synergex common stock in the merger
except to the extent of cash received instead of fractional
shares of Registry common or preferred stock or received for
dissenting shares;
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- the aggregate tax basis of the Registry common and preferred
stock received by Synergex shareholders in the merger, reduced
by any tax basis attributable to fractional shares deemed to
be disposed of, will be the same as the aggregate tax basis of
the Synergex common stock exchanged for the Registry common
and preferred stock;
- cash payments received by Synergex's shareholders instead of a
fractional share will be treated as if the fractional share of
Registry common or preferred stock had been issued in the
merger and then redeemed by Registry. A Synergex shareholder
receiving cash instead of a fractional share or for dissenting
shares will recognize gain or loss upon the payment of the
cash, measured by the difference, if any, between the amount
of cash received and the basis in the fractional share or
dissenting shares; and
- neither Registry, RMAG Acquisition Corp. nor Synergex will
recognize material amounts of gain solely as a result of the
merger.
The parties are not requesting and will not request a ruling from the
Internal Revenue Service ("IRS") in connection with the merger. A successful IRS
challenge to the reorganization status of the merger would result in Synergex
shareholders recognizing taxable gain or loss with respect to each share of
common stock of Synergex surrendered equal to the difference between the
shareholder's basis in his/her shares and the fair market value, as of the
effective date of the merger, of the Registry common or preferred stock received
in exchange for the Synergex common stock. In an event like this, a
shareholder's aggregate basis in the Registry common and preferred stock
received in the merger would equal its fair market value, and the shareholder's
holding period applicable to the stock would begin the day after the merger.
Consequences of the merger to Registry Shareholders
Registry common shareholders should not recognize any gain or loss as a
result of the merger. Registry common shareholders will not dispose of or
exchange their shares of Registry common stock in the merger, but will continue
to hold their existing shares of common stock, with the same adjusted basis and
holding period.
DISSENTERS' RIGHTS
Under the provisions of Chapter 13 of Division 1 of California General
Corporation Law, shareholders of Synergex objecting to the merger of Synergex
with and into RMAG Acquisition Corp. and the receipt of Registry shares for
shares of Synergex have the right to require Synergex to purchase their shares.
Within 10 days after the approval of the merger, Synergex will notify each
shareholder who has not voted for or consented to the merger of the date the
merger was approved. Such notice will also indicate that the shareholder has the
right to require Synergex to purchase his/her shares for cash at their fair
market value. Any shareholder entitled to this purchase right may, within 30
days of the date of the mailing of such notice by Synergex, demand in writing
from Synergex the purchase of his/her shares. The demand will be sufficient if
it informs Synergex of the identity of the shareholder, the shareholder's demand
for the purchase of his/her shares, the number and class of shares and a
statement of what the shareholder claims to be the fair market value as of the
day before the announcement of the proposed merger. If the demand is made and
the shares are certificated, the shareholder must also submit the certificates
representing the shares demanded to be purchased, to be stamped or endorsed with
the statement that they are dissenting shares within 30 days of the date of the
mailing of the notice by Synergex. If Synergex denies that the shares are
entitled to be purchased or if the shareholder and Synergex fail to agree upon
the value of the shares, the shareholder must, within six months from the date
of the mailing of notice by Synergex, file a complaint in the Superior Court of
Sacramento County, California asking the court to determine whether the shares
are dissenting shares or their fair market value, or both.
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A copy of the sections of the California law which discuss the rights
of shareholders to dissent from the transaction are attached as Appendix D to
this proxy statement and prospectus.
Because of the complexities of these provisions of California law,
Synergex shareholders who are considering pursuing dissenters' rights may wish
to consult legal counsel. The foregoing discussion of such provisions should not
be deemed to constitute legal advice and is qualified in its entirety by
reference to such provisions attached as Appendix D to this proxy statement and
prospectus.
INTEREST OF PERSONS IN THE MERGER
Upon consummation of the merger, David George Corporation, whose
principal shareholder is Linda Kaye, the wife of David Kaye, a director of
Registry, will receive $125,000 as a finder's fee for the merger.
At the effective time of the merger, Registry will enter into an
employment agreement with Michele Wong and certain other executive officers of
Synergex, who will become executive officers of the combined company, including
David Dickson, Scott Luttgen, William Mooney, James Bain and Terry Carlone.
The agreement with Michele Wong will have a term of three years and
will provide that she serve as president and chief executive officer of the
combined companies. Ms. Wong's base salary will be $195,000 per year, subject to
annual review and evaluation by the board of directors of Registry. In the event
that Ms. Wong meets certain performance criteria established by the board of
directors or its applicable committee, she will be eligible for an annual cash
bonus in an amount not less than 15% of her base salary. She also will be
eligible to participate in Registry's stock option plan and will be entitled to
receive such payment for services as a director of Registry or any subsidiary
thereof as are paid by Registry to any other directors or committee members who
also are officers or employees of Registry.
In the event that Ms. Wong's employment is terminated during the term
of the agreement, she may be entitled, under certain circumstances, to receive
severance compensation in an amount up to 12 months compensation.
The precise terms of the agreements with the other executives have not
been determined at this time. It is anticipated that the agreements will be for
terms ranging from one to three years, on a case-by-case basis, and will contain
severance terms and conditions similar to those of the agreement with Ms. Wong.
MATERIAL CONTRACTS BETWEEN REGISTRY AND SYNERGEX
On February 28, 2000, Registry and Synergex entered into a management
services agreement whereby Synergex agreed to provide Registry executive
accounting, sales, marketing and other management services as agreed upon by the
parties. The services currently contemplated include sales and marketing
assistance, support in preparation of periodic income and cash flow statements,
assistance in the preparation and filing of SEC Securities Exchange Act filings,
supervision of staff, and certain other financial and customer account matters.
The term of the agreement began February 24, 2000 and will continue in effect
until May 23, 2000 and thereafter for successive one-month terms, unless
terminated pursuant to the agreement. Registry will pay Synergex a monthly fee
of $10,000 plus all out-of-pocket travel expenses reasonably incurred in
connection with services provided. For any successive terms, the fee will be as
agreed by the parties; provided, however, that the monthly fee during any
successive term shall not be lower than $10,000, unless Synergex's duties are
decreased proportionately. In addition, in the event that the proposed merger
between Registry and Synergex does not close, Registry shall pay Synergex an
additional fee equal to the product of $10,000 times the number of months from
the effective date of the management services agreement until termination or
expiration. Registry and Synergex had previously entered into an Agreement and
Plan of Merger on February 11, 2000, subject to, among other conditions,
applicable approval of shareholders of the respective companies.
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Registry and Synergex have entered into a line of credit note whereby
Registry will advance to Synergex up to $50,000 per month (or a total of
$150,000) between April 1, 2000 and June 30, 2000, which funds shall be used to
pay salaries and benefits to certain employees of Synergex. Advances will be
made by Registry at the request of Synergex's President and Chief Executive
Officer. In the event the proposed merger between Registry and Synergex does not
close, Synergex shall pay Registry the principal amount outstanding plus
interest at the prime rate plus 2% in 36 equal monthly installments beginning on
July 1, 2000. As of the date of this prospectus, Registry has advanced $100,000
to Synergex.
In connection with the merger, Registry shall create a pool of 575,000
vested stock options and 575,000 vesting stock options. At the effective time of
the merger, Registry will grant options from such pool to certain identified
individuals which shall include certain officers and directors of Synergex. The
options will be granted to persons designated by Synergex and mutually agreed to
by Synergex and Registry. The vested options shall be fully vested at the
effective time of the merger and shall be exercisable for a 10 year period
following the effective time of the merger at an exercise price equal to the
fair market value of Registry's common stock at the effective time. Each grantee
of the vested options will agree not to exercise the vested options prior to the
first anniversary date of the effective time of the merger. In addition to the
vested options, the vesting options shall vest over a 3 year period at the rate
of 33.33% per year and shall be exercisable for a 10 year period at an exercise
price equal to the fair market value of Registry's common stock at the effective
time of the merger. Any performance criteria for the vesting options shall be
determined by Synergex and Registry prior to the effective time of the merger.
THE MERGER AGREEMENT
The description of the merger agreement set forth in this section is a
summary of the material provisions of the merger agreement and is qualified in
its entirety by reference to the merger agreement.
GENERAL
Registry, RMAG Acquisition Corp. a wholly-owned subsidiary of Registry,
and Synergex have entered into the merger agreement, which provides that:
- Synergex will be merged with and into the wholly-owned
subsidiary of Registry;
- Synergex common shareholders will receive 1,000,000 shares of
Registry common stock and 779,750 shares of Registry Series A
convertible preferred stock in exchange for all outstanding
Synergex shares. This number will be reduced to reflect the
number of shares, if any, for which shareholders seek
appraisal rights;
- each share of outstanding Synergex common stock, except for
shares held by shareholders who dissent, will be exchanged for
up to 1.28246 shares of Registry common stock and one share of
Registry Series A convertible preferred stock; see,
"Description of Capital Stock - Preferred Stock." The exact
number of shares of Registry common stock to be received will
depend upon the number of shares of Synergex's outstanding at
the effective time of the merger. As of the date of the
prospectus there are 779,750 shares outstanding. Up to an
additional 159,417 shares may be issued upon conversion of
Synergex options. If all the options are exercised, the
exchange ratio will be 1.06477.
- an aggregate of 1,150,000 options will be granted to persons
designated by Synergex and mutually agreed to by Synergex and
Registry; and
- Registry will change its name to "Synergex International
Corporation".
25
<PAGE> 35
The merger is subject to the satisfaction of a number of conditions,
including the approval by shareholders of Registry and Synergex of the matters
described in this proxy statement and prospectus.
EFFECTIVE TIME OF THE MERGER
The closing will occur, and the merger will become effective, upon:
- the approval of the merger agreement by the shareholders of
Synergex voting under California law and approval of the
possible issuance of in excess 19.99% of the presently issued
and outstanding common stock of Registry upon the conversion
of Registry Series A convertible preferred stock under the
merger agreement by shareholders of Registry;
- the acceptance for filing of a Certificate of Merger between
the Registry subsidiary corporation and Synergex with the
Delaware and California Secretaries of State;
- acceptance for filing of the Amended Articles of Incorporation
and the Designation of Preferred Stock of Registry with the
Florida Secretary of State; and
- the satisfaction or waiver of the other conditions set forth
in the merger agreement.
It is anticipated that the merger will become effective soon after the
Synergex and Registry shareholders meetings upon satisfaction or waiver of all
conditions to the merger; and that the Amended Articles of Incorporation of
Registry and Certificate of Merger will all be filed concurrently.
EXCHANGE OF CERTIFICATES
American Stock Transfer and Trust Company will act as exchange agent in
connection with the merger. As soon as practicable after the effective date of
the merger, the exchange agent will send a notice and transmittal form to
Synergex shareholders to be used in forwarding their Synergex stock certificate
for surrender and exchange for certificates representing Registry common stock
and preferred stock. Please do not surrender your Synergex certificate for
exchange until you receive the transmittal form and instructions. The
instructions will include procedures concerning lost certificates and securities
held in broker's or nominee names.
Each holder of Synergex common stock will be entitled, upon surrender
to the exchange agent, to receive in exchange for his or her shares of Synergex
a common and preferred stock certificate representing the number of whole shares
of Registry common or preferred stock into which his/her shares of Synergex
common stock was converted in the merger, together with any cash payable instead
of fractional shares. Until a holder of Synergex common stock surrenders his/her
Synergex common stock certificate to the exchange agent, the certificate
representing shares of Synergex common stock will be deemed to represent the
number of whole shares of Registry common and preferred stock into which the
shares of Synergex common stock was converted.
Synergex shareholders should not send any stock certificate with their
proxy cards.
FRACTIONAL SHARES
Certificates representing fractional shares of Registry common stock
and preferred stock will not be issued in the merger. Fractional share interests
will not entitle you to vote or to any other rights of a shareholder of
Registry. Instead of the issuance of any fractional share, each holder of
Synergex common stock who otherwise would be entitled to receive a fractional
share of Registry common stock or preferred stock in the merger will receive,
upon surrender for exchange, an amount in cash determined by multiplying (1) the
average of the closing bid and ask price of Registry common stock for the five
trading days ending three trading days immediately preceding the closing date of
the merger, times (2) the fraction of a Registry share to which that holder
would
26
<PAGE> 36
otherwise be entitled. If more than one certificate representing shares of
Synergex common stock is surrendered for the account of the same shareholder of
record, the number of full shares of Registry common stock or preferred stock
for which a certificate will be delivered will be computed on the basis of the
aggregate number of shares of Synergex common stock represented by the
certificates surrendered by that shareholder.
REPRESENTATIONS
The parties make various representations and warranties in the merger
agreement, including representations and warranties by each of Synergex and
Registry as to:
- organization and good standing;
- capitalization;
- authorization of the merger agreement and the absence, except
as specified, of the need for governmental or third party
consents to the merger;
- compliance with applicable law;
- accuracy of financial statements;
- absence of material undisclosed liabilities and the absence of
material adverse changes in the financial or other condition,
operations, or business of Synergex and Registry, taken as a
whole;
- absence of pending or threatened material litigation;
- absence of employee benefit plans;
- material compliance with applicable environmental laws and
regulations;
- absence of brokers or finders; and
- other customary matters.
CONDUCT OF BUSINESS PENDING THE MERGER
Registry and Synergex have agreed to conduct their operations, except
as otherwise provided in the merger agreement, according to their normal course
of business until completion of the merger. Further, Registry and Synergex have
each agreed that, among other things, until the consummation of the merger,
unless the other agrees in writing or as otherwise required or permitted by the
merger agreement, it will not:
- issue any shares of capital stock (with certain exceptions),
effect any stock split, or otherwise change its capitalization
as it existed on the date the merger agreement was signed;
- declare, set aside, or pay any dividend or other distribution,
whether in cash, stock, or property or any combination of
cash, stock, or property, in respect of any of its capital
stock;
- amend or propose to amend its articles of incorporation or
bylaws, except for Registry's Amended Articles of
Incorporation;
- acquire, sell, lease, encumber, transfer, or dispose of any
assets except in the ordinary course of business;
- incur any indebtedness for borrowed money or guarantee any
indebtedness issued, sell any debt securities, warrants or
rights to acquire any debt securities, guarantee any debt of
others, make any loans, advances, or capital contributions, or
mortgage, pledge, or otherwise encumber any material assets or
create any material lien on material assets, except in the
ordinary course of business;
- pay, discharge, or satisfy any claims, liabilities, or
obligations except in the ordinary course of business; or
27
<PAGE> 37
- change any accounting principles or practices except as
required by generally accepted accounting principles.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Registry and Synergex to complete the merger are
subject to the following conditions:
- Synergex's shareholders must approve the transactions
contemplated by the merger agreement;
- the relevant governmental authorities must grant all required
authorizations, consents, orders or approvals;
- the registration statement that contains this proxy statement
and prospectus shall have become effective under the
Securities Act and must not be the subject of any stop order
or proceedings seeking a stop order;
- the Registry common stock issued in the merger shall have been
authorized for listing on the Nasdaq SmallCap Market;
- there must be no law, order, injunction, or other legal
restraint or prohibition enjoining or preventing the
consummation of the merger;
- the representations and warranties of Registry, RMAG
Acquisition Corp. and Synergex contained in the merger
agreement must be true and correct in all material aspects as
of the closing;
- neither Registry nor Synergex shall have suffered any material
adverse change to its business or financial condition;
- Registry and Synergex shall have each furnished to the other
an opinion of its counsel to the effect that the respective
party and each of its respective subsidiaries, among other
conditions:
- is a corporation duly incorporated, validly existing
and in good standing under the laws of the state of
its incorporation;
- has the corporate power to carry on its business as
it is being conducted on the closing date of the
merger agreement;
- has validly issued its capital stock, and that
capital stock is outstanding, fully paid and
nonassessable, and that between the date of the
merger agreement and the closing date of the merger,
no additional shares of its capital stock have been
issued; and
- holders of no more than 5% of the issued and
outstanding shares of Synergex common stock have
exercised their dissenters' rights.
TERMINATION
The merger agreement may be terminated at any time prior to
effectiveness of the merger, whether before or after shareholder approval of the
merger, by:
- mutual consent of Registry and Synergex;
28
<PAGE> 38
- either Registry or Synergex if the merger is not consummated
before September 30, 2000, unless the failure to consummate
the merger by that date is due to the material breach of the
party seeking to terminate the agreement;
- either Registry or Synergex if any permanent injunction or
other order of a court or other competent authority preventing
the consummation of the merger has become final and
non-appealable;
- either Registry or Synergex, if the requisite shareholder
approvals of the shareholders of either Registry or Synergex
are not obtained at a meeting duly called and held therefore.
If the merger agreement is terminated and abandoned, the merger
agreement will immediately become void and have no effect, without any liability
on the part of any party to the merger agreement or its affiliates, directors,
officers, or shareholders, except with respect to confidentiality obligations
and indemnification provisions relating to brokers or finders or other similar
persons or entities and, under the management services agreement and the line of
credit note.
EXPENSES AND FEES
Except as set forth above if the merger is not consummated, all
expenses incurred in connection with the merger agreement and the transactions
contemplated by the merger agreement will be paid by the party incurring costs
and expenses of the merger and merger agreement, except that Synergex shall
reimburse Registry $25,000 for the printing, mailing and filing costs associated
with this proxy statement and prospectus (excluding legal and accounting fees
which shall be borne by the party incurring such expenses); provided, however,
if the merger is completed all such expenses will be borne by the combined
entity, Registry.
VOTING AGREEMENTS
The following is a brief summary of certain provisions of the voting
agreements with certain shareholders of Synergex and Registry, forms of which
are attached hereto as Appendix B and Appendix C and incorporated herein by
reference.
Alliant Holding & Transfer Company Voting Agreement
On February 11, 2000, Synergex entered into an agreement with Alliant
Holding & Transfer Company, an affiliate of Lawrence Cohen, Chairman of
Registry. Under the terms of the voting agreement, Alliant Holding has agreed to
vote in favor of the proposals to be voted upon at the Registry special meeting.
Alliant Holding beneficially owned approximately 31.4% of the outstanding
Registry common stock as of the record date.
Synergex Shareholders Voting Agreement
On February 11, 2000, Registry entered into an agreement with each of
Kenneth Lidster and Michele Wong, Chairman of the Board and President and Chief
Executive Officer, respectively, and each a director of Synergex. Under the
terms of the voting agreement, Mr. Lidster and Ms. Wong agree to vote in favor
of the adoption of the merger agreement and not to sell, transfer, pledge,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement (including any profit sharing arrangement) or understanding with
respect to the sale, transfer, pledge, assignment or other disposition of their
shares to any person other than Registry or Synergex. Lidster and Wong
collectively, beneficially owned approximately 52.4% of Synergex common stock
outstanding as of the record date.
29
<PAGE> 39
ELECTION AGREEMENT
On February 11, 2000, Synergex, Registry, RMAG Acquisition Corp,
Lawrence Cohen, Michele Wong and Kenneth Lidster entered into an election
agreement. Under the terms of the election agreement, Mr. Cohen, Ms. Wong and
Mr. Lidster agreed that at any meeting of shareholders of Registry when called
upon to vote upon the election of directors or in any other circumstance upon
which a vote, consent or other approval with respect to election of directors is
sought, for a 3 year period after the effective time of the merger each
individual shall, including acting by written consent if requested by Registry
vote, (or cause to be voted) his or her shares in favor of the election of each
other shareholder and such designees as designated by Mr. Cohen as directors of
Registry. Mr. Cohen may only designate 4 additional directors. If any vacancy on
the board of directors of Registry occurs due to the death or resignation of Mr.
Lidster during the term of this Agreement Ms. Wong may designate a director to
replace him. If any vacancy on the board of directors of Registry occurs due to
the death or resignation of Ms. Wong during the term of this Agreement, Mr.
Lidster may designate a director to replace her.
30
<PAGE> 40
COMPARATIVE PER SHARE MARKET PRICE DATA
Registry common stock is traded on the Nasdaq SmallCap market under
the symbol "RMAG." Synergex stock is not listed for trading. The following
table sets forth the high and low reported closing bid prices per share of
Registry common stock for the quarterly periods indicated, which correspond to
the fiscal quarters for financial reporting purposes.
<TABLE>
<CAPTION>
Registry
Common Stock
------------
High Low
---- ---
<S> <C> <C>
Year Ended July 31, 1998:
June 28, 1998 to July 31, 1998 .............. $ 13.125 $ 7.625
Year Ended July 31, 1999:
First quarter ............................... 11.75 4.00
Second quarter .............................. 6.375 3.875
Third quarter ............................... 11.50 3.00
Fourth quarter .............................. 8.25 1.625
Year Ending July 31, 2000:
First quarter ............................... 3.625 1.063
Second quarter .............................. 3.6875 1.625
Third quarter
Fourth quarter
</TABLE>
As of February 29, 2000, Registry had in excess of 300 beneficial
round lot holders of its common stock and Synergex had 33 shareholders of
record. On February 15, 2000, the last full trading day before Registry issued
a press release announcing that Registry and Synergex had reached an agreement
concerning the proposed merger, the closing bid price of Registry common stock
as reported on the Nasdaq market was $3.50 per share. On _____________, 2000,
the most recent practical date prior to the printing of this joint proxy
statement/prospectus, the closing bid price as reported on the Nasdaq market
was $________ per share.
Because the market price of Registry common stock is subject to
fluctuation, the market value of the shares of Registry common stock that
holders of Synergex common stock will receive in the merger upon conversion of
Registry's Series A convertible preferred stock may increase or decrease.
Synergex shareholders are urged to obtain a current market quotation for
Registry common stock.
Neither Registry nor Synergex has paid dividends nor is there any
intention to pay dividends in the foreseeable future except for the Series A
preferred stock of Registry.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables present (1) selected historical condensed
financial data of Registry, (2) selected historical condensed financial data of
Synergex and (3) selected unaudited pro forma combined condensed financial data
of Registry and Synergex (which reflects the completion of the proposed
transaction and assumes the purchase method of accounting).
31
<PAGE> 41
SELECTED HISTORICAL CONDENSED FINANCIAL DATA - REGISTRY
The following tables set forth selected historical financial data of
Registry for the period from October 11, 1995 (inception) through July 31, 1996
and for each of the years in the three-year period ended July 31, 1999 and for
the six-month periods ended January 31, 1999 and 2000. The statement of
operations data for each of the years in the two-year period ended July 31,
1999 are derived from the audited financial statements of Registry included
elsewhere herein. The statement of operations data for the period from October
11, 1995 (inception) through July 31, 1996 and the year ended July 31, 1997 are
derived from the audited financial statements of Registry previously filed with
the SEC. The balance sheet data as of July 31, 1999 are derived from audited
financial statements of Registry included elsewhere herein. The balance sheet
data as of July 31, 1998, 1997 and 1996 are derived from the audited financial
statements of Registry previously filed with the SEC. The balance sheet data as
of January 31, 1999 are derived from unaudited financial statements of Registry
previously filed with the SEC. The statement of operations data for the
six-month periods ended January 31, 1999 and 2000 and the balance sheet data as
of January 31, 2000, have been derived from the unaudited financial statements
of Registry incorporated by reference herein and, in the opinion of management,
include all adjustments (consisting of normal recurring adjustments) which are
necessary to present fairly the results of operations and financial position of
Registry for the periods and dates indicated. The results of operations for the
six months ended January 31, 2000 are not necessarily indicative of the results
to be expected for the full year.
REGISTRY MAGIC INCORPORATED
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
For the Period
Six Months Fiscal Year Ended July 31, From October 11, 1995
Ended January 31, -------------------------- (Inception) through
2000 1999 1999 1998 1997 July 31, 1996
---- ---- ---- ---- ---- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 784,000 $ 1,070,562 $ 2,453,285 $ 885,110 $ 344,944 $ --
Total costs
and expenses 2,510,143 3,237,733 6,954,880 3,192,596 1,719,147 40,841
Net (Loss) (1,726,143) (2,167,171) (4,501,595) (2,307,486) (1,374,203) (40,841)
Weighted average
shares outstanding 5,754,494 5,813,000 5,813,041 4,216,836 3,625,200 3,325,000
Net Income (Loss)
per common share (0.30) (0.37) (0.77) (0.55) (0.38) (0.01)
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
As of January 31, As of July 31,
--------------------- ---------------------------------------------------
2000 1999 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Current Assets $3,835,995 $8,147,228 $5,849,742 $10,658,686 $ 937,904 $ 36,171
Working Capital 3,587,327 7,584,502 5,286,092 9,899,790 196,029 (36,067)
Total Assets 4,273,881 8,689,719 6,372,157 11,053,060 1,108,095 57,681
Total Liabilities 248,668 562,726 563,650 758,896 741,875 72,238
Shareholders' Equity
(Deficit) 4,025,213 8,126,993 5,808,507 10,294,164 366,220 (14,557)
</TABLE>
32
<PAGE> 42
SELECTED HISTORICAL CONDENSED FINANCIAL DATA - SYNERGEX
The following tables set forth selected historical financial data of
Synergex for each of the years in the four-year period ended December 31, 1999.
The statement of operations data for each of the years in the four-year period
ended December 31, 1999 and the balance sheet data as of December 31, 1998 and
1999 are derived from the audited financial statements of Synergex included
herein.
SYNERGEX INTERNATIONAL CORPORATION
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
--------------------------------------------------
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 10,601,777 10,416,593 8,368,826 7,015,351
Total costs and expenses 10,289,375 10,079,942 8,321,372 6,617,727
Net Income 312,402 336,651 47,454 397,624
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current Assets 3,098,962 2,834,390 2,556,216 1,883,348
Working Capital (312,516) (1,096,250) (730,348) 211,070
Total Assets 6,449,261 6,388,045 5,759,480 4,056,809
Total Liabilities 4,383,764 4,634,950 3,543,036 1,887,819
Shareholders' Equity 1,939,335 1,688,445 2,216,444 2,168,990
</TABLE>
33
<PAGE> 43
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION
Introductory Note
The accompanying unaudited pro forma combined condensed financial statements
illustrate the effect of the acquisition of the outstanding capital stock of
Synergex International Corporation ("Synergex") by a wholly-owned subsidiary of
Registry Magic Incorporated ("Registry"). In accordance with the terms of the
proposed transaction, the Synergex shareholders will receive an aggregate of
1,000,000 Registry common shares and 779,750 shares of Registry's Series A
convertible preferred shares. Additionally, options to acquire up to 1,150,000
of Registry's common shares will be granted to persons designated by Synergex.
The transaction will be accounted for under the purchase method of accounting.
The accompanying unaudited pro forma combined condensed balance sheet as of
January 31, 2000 combines the historical balance sheet of Registry as of that
date with the balance sheet of Synergex as of December 31, 1999 and assumes the
merger took place on January 31, 2000. The unaudited pro forma combined
condensed statements of operations for the six months ended January 31, 2000
and for the year ended July 31, 1999 are based on the historical statements of
operations of Registry for those periods combined with the historical
statements of Synergex' operations for the six months ended December 31, 1999
and for the year ended June 30, 1999. The unaudited pro forma combined
condensed statements of operations assume the merger took place on August 1,
1998.
The unaudited pro forma combined condensed financial statements reflect a
preliminary allocation of the purchase price by Registry based upon preliminary
estimates, available information and certain assumptions deemed proper by it
and, accordingly, are subject to change upon, among other things, a final
determination of required purchase accounting adjustments necessary to allocate
the purchase price to the assets acquired and liabilities assumed based on
their respective fair values which have not yet been made. Accordingly, the
purchase accounting adjustments made in connection with the development of the
unaudited pro forma combined condensed financial information appearing in this
joint proxy statement are preliminary and have been made solely for purposes of
developing such pro forma combined condensed financial information.
34
<PAGE> 44
The unaudited pro forma combined condensed financial statements have been
prepared by Registry. The unaudited pro forma combined condensed financial
statements are presented for illustrative purposes only and are not necessarily
indicative of the future financial position or future results of operations of
Registry or the results that would have actually occurred had the transaction
been in effect for the periods presented.
The unaudited pro forma combined condensed financial statements should be read
in conjunction with the historical financial statements and related notes of
Registry and Synergex.
35
<PAGE> 45
REGISTRY MAGIC INCORPORATED
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JANUARY 31, 2000
<TABLE>
<CAPTION>
Historical Pro forma
------------------------------ ---------------------------
Registry Synergex
(January 31, (December 31,
2000) 1999) Adjustments Combined
unaudited
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,958,109 $ 155,404 $ (250,000)(1) $2,863,513
Accounts receivable, net 630,416 1,955,532 -- 2,585,948
Inventories 186,667 59,307 -- 245,974
Other current assets 60,803 311,184 -- 371,987
Deferred tax asset -- 617,535 -- 617,535
- ------------------------------------------------------------------------------------------------------------------
Total current assets 3,835,995 3,098,962 (250,000) 6,684,957
Property and equipment, net 373,676 644,316 -- 1,017,992
Capitalized software development costs, net -- 2,289,957 -- 2,289,957
Excess cost over the fair value of net assets
acquired -- -- 3,784,503 (1) 3,784,503
Other assets 64,210 70,993 -- 135,203
Deferred tax asset, non-current -- 345,033 -- 345,033
- ------------------------------------------------------------------------------------------------------------------
$ 4,273,881 $ 6,449,261 $ 3,534,503 $ 14,257,645
==================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 248,668 $ 1,510,994 $ -- $ 1,759,662
Bank line of credit -- 273,389 -- 273,389
Deferred revenue -- 1,162,183 -- 1,162,183
Current portion of capital lease and notes
payable -- 464,912 -- 464,912
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 248,668 3,411,478 -- 3,660,146
- ------------------------------------------------------------------------------------------------------------------
Notes payable and capital lease obligations -- 855,526 -- 855,526
Deferred rent obligations -- 116,760 -- 116,760
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 248,668 4,383,764 -- 4,632,432
- ------------------------------------------------------------------------------------------------------------------
Redeemable common stock, 19,375 shares issued and
outstanding -- 126,162 (126,162)(1) --
- ------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock $.01 par value -- -- -- --
Series A 6% cumulative non-voting convertible
preferred stock (face value $8,000,000) -- -- 6,200,000(1) 6,200,000
Common stock 5,355 -- 1,000(1) 6,355
Additional paid-in capital 13,973,126 69,793 3,429,207(1) 17,472,126
Retained earnings (deficit) (9,953,268) 1,869,542 (5,969,542)(1)(5)(14,053,268)
- ------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,025,213 1,939,335 3,660,665 9,625,213
- ------------------------------------------------------------------------------------------------------------------
$ 4,273,881 $ 6,449,261 $ 3,534,503 $ 14,257,645
==================================================================================================================
</TABLE>
See accompanying notes to unaudited pro forma
combined condensed financial statements.
36
<PAGE> 46
REGISTRY MAGIC INCORPORATED
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS
OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 2000
<TABLE>
<CAPTION>
Historical Pro forma
---------------------------- ----------------------------
(unaudited)
Registry Synergex
(Six months (Six months
ended ended
January 31, December 31,
2000) 1999) Adjustments Combined
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
License fees $ -- $ 3,647,345 $ -- $ 3,647,345
Product sales 784,000 -- -- 784,000
Service fees -- 1,476,362 -- 1,476,362
- -----------------------------------------------------------------------------------------------------------------------
Total revenues 784,000 5,123,707 -- 5,907,707
- -----------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of revenues 550,239 1,852,354 -- 2,402,593
General and administrative 1,510,355 2,005,581 -- 3,515,936
Research and development 447,764 1,128,935 -- 1,576,699
Depreciation and amortization 109,977 183,005 378,450(2) 671,432
Interest (income) expense, net (108,192) 52,334 -- (55,858)
- -----------------------------------------------------------------------------------------------------------------------
Total costs and expenses 2,510,143 5,222,209 378,450 8,110,802
- -----------------------------------------------------------------------------------------------------------------------
Net loss before income tax benefit (1,726,143) (98,502) (378,450) (2,203,095)
Income tax benefit -- 149,011 -- 149,011
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $(1,726,143) $ 50,509 $ (378,450) $(2,054,084)
Preferred stock dividend -- -- (240,000)(3) (240,000)
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholders $(1,726,143) $ 50,509 $ (618,450) $(2,294,084)
=======================================================================================================================
Weighted average shares outstanding 5,754,494 1,000,000(4) 6,754,494
=======================================================================================================================
Net (loss) per common share (basic and $ (.30) $ (.34)
diluted)
=======================================================================================================================
</TABLE>
See accompanying notes to unaudited pro forma
combined condensed financial statements.
37
<PAGE> 47
REGISTRY MAGIC INCORPORATED
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS
OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1999
<TABLE>
<CAPTION>
Historical Pro forma
-------------------------------- ----------------------------
Registry Synergex
(Year ended (Year ended
July 31, June 30,
1999) 1999)
(unaudited) Adjustments Combined
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
License $ -- $ 7,173,777 $ -- $ 7,173,777
Product sales 2,453,285 -- -- 2,453,285
Service fees -- 3,441,272 -- 3,441,272
- --------------------------------------------------------------------------------------------------------------------------
Total revenues 2,453,285 10,615,049 -- 13,068,334
- --------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of revenues 1,523,108 3,593,747 -- 5,116,855
General and administrative 3,857,760 4,392,554 -- 8,250,314
Research and development 1,242,210 1,623,539 -- 2,865,749
Royalty expense 500,000 -- -- 500,000
Depreciation and amortization 195,821 441,405 756,900(2) 1,394,126
Interest (income) expense, net (364,019) 138,710 -- (225,309)
- --------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 6,954,880 10,189,955 756,900 17,901,735
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) before income tax benefit (4,501,595) 425,094 (756,900) (4,833,401)
Income tax benefit -- 48,676 -- 48,676
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (4,501,595) $ 473,770 $ (756,900) $ (4,784,725)
Preferred stock dividend -- -- (480,000)(3) (480,000)
==========================================================================================================================
Net income (loss) available to common shareholders $ (4,501,595) $ 473,770 (1,236,900) (5,264,725)
==========================================================================================================================
Weighted average shares outstanding 5,813,041 1,000,000(4) 6,813,041
==========================================================================================================================
Net (loss) per common share (basic and diluted) $ (.77) $ (.77)
==========================================================================================================================
</TABLE>
See accompanying notes to unaudited pro forma
combined condensed financial statements.
38
<PAGE> 48
REGISTRY MAGIC INCORPORATED
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
Pro forma adjustments to effect the merger are as follows:
1. To reflect the issuance of 1,000,000 shares of Registry common stock at an
assumed value of $3.50 per share, and the issuance of Series A 6%
cumulative convertible non-voting preferred shares (face value $8,000,000)
of Registry with an estimated value of $6,200,000 for the Synergex shares.
The assumed purchase price of $9,950,000 including estimated acquisition
costs of approximately $250,000, is based on management's estimate of the
fair value of the assets acquired and the liabilities assumed of Synergex.
2. To reflect the amortization of the excess cost over the fair value of the
net assets acquired, $3,784,503, on a straight-line basis over five years.
The amortization of goodwill is considered a permanent difference for
income taxes and accordingly no benefit has been recorded.
3. To reflect the dividend on the 779,750 shares of Series A 6% cumulative
non-voting preferred convertible shares (face value $8,000,000). The
annual dividend of $480,000 would be payable on a quarterly basis.
4. To reflect the issuance of the 1,000,000 shares of common stock as if they
were issued on August 1, 1998 for purposes of the weighted average number
of shares outstanding in connection with the calculation of net loss per
common share (basic and diluted). Registry's potentially issuable shares
of common stock pursuant to outstanding stock purchase options, warrants,
and the Series A 6% cumulative non-voting preferred convertible shares for
purposes of the adjusted pro forma net loss per common share calculation
are excluded from the pro forma diluted computation as their effect would
be antidilutive to the pro forma net loss per share.
39
<PAGE> 49
REGISTRY MAGIC INCORPORATED
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
5. To reflect the write-off of the portion of the purchase price expected to
be allocated to in-process research and development (IPR&D) of $4,100,000.
IPR&D represents the value assigned, in a transaction accounted for as a
purchase, to research and development projects of the acquired business
that have commenced but have not yet been completed at the date of
acquisition and which have no alternative future use.
The method to be used to determine the purchase price allocation to IPR&D
will be a discounted cash flow method. The calculation will be based on an
estimate of the advantage afforded to the Company with respect to future
expected revenues and cash flows as a result of the current advanced state
of the product development.
For purposes of the pro forma adjustments the $4,100,000 write-off has not
been included as an expense in the unaudited pro forma combined condensed
statement of operations for the year ended July 31, 1999, since the
write-off will not have a continuing impact on the Company's operating
results. This amount will however be charged to operations at the time the
acquisition closes.
40
<PAGE> 50
BUSINESS OF REGISTRY
INTRODUCTION
Registry was organized to design, develop, commercialize and market
proprietary products and services that exploit recent advances in speech
recognition technologies. The products currently offered or under development
by Registry have the objective to enable a user to speak into a telephone or to
a computer in a natural conversational manner and, in turn, have the product
listen, understand and respond by performing tasks or retrieving information.
Registry's initial product is the Virtual Operator(TM), a speech
driven auto-attendant and call routing turnkey product. This product is
generating limited sales for Registry and is being marketed and installed
through distributors, independent resellers and a direct sales force.
Registry has started to generate limited revenues. Registry's expenses
continue to significantly exceed its current revenues. There can be no
assurance that Registry will generate sufficient revenues to enable Registry to
operate profitably during its 2000 fiscal year or thereafter.
Registry's goals are to continue to develop and refine its speech
recognition products and services by adding additional functionality enabling
users to easily access computer automated transactions via a telephone or PC
without the need for extensive touch-tone menus or computer proficiency while
providing customers with cost- saving benefits, and to continue to develop the
architectural framework to speech-enable Internet applications.
INDUSTRY BACKGROUND
While various types of speech recognition technology have existed for
several years and the number of commercially available speech-enabled products
continue to grow, until recently, speech recognition technology and products
have been deficient and costly, thereby limiting widespread acceptance.
Historically, emphasis in the speech recognition industry has been
placed on the development of core speech recognition engine technology, rather
than on the development of speech recognition applications technology. The
speech recognition engine is the core technology upon which various
applications are based. Major companies, including IBM, Lernout & Hauspie
Speech Products, N.V., Philips, Fonix, and Lucent, have spent vast sums of
money over the last quarter century in developing core engine technology, but
have, for the most part, relegated developing applications to others. Speech
recognition engine technologies require distinct skills including speech
algorithms, statistics, digital signal processing algorithms, digital signal
processing programming, phonetics, linguistics, information theory and coding
theory.
On the other hand, creating speech recognition products requires an
entirely different set of skills including speech and word recognition,
linguistics, usability engineering, speech engine tuning, noise cancellation,
phonetics, multimedia application development and telephone application
development.
Early speech recognition applications typically required programming
of equipment to recognize a limited number of discrete words spoken by a
specific user, referred to as "speaker enrollment." These speaker-dependent
systems also tended to be sensitive to background noise and to changes in
speech patterns that resulted from an enrolled speaker being tired or excited.
Additionally, these initial speech recognition applications had limited
vocabularies and required the user to speak discretely, pausing between each
word, rather than allowing natural continuous speech. Moreover, in addition to
these performance challenges, the development of foreign language versions of
automatic speech recognition and text-to-speech synthesis (technologies for
converting textual information into synthetic speech output) has been costly
and time consuming.
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<PAGE> 51
As the number of electronic devices used by businesses and consumers
proliferate and the features and functionality of these products and services
increase and become more complex, manufacturers continually seek to increase
the ease of use and the interface between their products and the end user. The
manner and simplicity of operation of a product can have a direct effect on its
popularity, frequency of use and market acceptance. The introduction of the
"mouse" and the graphical user interface ("GUI"), each of which simplified the
use of the personal computer, are examples of how improving a product's
user-friendliness can enhance its marketability.
Speech is typically the most natural, efficient and easiest means of
human communication. With the increase in the power and capability of core
speech recognition engine technology, as well as the increase in speed and
reduction of costs in computer processors, integration of human speech as an
interface to telephone and computer applications is now feasible. Recent
advances in the accuracy of speech recognition technologies have led to
improvements in the performance and reliability of speech recognition products,
allowing for multiple languages to be developed for a specific application.
Management believes that these improvements and continuing advances in speech
recognition technologies, including the development of intuitive and
easy-to-use natural language user interfaces, are accelerating the growth of
speech-enabled products in daily business and personal use. Furthermore,
management believes that electronic devices and products incorporating speech
recognition technology will be available in an increasing variety of
applications, provided that these applications are easy to use, natural,
accurate and cost effective.
STRATEGY
Registry's overall goal is to exploit existing speech engine
technology to create advanced speech recognition products and services for
commercial business and Internet applications. This technology, among other
attributes, will (i) substantially eliminate the need for touch-tone menus,
(ii) reduce operational costs by performing repetitive tasks of live employees
and (iii) allow for the access of information from any location and at any time
through speech prompting.
Virtual Operator Product Strategy:
Until now, Registry has marketed the Virtual Operator in two
variations, the Virtual Operator, and Virtual Operator Enterprise Edition. The
Enterprise Edition differs from the standard Virtual Operator by virtue of its
ability to recognize up to 10,000 names while the standard edition can
recognize up to 1,000 names.
Registry will retain the current Virtual Operator but will build and
maintain a standard library of names to reduce the expense of installing and
tuning each individual installation. This will reduce Registry's costs and
further help Registry's dealer base.
Registry has developed proprietary technology, which allows automatic
updates of the Virtual Operator database from computer databases from the
customer's software. This eliminates the need for any manual name insertion.
Content Access Product Strategy:
Registry believes that the rapid rise of the Web together with the
large and growing number of cellular and PCS mobile phone users represents a
significant opportunity. Access to the Web has traditionally been the domain of
PCs, and the PC's multi-media capability still makes it the ideal tool for
access to Web content that is graphical or media-rich. However, ours is an
increasingly mobile society, and users will want access to information while
they are away from their PCs.
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<PAGE> 52
Registry intends to develop applications, both in cooperation with
partners and on its own, that allow mobile and fixed phone users to access
information, conduct transactions, and retrieve data from databases through
speech commands. There are two ways to do this: small-screen devices and
speech.
Small-screen Devices: There is an increasing amount of activity in the
area of wireless, mobile Internet access. Sprint PCS, for example, has released
a commercial product with a new phone. There is widespread acceptance of a
single standard for this purpose, called WAPI, or Wireless Access Protocol
Interface. This enables content providers to re-design their content for small
screen devices.
However, these devices will have some limitations. The screen itself
will be small, because customers like small physical size for their phones.
They tend to be two-handed devices that require the user to use one hand to
hold it and one to operate a stylus or button to make selections. Being visual
devices, they demand that the user actually look at them in order to use them.
Speech: A voice interface gets around many of these restrictions,
although it clearly adds others. In many ways, a speech interface is the most
natural and intuitive way to access information. It mimics something we do
every day. And a speech interface allows a caller to keep more attention to
driving, or performing other tasks.
Registry believes that a speech interface has a significant place as a
third means of accessing databases or conducting commerce. Neither a PC, nor a
PDA (Personal Digital Assistant), nor a phone is perfect for every application.
Ordering food over a PC, for example, has not taken off partly because the
process is simple enough that a PC inserts more over-head in the process than
it takes away in convenience.
In light of all this, it is Registry's intention to develop and market
software systems that will allow businesses to offer access to information and
transactions via a speech interface.
PRODUCTS
General
Registry is developing proprietary applications software products that
simulate the manner in which human beings communicate by incorporating the
following key attributes:
- SPEAKER INDEPENDENCE -- enables any person to speak and be
understood. As a result, within a geographic region or
country, Registry's technology "listens" to and can
understand different dialects, ages and genders.
- DIALOGUE DETECTION (KEY WORD SPOTTING) -- identifies the key
words for action within any naturally spoken command. For
example, a caller may say, "I'd like to speak with John Doe,
please." Dialogue Detection locates the name "John Doe" and
ignores all other words that have been spoken.
- TALK-THRU (BARGE-IN) -- allows callers to override prompts
with their voice. The computer stops speaking, "hears" the
new input and responds by going into its database to retrieve
the requested information.
- MAGIC BULLSEYE(TM) - performs automatically the desired task
based on the confidence of the understanding of the caller's
spoken command, without the need for an additional
confirmation prompt, thereby making the caller interaction
with the computer more efficient and natural.
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<PAGE> 53
Products Available or Under Development
VIRTUAL OPERATOR(R). Registry's first stand-alone product is a speech
driven auto-attendant that enables a caller to request connection to a person
or department by speaking into a telephone in a natural manner. A caller does
not need to remember the extension of the person or department to whom the
caller wishes to speak, and the caller is not required to enter touch-tones to
transfer to a desired department. Additionally, a caller can interrupt a prompt
at any time and state the caller's request without waiting for the prompt to
finish. In addition to domestic applications, Registry believes that this
product can be successful in the international market, where it can automate
telephone systems that do not support touch-tone. Depending on individual
configuration, the Virtual Operator has the ability to answer up to twelve
calls at once without placing a caller on-hold, and function seven days a week,
twenty-four hours a day.
Registry has begun customer installations of its Virtual Operator and
is generating limited sales revenue from customers within a wide variety of
industries. The Virtual Operator is sold through distributors or dealers or
directly to end-users.
CONTENT AND COMMERCE ACCESS. Registry has begun to develop
applications that enable individuals to access information and conduct
transactions using voice as an interface. The information accessed is often,
but by no means always, the same as on the Web site. These applications are
aimed at Internet content providers, e- commerce companies, and
brick-and-mortar retailers who wish to extend their distribution channel to
include a voice interface.
STRATEGIC RELATIONSHIPS
Registry continues to expand its relationships with technology
providers and distribution partners. Currently, some of these relationships
include:
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V. Registry has entered into a
distribution and licensing agreement with L&H, an international provider of
speech recognition core engine technologies. As part of this agreement,
Registry has acquired rights to incorporate certain L&H technologies within
Registry's products.
DIALOGIC CORPORATION. Registry is a Platinum Partner of Dialogic
Corporation, the largest manufacturer of computer telephone equipment. As such,
Registry is authorized to participate in a number of marketing programs in
support of the promotion of Registry's products.
INTER-TEL TECHNOLOGIES INCORPORATED. Registry has entered into a
Factored Products Distribution Agreement with Inter-Tel Technologies
Incorporated ("Inter-Tel"), a significant manufacturer and distribution company
of telephone related equipment. Under the terms of this agreement, Inter-Tel
will have the right to market and sell Registry's Virtual Operator product
through its 34 North American based sales offices.
RESEARCH AND DEVELOPMENT EXPENSES
For the fiscal year ended July 31, 1999 and the six months ended
January 31, 2000, Registry incurred research and development expenses of
$1,242,210 and $447,764 respectively.
SALES AND MARKETING
To date, marketing efforts have been conducted by Company personnel
and have focused on national and regional distribution companies and OEM
telephone switch and voicemail manufacturers.
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<PAGE> 54
Registry has established a distribution network for North America.
Sales of the Virtual Operator are being achieved primarily through independent
resellers that supply telephone and voicemail systems to businesses, as well as
through Registry's direct sales force.
SUPPLIERS AND LICENSORS
Registry's proprietary software incorporates core speech engine
technology developed by others for which Registry has obtained licenses.
Registry has entered into a four-year, non-exclusive, worldwide
license agreement, effective as of December 31, 1996 and as subsequently
amended, to use and exploit L&H's proprietary core speech recognition engine
technologies and text-to-speech technologies. L&H is an international
developer, licensor and provider of multilingual advanced speech and language
technologies and services for telephone and desktop applications. Included in
the license to Registry are all advances or improvements made by L&H to such
technologies and all foreign language uses requested by Registry which
initially include American English, Castillian Spanish, French, German,
Italian, Dutch, and in certain instances, British English and Korean. L&H has
agreed to provide technical support, marketing support and training to
Registry. Registry paid L&H an aggregate of $1,000,000 in non-refundable
prepayments under this agreement against future royalties due to L&H on sales
of certain of Registry's products incorporating L&H technology which represents
the total amount due under this agreement.
Registry's software products are designed to be used with personal
computers, specifically Intel(R) Pentium processors. Standard telephone
interface cards are also required for certain of the turnkey hardware products
if these products communicate via the telephone. Registry's telephony products
currently require telephone interface cards manufactured by Dialogic of
Parsipany, New Jersey, however there are a number of other manufacturers,
including Natural Microsystems, Rhetoric, and NewVoice from which Registry may
purchase cards on similar terms and conditions. Certain of Registry's products
also rely on special processing boards that are manufactured by Dialogic as
well. The loss of Dialogic as a source for these cards could have a material
adverse impact on Registry, since Registry might not be able to offer all the
features of a particular application if it were required to rely on other
suppliers.
Registry's personal computer desktop software products require high
quality sound cards shipped with most PCs today, as well as high quality
noise-canceling microphones available from a number of suppliers including
Andrea Electronics. Registry's telephone based products are designed to be used
with Microsoft(R) Windows. Additionally, toolkits (i.e. collections of programs
that facilitate the creation of applications software) from engine providers
enable Registry to exploit speech recognition engine technologies developed by
different vendors. Typically, Registry selects engine toolkits and speech
recognition engine technology manufactured by the same entity. Alternatively,
Registry selects a programming toolkit to complement a specific application
based on the toolkit that produces the fastest results in a high quality manner
and yields efficiencies in hardware requirements.
PROPRIETARY RIGHTS
Registry considers its software and applications as proprietary and
currently relies on a combination of copyright, trade secret and trademark laws
and license agreements to protect its intellectual property rights. Registry
also has entered and will enter into license agreements with end-users of the
products and applications, and has required all employees to enter into
confidentiality and non-disclosure agreements. Despite these precautions, it
may be possible for unauthorized third parties to copy aspects of Registry's
products or to obtain and use information that Registry regards as proprietary.
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COMPETITION
The speech recognition applications market is growing and is
characterized by intense competition. Registry's products will compete with, or
affect the sales of, many well-established companies including IBM, AT&T,
Digital Equipment, Lucent, Nortel and Unisys. These companies have
substantially greater financial, technical, personnel and other resources than
Registry and have established reputations for success in the development,
licensing and sale of their products and technology, especially the larger
organizations. Several of these competitors have the financial resources
necessary to enable them to withstand substantial price competition or
downturns in their markets. In addition, certain companies may be expected to
develop technologies or products that may be functionally similar to some or
all of those being developed by Registry. With respect to the Virtual Operator
product, Registry's competitors will likely include Phillips, Locus, Phonetics
Systems, The Sound Advantage and Vocalis. Additionally, manufacturers of
voice-mail and telephone switches may also attempt to develop their own
conversational speech recognition applications. There can be no assurance that
Registry will be able to compete successfully, that its competitors or future
competitors will not develop technologies or products that render Registry's
products and technology obsolete or less marketable, or that Registry will be
able to successfully enhance its proposed products or technology or adapt them
satisfactorily.
EMPLOYEES
Registry, as of January 31, 2000, has 9 full-time employees. Of such
employees, 2 persons are in management and finance; 1 person is engaged in
sales and marketing; 2 persons are engaged in development; 3 are in product
support, and 1 person is in administration. No employee of Registry is covered
by a collective bargaining agreement or is represented by a labor union.
Registry considers its employee relations to be good.
PROPERTIES
On May 15, 2000, Registry commenced a one year lease of 1,762 square
feet of office space in Boca Raton, Florida for a monthly base rental of $2,202,
plus Registry's proportionate share of taxes and operating expenses.
LEGAL PROCEEDINGS
Registry is not a party to any material litigation nor is it aware of
any material threatened litigation.
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<PAGE> 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - REGISTRY
The following discussion and analysis should be read in conjunction
with the financial statements of the Company and the notes thereto appearing
elsewhere herein.
OVERVIEW
Registry was organized to design, develop, commercialize and market
proprietary products and professional services that exploit recent advances in
speech recognition technologies. Registry's products currently marketed or
under development have the objective of enabling a user to speak into a
telephone or to a computer in a natural conversational manner and, in turn,
have the product listen, understand and respond by performing tasks or
retrieving information.
Registry's products and services, among other things, will (i)
substantially eliminate the need for touch-tone menus, (ii) reduce operational
costs by performing repetitive tasks of live employees and (iii) allow for the
access of information from anywhere and at anytime through speech. The
Company's business strategy is to focus on products and pricing models that
produce revenue on a transaction or recurring basis.
While we have generated limited revenues, the Company's expenses
continue to significantly exceed revenues currently and for the foreseeable
future. There can be no assurance that product installations, royalties or
licensing will generate sufficient revenues to enable the Company to operate
profitably during its 2000 fiscal year or thereafter.
The Company is subject to all of the risks inherent in the
establishment of a young business enterprise. To address these risks, the
Company must, among other things, increase the number of key customer
installations, enter into successful distribution arrangements, respond to
competitive developments, and attract, retain and motivate qualified personnel.
Failure to achieve one or more of these goals could have a material adverse
effect upon the Company's business, operating results and financial condition.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 2000 COMPARED TO SIX MONTHS ENDED JANUARY 31, 1999
Since its inception in October 1995, the Company's efforts have been
principally devoted to research, development and design of products, marketing
activities and raising capital.
For the six months ended January 31, 2000 product sales were $784,000
as compared to $1,070,562 for the six months ended January 31, 1999. The
decrease in sales resulted from no joint development projects and licensing
fees and a corporate restructuring to prepare for the planned merger with
Synergex. As part of the restructuring, certain sales staff and other staff not
directly focused on strategic projects were terminated.
For the six months ended January 31, 2000, cost of goods sold amounted
to $550,239 compared to $332,649 for the six months ended January 31, 1999 an
increase of $217,590, representing hardware costs associated with the Company's
Virtual Operator. Cost of goods sold increased as a percent of sales due to a
proportionate increase in lower margin hardware sales. For the six months ended
January 31, 2000 the Company increased its inventory reserve by $28,589.
General and administrative expense decreased by $259,331 from
$1,769,686 for the six months ended January 31, 1999 to $1,510,355 for the six
months ended January 31, 2000. The reduction in general and administrative
expense was due to decreased administrative and sales staff.
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<PAGE> 57
No royalty expense was incurred for the six months ended January 31,
2000 compared to $500,000 for the six months ended January 31, 1999.
Research and development expenses for the six months ended January 31,
2000 were $447,764 compared to $763,427 for the six months ended January 31,
1999, a decrease of $315,663. The Company has reduced development staff in
order to focus on strategic product development. Research and development
expenses incurred in the course of establishing technological feasibility of
the Company's software applications have been charged to operations pursuant to
Statement of Financial Accounting Standards "SFAS" No. 86 "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed".
Depreciation expense increased $20,589 for the six months ended
January 31, 2000 to $109,977 from $89,388 for the six months ended January 31,
1999 primarily due to the Company purchasing additional computer hardware
during the 1999 fiscal year.
Interest income, net for the six months ended January 31, 2000
amounted to $108,192 compared to interest income of $217,417 for the six months
ended January 31, 1999. The decrease in interest income was due primarily to
the reduction in the Company's available cash balances.
YEAR ENDED JULY 31, 1999 COMPARED TO YEAR ENDED JULY 31, 1998
For the year ended July 31, 1999, product sales were $2,453,285
compared to $517,135 for the year ended July 31, 1998. Registry intends to
continue to focus its efforts on enhancing its Virtual Operator products. Sales
of Registry's Virtual Operator increased in volume through Registry's dealer
network and direct sales force. For the year ended July 31, 1998 Registry
recorded $450,000 of product revenue from a non-refundable royalty from Lernout
& Hauspie Speech Products. No future revenue has been or is expected to be
generated from this product. The costs associated with this product were
expensed as research and development expense.
During the year ended July 31,1998 Registry performed consulting
services for L&H resulting in $367,975 in revenues. For the year ended July 31,
1999 no such consulting services were performed.
For the year ended July 31, 1999, cost of sales amounted to $1,523,108
representing hardware costs associated with Registry's Virtual Operator. For
the year ended July 31, 1998, cost of sales amounted to $59,527 on sales of
hardware representing costs associated with Registry's Virtual Operator.
Registry incurred no cost of sales for the above mentioned royalty from Lernout
& Hauspie Speech Products and such costs were expensed as research and
development expenses as discussed below.
General and administrative expense increased by $2,326,443 to
$3,857,760 from $1,531,317 for the year ended July 31, 1998. Registry has
incurred additional salary and commission expense of $801,764 in the current
year for additional employees hired to market and sell the Virtual Operator,
sales commissions and additional office support staff. For the year ended July
31, 1999 Registry recorded a bad debt expense of $342,366 no such expense was
recorded for the year ended July 31, 1998. Registry incurred an additional
$258,419 of expenses for travel and tradeshows to market Registry's products.
Effective October 1, 1999 Registry has significantly decreased its
administrative and sales staff in order to reduce expenses.
Research and development expenses for the year ended July 31,1999 were
$1,242,210 compared to $1,076,567 for the year ended July 31,1998, an increase
of $165,643. These increases were due to continued enhancement of Registry's
Virtual Operator product, the development of other product and service
prototypes, and expenses related to Registry's performance of development
contracts. Registry does not expect these costs to increase significantly in
the upcoming fiscal year ended July 31, 2000. Research and development expenses
incurred in the course of establishing technological feasibility of Registry's
software applications have been charged to operations pursuant to Statement of
Financial Accounting Standards SFAS No. 86 Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed.
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Royalty expenses for the year's ended July 31, 1999 and 1998 were
$500,000 and $500,000 respectively, which represent non-refundable payments on
royalties to use certain speech recognition engine technologies and text to
speech technologies, such amounts also include non-recurring engineering fees
for certain software object code and software source code for the development
and distribution of software products that utilize speaker verification and
file encryption technologies. Registry expensed such non-recurring engineering
fees in the absence of any contracts for the sale of its products at the time
of payment.
Depreciation expense increased $94,537 for the year ended July 31,
1999 to $195,821 from $101,284 for the year ended July 31, 1998, primarily due
to Registry purchasing additional computer hardware.
Interest income net for the year ended July 31, 1999 amounted to
$364,019 compared to $76,099 of interest income net for the year ended July 31,
1998. The increase in interest income was due to the completion of Registry's
IPO in June 1998 and receipt of approximately $11,300,000 in net proceeds. Such
funds are invested in money market accounts and high-grade short-term corporate
paper.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 2000, the Company had $2,958,109 in cash and cash
equivalents. The Company does not have any available lines of credit. Since
inception, and until completion of the Company's public offering in June 1998,
the Company financed its operations through loans from the Company's Chairman
and his wife and from private placements of both debt and equity. On June 2,
1998, the Company closed an initial public offering of common stock. The
Company offered and sold 1,600,000 shares of common stock at an initial public
offering price of $7.25 per share, raising proceeds, net of offering costs, of
approximately $9,900,000. On June 26, 1998 the Company also closed on the
underwriting over-allotment. The Company sold an additional 220,000 shares of
common stock at the initial public offering price of $7.25 per share, raising
additional proceeds, net of offering costs of approximately $1,400,000.
Net cash used in operating activities decreased by $964,822 to
$1,952,649 for the six months ended January 31, 2000 from $2,917,471 for the
six months ended January 31, 1999. Net cash used in operating activities
primarily related to the Company's research and development and sales and
marketing efforts. Net cash used in investing activities during the six months
ended January 31, 2000 and 1999 was $385 and $247,691 respectively. The
decrease in expenditures primarily related to a decrease in purchases of
computer equipment.
Net cash used in financing activities during the six months ended
January 31, 2000 amounted to $57,151. The Company repurchased 600,000 shares of
common stock from two former employees. The Company also received $2,850 from
the exercise of stock options.
IMPACT OF THE "YEAR 2000" ON REGISTRY PRODUCTS
Computers, software and other equipment utilizing microprocessors that
use only two digits to identify a year in a date field may be unable to process
accurately certain date-based information at or after the year 2000. Registry
recognizes the need to insure that its operations will not be adversely
affected by "Year 2000" software failures. Software failures due to processing
errors potentially arising from calculations using the year 2000 date are a
recognized risk, and Registry is addressing this issue on several different
fronts.
Registry is in contact with its suppliers to assess their compliance.
Registry believes based on representations from its suppliers that there
products are year 2000 compliant, but there can be no assurance that there will
not be a material adverse effect on Registry if third parties do not convert
their systems in a timely manner and in a way that is compatible with
Registry's systems. Registry believes that its actions with suppliers will
minimize these risks.
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Through July 31, 1999, Registry has not incurred material expenses
relating to "Year 2000" compliance efforts and believes that the expenses
associated with completing its "Year 2000" compliance plans will not have a
material adverse impact on Registry's operations. Internal and external
expenses specifically associated with modifying internal-use software for the
"Year 2000" will be expensed as incurred. Registry's current estimates of the
amount of time and expenses necessary to implement and test its computer
systems are based on the facts and circumstances existing at this time.
Nevertheless, achieving "Year 2000" compliance is dependent on many factors,
some of which are not completely within Registry's control. Should either
Registry's internal system or the internal systems of one or more significant
vendors or suppliers fail to achieve "Year 2000" compliance, Registry's
business and its results of operations could be adversely affected.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, accounting for derivative instruments and hedging activities. SFAS No. 133
requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedge risk, or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Pursuant to SFAS No. 137, the
effective date has been changed to all fiscal quarters of fiscal years
beginning after June 15, 2000.
Historically, the Registry has not entered into any derivative
contracts in order to hedge existing risks or for speculative purposes.
Accordingly, Registry does not expect adoption of the new standards to effect
its financial statements.
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DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRY
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of our current
directors and executive officers, the principal offices and positions held by
each person. The executive officers are elected annually by the board of
directors. The executive officers serve terms of one year or until their death,
resignation or removal by the board of directors. There are no family
relationships between any of the directors and executive officers. In addition,
there was no arrangement or understanding between any executive officer and any
other person pursuant to which any person was selected as an executive officer.
The directors and executive officers of Registry are as follows:
<TABLE>
<CAPTION>
Name Age Position With Registry
- ---- --- ----------------------
<S> <C> <C>
Lawrence Cohen 55 Chairman of the Board, Acting Chief
Executive Officer
Cornelia Eldridge (1)(2) 58 Director
Renney Senn (1)(2) 52 Director
David Kaye 63 Director
Martin Scott 32 Treasurer and Secretary
</TABLE>
- ----------------
(1) Member of the Audit Committee of the board of directors.
(2) Member of the Compensation Committee.
Registry's board of directors held meetings and took action by
unanimous written consent nine times during 1999.
The Registry audit committee, consisting of Cornelia Eldridge and
Renney Senn met ____ times in 1999. The functions of the audit committee are to
review annual and quarterly financial statements, meet with Registry's
independent auditors and address accounting matters or questions raised by the
auditors.
The compensation committee of the Registry board of directors,
consisting of Cornelia Eldridge and Renney Senn, met _____ times in 1999. The
functions of the compensation committee are to review compensation of officers
and employees and administer and award options under all stock option plans of
Registry.
LAWRENCE COHEN has served as Chairman of the Board since he founded
Registry in October 1995. Since February 2000, Mr. Cohen has served as acting
Chief Executive Officer of Registry. Mr. Cohen has been engaged in providing
financial consulting and merchant banking services to early-stage companies for
more than the past 25 years. He has served as Chairman of the Board and Chief
Executive Officer of Bristol Retail Solutions, Inc. (OTCBB: BRTL), a
point-of-sale equipment distributor, since he co-founded such company in April
1996. He is also the co-founder of Apollo BioPharmaceuticals, Inc., a
privately-held company in Massachusetts engaged in the development of
neuroprotective pharmaceuticals, and currently Chairman of the Board of McLaren
Automotive Group, Inc., formerly ASHA Corp. (Nasdaq:MCLN), an automotive design
and motorsports group. Between November 1990 and September 1996, Mr. Cohen
served as Chairman of the Board of BioTime, Inc. (Nasdaq:BTIM), a biotechnology
firm he founded to develop an artificial blood plasma substitute. He was
co-
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founder of Cryomedical Sciences (Nasdaq:CMSI), a low temperature surgery
company, and served as its President from November 1990 to November 1991.
CORNELIA ELDRIDGE has served as a director of Registry since October
1998. Ms. Eldridge is President of Eldridge Associates, Inc., a
management-consulting firm she founded in 1981. Ms. Eldridge currently serves
on the Board of Directors of DE Frey, Inc., a financial services firm, and
SusComm, the largest assembler and reseller of IBM mid-range computers.
RENNEY SENN has served as a director of Registry since September 1999.
Mr. Senn joined Holocomm Systems, Inc. as its president, CEO and board chairman
in June 1998. Previously, he was the President, CEO and principal founder of
FirstWorld Communications, formerly SpectraNet International formed in 1993.
FirstWorld is a significant competitive local exchange carrier ("CLEC") that
has recently acquired eight Internet Service Providers in California, Texas,
Utah, Colorado and Oregon and has a private market value of approximately $1
billion. In January 1998 Mr. Senn left the company as part of a purchase of
controlling interest in FirstWorld Communications by Enron Corporation of
Houston, Texas and Donald Sturn.
DAVID KAYE has served as a director of Registry since February 2000.
Since January 2000, Mr. Kaye has served as President and Chief Executive
Officer of Bristol Retail Solutions, Inc. (Nasdaq:BRTL), a point-of-sale
equipment distributor. From January 1999 until December 1999, he was the Vice
President of Corporate Finance for Kann Capital Ltd., an investment banking
firm. From March 1998 until December 1998, he served as Chief Financial Officer
of Tech Electro Industries, Inc., a publicly traded holding company operating
principally in the information technology sector. From July 1997 to February
1998, Mr. Kaye served as President of 433, Inc., a corporation offering
mediation services to delinquent federal and state taxpayers. Until July 1997
he served as President and Chief Executive Officer of Kaye Kotts Associates,
Inc., a corporation offering mediation services to delinquent federal and state
tax payers. In February 1998, Kaye Kotts Associates, Inc. filed bankruptcy
under Chapter 7 of the bankruptcy code.
MARTIN SCOTT, a certified public accountant, has served as Secretary
and Treasurer of Registry since October 1997. From June 1996 until October
1997, he was employed as an Audit Supervisor by Millward & Co., CPAs. From
October 1995, until June 1996, Mr. Scott served as Controller of ERD Waste
Corp. (Nasdaq:ERDI), a waste disposal company. Prior thereto, from January
1995, he was employed as a Senior Accountant with the firm of Richard A. Eisner
& Co., LLP. From January 1991 to January 1995, he was employed as a Senior
Accountant with the firm of Feldman Radin & Co., P.C. Mr. Scott has assumed a
position as Chief Financial Officer of Geotec Thermal Generators, Inc. and will
not be an officer of Registry or the combined company following completion of
the merger.
EXECUTIVE COMPENSATION
The Summary Compensation Table shows certain compensation information
for services rendered in all capacities during each of the last three fiscal
years by the Chief Executive Officer and those executive officers who received
salary, bonus or other compensation in excess of $100,000 (these individuals
are collectively referred to herein as the "Named Executive Officers"). The
following information for the Named Executive Officers includes the dollar
value of base salaries, bonus awards, the number of stock options granted and
certain other compensation, if any, whether paid or deferred.
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<PAGE> 62
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
------------------- -------------------
Restricted Securities
Name and Principal Other Annual Stock Underlying
Position Year Salary (1) Bonus Compensation Awards Options/SARs(#)
- -------- ---- ---------- ----- ------------ ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence Cohen 1999 $115,500 -0- -0- None -0-
Chairman and acting CEO 1998 $100,000 -0- -0- None -0-
1997 $ 67,375 -0- -0- None 100,000
Walt Nawrocki 1999 $176,458 -0- -0- None -0-
Former President and 1998 $175,000 -0- -0- None -0-
Chief Executive Officer 1997 $175,000 -0- -0- None 200,000(1)
Neil Bernstein 1999 $114,584 -0- -0- None -0-
Former V.P. Engineering 1998 $125,000 -0- -0- None -0-
and Production 1997 $ 62,500 -0- -0- None 50,000(1)
</TABLE>
- ---------------
(1) Mr. Nawrocki's and Mr. Bernstein's stock options have been canceled as
of October 28, 1999 pursuant to settlement agreements between Mr.
Nawrocki and Mr. Bernstein and Registry.
OPTION GRANTS IN THE LAST FISCAL YEAR
There were no grants of stock options to the Named Executive Officers
pursuant to Registry's Stock Option Plans during the fiscal year ended July 31,
1999.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND THE FISCAL YEAR-END
OPTION VALUES
Set forth below is information with respect to the unexercised options
to purchase Registry's common stock held by Named Executive Officers at July
31, 1999. No options were exercised during fiscal 1999.
<TABLE>
<CAPTION>
Securities Value
of Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Number of at FY-End (#) at FY-End ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
- ---- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Lawrence Cohen, Chairman and None None 100,000/0 $0/0(1)
acting Chief Executive Officer
Walt Nawrocki(2) None None 200,000/0 $0/0(1)
Former President and
Chief Executive Officer
Neil Bernstein(2) None None 50,000/0 $0/0(1)
Former Vice President
</TABLE>
- ----------------
(1) No options were in-the-money at July 31, 1999.
(2) Mr. Nawrocki's and Mr. Bernstein's stock options have been canceled as
of October 28, 1999 pursuant to settlement agreements between Mr.
Nawrocki and Mr. Bernstein and Registry.
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EMPLOYMENT AGREEMENT
Effective December 21, 1997, Registry entered into a three-year
employment agreement with Lawrence Cohen providing for base annual salary of
$115,500. The employee may receive annual bonuses at the discretion of
Registry, with bonuses to be determined by the Compensation and Audit
Committee. No formula or criteria have been specifically determined. The
agreement provides for severance equal to one year's salary in the event of (i)
non-renewal of the agreement upon expiration other than for cause or (ii) a
change of control of Registry as a result of which the employee is not retained
by new management on a comparable basis. In addition, the agreements contain
confidentiality provisions and 12-month post termination non-competition
restriction which may be imposed by Registry provided the employee receives a
lump sum payment equal to one year's salary within 30 days of termination of
employment. Under Florida law, a court of competent jurisdiction may determine
not to enforce such non-competition restrictions or partially enforce or modify
such provisions.
COMPENSATION OF DIRECTORS
Our directors who are employees or otherwise receive compensation from
us do not receive additional compensation for service as directors. Outside
directors each receive $500 per meeting for attending meetings of the Board of
Directors. In addition, directors will be reimbursed for expenses incurred in
attending such meetings and will be indemnified against any claims arising out
of their status as a director of Registry, including claims arising under
federal and state securities laws. In addition, directors are eligible to
receive options under Registry's 1997 and 1999 Stock Option Plans.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All transactions between Registry and its officers, shareholders and
each of their affiliated companies have been made on terms no less favorable to
Registry than those available from unaffiliated parties. In the future,
Registry intends to handle transactions in a similar nature on terms no less
favorable to Registry to those available from unaffiliated parties. In
addition, any forgiveness of loans must be approved by a majority of Registry's
independent directors who do not have an interest in the transaction and who
have access, at Registry's expense, to Registry's counsel or independent
counsel.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF REGISTRY
The following table sets forth certain information regarding the
beneficial ownership of Registry's common stock, its only class of outstanding
voting securities as of May __, 2000, by (i) each of Registry's directors and
executive officers, and (ii) each person or entity who is known to Registry to
own beneficially more than 5% of the outstanding common stock with the address
of each such person or entity.
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Officer or Director Beneficial Ownership(2) Percent of Class(2)
- ------------------- ----------------------- -------------------
<S> <C> <C>
Lawrence Cohen 1,790,000(3) 32.8%
Cornelia Eldridge 165,000(4) 3.0%
Renney Senn 25,000(5) Less than 1%
David Kaye 5,000(6) Less than 1%
Martin Scott 16,535 Less than 1%
All Officers and Directors as a
group (five persons) 2,001,535(7) 35.4%
</TABLE>
- ---------------
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<PAGE> 64
(1) Unless otherwise indicated below, the address of each person is c/o
Registry Magic Incorporated, 6251 Park of Commerce Boulevard, Boca
Raton, Florida 33487.
(2) Shares are owned directly and beneficially unless stated otherwise. A
person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon the
exercise of options.
(3) Includes (i) 100,000 shares of common stock underlying immediately
exercisable options and (ii) 1,690,000 shares owned by Alliant.
Alliant is wholly owned by East Ocean Limited Partnership, as to which
Mr. Cohen is the general partner and members of Mr. Cohen's family are
limited partners. Mr. Cohen disclaims beneficial ownership with
respect to the limited partnership interest owned by members of his
family.
(4) Includes 125,000 shares of common stock underlying vested options at
exercise prices ranging from $2.00 to $3.75.
(5) Includes 25,000 shares of common stock underlying options immediately
vested on October 2, 1999, at an exercise price of $2.00.
(6) Includes 5,000 shares of common stock underlying options exercisable at
$3.75.
(7) See notes 3-6 above.
DESCRIPTION OF CAPITAL STOCK
Registry is presently authorized to issue 30,000,000 shares of $0.001
par value common stock and 5,000,000 shares of preferred stock, $0.01 par value
of which all 5,000,000 shares are undesignated. As of the date of this proxy
statement and prospectus there were outstanding 5,355,405 shares of common
stock, warrants to purchase up to 160,000 shares of common stock and options to
purchase up to _______ shares of common stock.
Following the merger and adoption of the Amended Articles of
Incorporation, Registry will have 779,750 shares designated as Series A
convertible preferred stock which will be outstanding and held by Synergex
shareholders.
COMMON STOCK
Holders of shares of common stock are entitled to one vote per share
on all matters submitted to a vote of the shareholders. Except as may be
required by applicable law, holders of common stock will not vote separately as
a class, but will vote together with the holders of other classes of capital
stock. There is no right to cumulate votes in the election of directors. A
majority of the issued and outstanding common stock is required to effect
certain fundamental corporate changes such as liquidation, merger or amendment
of the Articles of Incorporation.
Holders of shares of common stock are entitled to receive dividends,
if, as, and when declared by the board of directors out of funds available
therefore, after payment of dividends required to be paid on outstanding shares
of preferred stock. Upon liquidation, holders of shares of common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to the liquidation preference rights of any outstanding shares of
preferred stock. Holders of our common stock have no conversion, redemption or
preemptive rights. The rights of the holders of common stock will be subject
to, and may be adversely affected by, the rights of the holders of preferred
stock. The outstanding shares of common stock are and all shares of common
stock issued in the merger and the exchange will be, fully paid and
nonassessable.
PREFERRED STOCK
The board of directors has the power, and will have the power under
the Amended Articles of Incorporation, without further action by the holders of
the common stock, to designate the relative rights and preferences of our
preferred stock, when and if issued. Such rights, privileges and preferences
could include preferences as to liquidation, redemption and conversion rights,
voting rights, dividends or other preferences, any of which may be dilutive of
the interest of the holders of the common stock.
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Additional classes of preferred stock may be designated and issued
from time to time in one or more series with such designations, voting powers
or other preferences and other rights or qualifications as are determined by
resolution of the board of directors of Registry. The board of directors of
Registry has designated the Series A convertible preferred stock which will be
issued to Synergex shareholders in the merger, once the Amended Articles of
Incorporation are filed and become effective.
Series A Convertible Preferred Stock
In the merger, we will issue 779,750 shares of Registry's newly
created and designated Series A convertible preferred stock to the Synergex
shareholders.
Preferred Rank
All shares of common stock shall be of junior rank to all Series A
preferred stock in respect of the preferences, if any, as to distributions and
payments upon the liquidation, dissolution and winding up of Registry. The
rights of the shares of common stock shall be subject to the preferences and
relative rights of the Series A preferred stock.
Dividends
The holders of the Series A preferred stock shall be entitled to
receive a 6% annual cumulative dividend, payable quarterly in cash. Dividends
shall be calculated from the date of issuance and payable, in each case
quarterly beginning on the ____ day of ___________ of each year; provided,
however, that beginning the fifth quarter after the date of issuance, the
dividend may be paid either in cash or, at the option of Registry, in
registered common stock of Registry, using a price per share of common stock
equal to the Conversion Market Value as defined below. The right to receive
dividends in cash during the first four quarters after the date of issuance may
be waived by any holder of Series A preferred stock, as to the dividends due to
such holder, upon request to Registry in writing at least five business days
prior to a record date. Dividends shall be paid to recordholders of shares of
Series A preferred stock as of the close of business on the record date for
such dividend, which shall be the first day of each month (whether or not a
business day) as the case may be, next preceding the dividend payment date. The
right of the holder of shares of Series A preferred stock as of the dividend
record date to the relevant dividend shall not be affected by the subsequent
transfer or cancellation of such shares; such dividend being payable to the
holder as of the dividend record date notwithstanding such transfer or
cancellation. No dividends may be paid on any common stock, unless and until
all accrued and unpaid dividends have been made to the holders of Series A
preferred stock.
Conversion
During each of the thirteenth (13th) through sixty-second (62nd)
months after the date of issuance, any original holder or subsequent holder of
Series A preferred stock shall be entitled to convert up to an aggregate of two
percent (2%) (the "Monthly Allowance") of the original total stated value of
all Series A preferred stock held by the original holder into such number of
fully paid and nonassessable registered shares of common stock, par value $.001
per share (rounded to the nearest whole share of common stock), as is
determined by dividing the stated value of the Series A preferred stock by the
conversion price of the common stock in effect at the date of conversion. The
conversion price of the common stock shall be the lesser of (i) four dollars
($4.00) per share or (ii) the conversion market value of the common stock on
the date of conversion. The holder may effect a conversion by delivery of a
conversion notice to Registry. The conversion notice shall be accompanied by
the number of shares of Series A preferred stock being converted. "Conversion
market value" of the common stock is defined as the average of the closing bid
and asked price of Registry's common stock for the ninety (90) trading day
period immediately preceding the date of conversion; provided, however, that
the conversion market value of the common
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<PAGE> 66
stock shall not be less than two dollars ($2) per share. The date of conversion
is the date RMAG receives the conversion notice.
Any Series A preferred stock not converted up to the monthly allowance
can be rolled over to the following month, increasing the monthly allowance
during the following month for such holder; provided, however, that the
allowable conversion rate for any original holder or subsequent holder, after
such adjustment, shall not exceed an aggregate of thirty percent (30%) of the
original total stated value of all Series A preferred stock held by the
original holder in any one year. Notwithstanding the percentage limitations
described herein, at any time during the sixty-third (63rd) through
seventy-second (72nd) months after the date of issuance, the holder may convert
all remaining Series A preferred stock held by such holder. All unconverted
Series A preferred stock shall be converted on or before the end of the
seventy-second (72nd) month after the date of issuance, at the conversion
price.
Voting
Holders of Series A preferred stock shall have no voting rights,
except as required by law, including but not limited to the Florida Business
Corporation Act, and as expressly provided in Registry's Articles of Amendment.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS AND FLORIDA LAW
Our board of directors will have the authority to issue shares of new
classes of preferred stock and to determine the rights, preferences,
privileges, designations and limitations of any preferred stock it may issue,
including the dividend rights, dividend rate, conversion rights, voting rights,
terms of redemption and other terms or conditions. This authority could make it
more difficult for a person to engage in, or discourage a person from engaging
in, a change in control transaction without the cooperation of management of
Registry.
We have authority under Section 607.0850 of the Florida Business
Corporation Act to indemnify our directors and officers to the extent provided
for in such statute. Our Articles of Incorporation provide that we shall
indemnify and may insure our officers and directors to the fullest extent
permitted by law.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Florida law. In addition,
each director will continue to be subject to liability for:
- violations of criminal laws, unless the director had
reasonable cause to believe his or her conduct was lawful or
had no reasonable cause to believe his or her conduct was
unlawful;
- deriving an improper personal benefit from a transaction;
- voting for or assenting to an unlawful distribution; and
- willful misconduct or conscious disregard for our best
interests in a proceeding by or in our right to procure a
judgment in our favor or in a proceeding by or in the right
of a shareholder.
The statute does not affect a director's responsibilities under any
other law, such as the Federal securities laws.
The effect of the foregoing is to require us to indemnify our officers
and directors for any claim arising against such persons in their official
capacities if such person acted in good faith and in a manner that he or she
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reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
Registry pursuant to the foregoing provisions, we have been informed that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
The merger agreement provides that Synergex will, from and after the
effective date of the merger, indemnify, defend, and hold harmless the present
and former officers, directors, employees, and agents of Registry in respect of
acts or omissions occurring on or before the effective date of the merger, in
each case to the full extent Registry is permitted under Florida law, the
amended articles of incorporation, Synergex articles of incorporation, or the
Synergex bylaws or any indemnification agreement to which Synergex is a party,
in each case as in effect on the date of the merger agreement.
Registry may be subject to the control-share acquisition provisions of
Section 607.0902 of the Florida Act.
The control share acquisition provisions generally provide that
control shares of an issuing public corporation acquired in a control share
acquisition have no voting rights until voting rights are granted by a
resolution approved by a majority of shares entitled to vote excluding control
shares. Control share acquisition provisions apply to "Issuing Public
Corporations" which are defined to include corporations with: (i) 100 or more
shareholders, excluding all nominees or brokers; (ii) principal offices in
Florida; and (iii) more than 10% of its shares owned by Florida residents.
"Control Shares" are defined as shares that, when acquired and added
to other shares owned by a person, enable that person to exercise voting power
with respect to shares of an Issuing Public Corporation within the ranges of
one-fifth to one-third, one-third to one-half, and one-half or more of the
outstanding voting power. This term does not include all shares owned by the
person but only those shares acquired to put the shareholder "over the top"
with respect to that particular range. The Florida Act provides that shares
acquired within any 90-day period either before or after purchase are
considered to be one acquisition. Approval of voting rights requires: (i)
approval by each class entitled to vote separately by majority vote and (ii)
approval by each class or series entitled to vote separately by a majority of
all votes entitled to be cast by that group excluding all Control Shares.
If an acquiring person proposes to make or has made a control share
acquisition, he or she may deliver to the Issuing Public Corporation an
acquiring person's statement ("APS"). The acquiring person may then request
that the Issuing Public Corporation call a special meeting of the shareholders
at the acquiring person's expense to consider granting rights to the Control
Shares. If no APS has been filed, any Control Shares acquired in a Control
Share acquisition by such person may, after 60 days has passed since the last
acquisition of Control Shares, be redeemed at their fair market value. If an
APS is filed, the shares are not subject to redemption unless the shares are
not accorded full voting rights by shareholders. The effect and intent of the
control share acquisition provision is to deter corporate takeovers. Therefore,
it is more likely than not that control of Registry will remain in the hands of
the existing principal shareholders.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company, 40 Wall Street, New York, New
York 10005, serves as the transfer agent and registrar for our common stock and
will be the transfer agent for Synergex common stock. _____________ will act as
the initial transfer agent for the Series A convertible preferred stock.
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BUSINESS OF SYNERGEX
GENERAL
Synergex International Corporation ("Synergex") develops and markets
cross-platform application development and integration software and services
that enable independent software vendors ("ISVs") and businesses to create
portable, scalable client/server and internet business-to-business solutions.
Synergex's software products are available for numerous platforms including
Windows, VMS and various versions of UNIX. Synergex's Professional Services
Group offers worldwide consulting, programming, and educational services. More
than one million end-users of ISVs in 50 states and 80 countries rely on
applications built with Synergex's software tools and services.
PRODUCTS AND SERVICES
At present, the majority of Synergex's products and services are based
upon internally developed technology. Synergex believes that this decreases the
amount of time required to respond to market demand, differentiates its
products and services from those of its competitors in terms of features and
quality, provides some protection against competition with regard to Synergex's
installed customer base, and decreases its dependence on third-party suppliers.
Synergy/DE is a comprehensive development and deployment environment
that provides advanced, distributed client/server and Internet solutions for
corporate IT and ISV application developers. Unlike many competitors,
Synergy/DE Professional Series and xfSeries tools provide a development
environment that is scalable from one user to thousands. Synergy products are
ideally suited to large, complex business applications that are capable of
automating an entire organization's business processes. Portable to most
leading software and operating environments, Synergy/DE gives developers great
freedom in development and deployment platforms, databases and interface
standards. Synergy/DE products allow the rapid, reliable development and
testing of custom applications. Synergy/DE is an established product suite that
enables thousands of business applications to run on a myriad of different
computing platforms, incorporating leading databases and taking advantage of
new technologies.
MARKETING, SALES AND DISTRIBUTION
Synergex sells its products and services both directly to corporate
end users, through an internal sales force, and indirectly through ISVs.
Synergex selects ISVs based on general experience, and trains the ISVs (as well
as certain end-users) on Synergex's software products and technologies at
educational and training sessions held at Synergex's headquarters and
elsewhere.
Synergex's reseller agreements grant resellers non-exclusive rights to
distribute Synergex's products. Each reseller is generally responsible for
supporting its end-user customers, while Synergex provides technical support.
To support its sales efforts, Synergex conducts marketing programs
which include direct mail, public relations, advertising, a global Web site
(www.synergex.com) and selected other marketing programs. Synergex also
sponsors meetings for its customers to provide them additional information and
skills to market Synergex's products effectively. The sales, support and
service functions for Synergex's products are provided principally through
Synergex's Gold River headquarters.
During 1999, international revenues accounted for 24% of Synergex's
total revenues. International sales may be subject to government controls and
other risks, including export licenses, federal restrictions on the export of
critical technology, changes in demand resulting from currency exchange
fluctuations, political instability, trade restrictions and changes in tariffs.
To date, Synergex has experienced no material difficulties due to these
factors.
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CUSTOMERS
Synergex's customer base currently includes ISVs, distributors, and
corporate enterprises, occupying niches from the mid-market range to the
Fortune 500 level. These entities are professional business application
developers and IT managers who design and develop business applications
implementing Synergy/DE core technologies for industries such as
transportation, distribution, retail, manufacturing, and healthcare.
Synergex currently sells to over 500 ISVs and corporate end-user
organizations representing a variety of vertical industries that are selling or
using Synergy/DE-based applications. The majority of Synergex's ISV customers
write vertical market packages and sell them in a mix of local, regional,
national and international markets. Synergex's corporate end-user customers
generally develop software for in-house use and have their own management
information services ("MIS") staffs.
There currently are more than one million end-users of Synergex
products in all 50 states and more than 80 nations. During 1999, no single
customer accounted for more than 8% of Synergex 's revenues.
CUSTOMER AND RESELLER SUPPORT AND SERVICES
Synergex offers its resellers and end-user customers standard support
and upgrade services. The agreements that provide for these services vary among
end users and ISVs, but generally provide that for an annual fee Synergex will
provide customer support services by e-mail, fax or telephone. These agreements
also generally provide for software upgrades to the licensed products as they
are generally released by Synergex. Synergex also offers training, custom
engineering and pre- and post-sale services to end users and ISVs. Professional
services include web enablement and hosting, network design consulting, product
installation, training, custom application integration and systems
implementation.
PRODUCT AND SERVICE DEVELOPMENT
Synergex has invested significant resources into the development of
new products and services and expects to continue to make these investments in
the future. Synergex also plans to continue to enhance its products with new
releases that provide additional features and to make its products and services
available on additional hardware and operating system platforms. Synergex's
development personnel are located at Synergex's Gold River headquarters.
COMPETITION
The market for Synergex's products and services is intensely
competitive and subject to rapid technological change and evolving standards.
Synergex's direct competition includes software companies with specialized
product offerings such as Plural, Unify, Progress and Snickleways Interactive.
Synergex believes its long-term success will depend in part on its ability to
be a leader in developing and offering products that meet emerging industry or
market opportunities, to offer a broad range of business-to-business solutions
and high-performance, Internet and multi-platform products, to maintain strong
customer support and sufficient distribution channels and to offer competitive
products and services.
Although Synergy/DE competes intensely with other companies for new
application development, Synergex management believes that Synergex has a
competitive advantage with regard to existing customers of Synergy/DE
applications in that Synergex's customers have invested many years in their
development and maintenance, and a rewrite would be time-consuming and costly.
In addition some major software providers such as Microsoft have
incorporated functionality into their product offerings similar to that
provided by Synergex's products and therefore compete with Synergex indirectly
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by eliminating the need for their customers to identify and purchase separate
solutions. To the extent such companies provide such functionality or products,
Synergex's business, financial condition and results of operations could be
materially adversely affected.
A variety of potential actions by any of Synergex's competitors,
including reduction of product prices, increased promotion, announcement or
accelerated introduction of new or enhanced products, product giveaways or
product bundling could have a material adverse effect on Synergex's business,
financial condition and results of operations. Large companies that compete
with Synergex or that may compete with it in the future have substantial
technical and financial resources that allow them to develop, enhance or
acquire competitive products, and substantial marketing resources and presence
to promote these products aggressively. Moreover, Synergex's current and
potential competitors may respond more quickly than Synergex to new or emerging
technologies or changes in customer requirements. Accordingly, it is possible
that current or potential competitors could rapidly gain significant market
share.
PROPRIETARY RIGHTS
Synergex regards its software products as proprietary and relies
primarily on a combination of statutory and common law copyright, trademark and
trade secret laws, customer licensing agreements, employee and third party
nondisclosure agreements and other methods to protect its proprietary rights.
Synergex generally enters into confidentiality and invention assignment
agreements with its employees and consultants. Additionally, Synergex enters
into confidentiality agreements with its customers and potential customers and
limits access to, and distribution of, its proprietary information. In its
Synergy product lines, Synergex has implemented a key license mechanism which
disables use of the product unless proper number keys are provided by the
customer. Otherwise, Synergex does not include in its software any mechanisms
to prevent or inhibit unauthorized use, but generally either requires the
execution of an agreement that restricts copying and use of Synergex's products
or provides for the same in a shrinkwrap or Internet license agreement. There
can be no assurance that Synergex's means of protecting its proprietary rights
will be adequate or that Synergex's competitors will not independently develop
similar technology.
While Synergex has not received claims alleging infringement of the
proprietary rights of third parties which Synergex believes would have a
material adverse effect on Synergex's business, financial condition and results
of operations, nor is it aware of any similar threatened claims, there can be
no assurance that third parties will not claim that Synergex's current or
future products infringe the proprietary rights of others. Any such claim, with
or without merit, could result in costly litigation or might require Synergex
to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to Synergex,
or at all.
MANUFACTURING AND PRODUCT PACKAGING
Synergex contracts with third parties to manufacture boxes and blank
disks, and to print manuals. Synergex's software is contained on compact disks,
which are duplicated by Synergex at its Gold River facility. Any required
assembly is performed, and finished at, and products are generally shipped from
Synergex's Gold River facility. The raw materials and services associated with
manufacturing the media are generally available through a number of sources.
EMPLOYEES
As of December 31, 1999, Synergex employed 90 persons, including 36 in
product development, 12 in sales, 12 in marketing, and 8 in customer support, 9
in professional consulting services, 5 in information technology and 8 in
administration. Synergex also retains consultants from time to time, primarily
in the area of engineering, to
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assist with particular services for limited periods of time. None of Synergex's
employees are currently represented by a labor union, and Synergex considers
its relations with its employees to be good.
PROPERTIES
Synergex 's corporate offices are located in Gold River, California,
where Synergex currently leases approximately 24,000 square feet under a lease
expiring in 2004. Synergex's Gold River facility houses its corporate offices
and research and development, sales and marketing departments. Synergex
believes that these facilities are adequate for Synergex's current needs and
that suitable additional space, if needed, should be available on commercially
reasonable terms to accommodate expansion of Synergex's operations.
LEGAL PROCEEDINGS
Synergex is not a party to any material litigation nor is it aware of
any material threatened litigation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - SYNERGEX
THIS ANALYSIS CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS, OTHER THAN
STATEMENTS OF HISTORICAL FACTS, INCLUDED IN OR INCORPORATED BY REFERENCE INTO
THIS ANALYSIS, ARE FORWARD-LOOKING STATEMENTS. IN ADDITION, WHEN USED IN THIS
DOCUMENT, THE WORDS "ANTICIPATE," "ESTIMATE," "PROJECT" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS. SHOULD ONE OR MORE MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS
PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED,
ESTIMATED OR PROJECTED. ALTHOUGH SYNERGEX BELIEVES THAT THE EXPECTATIONS WE
INCLUDE IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT ASSURE YOU
THAT THESE EXPECTATIONS WILL PROVE TO BE CORRECT.
The following discussion and analysis should be read in conjunction
with the financial statements of Synergex and the notes thereto appearing
elsewhere herein.
OVERVIEW
Synergex develops and markets cross-platform application development
and integration software and services that enable ISVs and businesses to create
portable, scalable client/server and Internet business-to-business solutions.
Synergex's software products are available for numerous platforms including
Windows, VMS and various versions of UNIX. Synergex's Professional Services
Group offers worldwide consulting, programming, and educational services. More
than one million end-users of ISVs in 50 states and 80 countries rely on
applications built with Synergex's software tools and services.
Synergex generates revenue from licensing of Synergy/DE software
development tools, which require no installation services; providing consulting
services to software application developers including education and
programming; providing software support and maintenance to Synergex's
licensees; and, to a limited extent, reselling PVCS software developed by
Merant, Inc.
License revenues are recognized upon product shipment if a signed
contract exists, the fee is fixed and determinable, collection of resulting
receivables is probable and product returns are reasonably estimable, except
for sales to ISVs, which are recognized upon sale by the ISV to the end-users.
Synergex generally ships licenses with annual license maintenance agreements.
Synergex allocates revenue to maintenance and support based on objective
evidence of its fair value. Remaining amounts are allocated to the license
element based on the residual value method. Synergex recognizes maintenance and
support revenue ratably over the support period (normally 12 months).
Consulting revenues are recognized as the related services are rendered. Resale
software revenues are recognized upon shipment.
For 2000, Synergex expects to introduce certain consulting services
that would be billed on a fixed-fee basis. If Synergex enters into such
consulting contracts, Synergex will recognize the revenues either upon
completion of contract milestones or upon the customer's acceptance of the
consulting project.
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RESULTS OF OPERATIONS
For the year ended December 31, 1999, total revenues grew 2% to
$10,601,777 compared to $10,416,593 for the year ended December 31, 1998. The
1998 revenue growth rate was 24%. For the year ended December 31, 1999, license
revenues decreased 1% to $6,640,296 compared to $6,687,721 for the year ended
December 31, 1998. This small reduction in license revenues resulted from a drop
in resale software revenues, offset by an increase in Synergy/DE license
revenues. In 1999, Synergex adopted a strategy to de-emphasize software
reselling, which carry lower gross margins. License revenue for the year ended
December 31, 1998 grew 19% over the prior year. Growth in 1998 license revenue
resulted primarily from the introduction of a new Synergy/DE toolkit, as well
as higher sales from Synergy/DE Windows platform products and the successful
expansion of platform availability for the PVCS product line.
Services revenues for the year ended December 31, 1999 were $3,961,481
compared to $3,728,872 for the year ended December 31, 1998, an increase of 6%.
The increase in 1999 resulted from expansion of the consulting staff and the
full year impact from current and prior years' growth in annual license
maintenance. Services revenues for the year ended December 31, 1998 grew 36%
from the prior year. The growth in 1998 resulted from the success of an
expanded focus on consulting sales and the introduction of a new support
program.
Synergex generated approximately 24% of total revenue from
international sources for the year ended December 31, 1999 compared to 21% for
the year ended December 31, 1998. Approximately 16% and 13% of total revenues
were generated from Europe in 1999 and 1998, respectively.
Cost of licenses for the year ended December 31, 1999 was $783,394
compared to $1,501,085 for the year ended December 31, 1998. The decrease in
cost of licenses in 1999 resulted from a reduction in resale license costs,
which included royalties to software vendors based on sales volume. Gross
margin for licenses was 88% for the year ended December 31, 1999 compared to
78% for the year ended December 31, 1998. The improvement in license gross
margin in 1999 resulted from a higher proportion of Synergy/DE license sales,
which carry a higher gross margin than resale license sales.
Cost of services for the year ended December 31, 1999 was $1,813,438
compared to $1,689,200 for the year ended December 31, 1998. The rise in the
cost of services in 1999 was driven primarily by the increase in consulting
employee costs and the cost of outside consultants. Gross margin for services
was 54% for the year ended December 31, 1999 compared to 55% for the year ended
December 31, 1998. The gross margin for services decreased slightly in 1999 due
mainly to an increase in staffing toward the end of 1999 to build up the
Internet consulting talent base.
Amortization of capitalized software development costs for the year
ended December 31, 1999 was $1,010,337 compared to $738,527 for the year ended
December 31, 1998. The increase in amortization of capitalized software was
caused mainly by the completion and release of version 7 of Synergy/DE during
1999 and the first full year of amortization of Synergy/DE version 6 during
1999.
Research and development costs include salaries and benefits of those
employees, as well as fees paid to those outside consultants, engaged in the
development of software products, and allocated overhead and administrative
costs. Research and Development expenses for the year ended December 31, 1999
were $1,986,143 compared to $1,958,828 for the year ended December 31, 1998.
The majority of research and development during the past two years was focused
on new upgrades and platform expansions for the Synergy/DE software development
tools. Staffing in research and development has remained steady, and the
proportion of research and development activity charged directly to operations
has remained consistent throughout the past two years. As a percent of total
revenue, research and development was 19% for the year ended December 31, 1999
compared to 19% for the year ended December 31, 1998.
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Sales and marketing expenses include the cost of selling, marketing
and advertising Synergex's software and services. These costs include employee
compensation and commissions, trade show expenses and travel and entertainment.
Sales and marketing expenses for the year ended December 31, 1999 were
$2,260,346 compared to $1,994,142 for the year ended December 31, 1998. The
increase in sales and marketing expenses resulted primarily from growth in
Synergex's marketing staff and increased marketing programs to support upgrades
to the Synergy/DE product line and the expansion of the consulting practice. As
a percent of total revenue, sales and marketing expenses were 21% for the year
ended December 31, 1999 compared to 19% for the year ended December 31, 1998.
Sales and marketing expenses have remained relatively stable as a percent of
sales due to Synergex's continued focus on driving growth and strategic
direction through marketing research and programs.
General and administrative expenses include rent expense, employee
education, recruitment and compensation, and corporate overhead expenses such
as insurance, telecommunications, professional services, facilities rent and
other office expenses. General and administrative expenses for the year ended
December 31, 1999 were $2,094,216 compared to $1,821,311 for the year ended
December 31,1998. The net increase in general and administrative expenses
resulted from a combination of factors including rising sales, increased
staffing, higher depreciation charges and increased travel and professional
services. As a percent of total revenue, general and administrative expenses
were 20% for the year ended December 31, 1999 compared to 17% for the year
ended December 31, 1998.
Costs related to mergers and acquisitions for the year ended December
31, 1999 totaled $332,333 compared to $221,579 for the year ended December 31,
1998. Costs related to mergers and acquisitions included professional services,
travel and other expenses directly related to Synergex's expansion strategy.
Interest expense for the years ended December 31, 1999 and 1998
amounted to $162,824 and $171,922, respectively, net of interest income of $405
and $1,194, respectively. Fluctuations in cash and debt balances, as well as
changes in interest rates, drive changes in interest expense. The decrease in
interest expense in 1999 was caused primarily by the $627,210 reduction in
borrowing during 1999.
The income tax benefit is primarily generated from research and
experimental tax credits earned during 1998 and 1999. At December 31, 1999 and
December 31, 1998, Synergex had research and experimental tax credit carry
forwards of approximately $895,000 and $573,000 for federal and state tax
purposes, respectively. These tax credit carry forwards are available to reduce
future taxable income and expire at various dates through 2019. Synergex
expects to generate sufficient future taxable income to realize the deferred
tax assets, including utilization of all tax credits, and accordingly, has not
recorded a valuation allowance as of December 31, 1999. However, under the
provisions of the Internal Revenue Code, certain substantial changes in our
ownership may limit the amount of tax credit carry forwards that Synergex could
utilize annually in the future to offset taxable income. The amount of any
impact from the proposed merger has not yet been determined.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Synergex has funded its capital needs through a
combination of cash flow from operations, bank debt financing, private debt
financing and private equity financing. Synergex generally applies the cash
generated from its operations that remains available after satisfying its
working capital and capital expenditure requirements to reducing debt. Synergex
believes that the capital currently available to it will suffice to support its
operating needs for the coming year. Large capital acquisitions, such as
corporate mergers or acquisitions, could require new sources of financing.
As of December 31, 1999, Synergex had approximately $155,404 in cash
and cash equivalents, compared to $78,334 on December 31, 1998. Synergex
borrowed $273,389 on its line of credit as of December 31, 1999, compared to $0
on December 31, 1998. As of December 31, 1999, the unused portion of Synergex's
line of credit was approximately $727,000, compared to approximately $1,130,000
on December 31, 1998. The amount of the
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line of credit available to borrow is subject to certain borrowing base
limitations related to Company accounts receivable and the outstanding
principal balance on the note payable to the bank. Synergex had a balance on
its note payable to the bank of $1,089,278 on December 31, 1999, compared to
$870,366 on December 31, 1998.
For the year ending December 31, 1999, net cash provided by operations
was $2,053,621, of which $1,624,601 was provided by operating results exclusive
of non-cash charges, and $429,020 was provided by a decrease in working
capital. For the year ending December 31, 1998, net cash provided by operations
was $1,519,239, of which $1,590,394 was provided by operating results exclusive
of non-cash charges, and $71,155 was used to increase working capital.
Net cash used for investing activities for the year ended December 31,
1999 was $1,349,341, compared to $1,410,486 for the year ended December 31,
1998. Net cash used in 1999 and 1998 reflects net investments in property and
equipment and capitalized software development costs. Synergex expects to
continue to invest appropriate levels of capital in order to maintain a strong
technology base.
Net cash used for financing activities for the year ending December 31,
1999 was $627,210, compared to $91,061 for the year ending December 31, 1998.
In 1998, Synergex converted a large portion of its short term borrowing into
two-year bank term debt. Synergex also redeemed $800,000 in common stock from a
corporate shareholder in 1998, and paid $200,000 in cash and entered into a
note payable for the remaining $600,000. That note has subsequently been repaid
in full.
Synergex refinanced its bank debt in 1999, with the primary effects
being to increase its bank term loan to a principal balance of approximately
$1,120,000, and to extend the maturity of the bank term loan to three years.
YEAR 2000 READINESS
Year 2000 problems refer to the inability of computer systems,
software products and other control devices to accept four digit entries to
distinguish 21st century dates from 20th century dates.
We have not experienced any Year 2000 problems with our systems, and
none of our customers have complained of any Year 2000 problems with our
software tools. We have designed our software tools to be Year 2000 compliant.
The third-party software vendors whose products we sublicense to our customers
have provided us with assurances that their software is also Year 2000
compliant. However, our software tools and the software we sublicense to our
customers may nevertheless contain undetected errors or defects associated with
Year 2000 date functions. If such errors or defects do exist, we may incur
significant costs to resolve them.
We have assessed our material internal information technology systems,
including our own software tools and third-party software and hardware
technology, and our non-information technology systems. We have completed
testing of our critical information technology systems and non-information
technology systems. To the extent that we were not able to test the technology
provided by third-party vendors, we have sought assurances from these vendors
that their systems are Year 2000 compliant. To date, we have not experienced
any material operational issues or costs with respect to our systems associated
with the change to the Year 2000. However, we may nevertheless experience
material unanticipated problems and costs caused by undetected errors or
defects in the technology used in our internal information technology and
non-information technology systems.
If our customers are not Year 2000 compliant, they may experience
material costs to remedy problems, and they could potentially face litigation
costs if problems with their information or other systems affect their end
users. In either case, Year 2000 issues could reduce or eliminate the budgets
that current or potential customers have for our software tools or could delay
purchases of our software tools. Such a result could seriously harm our
business.
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We have funded our Year 2000 plan from operating cash flows, and have
not separately accounted for these costs in the past. To date, these costs have
not been material.
Due to the Year 2000 compliance information gathered so far on our
software tools and internal systems that are critical to our continued
operations in the Year 2000, we believe that significant expenditures on
contingency plans are not warranted and no such expenditures have been made.
Finally, we are also subject to external forces that might generally affect
industry and commerce, such as utility or transportation company Year 2000
compliance failure interruptions.
Year 2000 issues affecting our business, our third-party vendors or
suppliers, or our customers could have a number of "worst case" consequences.
These include:
- A significant decline in demand for our software tools;
- The failure of our newer software tools or software in
development to achieve market acceptance;
- Claims from our customers asserting liability, including
liability for breach of warranties related to the failure of
our software tools and services to function properly, and any
resulting settlements or judgements; and
- Our inability to manage our own business.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC released Staff Accounting Bulletin (SAB) 101
which summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. SAB 101
provides further guidance on evidence of an arrangement, delivery and
performance, fixed or determinable sales price, and income statement
presentation. The adoption of SAB 101 is not expected to have a material effect
on Synergex's financial statements.
SEASONALITY
Synergex's revenues tend to exhibit some seasonality. Revenues tend be
relatively low in the first quarter since many customers make large software
expenditures in the preceding fourth quarter. Synergex typically experiences
higher revenues in the second and fourth quarters of the calendar year.
Revenues during the third quarter also tend to be lower, especially in Europe
where many customers take a month-long holiday.
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DIRECTORS AND EXECUTIVE OFFICERS OF SYNERGEX
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the current
directors and executive officers of Synergex, the principal offices and
positions held by each person. Each year the shareholders elect all directors.
The executive officers of Synergex are elected annually by the Board of
Directors and serve terms of one year or until their death, resignation or
removal by the Board of Directors. There are no family relationships between
any of the directors and executive officers and any other person pursuant to
which any person was selected as an executive officer.
The directors and executive officers of Synergex are as follows:
<TABLE>
<CAPTION>
Name Age Position with Synergex
- ---- --- ----------------------
<S> <C> <C>
Kenneth C. Lidster 53 Chairman, Chief System Architect
Michele C. Wong 40 President, Chief Executive Officer and Director
Thomas J. Powers 63 Director and Secretary
Vigfus A. Asmundson 63 Director
Thomas M. Dykstra 58 Director
James S. Bain 40 Vice President, Finance, Chief Financial Officer
David F. Dickson 40 Vice President, Marketing and Business Development
William J. Mooney 39 Vice President, Sales
N. Scott Luttgen 39 Vice President, Research and Development, Chief
Technology Officer
Terry D. Carlone 48 General Counsel and Corporate Development
</TABLE>
- ----------------
KENNETH C. LIDSTER co-founded Synergex in 1973 and has been a director
of the Company since 1973 and Chairman since 1982. Mr. Lidster has served as
Manager of Software Development and Support from 1973 to 1980, Vice President
from 1980 to 1982, President and Chief Executive Officer from 1982 to 1990, and
Chief Executive Officer from 1990 to 1996. In 1978, Mr. Lidster devised DBL, an
advanced version of DIBOL. DBL was the industry's first business programming
language portable across proprietary platforms, which Digital Equipment
Corporation subsequently embraced as its standard commercial language for more
than 20 years. While he retains his role as Chairman, Mr. Lidster's primary
responsibilities at Synergex include new product strategy and design. He is a
recognized expert in business application languages, served for nearly a decade
as Vice Chairman of the X3J12 (DIBOL) ANSI Standard Committee, and was
instrumental in producing two national standards. He graduated from the
University of California, Davis, in 1973 with a B.S. degree in Chemical
Engineering.
MICHELE C. WONG joined Synergex's predecessor in 1982 as systems
programmer. In 1983, she was promoted to Vice President of Software
Development, in which position she designed and implemented Synergex's first
integrated software development organization covering all key functional
disciplines, including software
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design, programming documentation and support. In 1984, she was promoted to
Executive Vice President. She has served as President since 1990 and as Chief
Executive Officer since 1996, and as a director since 1990. Ms. Wong holds a
B.S. degree from the University of California, Davis in Mathematics and
Computer Science. Ms. Wong has received awards acknowledging her business and
leadership abilities from the Sacramento business community and, on an
international level, from Arthur Andersen.
THOMAS J. POWERS was elected to the Board of Directors of Synergex in
1984. Mr. Powers also served as Chief Financial Officer of Synergex from 1992
until his retirement in September 1998. He has served as Secretary since 1999.
Mr. Powers is a licensed California certified public accountant and holds an
M.B.A. degree from Stanford University.
VIGFUS A. ASMUNDSON has served as a director of Synergex from 1984 to
the present. Mr. Asmundsen is a corporate attorney and former Mayor of the city
of Davis, California. He holds an L.L.B. degree from Harvard Law School.
THOMAS M. DYKSTRA has served as a director of Synergex from 1994 to
the present. Mr. Dykstra has been a Vice President of IFS, Inc. a
multi-national software company headquartered in Stockholm, Sweden, since
September 1999. From 1983 to September 1999, he was a co-founder and Vice
President of Effective Management Systems, Inc., a Wisconsin-based software
company purchased by IFS, Inc. in September 1999. Mr. Dykstra holds an M.B.A.
degree from the University of Chicago.
JAMES S. BAIN joined Synergex in September 1998 as Chief Financial
Officer. From January 1998 to September 1998, Mr. Bain was a Vice President,
Corporate Lending for First Bank of California, Sacramento, California. From
March 1996 to January 1998, he was President of Internet Now, a consulting firm
located in Sacramento, California. From September 1994 to February 1996 he
served as Vice President, Corporate Lending for Silicon Valley Bank, Palo Alto,
California. Mr. Bain holds a B.A. degree from Stanford University and an M.S.
degree in management with concentrations in information technology and
corporate finance from MIT's Sloan School of Management.
DAVID F. DICKSON joined Synergex in his present position in October
1996 as Vice President of Marketing and Business Development, responsible for
expanding Synergex's brand awareness and refining its growth strategy. From
1984 to October 1996, Mr. Dickson was employed by IBM Corporation. From 1993 to
1995, Mr. Dickson served as Manager of IBM's OEM Storage Group, where he
directed marketing operations and technical product support; during that time,
the division grew into the third largest storage provider worldwide. From 1995
to October 1996, he was Manager, North America/Worldwide Distributed Storage
for IBM's distributed storage group, which grew in revenues during his tenure
from $140 million to $800 million. Mr. Dickson holds a B.S.
degree in Civil Engineering from California State University, San Diego.
N. SCOTT LUTTGEN has almost two decades of experience directing
research and development efforts in software high tech. He joined Synergex in
1983 as a systems programmer, advanced to Development Manager in 1988, and
became Vice President of Software Development in 1989. In 1996, he was promoted
to Vice President, Research and Development, overseeing all product
development, quality assurance, software manufacturing and product-directed
research. Mr. Luttgen holds a B.S. degree in Computer Science and Statistics
from California State University, Sacramento. He attends the University of
California, Davis, Graduate School of Management, and expects to be awarded an
M.B.A. in December 2001.
WILLIAM J. MOONEY joined Synergex in 1985 as Sales Manager, where he
created Synergex's order entry system and implemented a call tracker program
that instilled sales management disciplines, improved productivity and reduced
redundant efforts. In 1989, Mr. Mooney was promoted to his current position,
from which he directs Synergex's sales strategies and directs its worldwide
sales organization. Prior to joining Synergex, Mr. Mooney held various sales
management positions in the computer industry.
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TERRY D. CARLONE joined Synergex in August 1999 as General Counsel.
Prior to joining Synergex, he was Synergex's principal outside corporate
counsel. From December 1996 to August 1998, Mr. Carlone practiced law with the
Sacramento office of McDonough, Holland & Allen, where he headed the firm's
High Tech and Biotechnology Practice Group, and with Weintraub, Genshlea &
Sproul, where he headed the firm's Technology and Intellectual Property Group.
In September 1995 he co-founded Ozone Solutions, Inc., a California corporation
and served as Executive Vice President and Chief Administrative Officer until
November 1996. From December 1987 through December 1995, he held various legal
and management positions with Alexander & Baldwin, Inc., a publicly-traded
(Nasdaq:ALEX) company. Mr Carlone holds a B.A. degree from Northwestern
University and a J.D. degree from Georgetown University Law Center.
Synergex's Board of Directors held seven meetings during 1999. One
meeting was held by unanimous written consent signed by all directors without
an actual meeting and two were meetings attended by all directors.
Synergex's Board has a Compensation and Stock Option Committee,
comprised of Mr. Powers and Mr. Asmundson, which met two times during 1999.
EXECUTIVE COMPENSATION
The Summary Compensation Table below shows certain compensation
information for services rendered in all capacities during each of the last
three fiscal years by the Chief Executive Officer and those executive officers
who received salary, bonus or other compensation in excess of $100,000 (these
individuals are collectively referred to herein as the "Named Executive
Officers"). The following information for the Named Executive Officers includes
the dollar value of base salaries, bonus awards, the number of stock options
granted and certain other compensation, if any, whether paid or deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------- ---------------------------
Restricted Securities
Name and Principal Other Annual Stock Underlying
Position Year Salary Bonus Compensation Awards Options/SARs(#)
- -------- ---- ------ ----- ------------ ------ ----------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth C. Lidster 1999 $165,000 $6,000 $12,000(1) None -0-
Chairman 1998 $147,099 $4,333 $12,000 None -0-
1997 $145,958 -0- $12,000 None -0-
Michele C. Wong 1999 $154,999 $30,000 $12,000(1) None -0-
President and 1998 $132,279 $3,897 12,000 None 31,667
Chief Executive Officer 1997 $131,254 -0- 12,000 None -0-
William J. Mooney 1999 $211,981 $27,457 -0- None -0-
Vice President, Sales 1998 $267,507 7,650 $ 2,280(2) None 10,000
1997 $136,464 $20,756 -0- None -0-
David F. Dickson 1999 $132,064 $15,549 -0- None -0-
Vice President, Marketing 1998 $110,064 $9,437 -0- None 10,000
1997 $100,561 -0- -0- None -0-
N. Scott Luttgen 1999 $119,000 -0- -0- None -0-
Vice President, Development 1998 $109,750 $1,500 -0- None 10,000
1997 $109,751 $1,500 -0- None -0-
</TABLE>
- -----------------
(1) Synergex directors are paid $1,000 per month for their duties as
directors and attendance at Board meetings.
(2) Reimbursement of insurance costs incurred under Synergex's cafeteria
benefit plans.
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<PAGE> 80
OPTION GRANTS IN THE LAST FISCAL YEAR
There were no grants of stock options to the Named Executive Officers
pursuant to Synergex's Stock Option Plans during the fiscal year ended December
31, 1999.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND THE FISCAL YEAR-END
OPTION VALUES
Set forth below is information with respect to the unexercised options
to purchase Synergex's common stock held by the Named Executive Officers at
December 31, 1999. No options were exercised during fiscal 1999.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
<TABLE>
<CAPTION>
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Number of at FY-End(#) at FY-End(#)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise(#) ($) Unexercisable Unexercisable
- ---- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Kenneth C. Lidster, None None 0/0 $0/0(1)
Chairman
Michele C. Wong, None None 12,333/29,334(2)(3) $0/0(1)
President and Chief
Executive Officer
William J. Mooney, None None 5,000/10,000(2)(4) $0/0(1)
Vice President, Sales
David F. Dickson, None None 5,000/10,000(2)(4) $0/0(1)
Vice President, Marketing
N. Scott Luttgen, None None 6,200/10,800(2)(5) $0/0(1)
Vice President, Development
</TABLE>
- ---------------------
(1) Synergex believes that the options are not in the money at this time.
(2) The unexercisable stock options will become exercisable, or if
unexercised, will terminate upon the change in control effected by the
merger.
(3) 10,000 options are exercisable at an exercise price of $5.80 per share
and 31,667 options have an exercise price of $8.00 per share.
(4) 5,000 options are exercisable at an exercise price of $5.80 per share
and 10,000 options have an exercise price of $8.00 per share.
(5) 7,000 options are exercisable at an exercise price of $5.80 per share
and 10,000 options have an exercise price of $8.00 per share.
EMPLOYMENT AGREEMENTS
All named Synergex executives are employed at-will. Effective January
1, 1999, Synergex entered into severance agreements with Michele Wong and David
Dickson, respectively, each of which provides that, in the event of termination
of employment following a "change in control" of Synergex, the executive may be
entitled to
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<PAGE> 81
severance pay equal to twelve months of the executive's base salary (excluding
any bonus, employee or other employee benefits) at the time of termination. The
merger with Registry would qualify as a "change in control" within the meaning
of the severance agreements.
COMPENSATION OF DIRECTORS
Our directors each receive $1,000 per month for their duties as
directors, including attending meetings of the Board of Directors. In addition,
directors will be reimbursed for expenses incurred in attending such meetings
and will be indemnified against any claims arising out of their status as a
director of Synergex, including claims arising under federal and state
securities laws. In addition, directors who also are employees of Synergex are
eligible to receive options under Synergex's Stock Option Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GENERAL AND OVERVIEW
All existing loans or similar advances to, and transactions with,
officers and their affiliates were approved or ratified by the independent and
disinterested directors. Any future material transactions with officers,
directors and owners of 5% or more of Synergex's outstanding common stock or
any affiliate of any such person shall be on terms no less favorable to
Synergex than could be obtained from independent unaffiliated third parties and
must be approved by a majority of the independent disinterested directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF SYNERGEX
The following table sets forth certain information regarding the
beneficial ownership of Synergex's common stock, its only class of outstanding
voting securities as of February 29, 2000, by (i) each of Synergex's directors
and officers, and (ii) each person or entity who is known to Synergex to own
beneficially more than 5% of the outstanding common stock with the address of
each such person or entity.
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Officer or Director (1) Beneficial Ownership(2) Percent of Class(2)
- ----------------------- ----------------------- -------------------
<S> <C> <C>
Kenneth C. Lidster 350,000 44.9%
Vigfus A. Asmundson (3) 100,000 12.8%
Thomas J. Powers 80,000 10.3%
Michele C. Wong (4) 70,667 8.9%
David F. Dickson (6) 15,000 1.9%
William J. Mooney (7) 12,500 1.6%
N. Scott Luttgen (8) 9,200 1.2%
James S. Bain (5) 8,000 1.0%
Terry D. Carlone 6,000 *
Thomas M. Dykstra 0 *
All Officers and Directors as a
group (ten persons) (9) 651,367 Shares 83.5%
</TABLE>
- --------------------------
* less than 1%
(1) Unless otherwise indicated below, the address of each person is
Synergex International Corporation, 2330 Gold Meadow Way, Gold River,
California 95670.
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<PAGE> 82
(2) Shares are owned directly and beneficially unless stated otherwise. A
person is deemed to be the beneficial owner of securities that can be
acquired by such person within sixty (60) days from the date hereof
upon the exercise of options.
(3) Includes 100,000 shares held jointly with Ruth Y. Asmundson, Mr.
Asmundson's wife.
(4) Includes options to purchase 6,000 shares of common stock that are
immediately exercisable at $5.80 per share and 6,333 shares of common
stock that are immediately exercisable at $8.00 per share. Also
includes 58,334 shares of common stock held jointly with Anthony Wong,
Ms. Wong's husband.
(5) Includes options to purchase 2,000 shares of common stock that are
immediately exercisable at $8.00 per share.
(6) Includes options to purchase 3,000 shares of common stock that are
immediately exercisable at $5.80 per share and 2,000 shares of common
stock that are immediately exercisable at $8.00 per share. Also
includes 10,000 shares of common stock held jointly with Mary Dickson,
Mr. Dickson's wife.
(7) Includes options to purchase 3,000 shares of common stock that are
immediately exercisable at $5.80 per share and 2,000 shares of common
stock that are immediately exercisable at $8.00 per share. Also
includes 7,500 shares of common stock held jointly with Janet E.
Mooney, Mr. Mooney's wife.
(8) Includes options to purchase 4,200 shares of common stock that are
immediately exercisable at $5.80 per share and 2,000 shares of common
stock that are immediately exercisable at $8.00 per share. Also
includes 3,000 shares of common stock held jointly with Kim Luttgen,
Mr. Luttgen's wife.
(9) See Footnotes 1-8.
COMPARISON OF RIGHTS OF HOLDERS OF SYNERGEX, REGISTRY
COMMON STOCK
The following is a summary of the material differences between the
rights of holders of Synergex common stock and the rights of holders of common
stock of Registry prior to the merger and of Registry following the merger.
Synergex is organized under the laws of the State of California and Registry
presently is, and will be, organized under the laws of the state of Florida. As
a result, there are differences between the respective state laws and various
provisions in their respective corporate charters and bylaws. Upon completion
of the merger, holders of Synergex common stock will become shareholders of
Registry (except to the extent any such holders may be compensated through the
exercise of dissenters rights), at which time their rights will be governed by
Florida law, the Amended Articles of Incorporation of Registry and the Registry
bylaws. The bylaws of Registry before the merger will be the bylaws of Registry
following the merger.
This summary is not intended to be an exhaustive or detailed
description of the provisions discussed. The summary is qualified in its
entirety by reference to the California General Corporation Law and the Florida
Business Corporations Act. See "Description of Capital Stock" for a summary of
a number of other rights relating to Registry common and preferred stock.
The material differences that affect the rights and interests of shareholders
of Synergex and Registry are as follows:
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<PAGE> 83
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Registry presently is 30,000,000
shares of common stock, par value $0.001 per share, and 5,000,000 shares of
preferred stock, par value $0.01 per share.
The authorized capitalization of Synergex consists of 1,500,000 shares
of common stock, no par value.
Under the Amended Articles of Incorporation of Registry, the
authorized capital stock will be 30,000,000 shares of common stock, par value
$0.001 per share and 5,000,000 shares of preferred stock, par value $0.01 per
share.
NUMBER OF DIRECTORS
Under Florida law, a corporation's board of directors consists of at
least three persons, except that before shares are issued or if there is only
one shareholder, the number may be one or two, and if there are only two
shareholders, the number may be two. The number of directors must be set forth
in either the bylaws or the articles of incorporation and may be either a fixed
or variable number. If there is a variable number, the maximum cannot be
greater than twice the minimum minus one. An amendment to the bylaws or
articles that would reduce the number or the minimum number below five cannot
be adopted if the votes in opposition or shares failing to give written consent
constitute more than one-sixth of the outstanding shares entitled to vote. The
bylaws for Registry presently specify that there should be no fewer than one
nor more than nine directors. Registry presently has four directors and one
vacancy.
Under California law, a corporation's board of directors consists of
at least three persons, except that before shares are issued or if there is
only one shareholder, the number may be one or two, and if there are only two
shareholders the number may be two. The number of directors must be set forth
in either the Bylaws or the Articles of Incorporation and may be either a fixed
or variable number. The Bylaws for Synergex presently specify that there should
be no fewer than five nor more than nine directors. Synergex presently has five
directors.
VACANCIES ON THE BOARD
Florida law provides that, unless the governing documents control the
filling of vacancies and newly-created directorships, these positions may be
filled by a majority of the remaining directors then in office (though less
than a quorum of the directors). If the articles of incorporation allow any
class or classes of stock to elect one or more directors, vacancies and
newly-created directorships within a class may be filled by a majority of the
remaining directors elected by that class or by the sole remaining director of
that class. If a corporation has no directors in office, then any officer or
any shareholder or any person or entity responsible for a shareholder may call
a special meeting of shareholders, or may apply to the district court for a
decree ordering an election.
The Registry Bylaws provide that vacancies on the Registry board of
directors will be filled by a vote of the majority of the remaining directors.
California law provides that, unless the articles of incorporation or
bylaws control the filling of vacancies, including a vacancy created by the
removal of a director, these positions may be filled by approval of the board
or, if the number of directors then in office is less than a quorum, by the
unanimous written consent of the directors then in office, the affirmative vote
of a majority of the directors then in office or a sole remaining director. If
the articles or bylaws do not provide that the board may fill vacancies created
by removal, such vacancies may be filled only by the approval of the
shareholders. The shareholders may elect a director at any time to fill any
vacancy not filled by the directors.
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<PAGE> 84
REMOVAL OF DIRECTORS
Florida law provides that any director or the entire board may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, unless a larger percentage is
specified in the Articles of Incorporation.
California law provides that any director or the entire board may be
removed with or without cause if the removal is approved by the outstanding
shares except that: (a) no director may be removed, unless the entire board is
removed, when the votes cast against removal, or not consenting in writing to
the removal, would be sufficient to elect the director if voted cumulatively at
an election at which the same total number of votes were cast and the entire
number of directors authorized at the time of the director's most recent
election were then being elected; or (b) when pursuant to the articles of
incorporation, the holders of the shares of any class or series, voting as a
class or series, are entitled to elect one or more directors, any director so
elected may be removed only by the applicable vote of the holders of the shares
of that class or series.
ACTION BY WRITTEN CONSENT OF SHAREHOLDERS
Florida law provides that unless otherwise provided in the articles of
incorporation, any action that may be taken at a meeting of shareholders may be
taken without a meeting, without prior notice and without a vote, if the
holders of outstanding stock have not less than minimum number of votes that
would be necessary to authorize such action at a meeting at which all shares
entitled to vote thereon were present and sign a written consent setting forth
the action taken. The Registry Articles and Bylaws and the Amended Articles of
Registry contain no provision limiting the right of shareholders to take action
by written consent.
Under California law, unless otherwise provided in the articles of
incorporation, shareholders may take action without a meeting and without prior
notice, if a consent in writing setting forth the action so taken is signed by
the holders of outstanding shares having not less than the minimum number of
votes necessary to authorize or take such action at a meeting.
SPECIAL MEETING OF SHAREHOLDERS
Florida law permits special meetings of shareholders to be called by
the board of directors and such other persons, including shareholders, as
provided in the articles of incorporation or bylaws. Registry's Bylaws provide
that a special meeting of shareholders may be called for any purpose by the
president or secretary upon written request of either a majority of the
directors or shareholders holding at least 10% of the issued and outstanding
shares entitled to vote.
California law permits special meetings of shareholders to be called
by the board of directors, the chairman of the board, the president or the
holders of shares entitled to cast not less than 10% of the votes at the
meeting or such additional persons as provided in the articles of incorporation
or bylaws.
AMENDMENT OF ARTICLES
Under Florida law, a corporation's board and its shareholders may
amend the corporation's articles of incorporation if:
- The board of directors sets forth the proposed amendment in a
resolution, declares the advisability of the amendment and
directs that it be submitted to a vote at a meeting of
shareholders; and
- The holders of at least a majority of shares of stock
entitled to vote thereon approve the amendment, unless the
articles require the vote of a greater number of shares.
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<PAGE> 85
The Registry Articles of Incorporation do not, and the Amended
Articles of Incorporation will not, include any limitation to the above
provisions nor increase the voting requirements as to any particular matter.
California law provides that amendments may be adopted if approved by
the corporation's board and approved by the outstanding shares, unless the
articles require the vote of a greater number of shares.
ADOPTION, AMENDMENT OR REPEAL OF BYLAWS
Under Florida law, holders of a majority of the voting power of a
corporation and, when provided in the articles of incorporation, the directors
of a corporation have the power to adopt, amend and repeal the bylaws of a
corporation. The Articles of Incorporation of Registry include, and the Amended
Articles of Registry will include, provisions which authorize the directors to
adopt, amend and repeal the bylaws, subject to bylaws, if any, adopted by
shareholders.
Under California law, bylaws may be adopted, amended or repealed
either by approval of the outstanding shares or by approval of the board,
except that certain changes to the number of directors or changing from a fixed
to a variable board or vice versa may only be adopted by approval of the
outstanding shares or, in the case of reducing the number of directors to a
number less than five, the change may not be adopted if more than one-sixth of
the shares entitled to vote oppose the action.
NOTICE OF SHAREHOLDER PROPOSALS AND NOMINATION OF DIRECTORS
Neither Florida law nor the Articles of Incorporation or Bylaws of
Registry limit or will limit the right of a shareholder to bring business
before the annual meeting of shareholders or to make nominations of directors
at shareholder meetings.
Neither California law nor the Articles of Incorporation or Bylaws of
Synergex limit or will limit the right of a shareholder to bring business
before the annual meeting of shareholders or to make nominations of directors
at shareholder meetings.
VOTING RIGHTS IN CONNECTION WITH CERTAIN BUSINESS COMBINATIONS
Under Florida law a merger agreement, consolidation or disposition of
all or substantially all of a corporation's assets must be adopted by a
resolution of the board and approved by the holders of a majority of the
outstanding voting stock.
Under California law a merger agreement, sale or transfer of all or
substantially all of a corporation's assets must be approved by the board of
directors and approved by the holders of a majority of the outstanding voting
stock.
Florida law includes provisions relating to Acquisition of Controlling
Interest and Combinations with Interested Shareholders. These provisions would
apply to and limit transactions that involve a change of control or a
transaction with a shareholder which acquired a controlling interest within the
last three years, unless the board of directors consents to the transaction.
The Articles of Incorporation of Registry include a provision electing not to
be subject to the provisions limiting certain transactions with interested
shareholders. The Amended Articles of Incorporation of Registry will include
provisions which elect not to be subject to those provisions and the
limitations in Florida law which would limit combinations with certain
shareholders, as is authorized by Florida law.
California law does not have such a provision.
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<PAGE> 86
PREEMPTIVE RIGHTS
Florida law provides that shareholders of corporations organized
before 1991 shall have the preemptive right to purchase additional securities
of the corporation unless the articles of incorporation expressly denies such
right. The Registry and Synergex charters contain and will contain express
denials of preemptive rights of shareholders.
Under California law, the articles of incorporation may specifically
grant preemptive rights to shareholders. The Articles of Incorporation of
Synergex do not give shareholders the preemptive right to purchase additional
securities.
VOTING RIGHTS
Each holder of Registry common stock is entitled, and each holder of
Synergex common stock will be entitled, to one vote for each share and
shareholders may not cumulative votes for the election of directors. In
connection with any issuance of preferred stock, the board of directors is and
will be authorized to establish such voting and other rights in connection with
designating the rights and privileges of preferred stock as may be deemed
appropriate by the board of directors.
Under California law, except for cumulative voting on directors and
except as otherwise provided in the articles of incorporation, each outstanding
share is entitled to one vote on each matter submitted to a vote of
shareholders. Each holder of Synergex common stock is entitled to one vote for
each share, and Synergex shareholders are entitled to cumulate their votes for
the election of directors. Thus, a Synergex shareholder may cast a number of
votes equal to the number the shareholder's shares would otherwise be entitled
to, multiplied by the number of directors to be elected.
APPRAISAL RIGHTS
Under Florida law a holder of any class is entitled to dissent from,
and obtain payment of the fair value of his/her shares in the event of a merger
requiring approval by shareholders and the holder is entitled to vote on the
merger, or if the corporation is a subsidiary corporation of, and is merged
with, its corporate parent under certain circumstances, or if the corporation
is party to a plan of exchange and the shareholders' interest in the
corporation will be acquired, if the shareholder is entitled to vote on the
plan of exchange. Also, a shareholder may be entitled to dissent to any
corporate action taken pursuant to a vote of shareholders to the extent that
the articles of incorporation, bylaws or a resolution of the board of directors
provides that shareholders are entitled to dissent and obtain payment for their
shares.
Under California law, each shareholder entitled to vote on a merger
may require the corporation to purchase for cash at their fair market value the
shares owned by the shareholder. The shares must qualify as dissenting shares,
and except for certain express limitations, holders of dissenting shares
continue to have all the rights and privileges incident to their shares until
the fair market value of their shares is agreed upon with the corporation or
determined by a court through appointment of one or more impartial appraisers.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
Florida law provides that a corporation's charter may include a
provision limiting the personal liability of a director to the corporation or a
shareholder for monetary damage for breach of fiduciary duty as a director,
provided that no such provision can eliminate or limit the liability of a
director for:
- the breach of the directors's duty of loyalty to the
corporation or its shareholders;
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<PAGE> 87
- acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law;
- willful or negligent violation of the laws governing the
payment of dividends or the purchase or redemption of stock;
or
- any transaction from which the director derives an improper
personal benefit.
The Articles of Incorporation of Registry include and, the Amended
Articles of Incorporation of Registry will include, provisions which expressly
limit the personal liability of directors as permitted.
California law provides that a corporation's articles of incorporation
may include provisions eliminating or limiting the personal liability of
directors for monetary damages for a breach of a director's duties to the
corporation and its shareholders and authorizing the indemnification of
corporate agents; provided that such provisions may not eliminate or limit the
liability of directors for:
(a) acts or omissions that involve intentional misconduct or a knowing
and culpable violation of law;
(b) acts or omissions that a director believes to be contrary to the
best interests of the corporation or its shareholders or that involve the
absence of good faith on the part of the director;
(c) any transaction from which a director derived an improper personal
benefit;
(d) acts or omissions that show a reckless disregard for the
director's duty to the corporation or its shareholders in which the director
was aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of serious injury to the corporation or its
shareholders;
(e) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders;
(f) certain contracts in which a director has a material financial
interest; or
(g) corporate actions involving certain distributions or loans to
shareholders.
The Articles of Incorporation of Synergex include provisions which
expressly eliminate the personal liability of directors to the fullest extent
permitted by California law and which authorize the indemnification of agents
of the corporation in excess of the indemnification expressly permitted by
California law.
CONVERSION AND REDEMPTION
No holders of common stock of Registry nor Synergex have or will have
any right to convert their shares into any other shares of capital stock of
Registry or Synergex or any other securities.
OPTIONS AND WARRANTS
Registry presently has issued and outstanding warrants entitling
holders to purchase up to _________ shares of common stock, and present and
former employees of Registry hold options entitling the holders to purchase up
to an additional ___________ shares at exercise prices ranging from $_______ to
$________. Outstanding Registry options and warrants will not be modified as a
result of the merger and present holders who continue to have the right to
purchase common stock of Registry on the same terms and subject to the same
conditions as are applicable to Registry prior to the merger.
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<PAGE> 88
Synergex presently has outstanding options to purchase up to a total
of 159,417 shares of Synergex common stock at exercise prices ranging from
$5.80 to $20.00. As a result of the merger, all Synergex outstanding options
will be canceled.
LEGAL OPINIONS
Legal matters in connection with the merger are being passed upon for
Registry by Atlas Pearlman, P.A., Fort Lauderdale, Florida and for Synergex by
McDonough, Holland & Allen, a Professional Corporation, Sacramento, California.
EXPERTS
The financial statements of Registry at July 31, 1999, and for each of
the two years ended July 31, 1999 and 1998, included in this joint proxy
statement and prospectus and in the registration statement have been audited by
BDO Seidman, LLP, independent certified public accountants, as set forth in
their report appearing elsewhere in this joint proxy statement prospectus, and
are included in reliance upon that report given upon the authority of that firm
as experts in accounting and auditing.
The audited financial statements of Synergex at December 31, 1999, and
December 31, 1998, respectively, included in this joint proxy statement and
prospectus and in the registration statement have been audited by
PricewaterhouseCoopers LLP, independent auditors, as set forth in their report
appearing elsewhere in this joint proxy statement and prospectus, and in the
registration statement, and are included in reliance upon that report given
upon the authority of that firm as experts in accounting and auditing.
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<PAGE> 89
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Registry Magic Incorporated
Report of Independent Certified Public Accountants ............................................... F-2
Balance Sheets ................................................................................... F-3
Statements of Operations ......................................................................... F-5
Statements of Shareholders' Equity ............................................................... F-6
Statements of Cash Flows ......................................................................... F-7
Notes to Financial Statements .................................................................... F-8
Synergex International Corporation
Report of Independent Accountants ................................................................ F-23
Balance Sheets ................................................................................... F-24
Statements of Operations ......................................................................... F-25
Statements of Change in Stockholders' Equity and Redeemable Common Stock ......................... F-26
Statements of Cash Flows ......................................................................... F-27
Notes to Financial Statements .................................................................... F-28
</TABLE>
F-1
<PAGE> 90
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Registry Magic Incorporated
We have audited the accompanying balance sheet of Registry Magic Incorporated,
as of July 31, 1999 and the related statements of operations, shareholders'
equity and cash flows for each of the two years in the period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Registry Magic Incorporated, as
of July 31, 1999 and the results of its operations and its cash flows for each
of the two years in the period then ended in conformity with generally accepted
accounting principles.
Miami, Florida BDO Seidman, LLP
October 18, 1999
F-2
<PAGE> 91
REGISTRY MAGIC INCORPORATED
BALANCE SHEET
================================================================================
<TABLE>
<CAPTION>
JANUARY 31, July 31,
2000 1999
- -----------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1) $ 2,958,109 $ 4,968,294
Accounts receivable, less allowance for doubtful
accounts of $342,366 and $342,366, respectively
(Note 1) 630,416 602,609
Inventories 186,667 256,235
Other current assets 60,803 22,604
- -----------------------------------------------------------------------------------------------------------
Total current assets 3,835,995 5,849,742
Property and equipment, net (Note 3) 373,676 483,267
Other assets 64,210 39,148
- -----------------------------------------------------------------------------------------------------------
$ 4,273,881 $ 6,372,157
===========================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 92
REGISTRY MAGIC INCORPORATED
BALANCE SHEET
================================================================================
<TABLE>
<CAPTION>
JANUARY 31, July 31,
2000 1999
- --------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 248,668 $ 563,650
- --------------------------------------------------------------------------------------------------
Total current liabilities 248,668 563,650
- --------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 6 AND 8)
SHAREHOLDERS' EQUITY: (NOTES 2 AND 5)
Preferred stock $.01 par value; 5,000,000
shares authorized; no shares outstanding -- --
Common stock, $.001 par value; 30,000,000
shares authorized; 5,355,405 and 5,878,000
issued and outstanding, respectively 5,355 5,878
Additional paid-in capital 13,973,126 14,029,754
Deficit (9,953,268) (8,227,125)
- --------------------------------------------------------------------------------------------------
Total shareholders' equity 4,025,213 5,808,507
- --------------------------------------------------------------------------------------------------
$ 4,273,881 $ 6,372,157
==================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 93
REGISTRY MAGIC INCORPORATED
STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED For the years ended
------------------------------ ------------------------------
JANUARY 31, JANUARY 31, JULY 31, July 31,
2000 1999 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 784,000 $ 1,070,562 $ 2,453,285 $ 517,135
Consulting fees -- -- -- 367,975
- ------------------------------------------------------------------------------------------------------------------------
Total revenues (Note 1) 784,000 1,070,562 2,453,285 885,110
- ------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 550,239 332,649 1,523,108 59,527
General and administrative 1,510,355 1,769,686 3,857,760 1,531,317
Research and development 447,764 763,427 1,242,210 1,076,567
Royalty expense (Note 6) -- 500,000 500,000 500,000
Depreciation 109,977 89,388 195,821 101,284
Interest income, net of interest expense (108,192) (217,417) (364,019) (76,099)
- ------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 2,510,143 3,237,733 6,954,880 3,192,596
- ------------------------------------------------------------------------------------------------------------------------
Net Loss (Note 4) $(1,726,143) $(2,167,171) $(4,501,595) $(2,307,486)
========================================================================================================================
Weighted average shares outstanding (Note 1) 5,754,494 5,813,000 5,813,041 4,216,836
========================================================================================================================
Net loss per common share (basic and diluted)
(Note 1) $ (.30) $ (.37) $ (.77) $ (.55)
========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 94
REGISTRY MAGIC INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid-in
Shares Amount Capital Deficit Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1997 3,793,000 3,793 1,780,471 (1,418,044) 366,220
Issuance of common stock for cash at $5.00
Per share, net of offering costs of $2,841 200,000 200 996,959 -- 997,159
(Note 5)
Issuance of stock options for services
(Note 7) -- -- 75,366 -- 75,366
Issuance of stock in public offering,
net of offering costs of $2,032,095 (Note 2) 1,820,000 1,820 11,161,085 -- 11,162,905
Net loss -- -- -- (2,307,486) (2,307,486)
- ----------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1998 5,813,000 $ 5,813 $ 14,013,881 $(3,725,530) $ 10,294,164
Warrant conversion (Note 5) 60,000 60 (60) -- --
Issuance of stock for services (Note 5) 5,000 5 15,933 -- 15,938
Net loss -- -- -- (4,501,595) (4,501,595)
- ----------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1999 5,878,000 $ 5,878 $ 14,029,754 $(8,227,125) $ 5,808,507
- ----------------------------------------------------------------------------------------------------------------------
Repurchase of common stock (unaudited) (600,000) (600) (59,400) -- (60,000)
Exercise of stock options (unaudited) 77,405 77 2,772 -- 2,849
Net loss (unaudited) -- -- -- (1,726,143) (1,726,143)
======================================================================================================================
Balance at January 31, 2000 (unaudited) 5,355,405 $ 5,355 $ 13,973,126 $(9,953,268) $ 4,025,213
======================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 95
REGISTRY MAGIC INCORPORATED
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
FOR THE SIX MOTHS ENDED For the years ended
--------------------------- ----------------------------
JANUARY 31, JANUARY 31, JULY 31, July 31,
2000 1999 1999 1998
- -------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,726,143) $ (2,167,171) $ (4,501,595) $ (2,307,486)
Adjustments to reconcile net loss to net cash
Used in operating activities:
Depreciation 109,977 89,388 195,821 101,284
Deferred patent costs write-off -- -- 36,073 --
Provision for doubtful accounts -- -- 342,366 --
Stock option compensation expense -- -- -- 75,366
Common stock compensation expense -- -- 15,938 --
Increase in accounts receivable (27,806) (577,457) (820,915) (118,920)
Increase in inventories 69,569 (72,424) (17,741) (238,494)
Decrease (increase) in other current assets (38,199) (3,823) 21,017 (39,537)
(Increase) decrease in other assets (25,062) 10,186 (18,056) (14,167)
(Increase) decrease in accounts payable and
accrued expenses (314,985) (196,170) (145,246) 673,295
Decrease in deferred revenue -- -- -- (237,500)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,952,649) (2,917,471) (4,892,338) (2,106,159)
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of equipment, net (385) (244,975) (341,879) (301,848)
Deferred patent costs -- (2,716) -- (18,226)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (385) (247,691) (341,879) (320,074)
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net proceeds from sale of common stock 2,849 -- -- 12,160,064
Repurchase of Common Stock (60,000)
Notes payable - repayment -- -- (50,000) (410,000)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities (57,151) -- (50,000) 11,750,064
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (2,010,185) (3,165,162) (5,284,217) 9,323,831
Cash and cash equivalents - beginning of period 4,968,294 10,252,511 10,252,511 928,680
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 2,958,109 $ 7,087,349 $ 4,968,294 $ 10,252,511
===================================================================================================================
Supplemental disclosures:
Cash paid for interest $ -- $ 76 $ 2,258 $ 38,152
Cash paid for income taxes -- -- -- --
===================================================================================================================
Common stock and options issued for services rendered $ -- $ -- $ 15,938 $ 75,366
===================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 96
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
1. SUMMARY OF Organization and Business
SIGNIFICANT
ACCOUNTING POLICIES Registry Magic Incorporated (the "Company"), was
incorporated on October 11, 1995 (Inception). The
Company is engaged in the development and
marketing of proprietary applications software
incorporating core speech recognition technology.
The Company's products are designed to enable a
user to perform tasks or retrieve information by
speaking into a telephone or to a computer in a
natural conversational manner. The Company has
developed voice recognition products that span the
spectrum of applications from telephony to
point-of-sale human interface solutions. The
Company's offices are located in Boca Raton,
Florida. The Company currently only has one
operating segment.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
of assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements and the reported amounts
of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Cash Equivalents
The Company considers all highly liquid debt
instruments with original maturities of three
months or less to be cash equivalents. Cash
equivalents include investments in money market
accounts.
Concentration of Credit Risk and Reliance on
Customers and Suppliers
The Company had cash balances at a financial
institution in excess of insured limits by
approximately $4,868,000 at July 31, 1999.
F-8
<PAGE> 97
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
In 1999 and 1998, one customer in the software
development industry accounted for approximately
10% and 94% of total revenues, respectively and
25% and 100% of accounts receivable, respectively.
Certain of the Company's products rely on special
processing boards that are manufactured by one
supplier. The loss of this supplier could have a
material adverse impact on the Company.
Research and Development Costs
Research and development costs incurred to
establish the technological feasibility of
computer software products are charged to
operations as incurred.
Inventories
Inventories are stated at the lower of cost or
market.
Property and Equipment
Property and equipment is recorded at cost.
Depreciation is calculated on a straight line
basis over the estimated useful lives of the
assets, which range from three to five years.
Deferred Patent Costs
Costs incurred in relation to patent applications
are capitalized as deferred patent costs. If and
when a patent is issued, the related patent
application costs will be transferred to a patent
account and amortized over the legal life of the
patent. If it is determined that a patent will not
be issued, the related patent application costs
will be charged to expense at the time such
determination is made.
F-9
<PAGE> 98
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
Fair Value of Financial Instruments
The Company's financial instruments consist
principally of cash and cash equivalents, accounts
receivable, accounts payable and accrued
liabilities. The carrying amounts of such
financial instruments as reflected in the balance
sheet approximate their estimated fair value as of
July 31, 1999. The estimated fair value is not
necessarily indicative of the amounts the Company
could realize in a current market exchange or of
future earnings or cash flows.
Revenue Recognition
Revenue from the sale of software products is
recognized at the time of sale and shipment of the
product. Revenue from product development is
recognized when development is complete. Revenue
from consulting services provided in fiscal 1998
was recognized as services were provided.
Income Taxes
The Company accounts for income taxes pursuant to
the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes," which requires, among other
things, a liability approach to calculating
deferred income taxes. The asset and liability
approach requires the recognition of deferred tax
liabilities and assets for the expected future tax
consequences of temporary differences between the
carrying amounts and the tax bases of assets and
liabilities. The Company has had losses since
inception and accordingly has not provided for
income taxes. Realization of the benefits related
to the net operating loss carryforwards may be
limited in any one year due to IRS Code Section
382, change of ownership rules.
F-10
<PAGE> 99
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
Net Loss Per Common Share
The Company accounts for earnings per share
("EPS") pursuant to SFAS No. 128, "Earnings Per
Share," which simplifies the standards for
computing EPS previously found in APB No. 15,
"Earnings Per Share."
Net loss per common share (basic and diluted) is
based on the net loss divided by the weighted
average number of common shares outstanding during
each year.
The Company's potentially issuable shares of
common stock pursuant to outstanding stock
purchase options and warrants, for fiscal years
ended July 31, 1999 and 1998 (totaling 1,702,376
shares and 828,276 shares with prices ranging from
$.50 to $9.06 and $0.50 to $9.06 respectively) are
excluded from the Company's diluted computation as
their effect would be antidilutive to the
Company's net loss per share.
Long-Lived Assets
In accordance with Financial Accounting Standards
Board SFAS No. 121 "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be
Disposed of," the Company includes as a component
of income from continuing operations before taxes
on income, the impairment loss on assets to be
held and losses on assets expected to be disposed
of.
Stock Based Compensation
In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting
for Stock Based Compensation." SFAS No. 123
establishes a fair value method for accounting for
stock-based compensation plans either through
recognition or disclosure. The Company did not
adopt, for employee options the fair value based
method but instead will disclose the pro forma
effects of the calculation required by the
statement.
F-11
<PAGE> 100
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
Preferred Stock
The Board of Directors is authorized to issue
shares of preferred stock and to determine the
dividend, liquidation, conversion and redemption,
and other rights, preferences and limitations of
such shares without any further vote or action of
the shareholders. Accordingly, the Board of
Directors has the power, without shareholder
approval, to issue preferred stock with dividend,
liquidation, conversion, voting, or other rights
which could negatively affect the voting power or
other rights of the holders of the Common Stock.
Interim Financial Statements
The interim financial statements as of January 31,
2000 and for the six months ended January 31, 2000
and 1999 are unaudited. In the opinion of
management, such statements reflect all
adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of
the financial position, results of operations and
changes in cash flows. The results of operations
for the six months ended January 31, 2000 and 1999
are not necessarily indicative of the results for
the entire year.
Recent and Future Accounting Pronouncements
In June 1998, the Financial Accounting Standards
Board Issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities.
SFAS No. 133 requires companies to recognize all
derivative contracts as either assets or
liabilities in the balance sheet and to measure
them at fair value. If certain conditions are met,
a derivative may be specifically designated as a
hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes
in the fair value of the hedged asset or liability
that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted
transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized
in income in the period of change. SFAS 133 is
effective for all fiscal quarters of
F-12
<PAGE> 101
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
fiscal years beginning after June 15, 1999.
Pursuant to SFAS No. 137, the effective date has
been changed to all fiscal quarters of fiscal
years beginning after June 15, 2000.
Historically, the Company has not entered into
derivatives contracts either to hedge existing
risks or for speculative purposes. Accordingly,
the Company does not expect adoption of the new
standard to affect its financial statements.
2. INITIAL PUBLIC In June 1998, the Company completed a public
OFFERING offering of 1,820,000 shares of common stock. The
Company received gross proceeds of $13,195,000
from this public offering. Costs associated with
this transaction were $2,032,095.
3. PROPERTY AND The Company's property and equipment is summarized
EQUIPMENT as follows:
<TABLE>
<CAPTION>
July 31, 1999
-------------------------------------------
<S> <C>
Office equipment $ 137,906
Computers 600,442
Leasehold improvements 17,747
-------------------------------------------
756,095
Accumulated depreciation (272,828)
-------------------------------------------
$ 483,267
===========================================
</TABLE>
4. INCOME TAXES At July 31, 1999, the Company had a net operating
loss carryforward (NOL) of approximately
$6,153,000, which expires through 2013.
The net deferred tax asset is comprised of the
following at July 31, 1999:
F-13
<PAGE> 102
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
<TABLE>
<CAPTION>
-------------------------------------------------------
<S> <C>
Deferred tax assets:
Prepaid royalty expense $ 150,000
Start up costs 221,000
Allowance for doubtful accounts 129,000
Compensation 141,000
Net operating loss carryforward 2,315,000
-------------------------------------------------------
2,956,000
-------------------------------------------------------
Deferred tax liability:
Depreciation (52,000)
-------------------------------------------------------
Net deferred tax asset 2,904,000
Deferred tax asset valuation allowance (2,904,000)
-------------------------------------------------------
Net deferred tax asset $ --
=======================================================
</TABLE>
Realization of any portion of the Company's
deferred tax asset at July 31, 1999 is not
considered to be more likely than not and
accordingly a $2,904,000 valuation allowance has
been provided.
5. SHAREHOLDERS' In connection with the Company's initial public
EQUITY offering, five-year warrants to purchase 24,000
shares of common stock exercisable at $9.0625 were
granted to an investment banker's representative.
The exercise price of these warrants was reduced
by the Board of Directors to $4.53 during the
quarter ended January 31, 2000.
During July 1999, the Company issued 5,000 shares
of its common stock to a consultant for services
rendered. The Company charged operations for
approximately $16,000 representing the estimated
fair market value of the shares issued.
In conjunction with a 1996 private placement,
five-year warrants to purchase 100,000 shares of
common stock exercisable at $6.00 per share were
granted to the investment banker. The exercise
price of these warrants was reduced by the Board
of Directors to $5.00 per share during the 1999
fiscal year. These warrants
F-14
<PAGE> 103
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
contained a cashless exercise feature which
allowed the excess of the common stock market
value over the option price to be used as currency
to purchase the shares underlying the warrant. In
April 1999, the holder converted these warrants to
60,000 shares of the Company's common stock, based
on the cashless exercise formula.
In November 1997, in connection with a private
placement, the Company issued 200,000 shares of
common stock at $5.00 for cash consideration of
$1,000,000. Costs associated with this transaction
were $2,841.
6. COMMITMENTS a) Licenses and Royalties
On December 31, 1996, the Company entered into
a licensing agreement with Lernout & Hauspie
Speech Products N.V. ("L&H") which grants the
Company the right to use a certain software
object code in the development of its products
in exchange for payment of certain amounts for
royalties. The agreement runs for a term of
four years and provides for the payment of
percentage royalties and unit royalties as
specified in the agreement. During each of
fiscal year 1999 and 1998, the Company
incurred $0 and $500,000 of non-refundable
royalties, respectively.
On September 25, 1998, the Company entered
into a three year licensing agreement with
Veritel Corporation of America, Inc. which
grants the Company the right to use a certain
software object code in the development of its
products in exchange for payment of certain
royalties. The Company paid a total of
$500,000 for the licensing rights. In the
third quarter of fiscal 1999, management
determined that the related intangible asset
was impaired and accordingly, the unamortized
amount was changed to expense in 1999.
On February 5, 1999, the Company entered into
a licensing agreement with Phonetic Systems
Limited ("PSL") which grants the Company the
right to distribute a certain software product
as a "private label product." The agreement
runs for
F-15
<PAGE> 104
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
a term of 2 years and provides for the payment
of percentage royalties and unit royalties as
specified in the agreement.
b) Employment Agreements
In December 1997, the Company entered into a
three year employment agreement with its
Chairman of the Board which provides for a
base salary of $115,500. In the event of a
change of control of the Company, where the
Chairman is not retained on a comparable basis
by new management, the Chairman will receive
lump sum payments equivalent to one year's
salary. In addition, in the event of the
non-renewal of the employment agreement, the
Chairman will be entitled to the same lump sum
payments.
In October 1999, the Company entered into a
one year employment agreement automatically
renewing for one additional year with its
president and chief executive officer
providing for a base salary of $175,000.
c) Lease
The Company occupies premises under four
operating leases. Rent expense for 1999 and
1998 aggregated approximately $98,000 and
$49,000, respectively. Minimum guaranteed
lease payments under these leases are as
follows:
<TABLE>
<CAPTION>
Year ended July 31,
--------------------------------
<S> <C>
2000 $ 113,700
2001 106,300
2002 110,500
2003 114,900
2004 120,000
Thereafter 50,600
--------------------------------
$ 616,000
================================
</TABLE>
F-16
<PAGE> 105
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
7. STOCK BASED In March 1997, the Company adopted a Stock Option Plan
COMPENSATION (the 1997 "Plan") under which 300,000 shares of common
stock are reserved for issuance upon exercise of stock
based awards, including non-qualified stock options. The
1997 Plan is also authorized to issue short-term cash
incentive awards. The 1997 Plan is administered by either
the Board or such committees, officers and/or employees of
the Company as the Board may so designate. The purchase
price of each share of common stock purchased upon
exercise of any option granted is as follows: (i)
incentive stock options shall be equal to or greater than
the fair market value of the common stock on the date of
grant as required under Section 422 of the Internal
Revenue Code, (ii) options granted to 10% holders and
designated by the plan administrator as incentive stock
options shall be at least 110% of the fair market value of
the common stock on the date of grant as required under
Section 422 of the Internal Revenue Code, (iii)
non-employee director options shall be equal to or greater
than the fair market value of the common stock on the date
of the grant. Pursuant to the plan, options to purchase
47,500 and 34,500 shares of common stock exercisable at
$7.88 to $8.00 or the number of already owned shares of
stock equal in value to the total exercise price of the
options, and $3.50 to $7.00 or the number of already owned
shares of stock equal in value to the total exercise price
of the options, have been granted during the years ended
July 31, 1999 and 1998, respectively. These options vest
over terms up to five years from the grant date with
expiration dates beginning in 2001.
Included in the options granted in fiscal 1998 were four
year options to purchase 14,500 shares at $7.00 which were
granted to three consultants for general business
services. These options were fully vested at date of
grant. In connection with these grants, approximately
$49,000 was charged to operations representing the
difference between the market price of the stock and the
exercise price of the options on the date the options were
granted. In addition, during 1998, five-year non-plan
options to purchase 6,926 shares at $3.50 were granted to
two consultants for general business services. These
options were fully vested at date of grant.
F-17
<PAGE> 106
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
In connection with these grants, approximately $26,000 was
charged to operations representing the difference between
the market price of the stock and the exercise price of
the options on the date the options were granted.
In March 1999, the Company adopted a Stock Option Plan
(the 1999 "Plan") under which 500,000 shares of common
stock are reserved for issuance upon exercise of stock
based awards including, non-qualified stock options. The
1999 Plan is also authorized to issue short-term cash
incentive awards. The 1999 Plan is administered by either
the Board or such committees; officers and/or employees of
the Company as the Board may so designate. The purchase
price of each share of common stock purchased upon
exercise of any option granted is as follows: (i)
incentive stock options shall be equal to or greater than
the fair market value of the common stock on the date of
grant as required under Section 422 of the Internal
Revenue Code, (ii) options granted to 10% holders and
designated by the plan administrator as incentive stock
options shall be at least 110% of the fair market value of
the common stock on the date of grant as required under
Section 422 of the Internal Revenue Code, (iii)
non-employee director options shall be equal to or greater
than the fair market value of the common stock on the date
of the grant. Pursuant to the 1999 Plan, options to
purchase 363,600 shares of common stock exercisable at
$3.00 to $3.63 or the number of already owned shares of
stock equal in value to the total exercise price of the
options, have been granted as of July 31, 1999. These
options vest over terms up to five years from the grant
date with expiration dates beginning in 2004.
In addition, during fiscal 1999 five-year non-plan options
to purchase 570,000 shares of common stock exercisable at
$3.75 were granted to three directors and two employees.
These options have available a cashless exercise provision
whereby the holder can exercise the options based on a
formula pursuant to the stock option agreement.
SFAS No. 123, Accounting for Stock-Based Compensation,
F-18
<PAGE> 107
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
requires the Company to provide pro forma information
regarding net loss and net loss per share as if
compensation cost for the Company's stock option plan had
been determined in accordance with the fair value based
method prescribed in SFAS No. 123. The Company estimates
the fair value of each stock option at the grant date by
using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in
1999 and 1998: no dividend yield percent; expected
volatility of 0.500; risk-free interest rate of 5.8% and
expected lives ranging between 4 and 5 years for the 1997
Plan, 1999 Plan and non-plan options.
Under the accounting provisions of SFAS No. 123, the
Company's pro forma net loss and loss per share would have
been:
<TABLE>
<CAPTION>
Year ended July 31, 1999 1998
----------------------------------------------------------
<S> <C> <C>
Net loss
As reported $ 4,501,595 $ 2,307,486
Pro forma $ 5,870,748 $ 2,328,956
Net loss per common share
As reported $ (.77) $ (.55)
Pro forma $ (1.01) $ (.55)
</TABLE>
A summary of the status of the Company's fixed stock
option plan and non-plan options as of July 31, 1999 and
1998, and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
Year ended July 31, 1999 1998
-------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
---------- --------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 568,276 $ 3.16 526,850 $ 3.00
Granted 981,100 3.82 41,426 5.27
Exercised -- -- -- --
Forfeited (7,000) 3.50 -- --
-------------------------------------------------------------------------------
Outstanding at end of year 1,542,376 3.58 568,276 3.16
-------------------------------------------------------------------------------
Options exercisable at year-end 1,212,876 3.62 485,101 3.06
</TABLE>
F-19
<PAGE> 108
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
<TABLE>
<CAPTION>
Year ended July 31, 1999 1998
------------------------------------------------------------
Weighted-average fair value of
options granted during the year:
<S> <C> <C>
Below market $ -- $ 3.22
At market $ 1.93 $ 2.34
Above market $ -- $ --
</TABLE>
The following table summarizes information about fixed stock options and
non-plan options outstanding at July 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- ----------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercis Average
Exercise at Contractual Exercise -able at Exercise
Prices 7/31/99 Life Price 7/31/99 Price
------------------------------------------------------------ ----------------------
<S> <C> <C> <C> <C> <C>
$7.00-$ 8.00 62,000 1.2 years $ 7.64 62,000 $ 7.64
$ 5.00 17,000 1.0 year $ 5.00 17,000 $ 5.00
$ 3.85 100,000 1.6 years $ 3.85 100,000 $ 3.85
$3.50-$ 3.75 1,126,376 3.5 years $ 3.65 922,376 $ 3.65
$ 3.00 137,000 5.0 years $ 3.00 11,500 $ 3.00
$ 0.50 100,000 0.3 year $ 0.50 100,000 $ 0.50
</TABLE>
8. SETTLEMENT During October 1999, the Company entered into Settlement
AGREEMENTS Agreements and General Releases with two former employees.
Under the terms of these Agreements, the Company dismissed
with prejudice a pending action against one of the former
employees. Also, as part of these Settlement Agreements,
the employees sold to the Company 600,000 shares of Common
Stock for $60,000. The parties exchanged general releases
as part of these Settlement Agreements.
F-20
<PAGE> 109
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
9. PROPOSED MERGER On February 11, 2000, the Company and Synergex
(UNAUDITED) International Corporation ("Synergex") entered into an
Agreement and Plan of Merger, (the "Merger Agreement"),
which provides, among other things, that, upon the terms
and subject to conditions thereof, Synergex will merge
with and into a wholly-owned subsidiary of the Company
(the "Merger Subsidiary"). The Merger Subsidiary will be
the surviving corporation in the Merger. In the Merger,
all outstanding shares of common stock of Synergex shall
be converted into the right to receive an aggregate of
1,000,000 shares of the Company's common stock, $.001 par
value per share and shares of the Company's Series A 6%
Cumulative Non-Voting Convertible Preferred Stock, having
an aggregate face value of $8,000,000 and a conversion
price of the lesser of (i) four dollars ($4.00) per share,
or (ii) the average of the closing bid and asked price of
Registry Magic's common stock for the ninety trading day
period immediately preceding the date of conversion;
provided, however, the conversion price shall not be less
than two dollars ($2.00) per share.
On February 28, 2000, the Company and Synergex entered
into a management services agreement whereby Synergex
agreed to provide the Company executive accounting, sales,
marketing and other management services as agreed upon by
the parties. The services currently contemplated include
sales and marketing assistance, support in preparation of
periodic income and cash flow statements, assistance in
the preparation and periodic income and cash flow
statements, assistance in the preparation and filing of
SEC Securities Exchange Act filings, supervision of staff,
and certain other financial and customer account matters.
The term of the agreement began February 24, 2000 and will
continue in effect until May 23, 2000 and thereafter for
successive one-month terms, unless terminated pursuant to
the agreement. The Company will pay Synergex a monthly fee
of $10,000 plus all out-of-pocket travel expenses
reasonably incurred in connection with services provided.
For any successive terms, the fee will be as agreed by the
parties; provided, however, that the monthly fee during
any successive term shall not be lower than $10,000,
unless Synergex' duties are decreased proportionately. In
addition, in the event that
F-21
<PAGE> 110
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JANUARY 31, 2000 AND 1999)
================================================================================
the Merger between the Company and Synergex does not
close, the Company shall pay Synergex an additional fee
equal to the product of $10,000 times the number of months
from the effective date of the management services
agreement until termination or expiration.
F-22
<PAGE> 111
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholders and Board of Directors
Synergex International Corporation
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in stockholders' equity and redeemable common stock and
of cash flows present fairly, in all material respects, the financial position
of Synergex International Corporation (Company) at December 31, 1998 and 1999,
and the results of its operations and its cash flows for each of the two years
then ended, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Sacramento, California
March 13, 2000
F-23
<PAGE> 112
SYNERGEX INTERNATIONAL CORPORATION
BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
ASSETS
Current assets:
Cash $ 78,334 $ 155,404
Accounts receivable, net of allowance
for doubtful accounts of $125,114 and
$72,845 in 1998 and 1999, respectively 2,177,590 1,955,532
Prepaid expenses and other current assets 320,286 370,491
Deferred tax assets, current 258,720 617,535
----------- ----------
Total current assets 2,834,930 3,098,962
Property and equipment, net 837,671 644,316
Capitalized software development costs, net 2,175,243 2,289,957
Other assets 78,899 70,993
Deferred tax assets, noncurrent 461,302 345,033
----------- ----------
Total assets $ 6,388,045 $6,449,261
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ -- $ 273,389
Current portion of capital lease obligations 27,596 17,524
Current portion of notes payable 1,591,915 447,388
Accounts payable 705,542 807,859
Accrued expenses 736,643 703,135
Deferred revenue 869,484 1,162,183
----------- ----------
Total current liabilities 3,931,180 3,411,478
Capital lease obligations 24,048 6,524
Notes payable 577,478 849,002
Deferred rent obligations 102,244 116,760
----------- ----------
Total liabilities 4,634,950 4,383,764
----------- ----------
Commitments (Note 11)
Redeemable common stock, 22,500 and 19,375 shares issued
and outstanding in 1998 and 1999, respectively (Note 8) 64,650 126,162
----------- ----------
Stockholders' equity:
Common stock, no par, 1,500,000 shares authorized:
757,250 and 760,375 shares issued and
outstanding in 1998 and 1999, respectively 44,793 69,793
Retained earnings 1,643,652 1,869,542
----------- ----------
Total stockholders' equity 1,688,445 1,939,335
----------- ----------
Total liabilities and stockholders' equity $ 6,388,045 $6,449,261
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 113
SYNERGEX INTERNATIONAL CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Revenue:
Licenses $ 6,687,721 $ 6,640,296
Services 3,728,872 3,961,481
----------- -----------
10,416,593 10,601,777
Cost of revenue:
Licenses 1,501,085 783,394
Services 1,689,200 1,813,438
Amortization of capitalized software
development costs 738,527 1,010,337
----------- -----------
Gross profit 6,487,781 6,994,608
Operating expenses:
Research and development 1,958,828 1,986,143
Sales and marketing 1,994,142 2,260,346
General and administrative 1,821,311 2,094,216
Costs related to mergers and acquisitions 221,579 332,333
----------- -----------
Income from operations 491,921 321,570
----------- -----------
Other income (expense):
Interest income 1,194 405
Interest expense (173,116) (163,229)
----------- -----------
Total other expense (171,922) (162,824)
----------- -----------
Income before income taxes 319,999 158,746
Income tax benefit 16,652 153,656
----------- -----------
Net income $ 336,651 $ 312,402
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 114
SYNERGEX INTERNATIONAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND REDEEMABLE COMMON STOCK
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Redeemable
Common Stock Common Stock Total
--------------------- ---------------------- Retained Stockholders'
Shares Amount Shares Amount Earnings Equity
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1997 100,000 $ 762,500 779,750 $ 51,768 $ 1,402,176 $ 1,453,944
Issuance of put option
on common stock 22,500 6,975 (22,500) (6,975) -- (6,975)
Accretion of common
stock subject to redemption -- 95,175 -- -- (95,175) (95,175)
Common stock redeemed
from exercise of put
option by Corporate
Shareholder (Note 8) (100,000) (800,000) -- -- -- --
Net income -- -- -- -- 336,651 336,651
------- --------- ------- --------- ----------- -----------
Balance,
December 31, 1998 22,500 64,650 757,250 44,793 1,643,652 1,688,445
Accretion of common
stock subject to redemption -- 86,512 -- -- (86,512) (86,512)
Expiration of put options on
common stock (3,125) (25,000) 3,125 25,000 -- 25,000
Net income -- -- -- -- 312,402 312,402
------- --------- ------- --------- ----------- -----------
Balance,
December 31, 1999 19,375 $ 126,162 760,375 $ 69,793 $ 1,869,542 $ 1,939,335
======= ========= ======= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 115
SYNERGEX INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 336,651 $ 312,402
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 1,109,200 1,427,982
Provision for doubtful accounts 59,945 13,703
Deferred tax provision 84,598 (242,546)
Adjustment to capitalized mergers
and acquisition costs -- 113,060
Changes in operating assets and liabilities:
Accounts receivable (349,267) 208,355
Prepaid expenses and other current assets (105,719) (163,265)
Other assets 856 7,906
Accounts payable 6,183 102,317
Accrued expenses 100,254 (33,508)
Deferred revenue 258,258 292,699
Deferred rent obligation 18,280 14,516
----------- -----------
Cash provided by operating activities 1,519,239 2,053,621
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash 25,000 --
Acquisition of property and equipment (186,235) (224,290)
Capitalized software development costs (1,218,477) (1,125,051)
Deferred mergers and acquisition costs (30,774) --
----------- -----------
Cash used in investing activities (1,410,486) (1,349,341)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit 60,000 2,365,389
Payments on bank line of credit (1,210,000) (2,092,000)
Proceeds from notes payable 1,922,364 1,120,400
Payments on notes payable (638,982) (1,993,403)
Payments on capital lease obligations (24,443) (27,596)
Payments to redeem common stock (200,000) --
----------- -----------
Cash used in financing activities (91,061) (627,210)
----------- -----------
Net increase in cash 17,692 77,070
Cash, beginning of year 60,642 78,334
----------- -----------
Cash, end of year $ 78,334 $ 155,404
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 116
SYNERGEX INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Synergex International Corporation (Company), a California corporation,
develops, markets and supports application development software. The
Company licenses its products, primarily through its direct sales force and
various value-added resellers, to other software application developers and
end-users in North America, Europe, and Australia. The Company also
provides professional consulting services to software developers and
end-users, relating to application software development and internet
business solutions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from these
estimates.
CERTAIN RISKS AND CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit risk are comprised principally of trade accounts
receivable. No customer accounted for greater than 10% of accounts
receivable at December 31, 1999. One customer accounted for 12% of accounts
receivable at December 31, 1998. For the years ended December 31, 1998 and
1999, there were no sales to any individual customer, except as disclosed
in Note 14, greater than 10% of total sales. Ongoing customer credit
evaluations are performed by the Company, and collateral is not required.
The Company maintains allowances for potential returns and credit losses,
and such returns and losses have generally been within management's
expectations.
The Company's revenue is attributable to the sale of software products and
the sale of consulting services that are subject to rapid technological
change. Significant technological change could adversely affect the
Company's operating results and subject the Company to returns of product
and inventory losses. While the Company has ongoing programs to minimize
the adverse effect of such changes and consider technological change in
estimating its allowance, such estimates could change in the future.
REVENUE RECOGNITION
The Company's revenue is derived from primarily two sources, across many
industries: (i) product license revenue, derived primarily from product
sales to software application developers and end-users; and (ii) service
and support revenue, derived primarily from providing software updates and
support, as well as providing consulting services to developers' and
end-users' application softwares.
The Company adopted the provisions of Statement of Position (SOP) 97-2,
Software Revenue Recognition, as amended by SOP 98-4, Deferral of the
Effective Date of Certain Provisions of SOP 97-2, effective January 1,
1998, and SOP 98-9, Modification of SOP 97-2, "Software Revenue
Recognition," with Respect to Certain Transactions effective January 1,
1999. SOP 97-2 supersedes SOP 91-1, Software Revenue Recognition, and
delineates the accounting for software product and maintenance revenue.
Under SOP 97-2, the Company recognizes product revenue upon shipment if a
signed contract exists, the fee is fixed and determinable, collection of
resulting receivables is probable and product returns are reasonably
estimable except for sales to independent software vendors (ISV), which are
recognized upon sale by the ISV to end-users. Estimated product returns are
recorded upon
F-28
<PAGE> 117
SYNERGEX INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
recognition of revenue from customers having rights of return.
Provisions for estimated warranty costs and anticipated retroactive
price adjustments are recorded at the time products are shipped.
The Company generally ships completed products with annual license
maintenance agreements. The Company allocates revenue to maintenance
and support based on objective evidence of its fair value, which is
specific to the Company, and remaining amounts are allocated to the
license element based on the residual method. The Company recognizes
maintenance and support revenue ratably over the support period
(normally twelve months). Payments for maintenance and support are
generally made in advance and are non-refundable. For revenue related
to consulting services, the Company recognizes revenue as the related
services are performed.
SOFTWARE DEVELOPMENT COSTS
Costs related to the conceptual formulation, design of software
products and maintenance are charged to research and development
expense during the period incurred. Costs incurred subsequent to
establishing technological feasibility of software products are
capitalized until general release of the product. Generally, the
Company has established technological feasibility upon completion of a
detailed program design.
Amortization of capitalized software costs is provided on a
product-by-product basis at the greater of the amount computed using
(1) the ratio of current gross revenue for a product to the total of
current and anticipated future gross revenues or (2) the straight-line
method over the remaining estimated economic life of the product.
Generally, an original estimated economic life of three years is
assigned to capitalized software development costs.
The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software development costs
requires considerable judgment by management with respect to certain
external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic
life and changes in software and hardware technologies. Such estimates
could change in the future.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives, generally five
to ten years. Leasehold improvements and equipment held under capital
leases is amortized using the straight-line method over the lesser of
the estimated useful life or the lease term. Expenditures for repairs
and maintenance are charged to expense as incurred. Upon disposition,
the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss is reflected in the statement
of operations.
ADVERTISING COSTS
Advertising costs, included in sales and marketing expenses, are
expensed as incurred and were approximately $215,000 and $234,000 in
1998 and 1999, respectively.
ACCRETION
The carrying amount of common stock subject to redemption is increased
by periodic transfers (i.e., accretion) from retained earnings, as
necessary, to cause the carrying amount of the common stock subject to
redemption to equal the common stock repurchase price on those
redemption dates.
F-29
<PAGE> 118
SYNERGEX INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Deferred income taxes are recorded based on the difference between
financial statement and income tax basis of assets and liabilities and
available loss or credit carryforwards. A valuation allowance is
established to reduce deferred tax assets if it is more likely than not
that all or some portions of such deferred tax assets will not be
realized.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Accordingly, no compensation expense is
recorded for options issued to employees in fixed amounts and with
fixed exercise prices at least equal to the fair market value of the
Company's common stock at the date of grant. The Company has adopted
the disclosure only provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. For
purposes of such disclosures, all stock-based awards to non-employees
are accounted for at their fair value in accordance with SFAS No. 123
and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring, or
in conjunction with Selling, Goods or Services.
RECLASSIFICATION OF PRIOR YEAR AMOUNTS
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Furniture and equipment $ 953,948 $ 935,422
Computer equipment 643,689 783,309
Purchased software 206,193 306,375
Leasehold improvements 108,550 108,550
------------- ------------
1,912,380 2,133,656
Less accumulated depreciation
and amortization (1,074,709) (1,489,340)
------------- ------------
$ 837,671 $ 644,316
============= ============
</TABLE>
Furniture and equipment under capital leases were approximately $121,000
and $92,000 with accumulated amortization of approximately $78,000 and
$70,000 at December 31, 1998 and 1999, respectively.
F-30
<PAGE> 119
SYNERGEX INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Capitalized software development costs consist of the following at December
31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Products under general release:
Development environment products $ 2,484,446 $ 3,972,057
PVCS products 431,054 431,054
Less accumulated amortization (1,120,157) (2,113,154)
------------ ------------
1,795,343 2,289,957
Products under development 379,900 --
------------ ------------
$ 2,175,243 $ 2,289,957
============ ============
</TABLE>
Write-downs of capitalized software development costs to net realizable
value were approximately $20,000 and $-0- for the years ended December 31,
1998 and 1999, respectively.
4. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Accrued commissions and bonuses $ 239,510 $ 292,624
Accrued royalties 232,661 70,886
Accrued compensated absences 172,578 179,334
Other accrued expenses 91,894 160,291
--------- ---------
$ 736,643 $ 703,135
========= =========
</TABLE>
5. BANK REVOLVING LINE OF CREDIT
The Company has a revolving line of credit with a bank, collateralized by
substantially all of the Company's assets and guaranteed by two of the
Company's stockholders, with interest payable monthly at the Wall Street
Journal Prime Lending Rate (7.75% and 8.5% at December 31, 1998 and 1999,
respectively), plus 1%, expiring in August 2000.
At December 31, 1998 and 1999, approximately $1,130,000 and $727,000, of
the line was not used. The available balance of the line of credit is
subject to certain borrowing base limitations related to Company accounts
receivable balances and the outstanding principal balance on the note
payable to bank.
F-31
<PAGE> 120
SYNERGEX INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. NOTES PAYABLE
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Note payable to bank collateralized by
substantially all of the Company's assets
and guaranteed by several stockholders,
monthly principal payments of $41,667
and $31,397 at December 31, 1998 and
1999, respectively, plus interest at the
Wall Street Journal Prime Lending
Rate (7.75% and 8.50% at December 31,
1998 and 1999, respectively), plus 2.0%,
final maturity November 2002 $ 870,366 $ 1,089,278
Note payable, quarterly interest payments
at Prime Rate (7.75% at December 31,
1998), plus 1.0%, repaid in December
1999 625,000 --
Note payable to a member of a
stockholder's family subordinate to bank
note payable, monthly principal and
interest payments of $7,609, interest at
10%, final maturity July 2002 274,027 207,112
Note payable to the Corporate Stockholder
(Note 8) subordinate to bank note payable,
monthly principal payments of $50,000,
non-interest bearing, repaid in August
1999 400,000 --
------------- -----------
2,169,393 1,296,390
Less current portion (1,591,915) (447,388)
------------- -----------
$ 577,478 $ 849,002
============= ===========
</TABLE>
The note payable to a bank is cross-collateralized and cross-defaulted with
the bank revolving line of credit (Note 5). The note payable and the
revolving line of credit contain certain restrictive financial covenants
relating to minimum levels of current ratio and tangible net worth, and
limitations on the debt to tangible net worth ratio.
F-32
<PAGE> 121
SYNERGEX INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The scheduled maturities of notes payable at December 31, 1999, are as
follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
2000 $ 447,388
2001 455,128
2002 393,874
-----------
$ 1,296,390
===========
</TABLE>
7. CAPITAL LEASE OBLIGATIONS
The Company leases telephones, copiers and computer equipment under capital
leases expiring through 2003. Future minimum lease payments required under
capital leases are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
2000 $ 19,150
2001 3,000
2002 3,000
2003 1,596
----------
26,746
Less amount representing interest (2,698)
----------
Present value of future minimum
lease payments 24,048
Less current portion (17,524)
----------
$ 6,524
==========
</TABLE>
8. REDEEMABLE COMMON STOCK
In 1994, a corporate investor (Corporate Stockholder) purchased 100,000
common shares at $5 per share. The related Stock Purchase Agreement and
Stock Ownership Agreement (collectively, the Agreements), effective July 1,
1994, granted the Corporate Stockholder the option to sell the common
shares back to the Company, at prices varying with the length of time the
stock was held (Put Option). In 1998, the Corporate Stockholder exercised
its Put Option and redeemed 100,000 common shares at $8 per share. The
shares redeemed were retired by the Company.
In August 1998, the Company's Board of Directors authorized the redemption
of up to 22,500 shares of common stock from a director and stockholder of
the Company. The redemption can occur anytime during 2000 and 2001, at the
most recent common stock transfer price ($8 per share at December 31,
1999), but cannot exceed $60,000 annually. During 1999, the redemption
rights on 3,125 shares of common stock expired and were unexercised. The
redemption rights on 4,375 shares, which were due to expire in 1999, were
extended to March 31, 2000.
F-33
<PAGE> 122
SYNERGEX INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. STOCK OPTIONS
NON-PLAN STOCK OPTIONS
During July 1998, in connection with a financing transaction, the Company
granted options to purchase 15,000 shares of common stock to a member of a
stockholder's family, which vest immediately, expire four years from the
date of grant and are exercisable at $20 per share. No expense has been
recognized for these non-plan stock options.
STOCK INCENTIVE PLAN
The Company has an Incentive Stock Option Plan (Plan) that provides a
maximum of 150,000 shares of the Company's authorized but unissued common
stock to be available for grant as an incentive stock option to employees,
including officers and directors who are also employees of the Company. The
options are to be issued at no less than 100% of fair market value, or no
less than 110% of fair market value for any owners of stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company's outstanding capital stock (10% Owners), as determined by the
Board of Directors at the date of grant. The exercise period for options
granted is ten years, or five years for 10% Owners, from date of grant. The
options vest over a five-year period (20% vest one year from the date of
grant and the remainder ratably over 48 months).
Options as of December 31, are summarized below:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
<S> <C> <C>
Outstanding at December 31, 1997 68,950 $ 5.80
Granted 98,417 9.64
Forfeited (9,600) 5.80
-------
Outstanding at December 31, 1998 157,767 8.19
Granted 3,750 8.00
Forfeited (2,100) 5.80
-------
Outstanding at December 31, 1999 159,417 $ 8.22
=======
</TABLE>
At December 31, 1999, 5,583 shares of common stock were available for
future issuance under the stock incentive plan.
F-34
<PAGE> 123
SYNERGEX INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, 1998, 42,380 options with a weighted average exercise price
of $10.83, were exercisable. The following table summarizes information
about stock options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- -----------------------
Weighted
Average Weighted
Range of Number Remaining Number Average
Exercise of Options Contractual of Options Exercise
Prices Outstanding Life (in years) Exercisable Price
<S> <C> <C> <C> <C>
$ 5.80 66,200 7.12 38,620 $ 5.80
8.00 78,217 9.45 14,793 8.00
20.00 15,000 3.00 15,000 20.00
------- ------
$5.80 - 20.00 159,417 7.59 68,413 $ 9.39
======= ======
</TABLE>
Pro forma net income, computed as if compensation expense for the Company's
employee option grants in 1998 and 1999, been determined using the fair
value method at the date of grant, consistent with the provisions of SFAS
No. 123, would have been reported as follows for the year ended December
31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Net income, as reported $ 336,651 $ 312,402
=========== ===========
Net income, pro forma $ 257,397 $ 206,326
=========== ===========
</TABLE>
The fair value of each option granted to an employee was estimated using
the minimum value option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1998 1999
-------------------
<S> <C> <C>
Risk-free interest rate 5.27% 6.39%
Expected life of options (years) 10 10
</TABLE>
Volatility and expected dividend yield are not factors used in the minimum
value option pricing model.
F-35
<PAGE> 124
SYNERGEX INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The weighted average grant date exercise prices and fair values of options
granted during the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1998 1999
Weighted Average Weighted Average
------------------ -----------------------
Exercise Fair Exercise Fair
Price Value Price Value
<S> <C> <C> <C> <C>
All options granted $ 9.64 $ 2.58 $8.00 $ 3.15
Granted with exercise
prices approximating
the fair value of the
stock 7.79 3.06 8.00 3.15
Granted with exercise
prices greater than the
fair value of the stock 20.00 -- -- --
</TABLE>
10. INCOME TAXES
Income tax expense (benefit) consists of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Current:
Federal $ (102,050) $ 65,694
State 800 23,196
---------- ----------
(101,250) 88,890
---------- ----------
Deferred:
Federal 147,475 (135,405)
State (62,877) (107,141)
---------- ----------
84,598 (242,546)
---------- ----------
Income tax benefit $ (16,652) $ (153,656)
========== ==========
</TABLE>
F-36
<PAGE> 125
SYNERGEX INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Deferred tax assets and liabilities are reflected on a net basis in the
current and noncurrent classifications on the accompanying balance sheet.
Significant components of the Company's net deferred income tax assets and
(liabilities) at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Capitalized software development costs $ (1,095,348) $ (981,018)
Deferred revenue 372,486 497,879
Depreciation and amortization 108,625 (13,533)
Accrued expenses 172,193 108,033
State income taxes (137,453) (166,541)
Net operating loss (NOL) carryforwards 80,893 --
Tax credit carryforwards 1,174,078 1,467,634
Other 44,548 50,114
------------ -----------
$ 720,022 $ 962,568
============ ===========
</TABLE>
A reconciliation between the Company's effective rate and the federal
statutory rate is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Federal statutory rate 34.00% 34.00%
State taxes, net of federal benefit 5.8 (35.4)
Tax credit carryforwards (86.8) (100.1)
Non-deductible expenses 3.2 8.1
Rate difference on NOL utilization 43.1 --
Other, net (4.5) (3.4)
----- -----
Effective tax rate (5.20)% (96.80)%
===== =====
</TABLE>
At December 31, 1999, the Company had research and experimental tax credit
carryforwards of approximately $895,000 and $573,000 for federal and state
tax purposes, respectively, with the federal credits expiring 2006 through
2019. Utilization of such carryforwards may be limited in certain
circumstances including, but not limited to, cumulative stock ownership
changes of more than 50% over a three-year period. The Company believes
that if the proposed merger with Registry Magic, Incorporated (Note 16)
becomes effective, the amount of tax credit carryforwards that can be
utilized to reduce future taxable income for federal and state income tax
purposes may be limited. The amount of any limitation has not been
determined.
Management has determined that based on the Company's history of prior
operating earnings and its expectations for the future, operating income of
the Company will more likely than not be sufficient to recognize the
deferred tax assets, including utilization of all tax credits, prior to
their expiration. The amount of deferred tax assets considered realizable,
however, could be reduced in the near term if estimates of future taxable
income during the carryforward period are different.
F-37
<PAGE> 126
SYNERGEX INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. COMMITMENTS
OPERATING LEASE
The Company leases its office building under a ten-year noncancelable
operating lease expiring in 2005. Future minimum annual payments required
under the noncancelable operating lease are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
2000 $ 331,000
2001 341,000
2002 351,000
2003 361,000
2004 372,000
Thereafter 319,000
-----------
$ 2,075,000
===========
</TABLE>
The Company's office building operating lease agreement provides for
scheduled rent increases during the lease term. Rent expenses are
recognized on a straight-line basis over the term of the lease. Rent
expense for each of the years ended December 31, 1998 and 1999, was
approximately $336,000.
SOFTWARE LICENSE AGREEMENTS
In 1995, the Company entered into two licensing agreements with a software
licensor to distribute certain software products. Total royalty expenses
under these agreements were approximately $1,195,000 and $532,929 for the
years ended December 31, 1998 and 1999, respectively. The agreements
expired December 31, 1999.
12. FINANCIAL INSTRUMENTS
The estimated fair value amounts for financial instruments have been
determined by the Company, using available market information and
appropriate valuation methodologies. However, considerable judgment is
necessarily required in interpreting market data to develop estimates of
fair value. At December 31, 1999 and 1998, the carrying amounts and
estimated fair values of the Company's financial instruments are as
follows:
- Cash and certificates of deposit - The carrying amount
approximates fair value due to their short-term maturities.
- Bank lines of credit, notes payable and capital lease obligations
- The fair value is estimated to approximate carrying value based
on interest rates currently available to the Company with similar
terms and remaining maturities.
F-38
<PAGE> 127
SYNERGEX INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. EMPLOYEE BENEFIT PLANS
401(K) SAVINGS PLAN
The Company has a 401(k) savings plan, which was amended in January 1999 to
change the plan administrator, covering substantially all its employees.
Eligible employees may contribute up to 15% of their compensation to the
401(k) savings plan and the Company contributes an amount equal to 50% for
each $1.00 of employee contribution up to $2,500 per year per employee. The
Company's expense under the 401(k) savings plan was approximately $120,000
and $125,000 for the years ended December 31, 1998 and 1999, respectively.
PROFIT SHARING BONUS PLAN
The Company has a profit sharing bonus plan, which expired January 1, 1998,
for all non-commissioned employees having completed at least two full
calendar quarters of employment which provides that, unless the Board of
Directors decides otherwise, the Company will contribute 10% of the first
$100,000 of qualified earnings before profit sharing and income taxes. The
profit sharing percentage increases by 2% for each $100,000 of earnings, up
to a maximum profit sharing percentage of 20% of qualified earnings before
profit sharing and income taxes. The amount payable to each eligible
employee is determined based on the proportion of his or her salary to the
total salaries paid to such eligible employees in the profit sharing pool.
For the years ended December 31, 1998 and 1999, there were no payments to
employees under the profit sharing bonus plan.
14. RELATED-PARTY TRANSACTIONS
Related-party transactions during the years ended December 31, other than
those disclosed elsewhere in the financial statements, are approximately as
follows:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Sales to a former corporate stockholder $ 655,000 $ --
========== =========
Receivables from a former corporate
stockholder $ 119,000 $ --
========== =========
Advances to a stockholder $ -- $ 35,000
========== =========
</TABLE>
F-39
<PAGE> 128
SYNERGEX INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15. SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH INVESTING AND FINANCING
ACTIVITIES
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------
1998 1999
<S> <C> <C>
Supplemental cash flow information:
Cash paid for interest $ 172,996 $ 155,455
=========== ==========
Cash paid for income taxes $ 800 $ 800
=========== ==========
Noncash investing and financing activities:
Accretion of common stock subject to
redemption $ 95,175 $ 86,512
=========== ==========
Redemption of common stock for
note payable $ 600,000 $ --
=========== ==========
</TABLE>
16. SUBSEQUENT EVENTS
On February 11, 2000, the Company entered into a definitive merger
agreement to be acquired by Registry Magic Incorporated (RMAG), a
publicly-traded, Florida-based software developer. Subject to the
agreement, all outstanding shares of the Company's common stock will be
exchanged for 1 million shares of RMAG common stock, 779,750 shares of RMAG
Series A 6% cumulative non-voting convertible preferred stock and options
to purchase 1,150,000 shares of RMAG common stock. The acquisition will be
accounted for using the purchase method of accounting by RMAG. The
transaction is subject to regulatory approval, shareholder approval and
customary closing conditions. At the effective date of the merger, all
outstanding Company stock options will be retired.
On February 24, 2000, the Company entered into a management agreement with
RMAG whereby the Company will provide certain management services to RMAG,
through May 23, 2000 or until the effective date of the merger. Subject to
the management agreement, the Company is entitled to receive a monthly fee
from RMAG, with additional amounts payable in the event that the merger
does not become effective.
F-40
<PAGE> 129
Appendix A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SYNERGEX INTERNATIONAL CORPORATION,
CERTAIN SHAREHOLDERS OF SYNERGEX INTERNATIONAL CORPORATION
RMAG ACQUISITION CORP.
AND
REGISTRY MAGIC INCORPORATED
DATED AS OF FEBRUARY 11, 2000
<PAGE> 130
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 11, 2000 (the
"Agreement"), by and among SYNERGEX INTERNATIONAL CORPORATION, a California
corporation ("SIC"), REGISTRY MAGIC INCORPORATED, a Florida corporation
("RMAG"), and RMAG ACQUISITION CORP., a Delaware corporation ("SUB"), which is a
direct wholly-owned subsidiary of RMAG and, for the limited purposes of Sections
4.2, 4.3, 4.4, 4.5, 4.10, 4.13, 4.16, 4.17, 7.1, 7.3 and Article XI, Michele
Wong and Kenneth Lidster shareholders of SIC (each a "SIC Shareholder" and
collectively the "SIC Shareholders") SIC and SUB are hereinafter sometimes
collectively referred to as the "Constituent Corporations."
RECITALS
A. The Boards of Directors of SIC, RMAG and SUB deem it advisable and
in the best interests of each corporation and its respective shareholders that
SIC and RMAG combine in order to advance their long-term business interests, all
upon the terms and subject to the conditions of this Agreement.
B. It is intended that the combination be effected by a merger of SIC
with and into SUB with SUB surviving, which for Federal income tax purposes
shall be a tax-free reorganization described in Section 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. (a) In accordance with the provisions of this
Agreement, the California General Corporation Law ("CGCL") and the Delaware
General Corporation Law ("DGCL"), at the Effective Time, SIC shall be merged
(the "Merger") with and into SUB, and SUB shall be the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") and shall continue
its corporate existence under the laws of the State of Delaware. The name of the
Surviving Corporation shall be Synergex International Corporation. At the
Effective Time, the separate existence of SIC shall cease.
(b) The Merger shall have the effects on SIC and SUB, as Constituent
Corporations of the Merger, provided for under the CGCL and DGCL.
Section 1.2 Effective Time. The Merger shall become effective at the
time of filing of, or at such later time as specified in, an agreement of
merger, in the form required by and executed in accordance with the CGCL and the
DGCL, with the Secretary of State of the State of California
<PAGE> 131
in accordance with the provisions of Sections 1101, 1102 and 1103 of the CGCL
and with the Secretary of State of the State of Delaware in accordance with the
provisions of Section 252 of the DGCL (the "Certificate of Merger"). The date
and time when the Merger shall become effective is herein referred to as the
"Effective Time."
Section 1.3 Articles of Incorporation and Bylaws of Surviving
Corporation. The Certificate of Incorporation and Bylaws of SUB as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation and Bylaws of the Surviving Corporation until thereafter amended
as provided by law.
Section 1.4 Directors and Officers of Surviving Corporation. (a) The
directors of the Surviving Corporation shall be the same as RMAG at the
Effective Time, consistent with this Agreement and will hold office from and
after the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the Certificate of Incorporation
and Bylaws of the Surviving Corporation or as otherwise provided by law or their
earlier resignation or removal.
(b) The officers of SIC immediately prior to the Effective Time shall
be the officers of the Surviving Corporation and each will hold office from and
after the Effective Time until their respective successors are duly appointed
and qualify in the manner provided in the Bylaws of the Surviving Corporation or
as otherwise provided by law or their earlier resignation or removal.
Section 1.5 Further Assurances. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the Constituent Corporations acquired
or to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of each of the Constituent Corporations or
otherwise, all such deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of each of the Constituent Corporations or
otherwise, all such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all right, title and interest in, to and under
such rights, properties or assets in the Surviving Corporation or otherwise to
carry out this Agreement.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Effect on SIC Shares. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holders thereof:
2
<PAGE> 132
(a) The shares of SIC's common stock, no par value (the "SIC Shares"),
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive an aggregate of 1,000,000 shares of RMAG
Common Stock, $.001 par value per share (the RMAG "Common Stock") and shares of
RMAG Series A 6% Cumulative Nonvoting Convertible Preferred Stock having an
aggregate face value of $8,000,000 (the "RMAG Preferred Shares"). In the event
any options held by SIC Shareholders are exercised between the date hereof and
the Effective Date, the number of shares of RMAG Common Stock and RMAG Preferred
Shares to be received by each SIC Shareholder shall be proportionately adjusted
downward. The Articles of Amendment to RMAG's Articles of Incorporation setting
forth the terms and conditions of the RMAG Preferred Stock is attached as
Schedule 2.1 (a) hereto.
(b) All SIC Shares shall be canceled and retired, and each certificate
representing any such SIC Shares shall thereafter (i) represent only the right
to receive the RMAG Common Stock and RMAG Preferred Shares issuable in exchange
for such SIC Shares upon the surrender of such certificates in accordance with
Section 2.4 (and any cash payable in respect of fractional shares) and (ii)
entitle the holder thereof to vote with respect to, and receive dividends on,
such number of whole shares of RMAG Common Stock and RMAG Preferred Shares which
such holder is entitled to receive in exchange for such certificates, provided
that dividends shall be paid to such holder, without interest, only upon
surrender of certificates in accordance with Section 2.4.
(c) Notwithstanding anything to the contrary in this Agreement, any
holder of SIC Shares who shall exercise the rights of a dissenting shareholder
pursuant to and strictly in accordance with the provisions of Sections 1300
through 1312 of the CGCL shall be entitled to receive only the payment therein
provided for and shall not be entitled to receive RMAG Common Stock and RMAG
Preferred Shares. Such payment shall be made directly by the Surviving
Corporation.
Section 2.2 Effect on SIC Options. All outstanding SIC options shall at
the Effective Time be canceled and as soon as practicable following the date of
this Agreement, the SIC Board of Directors shall adopt such resolutions or take
such other actions as may be required to terminate any outstanding SIC options
or option plans.
Section 2.3 SUB Common Stock. Each share of common stock, $.0001 par
value, of SUB issued and outstanding immediately prior to the Effective Time
shall remain outstanding.
Section 2.4 Exchange Procedures. (a) RMAG shall authorize its transfer
agent to act as exchange agent hereunder (the "Exchange Agent") for the purposes
of exchanging certificates representing SIC Shares and shares of RMAG Common
Stock and RMAG Preferred Shares. As promptly as practicable after the Effective
Time, RMAG shall deposit with the Exchange Agent, in trust for the holders of
Certificates (as defined in Section 2.4(b) below), certificates representing the
shares of RMAG Common Stock and RMAG Preferred Shares issuable pursuant to
Section 2.1(a) in exchange for SIC Shares (the "SIC Certificates").
(b) Promptly after the Effective Time, the Exchange Agent shall mail or
cause to be mailed to each record holder, as of the Effective Time, of an
outstanding certificate or certificates
3
<PAGE> 133
which immediately prior to the Effective Time represented SIC Shares (the
"Certificates"), a letter of transmittal and instructions for use in effecting
the surrender of the Certificates for exchange therefor. Upon surrender to the
Exchange Agent of a Certificate, together with such letter of transmittal duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor that number of shares of RMAG Common Stock and RMAG Preferred
Shares which such holder has the right to receive under Section 2.1(a) (and any
amount of cash payable in lieu of fractional shares) and such Certificate shall
forthwith be canceled. If any such shares are to be issued to a person other
than the person in whose name the Certificate surrendered in exchange therefor
is registered, it shall be a condition of exchange that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such exchange shall pay any transfer or other
taxes required by reason of the exchange to a person other than the registered
holder of the Certificate surrendered or such person shall establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable.
(c) No dividends or other distributions with respect to the RMAG Common
Stock or RMAG Preferred Shares constituting all or a portion of the
consideration payable to the holders of SIC Shares shall be paid to the holder
of any unsurrendered Certificate representing SIC Shares until such Certificate
is surrendered as provided for in this Section 2.4. Subject to the effect of
applicable laws, following such surrender, there shall be paid, without
interest, to the record holder of the certificates representing RMAG Common
Stock and RMAG Preferred Shares (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
payable prior to or on the date of such surrender with respect to such whole
shares of RMAG Common Stock and RMAG Preferred Shares and not paid, and the
amount of cash payable in lieu of any fractional shares, less the amount of any
withholding taxes which may be required thereon under any provision of federal,
state, local or foreign tax law, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time, but prior to the date of surrender and a payment date subsequent
to the date of surrender payable with respect to such whole shares of RMAG
Common Stock or RMAG Preferred Shares, less the amount of any withholding taxes
which may be required thereon under any provision of federal, state, local or
foreign tax Law. RMAG shall make available to the Exchange Agent cash for these
purposes.
(d) Any portion of the RMAG Common Stock and RMAG Preferred Shares made
available to the Exchange Agent pursuant to Section 2.4(a) that remains
unclaimed by the holders of SIC Shares twelve (12) months after the Effective
Date shall be returned to RMAG, upon demand, and any such holder who has not
exchanged his, her or its SIC Shares in accordance with this Section 2.4 prior
to that time shall thereafter look only to RMAG for his, her or its claim for
RMAG Common Stock and RMAG Preferred Shares, (as the case may be), any cash in
lieu of fractional shares and certain dividends or other distributions. Neither
RMAG nor SUB shall be liable to any holder of SIC Shares with respect to any
RMAG Common Stock and RMAG Preferred Shares (or cash in lieu of fractional
shares) delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(e) If any Certificate representing SIC Shares shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen
4
<PAGE> 134
or destroyed and, if required by RMAG, the posting by such person of a bond in
such reasonable amount as RMAG may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificate the
consideration payable under Section 2.1(a) and, if applicable, any unpaid
dividends and distributions on shares of RMAG Stock deliverable with respect
thereof and any cash in lieu of fractional shares, in each case pursuant to this
Agreement.
Section 2.5 Fractional Shares. Notwithstanding any other provision of
this Agreement, each holder of SIC Shares who upon surrender of Certificates
therefor would be entitled to receive a fraction of a share of RMAG Common Stock
and RMAG Preferred Shares shall receive, in lieu of such fractional share, cash
in an amount equal to such fraction multiplied by the initial fair market value
of RMAG Common Stock and RMAG Preferred Shares. For purposes of this Agreement,
initial market value means the average of the closing bid and ask price of RMAG
Common Stock for the five trading days ending three trading days immediately
preceding the Closing.
Section 2.6 Transfers. From and after the Effective Time, there shall
be no transfers on the stock transfer books of SIC or the Surviving Corporation
of SIC Shares. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be canceled and exchanged as provided in this
Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RMAG AND SUB
RMAG and SUB jointly and severally represent and warrant to SIC and
each SIC Shareholder as follows:
Section 3.1 Organization. Each of RMAG and SUB is a corporation duly
organized, validly existing and in good standing under the laws of its
respective State of Incorporation. RMAG owns directly all of the outstanding
capital stock of SUB. Each of RMAG and SUB has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Except as set forth in Schedule 3.1, each of RMAG and
SUB is duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualifications or licenses necessary,
as indicated on Schedule 3.1 except in such jurisdictions where the failure to
be so duly qualified or licensed and in good standing would not individually or
in the aggregate have a material adverse effect on the business, operations,
assets, prospects, financial condition or results of operations of RMAG and
would not delay or prevent the consummation of the transactions contemplated
hereby (an "RMAG Material Adverse Effect"). RMAG previously has delivered to SIC
accurate and complete copies of its Articles of Incorporation and Bylaws, and
SUB's Certificate of Incorporation and Bylaws, each as currently in effect.
Section 3.2 Capitalization. (a) The authorized capital stock of RMAG
consists of 30,000,000 shares of RMAG Common Stock and 5,000,000 shares of RMAG
Preferred Shares. As
5
<PAGE> 135
of the date hereof, there are 5,355,405 shares of RMAG Common Stock issued and
outstanding and no shares held in treasury; and no shares of RMAG Preferred
Shares outstanding. As of the date hereof, there were outstanding under the RMAG
Stock Option Plans, or otherwise, RMAG Stock Options entitling the holders
thereof to purchase, in the aggregate, up to 854,756 RMAG Shares. Except as set
forth in Schedule 3.2 or in the RMAG SEC Reports, at the Effective Time there
will not be any existing options, warrants, calls, subscriptions, or other
rights or other agreements or commitments obligating RMAG to issue, transfer or
sell any shares of capital stock of RMAG or any other securities convertible
into or evidencing the right to subscribe for any such shares. All shares of
RMAG Common Stock and RMAG Preferred Shares to be issued at the Effective Time
shall be, when issued, duly authorized and validly issued, fully paid, and
nonassessable and subject to the terms of this Agreement free from liens,
charges, claims and encumbrances. All of the shares of RMAG Common Stock shall
be, when issued upon proper conversion of RMAG Preferred Shares, duly authorized
and validly issued, fully paid and nonassessable and subject to the terms of
this Agreement free from liens, charges, claims and encumbrances.
(b) The authorized capital stock of SUB consists of one hundred (100)
shares of common stock, $.0001 par value, of which one hundred (100) are issued
and outstanding and are validly issued, fully paid and nonassessable. As of the
date hereof, there are no outstanding Sub Stock Options entitling the holders
thereof to purchase SUB Shares. At the Effective Time there will not be any
existing options, warrants, calls, subscriptions, or other rights or other
agreements or commitments obligating SUB to issue, transfer or sell any shares
of capital stock of SUB or any other securities convertible into or evidencing
the right to subscribe for any such shares.
(c) Except for the SUB, RMAG has no subsidiaries.
Section 3.3 Authority. Each of RMAG and SUB has full corporate power
and authority to execute and deliver this Agreement and, subject to the
requisite approval of the shareholders of RMAG, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized and approved by the Boards of Directors of RMAG and SUB and by RMAG
as the sole shareholder of SUB, and, except for the requisite approval by the
shareholders of RMAG, no other corporate proceedings on the part of RMAG or SUB
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by each of RMAG and SUB and, assuming this Agreement constitutes a
legal, valid and binding agreement of SIC and the SIC Shareholders, constitutes
a legal, valid and binding agreement of RMAG and SUB, as the case may be,
enforceable against each of them in accordance with its terms, except as the
enforceability may be affected by applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and the possible unavailability of certain equitable
remedies, including the remedy of specific performance.
Section 3.4 No Violations: Consents and Approvals. Except as set forth
on Schedule 3.4, (a) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby nor compliance by RMAG
and SUB with any of the provisions hereof conflicts
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with, violates or results in any breach of (i) subject to obtaining the
requisite approval of RMAG's shareholders, any provision of the Articles of
Incorporation or Bylaws of either of RMAG or the Certificate of Incorporation or
Bylaws of SUB, (ii) any contract, agreement, instrument or understanding to
which RMAG or SUB is a party or by which RMAG, SUB or any of their respective
assets or properties is bound, or (iii) subject to the requisite approval of
RMAG's shareholders any law, judgment, decree, order, statute, rule or
regulation of any jurisdiction or governmental authority (a "Law") applicable to
RMAG or SUB or any of their respective assets or properties, excluding from the
foregoing clauses (ii) and (iii) conflicts, violations or breaches which, either
individually or in the aggregate, would not have an RMAG Material Adverse Effect
or materially impair RMAG's or SUB's ability to consummate the transactions
contemplated hereby or for which RMAG or SUB have received or, prior to the
Merger, shall have received appropriate consents or waivers.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any governmental entity is required by RMAG or SUB in
connection with the execution and delivery of the Agreement or the consummation
by RMAG or SUB of the transactions contemplated hereby, except (i) in
connection, or in compliance, with the provisions of the Securities Act of 1933,
as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (ii) the filing of the Certificate of Merger with
the Secretary of State of the States of California and Delaware, (iii) filings
with, and approval of, the NASDAQ in connection with obligations of RMAG
hereunder, and (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings, the failure of which to be obtained or
made would not, individually or in the aggregate, have an RMAG Material Adverse
Effect, or materially impair the ability of RMAG or SUB to perform its
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby.
Section 3.5 SEC Documents: RMAG Financial Statements. (a) RMAG has
filed with the Securities and Exchange Commission ("SEC") all documents required
to be filed under the Securities Act and the Exchange Act since the effective
date of its initial public offering (the "RMAG SEC Documents"). As of their
respective dates, the RMAG SEC Documents complied in all respects with the
requirements of the Securities Act and the Exchange Act, as the case may be, and
none of the RMAG SEC Documents contained any untrue statement of a material fact
or omitted 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.
(b) As of their respective dates, the financial statements of RMAG
included in the RMAG SEC Documents were prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated therein or in the notes thereto) and
present fairly the consolidated financial position of RMAG as at the dates
thereof and the consolidated results of its operations and statements of
cash-flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments and to any other adjustments
described therein). RMAG's balance sheet included in its Form 10-QSB for the
quarter ended October 31, 1999, shall be referred to as the RMAG Interim Balance
Sheet.
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(c) RMAG has no liability or obligation of any kind (whether contingent
or otherwise and whether due or to become due) except (i) as set forth on
Schedule 3.5, (ii) as set forth on the RMAG Interim Balance Sheet, or (iii) as
incurred in the ordinary course of business, consistent with past practice since
the date of the RMAG Interim Balance Sheet.
Section 3.6 Absence of Certain Changes. Since the date of the RMAG
Interim Balance Sheet, RMAG has been operated only in the ordinary course,
consistent with past practice, and there has not been any adverse change, or any
event, fact or circumstance which might reasonably be expected to result in an
adverse change, in either event that would have a RMAG Material Adverse Effect.
Without limiting the generality of the foregoing, except as set forth on
Schedule 3.6, since October 1, 1999, there has not been with respect to RMAG
any:
(a) sale or disposition of any material asset other than inventory in
the ordinary course;
(b) payment of any dividend, distribution or other payment to any
shareholder of RMAG or to any relative of any such shareholder other than
payments of salary and expense reimbursements made in the ordinary course of
business, consistent with past practice, for employment services actually
rendered or expenses actually incurred;
(c) incurrence or commitment to incur any liability individually or in
the aggregate material to RMAG, except such liabilities under RMAG's existing
credit facilities and liabilities incurred in connection with the Merger;
(d) waiver, release, cancellation or compromise of any indebtedness
owed to RMAG or claims or rights against others, exceeding $50,000 in the
aggregate;
(e) any change in any accounting method, principle or practice except
as required or permitted by generally accepted accounting principles; or
(f) unusual or novel method of transacting business engaged in by RMAG
or any change in RMAG's accounting procedures or practices or its financial or
equity structure.
Section 3.7 Proxy Statement/Prospectus Registration Statement. None of
the information regarding RMAG and SUB to be supplied by RMAG and SUB for
inclusion or incorporation by reference in (i) the registration statement on
Form S-4 (as it may be amended or supplemented from time to time, the
"Registration Statement") relating to RMAG Common Stock to be issued in
connection with the Merger and the shares of Common Stock to be issued upon
conversion of the RMAG Preferred Shares or (ii) the proxy statement to be
distributed in connection with the shareholders meeting of RMAG and SIC
contemplated by Section 5.5 (as it may be amended or supplemented from time to
time, the "Proxy Statement" and together with the prospectus to be included in
the Registration Statement, the "Proxy Statement/Prospectus") will, in the case
of the Registration Statement, at the time it becomes effective and at the
Effective Time, and, in the case of the Proxy Statement, at the time of its
mailing to shareholders of RMAG and SIC and at the time of their respective
shareholders' meetings, contain any untrue statement of a material fact or omit
to
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state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading in light of the circumstances when
made. If at any time prior to the Effective Time any event with respect to RMAG
or SUB shall occur which is required to be described in the Proxy Statement or
Registration Statement, such event shall be so described, and an amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the shareholders of RMAG and SIC. The Proxy Statement and the
Registration Statement will (with respect to RMAG) comply as to form in all
material respects with the provisions of the Securities Act and the Exchange
Act.
Section 3.8 Broker's Fees. Except as set forth on Schedule 3.8, neither
RMAG nor SUB nor any of RMAG's affiliates or their respective officers,
directors or agents has employed any broker, finder or financial advisor or
incurred any liability for any broker's fees, commissions, or financial advisory
or finder's fees in connection with any of the transactions contemplated by this
Agreement.
Section 3.9 Environmental Matters. RMAG has complied in all material
respects with, and has not been cited for any violation of, federal, state and
local environmental protection laws and regulations; and no material capital
expenditures will be required for compliance with any federal, state or local
laws or regulations now in force relating to the protection of the environment.
As used in this section, "hazardous material" means any hazardous or toxic
substance, material or waste that is regulated by any federal authority or by
any state or local authority where the substance, material or waste is located.
There are no underground storage tanks located on the real property owned by
RMAG, nor is RMAG aware of any underground storage tanks on the real property
leased by RMAG in which any hazardous material has been or is being stored, nor
has there been any spill, disposal, discharge or release of any hazardous
material into, upon or over that real property or into or upon ground or surface
water on that real property. There are no asbestos-containing materials
incorporated into the buildings or interior improvements that are part of the
real property or into other assets owned by RMAG, nor is there any electrical
transformer, fluorescent light fixture with ballasts or other equipment
containing polychlorinated biphenyls on the real property owned by RMAG. RMAG is
not aware of any asbestos-containing materials incorporated into the buildings
or interior improvements that are part of the real property or into other assets
leased by RMAG, nor is RMAG aware of any electrical transformer, fluorescent
light fixture with ballasts or other equipment containing polychlorinated
biphenyls on the real property leased by RMAG.
Section 3.10 Compliance With Laws. Except as set forth on Schedule
3.10, RMAG is not or has not conducted its business in violation of any Law,
including without limitation, any Law pertaining to environmental protection,
occupational health or safety, or employment practices except the violation of
which would not have an RMAG Material Adverse Effect.
Section 3.11 No Litigation. Except as set forth in the RMAG SEC
Documents or on Schedule 3.11, there is no claim, litigation, investigation or
proceeding by any person or governmental authority pending or, to RMAG's
knowledge threatened, against RMAG. There are no pending or, to RMAG's
knowledge, threatened controversies or disputes with, or grievances or claims
by, any employees or former employees of RMAG or any of its respective
predecessors of
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any nature whatsoever, including, without limitation, any controversies,
disputes, grievances or claims with respect to their employment, compensation,
benefits or working conditions, except for such litigation which would not have
a RMAG Material Adverse Effect.
Section 3.12 Absence of Certain Business Practices. Neither RMAG nor
any director, officer, employee or agent of the foregoing, nor any other person
acting on its behalf, directly or indirectly, has to RMAG's knowledge given or
agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person which (i) might subject RMAG to any damage
or penalty in any civil, criminal or governmental litigation or proceeding, (ii)
if not given in the past, might have had a RMAG Material Adverse Effect, or
(iii) if not continued in the future, might have a RMAG Material Adverse Effect
or which might subject RMAG to suit or penalty in any private or governmental
litigation or proceeding.
Section 3.13 Knowledge. The term "to RMAG's knowledge" shall mean the
actual knowledge of each director and officer of RMAG.
Section 3.14 No Undisclosed Information. No provision of this Article
IV or any Schedule or any document or agreement furnished by RMAG contains any
untrue statement of a material fact, or omits to state a material fact necessary
in order to make the statement contained herein, in light of the circumstances
under which such statements are made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SIC AND SIC SHAREHOLDERS
SIC represents and warrants to RMAG and SUB as follows, and for the
limited purposes of Sections 4.2, 4.3, 4.4, 4.5, 4.10, 4.13, 4.15 and 4.17, each
of the SIC Shareholders severally represent and warrant as follows:
Section 4.1 Organization. (a) SIC is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. SIC is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualifications or licenses necessary, as
indicated on Schedule 4.1, except in such jurisdictions where the failure to be
so duly qualified or licensed and in good standing would not individually or in
the aggregate have a material adverse effect on the business, operations,
assets, prospects, financial condition or results of operations of SIC and would
not delay or prevent the consummation of the transactions contemplated hereby (a
"SIC Material Adverse Effect").
(b) SIC previously has delivered to RMAG accurate and complete copies
of SIC's Articles of Incorporation and Bylaws, each as currently in effect.
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Section 4.2 Capitalization. (a) The authorized capital stock of SIC
consists of 1,500,000 SIC Shares. As of the date hereof, there are 779,750 SIC
Shares issued and outstanding. As of the date hereof, there were outstanding
under the SIC Stock Option Plans, all of which are listed on Schedule 4.2, SIC
Stock Options entitling the holders thereof to purchase, in the aggregate, up to
144,417 SIC Shares. Except as set forth on Schedule 4.2, at the Effective Time,
there will not be any existing options, warrants, calls, subscriptions, or other
rights or other agreements or commitments obligating SIC to issue, transfer or
sell any shares of capital stock of SIC or any other securities convertible into
or evidencing the right to subscribe for any such shares. All issued and
outstanding SIC Shares are, and all SIC Shares issued and outstanding at the
Effective Time shall be, duly authorized and validly issued, fully paid and
non-assessable and subject to the terms of this Agreement free from all liens,
charges, claims and encumbrances.
(b) SIC has no subsidiaries.
Section 4.3 Authority. SIC has full corporate power and authority to
execute and deliver this Agreement and, subject to the requisite approval of the
Merger and the adoption of this Agreement by SIC's shareholders, to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by SIC's Board of Directors and, except for the
requisite approval of the Merger and the adoption of this Agreement by SIC's
shareholders, no other corporate proceedings on the part of SIC are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
SIC's Board of Directors has determined that the transactions contemplated by
this Agreement, including the Merger, are in the best interests of SIC and its
shareholders and, except as provided in Section 5.2 below, have determined to
recommend to such shareholders that they vote in favor of this Agreement and the
consummation of the transactions contemplated hereby, including the Merger. This
Agreement has been duly and validly executed and delivered by SIC and the SIC
Shareholders, and assuming this Agreement constitutes a legal, valid and binding
agreement of RMAG and SUB, constitutes a legal, valid and binding agreement of
SIC and the SIC Shareholders, as the case may be, enforceable against each of
them in accordance with its terms, except as the enforceability may be affected
by applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and the
possible unavailability of certain equitable remedies, including the remedy of
specific performance.
Section 4.4 No Violations; Consents and Approvals. Except as set forth
on Schedule 4.4, (a) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby nor compliance by SIC
and the SIC Shareholders with any of the provisions hereof conflicts with,
violates or results in any breach of (i) subject to obtaining the requisite
approval of SIC's shareholders, any provision of the Articles of Incorporation
or Bylaws of SIC, (ii) any contract, agreement, instrument or understanding to
which SIC, or any SIC Shareholder is a party, or by which SIC, any SIC
Shareholder or any of their respective assets or properties is bound, or (iii)
subject to the requisite approval of SIC's shareholders, any Law applicable to
SIC, any SIC Shareholder or any of their respective assets or properties,
excluding from the foregoing clauses (ii) and (iii) conflicts, violations or
breaches which, either individually or in the aggregate, would not
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have a SIC Material Adverse Effect or materially impair SIC's or SIC
Shareholder's ability to consummate the transactions contemplated hereby or for
which SIC or SIC Shareholders have received or, prior to the Merger, shall have
received appropriate consents or waivers.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any governmental entity is required by SIC in connection
with the execution and delivery of the Agreement or the consummation by SIC of
the transactions contemplated hereby, except (i) the filing of the appropriate
merger documents with the Secretary of State of the States of California and
Delaware and (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings, the failure of which to be obtained or
made would not, individually or in the aggregate, have a SIC Material Adverse
Effect, or materially impair the ability of SIC to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
Section 4.5 Financial Statements. (a) Set forth as Schedule 4.5 are
(a)(i) audited balance sheets, statements of income, changes in shareholders'
equity and cash flows of SIC for the fiscal years ended December 31, 1998 and
(ii) unaudited balance sheet, statements of income, changes in shareholders'
equity and cash flows of SIC for the twelve month period ended December 31,
1999. Schedule 4.5 is accurate and complete, was prepared in accordance with
generally accepted accounting principals applied on a consistent basis during
the periods involved (except as may be indicated therein or in the notes
thereto) presents fairly the consolidated financial position and results of
operation of SIC as at the dates thereof and for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments and to any other adjustments described therein).
The audited balance sheet as of December 31, 1998 is sometimes herein referred
to as the "SIC Balance Sheet." The unaudited balance sheet at December 31, 1999
is sometimes herein referred to as the "SIC Interim Balance Sheet."
(b) SIC has no liability or obligation of any kind (whether contingent
or otherwise and whether due or to become due) except (i) as set forth on
Schedule 4.5, (ii) as set forth on the SIC Interim Balance sheet, or (iii) as
incurred in the ordinary course of business, consistent with past practice since
the date of the SIC Interim Balance Sheet.
Section 4.6 Absence of Certain Changes. Since the date of the SIC
Interim Balance Sheet, SIC has been operated only in the ordinary course,
consistent with past practice, and there has not been any adverse change, or any
event, fact or circumstance which might reasonably be expected to result in an
adverse change, in either event that would have an SIC Material Adverse Effect.
Without limiting the generality of the foregoing, except as set forth on
Schedule 4.6, since January 1, 2000, there has not been with respect to SIC any:
(a) sale or disposition of any material asset other than inventory in
the ordinary course;
(b) payment of any dividend, distribution or other payment to any
Shareholder of SIC or to any relative of any such Shareholder other than
payments of salary and expense
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reimbursements made in the ordinary course of business, consistent with past
practice, for employment services actually rendered or expenses actually
incurred;
(c) incurrence or commitment to incur any liability individually or in
the aggregate material to SIC, except such liabilities under SIC's existing
credit facilities and liabilities incurred in connection with the Merger;
(d) waiver, release, cancellation or compromise of any indebtedness
owed to SIC or claims or rights against others, exceeding $50,000 in the
aggregate;
(e) any change in any accounting method, principle or practice except
as required or permitted by generally accepted accounting principles; or
(f) unusual or novel method of transacting business engaged in by SIC
or any change in SIC's accounting procedures or practices or its financial or
equity structure.
Section 4.7 Proxy Statement Prospectus; Registration Statement. None of
the information regarding SIC to be supplied by SIC for inclusion or
incorporation by reference in the Registration Statement or the Proxy Statement
will, in the case of the Registration Statement at the time it becomes effective
and at the Effective Time, and in the case of the Proxy Statement, at the time
it is first mailed to shareholders of RMAG or SIC and at the time of their
respective shareholders meetings, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading in light of the
circumstances when made. If at any time prior to the Effective Time any event
with respect to SIC shall occur which is required to be described in the Proxy
Statement or Registration Statement, such event shall be so described, and an
amendment or supplement shall be promptly filed with the SEC and, as required by
law, disseminated to the shareholders of RMAG and SIC. The Proxy Statement and
the Registration Statement will (with respect to SIC) comply as to form in all
material respects with the provisions of the Securities Act and the Exchange
Act.
Section 4.8 State Antitakeover Statutes. The SIC Board of Directors has
approved this Agreement and the transactions contemplated hereby and such
approval constitutes approval of the Merger and the other transactions
contemplated hereby, including approval of the voting agreement (as defined in
Section 5.13 below) by the SIC Board of Directors as required by the CGCL. No
"business combination," "moratorium," "control share," "fair price," "interested
shareholder," affiliated transactions" or other state antitakeover statute or
regulation (i) prohibits or restricts SIC's ability to perform its obligations
under this Agreement (or any party's ability to perform their obligations under
the voting agreement) or either party's ability to consummate the Merger or to
the other transactions contemplated hereby or thereby, (ii) would have the
effect of invalidating or voiding this Agreement or the voting agreement or any
provision hereof, or (iii) would subject RMAG or SUB to any material impediment
or condition in connection with the exercise of any of their respective rights
under this Agreement.
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Section 4.9 Broker's Fees. Neither SIC nor any of its affiliates or
their respective officers, directors or agents has employed any broker, finder
or financial advisor or incurred any liability for any broker's fees,
commissions, financial advisory or finder's fees in connection with any of the
transactions contemplated by this Agreement.
Section 4.10 Environmental Matters. SIC has complied in all material
respects with, and has not been cited for any violation of, federal, state and
local environmental protection laws and regulations; and no material capital
expenditures will be required for compliance with any federal, state or local
laws or regulations now in force relating to the protection of the environment.
As used in this section, "hazardous material" means any hazardous or toxic
substance, material or waste that is regulated by any federal authority or by
any state or local authority where the substance, material or waste is located.
There are no underground storage tanks located on the real property owned by SIC
nor is SIC aware of any underground storage tanks on the real property leased by
SIC in which any hazardous material has been or is being stored, nor has there
been any spill, disposal, discharge or release of any hazardous material into,
upon or over that real property or into or upon ground or surface water on that
real property. There are no asbestos-containing materials incorporated into the
buildings or interior improvements that are part of the real property or into
other assets owned by SIC, nor is there any electrical transformer, fluorescent
light fixture with ballasts or other equipment containing polychlorinated
biphenyls on the real property owned by SIC. SIC is not aware of any
asbestos-containing materials incorporated into the buildings or interior
improvements that are part of the real property or into other assets leased by
SIC, nor is SIC aware of any electrical transformer, fluorescent light fixture
with ballasts or other equipment containing polychlorinated biphenyls on the
real property leased by SIC.
Section 4.11 Contracts. Schedule 4.11 sets forth a complete and
accurate list or description of:
(a) All contracts to which SIC is a party or by which it is bound which
(i) involve amounts in excess of $100,000 or payments based on profits or sales,
(ii) are not cancelable by SIC upon 30 days' notice or less, or (iii) involve
terms or quantities exceeding normal commitments in the ordinary course of
business.
(b) All contracts with wholesalers, distributors, dealers, sales
representatives, or cooperative associations to which SIC is a party or by which
it is bound and which involve amounts in excess of $100,000.
(c) All contracts with any federal, state or local governmental
authorities, agencies or subdivisions to which SIC is a party or by which it is
bound and which involve amounts in excess of $100,000.
(d) All contracts for the past or present disposal of hazardous or
infectious waste or other materials to which SIC is (or to SIC's knowledge was)
a party or by which it is (or to SIC's knowledge was) bound.
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(e) All employment, consulting, management, or agency contracts to
which SIC is a party or by which it is bound.
(f) All contracts containing an obligation of confidentiality with
respect to information furnished by SIC to a third party, or received by either
from a third party.
(g) All contracts limiting the freedom of SIC to compete in any line of
business, or with any person, or in any geographic area or market.
(h) All contracts providing for the present or future lease (whether as
lessee or lessor), purchase or sale of real property by SIC.
With respect to each contract set forth on Schedule 4.11, except as set
forth on Schedule 4.11: (i) each is legal, valid, binding and enforceable
against SIC, and to SIC's knowledge, against each other party thereto, and is in
full force and effect; (ii) each will continue to be legal, valid, binding and
enforceable against SIC, and to SIC's knowledge, against each other party
thereto, and will continue to be in full force and effect immediately following
the Effective Date in accordance with the terms thereof as in effect prior to
the Effective Date; and (iii) neither SIC nor to SIC's knowledge, any other
party, is in breach or default, and no event has occurred which, with notice or
lapse of time, or both, would constitute a breach or default or permit
termination, modification or acceleration under any such contract. SIC has not
been party to any discussions or received any correspondence concerning breach
or termination of any of the foregoing and, to SIC's knowledge, there is no
default under, or any violation of, any of the foregoing by any other party
thereto. SIC has performed all obligations required to be performed by it to
date and is not in default under any of the contracts, agreements, leases or
other documents to which it is a party. SIC has delivered or caused to be
delivered to, RMAG copies of each such contract listed on Schedule 4.11. Since
the date of the SIC Interim Balance Sheet, there has been no material
modification or termination of any such contract nor, to SIC's knowledge, is any
such modification or termination contemplated.
Section 4.12 Compliance With Laws. SIC is not or has not conducted its
business in violation of any Law, including without limitation, any Law
pertaining to environmental protection, occupational health or safety, or
employment practices except the violation of which would not have an SIC
Material Adverse Effect.
Section 4.13 No Litigation. There is no claim, litigation,
investigation or proceeding by any person or governmental authority pending or,
to SIC's knowledge threatened, against SIC. There are no pending or, to SIC's
knowledge, threatened controversies or disputes with, or grievances or claims
by, any employees or former employees of SIC or any of its respective
predecessors of any nature whatsoever, including, without limitation, any
controversies, disputes, grievances or claims with respect to their employment,
compensation, benefits or working conditions, except for such litigation which
would not have an SIC Material Adverse Effect.
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Section 4.14 Inventories. Except as set forth on Schedule 4.14, the
inventories reflected on the SIC Interim Balance Sheet are sufficient to cover
the immediate needs of SIC in the ordinary course of business as conducted by
SIC prior to the execution hereof.
Section 4.15 Permits and Licenses. Schedule 4.15 lists all permits,
licenses, approvals or authorizations of any government authority required to
conduct the business of SIC as currently conducted (the "Permits"). Except as
set forth on Schedule 4.15, all such Permits have been legally obtained and
maintained by SIC and are in full force and effect.
Section 4.16 Employee Benefits. All employee welfare benefit plans as
defined in Section 3(1) of the Employee Retirement Income Security Act of 1974
("ERISA"), employee pension benefit plans as defined in Section 3(2) of ERISA,
and all other employee benefit programs or arrangements of any type, written or
unwritten (collectively, the "Plans") maintained by SIC or to which SIC
contributes are listed on Schedule 4.16. In addition, Schedule 4.16 separately
sets forth any Plans which SIC, or any affiliate or predecessor of SIC,
maintained or contributed to within the six years preceding the date hereof.
(a) The Plans comply, with all applicable provisions of all Laws,
including, without limitation, the Code and ERISA, and have so complied during
all prior periods during which any such provisions were applicable. Without
limiting the foregoing, all of the Plans, and any related trust, intended to
meet the requirements for tax-favored treatment under the Code (including,
without limitation, Sections 401 and 501 and Subchapter B of the Chapter 1 of
the Code) meets and for all prior periods has met, such requirements in all
material respects.
(b) SIC and any other party involved in the administration of any of
the Plans (i) has complied in all material respects with the provisions of
ERISA, the Code or other Laws, applicable to such party, whether as an employer,
plan sponsor, plan administrator, or fiduciary of any of the Plans or otherwise,
(including without limitation the provisions of ERISA and the Code concerning
prohibited transactions), and (ii) has administered the Plans in accordance with
the terms. SIC has made all contributions required of it by any Law (including,
without limitation, ERISA) or contract under any of the Plans and no unfunded
liability exists with respect to any of the Plans.
(c) SIC has no responsibility or liability, contingent or otherwise,
with respect to any Plans or any employee benefits other than under the Plans
listed on Schedule 4.16. SIC has the right to amend or terminate, without the
consent of any other person, any of the Plans, except as prohibited by law and
any applicable collective bargaining agreement. Neither SIC, nor any affiliate
or predecessor of SIC, maintains or has ever maintained or been obligated to
contribute to (i) any defined benefit pension plan (as such term is defined in
Section 3(35) of ERISA), (ii) any multiemployer plan (as such term is defined in
Section 3(37) of ERISA), (iii) any severance plan or policy, or (iv) any
arrangement providing medical or other welfare benefits to retirees or other
former employees or their beneficiaries, except as required under part 6 of
Subtitle B of Title I of ERISA or Section 4980B(f) of the Code (hereinafter
collectively referred to as "COBRA").
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(d) There are no actions, suits or claims pending (other than routine
claims for benefits) or, to SIC's knowledge, any actions, suits, or claims
(other than routine claims for benefits) which could reasonably be expected to
be asserted, against any of the Plans, or the assets thereof, or against SIC or
any other party with respect to any of the Plans.
Section 4.17 Taxes. (a) SIC has duly filed with the appropriate
federal, state, local and foreign taxing authorities all Tax Returns (as defined
below) required to be filed by or with respect to SIC on or before the date
hereof. SIC has included its federal income Tax Returns for all periods ended on
or before December 31, 1998. All such Tax Returns are true, correct and complete
in all material respects as of the time of filing. SIC, with respect to the
federal income Tax Returns, and, with respect to any other Tax Returns, has paid
in full on a timely basis all Taxes (as defined below) due on such Tax Returns
or such Taxes that are otherwise due, except to the extent such Tax is being
contested in good faith through appropriate proceedings and for contested Taxes
only which adequate reserves have been established on the SIC Interim Balance
Sheet. Except as set forth on Schedule 4.17, the balance for accrued Taxes on
the SIC Interim Balance Sheet for the payment of accrued but unpaid Taxes
through the date thereof is correct and the amount of SIC's liability for unpaid
Taxes shall not exceed such balance for accrued but unpaid Taxes of the Group
and SIC, respectively. The balance of accrued Taxes have been determined in
accordance with generally accepted accounting principles, applied on a
consistent basis. All monies which SIC was required by Law to withhold from
employees have been withheld and either timely paid to the proper governmental
authority or set aside in accounts for such purposes and accrued on the books of
SIC.
(b) SIC has never been a member of an affiliated group filing
consolidated returns.
(c) (i) SIC has not received any notice of a deficiency or assessment
with respect to Taxes of SIC from any taxing authority which has not been fully
paid or finally settled, except to the extent any such deficiency or assessment
is being contested in good faith through appropriate proceedings and for which
adequate reserves have been established on the SIC Interim Balance Sheet; (ii)
there are no ongoing audits or examinations of any Tax Return relating to SIC
and no notice (oral or written) of audit or examination of any such Tax Return
has been received by SIC; (iii) In the last three years, the federal income Tax
Returns of SIC have not been audited by the Internal Revenue Service; and (iv)
To SIC's knowledge, no issue has been raised (either in writing or verbally,
formally or informally) on audit or in any other proceeding (and is currently
pending) with respect to Taxes of SIC by any taxing authority which, if resolved
against SIC, would have a SIC Material Adverse Effect. SIC has disclosed on its
federal income tax returns all positions taken therein that, SIC believes could
give rise to a substantial understatement penalty within the meaning of Code
Section 6662.
(d) SIC is not (nor has it ever been) a party to any tax sharing
agreement and has not assumed the liability for taxes of any other person under
law or contract.
(e) SIC (i) has not filed a consent pursuant to Code Section 341(f) nor
agreed to have Code Section 341(f)(2) apply to any disposition of a subsection
(f) asset (as such term is defined in Code Section 341(f)) owned by SIC; (ii)
has not agreed, or is not required, to make any adjustment
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under Code Section 481(a) by reason of a change in accounting method or
otherwise initiated by SIC that will affect the liability of SIC for Taxes;
(iii) has not made an election, or is required, to treat any asset of SIC as
owned by another person pursuant to the provisions of former Code Section
168(f)(8); (iv) is not now or has ever been a party to any agreement, contract,
arrangement, or plan that would result, separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Code Section
280G; (v) has not participated in an international boycott as defined in Code
Section 999; (vi) is not now or has ever been a "foreign person" within the
meaning of Code Section 1445(b)(2); (vii) is not now or has ever been a United
States real property holding corporation within the meaning of Code Section
897(c)(1)(A)(ii); or (viii) has not made any of the foregoing elections or is
required to apply any of the foregoing rules under any comparable state or local
tax provision.
(f) SIC is not required to report or pay any additional Taxes from any
joint venture, partnership or other arrangement or contract limited liability
company that could be treated as a partnership for federal income tax purposes.
(g) For purposes of this Section 4.17, the following terms shall have
the meaning given to them below:
(i) "Tax" means any of the Taxes, and "Taxes" means, with respect
to SIC, (i) all income taxes (including any tax on or based upon net income, or
gross income, or income as specially defined, or earnings, or profits, or
selected items of income, earnings or profits) and all gross receipts,
estimated, sales, use, ad valorem, transfer, franchise, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
windfall profits, environmental (including taxes under Code Section 59A),
alternative, add-on minimum, custom duties, capital stock, social security (or
similar), unemployment, disability, or other taxes, fees assessments, or charges
of any kind whatsoever, together with any interest, penalty, or addition
thereto, whether disputed or not, imposed by any taxing authority on the Group,
and (ii) any liability for payment of any amount of the Tax described in the
immediately preceding clause (i) as a result of being a "transferee" (within the
meaning of Code Section 6901 or any other applicable law) of another person or
successor, by contract, or otherwise, or a member of an affiliated,
consolidated, or combined group.
(ii) "Tax Return" means any return, declaration, report, claim or
refund, or information return or statement or other document (including any
related or supporting information) filed or required to be filed with any
appropriate federal, state, local and foreign governmental entity or authority
(individually or collectively, "taxing authority") or other authority in
connection with the determination, assessment or collection of any Tax paid or
payable by the Group or the administration of any Laws, regulations, or
administrative requirements relating to any such Tax.
Section 4.18 Customers. Except as set forth on Schedule 4.8, no
material customer served by SIC has, since December 31, 2000, canceled or
otherwise terminated, or to SIC's knowledge, made any threat to cancel or
otherwise terminate, its relationship with SIC. SIC has no knowledge that any
material customer is dissatisfied in any material respect with the performance
of SIC, or any
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of its employees or that any such customer intends to cancel or otherwise
terminate its relationship or to materially decrease its purchase of products
and/or services.
Section 4.19 Absence of Certain Business Practices. Neither SIC nor any
director, officer, employee or agent of the foregoing, nor any other person
acting on its behalf, directly or indirectly, has to SIC's knowledge given or
agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person which (i) might subject SIC to any damage
or penalty in any civil, criminal or governmental litigation or proceeding, (ii)
if not given in the past, might have had a SIC Material Adverse Effect, or (iii)
if not continued in the future, might have a SIC Material Adverse Effect or
which might subject SIC to suit or penalty in any private or governmental
litigation or proceeding.
Section 4.20 Intellectual Property. (a) Schedule 4.20(a) sets forth a
correct and complete list of (i) all U.S. and foreign trademarks, patents,
service marks, trade names, copyrights, mask works and designs which are
pending, applied for, granted, or registered in any country or jurisdiction of
the world and are owned by SIC and used in connection with its business; (ii)
all unregistered trademarks, patents, service marks, and trade names which are
owned by SIC and used in connection with its business; and (iii) all licenses,
contracts, permissions and other agreements relating to the business to which
SIC is a party relating in any way to rights in any of the foregoing. Except as
set forth on Schedule 4.20(a), title to all registered intellectual property is
recorded on records in the name of SIC and, to the extent applicable, all
affidavits of continued use and incontestability in respect of such registered
intellectual property have been timely filed.
(b) Except as disclosed and set forth on Schedule 4.20(b), (i) SIC owns
or possesses licenses or other valid rights to use, and upon consummation of the
transactions contemplated by this Agreement, the Surviving Corporation shall own
or possess licenses or other valid rights to use (without the making of any
payment to others or the obligation to grant rights to others in exchange), all
intellectual property necessary to the conduct of the business of SIC as
currently conducted, including, without limitation, all releases required in
connection with quotes, testimonials or likenesses utilized in editorial or
promotional material; (ii) SIC's right title and interest in such intellectual
property is not being opposed by any claim or demand or in any proceeding,
action, litigation or order to which SIC or any person or entity who has granted
a license or other right to use intellectual property to SIC or who has been
granted a license or other right to use intellectual property by SIC, is a party
or subject, nor to the knowledge of SIC is any such claim, demand, proceeding,
action, litigation, or court order threatened; and (iii) the conduct of the
business of SIC as currently conducted does not materially infringe or conflict
with any intellectual property of others.
Section 4.21 Insurance. SIC believes, on the basis of advice of
insurance advisors, that SIC carries insurance covering its assets, business,
equipment, properties, operations, employees, officers and directors of the type
and in amounts customarily carried by persons conducting business similar to
that of SIC. All such policies are in full force and effect and all premiums
have been paid to the extent they are due. Schedule 4.21 set forth a schedule of
each policy, the amount of coverage and the nature thereof.
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Section 4.22 Required Vote of SIC Shareholders. The affirmative vote of
the holders of a majority of the outstanding SIC Shares is required to approve
the Merger. No other vote of the shareholders of SIC is required by Law, the
Articles of Incorporation or Bylaws of SIC or otherwise in order for SIC to
consummate the Merger and the transactions contemplated hereby.
Section 4.23 Knowledge. The term "to SIC's knowledge" shall mean the
actual knowledge of each director and officer of SIC and, where applicable, each
SIC Shareholder.
Section 4.24 Labor. SIC has not experienced any strike, collective
labor agreements, or the collective bargaining disputes or claims of unfair
labor practices in the last five years. To SIC's knowledge, there is no
organizational effort presently being made by or on behalf of any labor union
with respect to the employees of SIC.
Section 4.25 No Undisclosed Information. No provision of this Article
IV or any Schedule or any document or agreement furnished by SIC or the SIC
Shareholders contains any untrue statement of a material fact, or omits to state
a material fact necessary in order to make the statement contained herein, in
light of the circumstances under which such statements are made, not misleading.
ARTICLE V
COVENANTS
Section 5.1 Conduct of Business of SIC and RMAG. Except as contemplated
by this Agreement or as expressly agreed to in writing by the other party,
during the period from the date of this Agreement to the Effective Time, SIC and
RMAG will each conduct their operations substantially as presently operated and
only in the ordinary course of business, in a normal manner consistent with past
practices and will use commercially reasonable efforts to preserve intact their
business organization, to keep available the services of their officers and
employees and to maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships with it and
will take no action which would adversely affect its ability to consummate the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, except as otherwise expressly provided in this Agreement, prior
to the Effective Time neither SIC nor RMAG will, without the prior written
consent of the other:
(a) amend its Articles of Incorporation or Bylaws;
(b) authorize for issuance, issue, sell, deliver, grant any options
for, or otherwise agree or commit to issue, sell or deliver any shares of its
capital stock or any securities convertible into shares of its capital stock,
other than pursuant to and in accordance with the terms of its stock option
plans;
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(c) recapitalize, split, combine or reclassify any shares of its
capital stock; declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock; or purchase, redeem or otherwise acquire any shares of its
own capital stock;
(d) (i) create, incur, assume, maintain or permit to exist any
long-term debt or any short-term debt for borrowed money other than under
existing lines of credit, relating to purchase money security interests or
obligations as a lessee under leases recorded as capital leases, each as
incurred in the ordinary course of business; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person, except in the ordinary
course of business and consistent with past practices; or (iii) make any loans,
advances or capital contributions to, or investments in, any other person;
(e) (i) increase in any manner the rate of compensation of any of its
directors, officers or other employees, except in the ordinary course of
business and in accordance with its customary past practices or as otherwise may
be contractually required; or (ii) pay or agree to pay any bonus, pension,
retirement allowance, severance or other employee benefit except as required
under currently existing employee benefit plans or in the RMAG SEC Documents;
(f) except as set forth on Schedule 5.1, sell or otherwise dispose of,
or encumber, or agree to sell or otherwise dispose of or encumber, any assets
other than inventory in the ordinary course of business;
(g) enter into any other agreement, commitment or contract, except
agreements, commitments or contracts for the purchase, sale or lease of goods or
services in the ordinary course of business consistent with past practice;
(h) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into any agreement in principle or an
agreement with respect to, any (i) plan of liquidation or dissolution, (ii)
acquisition of a material amount of assets or securities, (iii) disposition of a
material amount of assets or securities or (iv) material change in its
capitalization, or enter into a material contract or any amendment or
modification of any material contract or release or relinquish any material
contract right;
(i) SIC shall not cancel any insurance policy referred to in Section
4.22;
(j) engage in any unusual or novel method of transacting business or
change any accounting procedure or practice or its financial structure; or
(k) take any action the taking of which, or omit to take any action the
omission of which, would cause any of the representations and warranties herein
to fail to be true and correct in all respects as of the date of such action or
omission as though made at and as of the date of such action or omission.
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Section 5.2 No Solicitation. SIC and RMAG each agrees that, prior to
the Effective Time, except as provided below it shall not, and shall not
authorize or permit any of its directors, officers, employees, agents or
representatives to, directly or indirectly, solicit, initiate, facilitate or
encourage (including by way of furnishing or disclosing information), or take
any other action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to any Transaction Proposal
(as defined below), or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a Transaction Proposal or agree to or endorse any Transaction Proposal or
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it to take any such action; provided, however, that
nothing contained in this Agreement shall prohibit the SIC or RMAG Boards of
Directors, respectively, from, (i) furnishing information to or entering into
discussions or negotiations with any person or entity that makes an unsolicited
written, bona fide Transaction Proposal which the SIC or RMAG Board of
Directors, as the case may be, determines in good faith that such action is
necessary for the SIC or RMAG Board of Directors to comply with its fiduciary
duties to shareholders under applicable law or (ii) withdrawing, modifying or
changing its recommendation referred to in Section 4.3 if there exists a
Transaction Proposal and the SIC or RMAG Board of Directors, as the case may be,
and based upon the advise of independent legal counsel, determines in good faith
that such action is necessary for the SIC or RMAG Board of Directors to comply
with its fiduciary duties to shareholders under applicable law in connection
with such Transaction Proposal. SIC or RMAG, as the case may be, shall
immediately advise the other parties to this Agreement, orally and in writing,
of any inquiries or proposals relating to an Transaction Proposal known to it,
the material terms and conditions of such inquiry or proposal, and the identity
of the person or entity making such inquiry or proposal. SIC or RMAG, as the
case may be, shall give the other parties to this Agreement at least two (2)
business days advance notice of any information to be supplied to, and at least
three (3) days' advance notice of any agreement to be entered into with any
person or entity making such a proposal for a Transaction Proposal with respect
to SIC or RMAG. For purposes of this Agreement, "Transaction Proposal" shall
mean any of the following (other than the transactions between SIC, RMAG and SUB
contemplated by this Agreement) involving SIC or RMAG: (i) any merger,
consolidation, share exchange, recapitalization, business combination or other
similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of twenty percent (20%) or more of the assets of SIC or
RMAG, in a single transaction or series of transactions; (iii) any offer for, or
the acquisition (or right to acquire) of "beneficial ownership" by any person,
"group" or entity (as such terms are defined under Section 13(d) of the
Securities Exchange Act of 1934), of twenty percent (20%) or more of the
outstanding shares of capital stock of SIC or RMAG or the filing of a
registration statement under the Securities Act in connection therewith; or (iv)
any public announcement by SIC of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
Section 5.3 Access to Information. (a) From the date of this Agreement
until the Effective Time, SIC will provide RMAG and RMAG will provide SIC, and
their respective lenders and authorized representatives (including counsel,
environmental and other consultants, accountants and auditors) full access
during normal business hours to all facilities, personnel and operations and to
all books and records of SIC, RMAG and SUB, will permit the other party to make
such inspections
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as it may reasonably require (including without limitation any air, water or
soil testing or sampling deemed necessary) and will cause its officers to
furnish the other party with such financial and operating data and other
information with respect to its business and properties as the other party may
from time to time reasonably request.
(b) RMAG and SIC will hold and will cause their representatives to hold
in confidence, all documents and information furnished in connection with this
Agreement. Other than documents or information (i) available to the public, (ii)
which are or become known by RMAG or SIC from a source other than SIC or RMAG,
as the case may be, other than by a breach of a confidentiality obligation owed
to SIC or RMAG, respectively, or (iii) required by law to be disclosed.
Section 5.4 Registration Statement and Proxy Statement. RMAG shall file
with the SEC as soon as is reasonably practicable after the date hereof the
Proxy Statement/Prospectus and RMAG shall file the Registration Statement in
which the Proxy Statement/Prospectus shall be included. SIC shall cooperate with
RMAG with regard to such filings. RMAG and SIC shall use all commercially
reasonable efforts to have the Registration Statement declared effective by the
SEC as promptly as practicable. RMAG shall also take any action required to be
taken under applicable state blue sky or securities laws in connection with the
issuance of the RMAG Common Stock. RMAG and SIC shall promptly furnish to each
other all information, and take such other actions, as may reasonably be
requested in connection with any action by any of them in connection with the
preceding sentences.
Section 5.5 Shareholders' Meetings. Unless the SIC Board of Directors
shall have taken an action permitted by clause (ii) of Section 5.2 above, SIC
and RMAG each shall call a meeting of its respective shareholders to be held as
promptly as practicable (and in any event within 45 days after the Registration
Statement is declared effective) for the purpose of voting, in the case of SIC,
upon this Agreement and the Merger and, in the case of RMAG, upon the issuance
of the RMAG Common Stock and RMAG Preferred Shares pursuant to the Merger. Each
of SIC and RMAG shall, through their respective Boards of Directors, recommend
to their respective shareholders approval of such matters and will coordinate
and cooperate with respect to the timing of such meetings and shall use all
commercially reasonable efforts to hold such meetings on the same day and as
soon as practicable after the date hereof. Unless the SIC Board of Directors
shall have taken an action permitted by clause (ii) of Section 5.2 above, each
party shall use all commercially reasonable efforts to solicit from shareholders
of such party proxies in favor of such matters.
Section 5.6 Reasonable Efforts; Other Actions. SIC, RMAG and SUB each
shall use all commercially reasonable efforts promptly to take, or cause to be
taken, all other actions and do, or cause to be done, all other things
necessary, proper or appropriate under applicable Law to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, (i) the taking of any actions required to qualify the Merger
treatment as a tax-free reorganization within the meaning of Code Section
368(a)(2)(D), and (ii) the obtaining of all necessary consents, approvals or
waivers under its material contracts.
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Section 5.7 Public Announcements. Before issuing any press release or
otherwise making any public statements with respect to the Merger, RMAG, SUB and
SIC will consult with each other as to its form and substance and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by Law (it being agreed that the parties
hereto are entitled to disclose all requisite information concerning the
transaction and any filings required with the SEC).
Section 5.8 Notification of Certain Matters. Each of SIC and RMAG shall
give prompt notice to the other party of (i) any notice of, or other
communication relating to, a default or event which, with notice of lapse of
time or both, would become a default, received by it subsequent to the date of
this Agreement and prior to the Effective Time, under any contract material to
the financial condition, properties, businesses or results of operations of SIC
or RMAG, as the case may be, to which it is a party or is subject, (ii) any
notice or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement, (iii) any material adverse change in their
respective financial condition, properties, businesses or results of operations
or the occurrence of any event which is reasonably likely to result in any such
change, or (iv) the occurrence or existence of any event which would, or could
with the passage of time or otherwise, make any representation or warranty
contained herein untrue; provided, however, that the delivery of notice pursuant
to this Section 5.8 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice. Each party shall use its best
efforts to prevent or promptly remedy the same.
Section 5.9 Expenses. Except as otherwise provided herein, RMAG and
SUB, on the one hand, and SIC, on the other hand, shall bear their respective
expenses incurred in connection with the Merger, including, without limitation,
the preparation, execution and performance of this Agreement and the
transactions contemplated hereby, including all fees and expenses of its
representatives, counsel and accountants, $25,000 of the expenses incurred in
printing, mailing and filing (including without limitation, SEC filing fees) the
Proxy Statement/Prospectus shall be paid by SIC.
Section 5.10 Affiliates. SIC shall deliver to RMAG a letter identifying
all persons who, as of the date hereof, may be deemed to be "affiliates" thereof
for purposes of Rule 145 under the Securities Act (the "Affiliates") and shall
advise RMAG in writing of any persons who become Affiliates prior to the
Effective Time. SIC shall cause each person who is so identified as an Affiliate
to deliver to RMAG, no later than the earlier of the thirtieth (30th) day prior
to the Effective Time or the date such person becomes an Affiliate, a written
agreement substantially in the form of Exhibit A hereto.
Section 5.11 Stock Exchange Listing. RMAG shall file a listing
application on or before the Closing and thereafter shall use its best efforts
to effect approval to list on the NASDAQ SmallCap Stock Market, the RMAG Common
Stock to be issued pursuant to the Merger and, in connection with any conversion
by a former holder of SIC shares of his, her or its RMAG Preferred Shares issued
pursuant to the Merger, the underlying shares of RMAG Common Stock.
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Section 5.12 State Antitakeover Laws. If any "fair price" or "control
share acquisition" statute or other similar antitakeover regulation shall become
applicable to the transactions contemplated hereby, RMAG and SIC and their
respective Board of Directors shall use their reasonable best efforts to grant
such approvals and to take such other actions as are necessary so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and shall otherwise use their reasonable best
efforts to eliminate the effects of any such statute or regulation on the
transactions contemplated hereby.
Section 5.13 Voting Agreement; Election Agreement. Simultaneously, with
execution and delivery of this Agreement, (a) The SIC Shareholders shall deliver
to RMAG a voting agreement in the form attached hereto as Schedule 5.13(a) and
(b) the individuals listed on Schedule 5.13 shall deliver to RMAG the Election
Agreement in the form attached hereto as Schedule 5.13(b).
Section 5.14 Employment Agreement. At the Effective Time RMAG and the
Surviving Corporation shall enter into an employment agreement with each of the
persons listed on Schedule 5.14 in the forms set forth on Schedules 5.14(a)
through 5.14(b) (the "Employment Agreements").
Section 5.15 Post Merger Operations. (a) Throughout the three year
period immediately following the Effective Time, RMAG will operate its business
and the business of the Surviving Corporation headquartered in Gold River,
California. At the Effective Time, the Board of Directors of RMAG ("RMAG Board")
shall increase the size of the RMAG Board to consist of seven (7) members, two
(2) of which shall be initially designated by the SIC Shareholders and the
remaining five (5) shall be designated by RMAG. Such board size and composition
shall continue for a period of not less than three (3) years following the
Effective Time.
(b) For the first audited statements of the Surviving Corporation, such
auditors shall be chosen by the SIC shareholders and shall be either (i) a "big
five" accounting firm, (ii) BDO Seidman, or (iii) Grant Thornton.
Section 5.16 Lockup Agreement. Promptly after the execution and
delivery of this Agreement, but prior to the Effective Time, all SIC
shareholders shall deliver to RMAG lockup agreements by each such SIC
shareholder agreeing not to sell, transfer, encumber, pledge, hypothecate, or
otherwise dispose any shares of RMAG Common Stock received by such shareholder
pursuant to the Merger, in accordance with Section 2.1, for the following
periods:
(a) 25% of such RMAG Common Stock may be sold on or after the 90th day
after the Effective Time;
(b) an additional 25% of such RMAG Common Stock may be sold on or after
the 180th day after the Effective Time;
(c) an additional 25% of such RMAG Common Stock may be sold on or after
the 270th day after the Effective Time; and
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(d) all remaining RMAG Common Stock received by such shareholder may be
sold on or after the 360th day after the Effective Time. Such agreement shall be
substantially in the form attached hereto as Schedule 5.16.
Section 5.17 RMAG Stock Options. Upon execution of this Agreement, RMAG
shall create a pool of 575,000 Vested Stock Options and 575,000 Vesting Stock
Options (as defined below) (the "Merger Option Pool"), and at the Effective Time
will grant options from such Merger Option Pool to Merger Optionees (as defined
below) as follows:
(a) At the Effective Time, RMAG will grant to the persons designated by
SIC and mutually agreed to by SIC and RMAG, which agreement shall not be
unreasonably withheld ("Merger Optionees"), an aggregate of 575,000 incentive
stock options to purchase shares of RMAG's common stock (the "Vested Options").
The Vested Options shall be fully vested at the time of grant and shall be
exercisable for a ten (10) year period following the Effective Time at an
exercise price equal to the Fair Market Value of RMAG's Common Stock at the
Effective Time. If, and to the extent, the Vested Options do not qualify for
incentive stock options, such Vested Options, as to that portion only, will be
issued as non-statutory stock options. Each grantee of the Vested Options will
agree not to exercise the Vested Options prior to the first anniversary of the
Effective Time. The terms and conditions of the Vested Option agreements shall
be substantially in the form attached hereto as Schedule 5.17(a).
(b) In addition to the Vested Options described in Section 5.17 above,
RMAG will grant at the Effective Time to Merger Optionees designated by SIC and
mutually agreed to by SIC and RMAG, which agreement shall not be unreasonably
withheld, an additional 575,000 incentive stock options to purchase shares of
RMAG's common stock ("Vesting Options"). The Vesting Options shall vest over a
three (3) year period at the rate of 33.33% per year and shall be exercisable
for a ten (10) year period at an exercise price equal to the Fair Market Value
of RMAG's Common Stock at the Effective Time. In the event and to the extent,
that any portion of the options are not qualified for incentive stock options,
such Vesting Options, as to that portion only will be issued as non-statutory
options. The form of the Vesting Options shall be substantially in the form
attached hereto as Schedule 5.17(b). The performance criteria shall be
determined by SIC and RMAG prior to the Effective Time.
(c) RMAG shall cause the shares of RMAG's Common Stock issuable upon
exercise of Vested and Vesting Options to be registered on a Registration
Statement on Form S-8 or other appropriate form.
Section 5.18 Satisfaction of Conditions. SIC agrees to use its best
efforts to cause each of the conditions set forth in Article VII to RMAG and SUB
proceeding with the Closing to be satisfied on or before the Closing Date. RMAG
and SUB agree to use their respective best efforts to cause each of the
conditions set forth in Article VIII to SIC proceeding with the Closing to be
satisfied on or before the Closing Date.
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Section 5.19 First Bank of California Loans. SIC and the SIC
Shareholders will use their best efforts to obtain the consent of First Bank of
California ("First Bank"). In the event that SIC and the SIC Shareholders are
not able to cause the release of the guaranty as a condition to First Bank's
consent, the SIC Shareholders agree to remain as guarantors of the First Bank
loans. In such event, RMAG will indemnify the SIC Shareholders under such
guaranty, and furthermore, after the Effective Time, RMAG will use its
reasonable best efforts to cause either the release of such parties as
guarantor, or, alternatively, to cause a new bank to replace First Bank.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF RMAG, SUB AND SIC
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the closing of each of the following
conditions:
Section 6.1 Registration Statement. The Registration Statement shall
have become effective in accordance with the provisions of the Securities Act.
No stop order suspending the effectiveness of the Registration Statement shall
have been issued by the SEC and remain in effect. All necessary state securities
or blue sky authorizations shall have been received.
Section 6.2 Shareholder Approval. The requisite vote of the
shareholders of SIC and RMAG and SUB necessary to consummate the transactions
contemplated by this Agreement shall have been obtained.
Section 6.3 Consents and Approvals. All necessary consents and
approvals of any United States or any other governmental authority required for
the consummation of the transactions contemplated by this Agreement shall have
been obtained.
Section 6.4 Listing. The RMAG Common Stock issued in the Merger shall
have been authorized for listing on the NASDAQ SmallCap Stock Market.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF RMAG AND SUB
The obligation of RMAG and SUB to effect the Merger and to perform
under this Agreement is subject to the fulfillment on or before to the Closing
Date of the following additional conditions, any one or more of which may be
waived, in writing, by RMAG and SUB:
Section 7.1 Representations Accurate. The representations and
warranties of SIC and the SIC Shareholders, as applicable, contained herein
shall be true and correct on the date of this Agreement and at and on the
Closing Date as though such representations and warranties were made at and on
such date.
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Section 7.2 Performance. SIC shall have complied, in all material
respects, with all agreements, obligations and conditions required by this
Agreement to be complied with by it on or prior to the Closing Date.
Section 7.3 Officer's Certificate. RMAG and SUB shall have received a
duly executed certificate signed by the President or Chairman of SIC certifying
as to (i) compliance with the conditions set forth in Sections 7.1 and 7.2; (ii)
the accuracy and completeness of the Bylaws of SIC and the director and
shareholder resolutions of SIC approving this Agreement, the Merger and the
transactions contemplated hereby; and (iii) the identity and authority of the
officers and other persons executing documents on behalf of SIC. RMAG and SUB
shall have received a duly executed certificate signed by an SIC Shareholder
certifying as to the compliance with the condition set forth in Section 7.1.
Section 7.4 Certified Articles of Incorporation. RMAG and SUB shall
have received a certificate of the Secretary of State of the State of California
certifying the Articles of Incorporation of SIC and all amendments thereof,
dated not more than ten (10) days prior to the Closing Date.
Section 7.5 Good Standing. RMAG shall have received a certificate of
good standing, or its equivalent, dated no more than ten (10) days prior to the
Closing Date, from the state of incorporation of SIC and each other state in
which SIC is qualified to do business as set forth on Schedule 4.1.
Section 7.6 Legal Action. There shall be no pending or threatened legal
action or inquiry which challenges the validity or the legality of or seeks or
could reasonably be expected to prevent, delay or impose conditions on the
consummation of the Merger or would otherwise restrict RMAG's or the Surviving
Corporation's exercise of full rights to own and operate the business of SIC
subsequent to the Effective Time.
Section 7.7 Consents. RMAG and SUB shall have received copies of
consents of all third parties necessary for SIC to execute, deliver and perform
this Agreement and consummate the Merger including, but not limited to, the
consent of First Bank of California.
Section 7.8 SIC Documents. RMAG and SUB shall have received executed
copies of the (i) Voting Agreements; (ii) Election Agreements; (iii) Employment
Agreements; (iv) legal opinion of SIC's outside legal counsel, which legal
opinion will be in a form and substance reasonably acceptable to RMAG and its
counsel; and (v) Lockup Agreements.
Section 7.9 Dissenting Shares. On the Closing Date, the aggregate
number of SIC Shares with respect to which the holders shall be dissenting
shareholders entitled to relief under Sections 1301 and 1303 of the CGCL shall
not exceed five percent (5%) of all outstanding SIC Shares.
Section 7.10 Material Adverse Change. There shall have been no material
adverse change in the business, operations, assets, prospects, financial
condition or results of operations of SIC.
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Section 7.11 Agreements with Affiliates. RMAG and SUB shall have
received from each person who is an Affiliate under Section 5.10 an executed
copy of the written agreement referred to in Section 5.10 and such agreements
shall be in full force and effect and there shall be no breach, or in existence
any facts which with passage of time or otherwise could constitute a breach,
thereof.
Section 7.12 Certificate of Merger. SIC shall have delivered to RMAG
the Certificate of Merger as executed by duly authorized officers of SIC.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF SIC AND SIC SHAREHOLDERS
The obligations of SIC and SIC Shareholders to effect the Merger and to
perform under this Agreement is subject to the fulfillment on or before the
Closing Date of the following additional conditions, any one or more of which
may be waived, in writing, by SIC and SIC Shareholders:
Section 8.1 Representations Accurate. The representations and
warranties of RMAG and SUB contained herein shall be true and correct on the
date of this Agreement and at and on the Closing Date as though such
representations and warranties were made at and on such date.
Section 8.2 Performance. RMAG and SUB shall have complied, in all
material respects, with all agreements, obligations and conditions required by
this Agreement to be complied with by them on or prior to the Closing Date.
Section 8.3 Compliance Certificate. SIC and the SIC Shareholders shall
have received a certificate signed by the President or Chairman of each of RMAG
and SUB certifying as to (i) compliance with the conditions set forth in
Sections 8.1 and 8.2; (ii) the accuracy and completeness of the Bylaws of SUB
and, as applicable, the director and shareholder resolutions of RMAG and SUB
approving this Agreement, the Merger and the transactions contemplated hereby;
and (iii) the identity and authority of the officers and other persons executing
documents on behalf of RMAG and SUB.
Section 8.4 Certified Articles of Incorporation. SIC shall have
received a certificate of the Secretary of States of the State of Florida and
Delaware certifying the Articles of Incorporation of RMAG and the Certificate of
Incorporation of SUB and all amendments thereof, dated not more than ten (10)
days prior to the Closing Date.
Section 8.5 Good Standing. SIC shall have received a certificate of
good standing, or its equivalent, dated no more than ten (10) days prior to the
Closing Date, from the state of incorporation of RMAG and SUB and each other
state in which RMAG and SUB are qualified to do business, which states are set
forth on Schedule 8.5.
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Section 8.6 Legal Action. There shall be no pending or threatened legal
action or inquiry which challenges the validity or legality of or seeks or could
reasonably be expected to prevent, delay or impose conditions on the
consummation of the Merger.
Section 8.7 Consents. SIC shall have received copies of consents of all
third parties necessary for RMAG to execute, deliver and perform this Agreement
and consummate the Merger.
Section 8.8 RMAG Documents. SIC shall have received executed copies of
the (i) Election Agreements and (ii) legal opinion of RMAG's legal counsel,
which legal opinion will be a form and substance reasonably acceptably to SIC
and its counsel.
Section 8.9 Material Adverse Change. There shall have been no material
adverse change in the business, operations, assets, prospects, financial
condition or results of operations of RMAG or SUB.
Section 8.10 Certificate of Merger. SUB shall have delivered to SIC the
Certificate of Merger, executed by duly authorized officers of SUB.
ARTICLE IX
CLOSING
Section 9.1 Time and Place. Subject to the provisions of Articles VI,
VII, VIII and X, the closing of the Merger (the "Closing") shall take place at
the offices of Atlas, Pearlman, Trop & Borkson, P.A., as soon as practicable,
but in no event later than the second business day after the date on which each
of the conditions set forth in Articles VI, VII and VIII (other than those
conditions that by their nature are to be satisfied at the Closing but subject
to such conditions) have been satisfied or waived, in writing, by the party or
parties entitled to the benefit of such conditions; or at such other place, at
such other time, or on such other date as RMAG, SUB and SIC may, in writing,
mutually agree. The date on which the Closing actually occurs is herein referred
to as the "Closing Date."
Section 9.2 Filings at the Closing. Subject to the provisions of
Articles VI, VII, VIII and X hereof, SIC, RMAG and SUB shall cause to be
executed and filed at the Closing the Certificate of Merger and shall cause the
Certificate of Merger to be recorded in accordance with the applicable
provisions of the CGCL and the DGCL and shall take any and all other lawful
actions and do any and all other lawful things necessary to cause the Merger to
become effective.
ARTICLE X
TERMINATION AND ABANDONMENT
Section 10.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
shareholders of SIC and RMAG:
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(a) by mutual consent of RMAG and SIC;
(b) by either RMAG or SIC, if any court of competent jurisdiction in
the United States or other governmental body in the United States shall have
issued an order (other than a temporary restraining order), decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
Merger, and such order, decree, ruling or other action shall have become final
and nonappealable;
(c) by either RMAG or SIC, if the requisite shareholder approvals of
the shareholders of either RMAG or SIC are not obtained at a meeting of
shareholders duly called and held therefor; or
(d) by either RMAG or SIC if a merger shall not have been consummated
by September 30, 2000, provided that a party in material breach of this
Agreement may not terminate this Agreement.
Section 10.2 Termination by RMAG. This Agreement may be terminated and
the Merger may be abandoned, at any time prior to the Effective Time, before or
after the approval of the shareholders of RMAG or SIC, by RMAG if (a) SIC shall
have failed to comply in any material respect with any of the covenants or
agreements contained in Articles I, II and V of this Agreement to be complied
with by SIC at or prior to such date of termination, (b) there exists a breach
of any representation or warranty of SIC contained in this Agreement such that
the closing conditions set forth in Article VII would not be satisfied,
provided, however, that with respect to either (a) or (b), if such failure or
breach is capable of being cured prior to the Effective Time, such failure or
breach shall not have been cured within fifteen (15) days of delivery to SIC of
written notice of such failure or breach, (c) the Board of Directors of SIC
shall have failed to recommend, or shall have withdrawn, modified or changed its
recommendation of this Agreement or the Merger in a manner adverse to RMAG or
shall have recommended or issued a neutral recommendation with respect to any
proposal in respect of a Transaction Proposal (as defined in Section 5.2 above)
with a person or entity other than RMAG or any Affiliate of RMAG (or the SIC
Board of Directors resolves to do any of the foregoing), or (d) the Board of
Directors of SIC shall furnish or disclose nonpublic information or negotiate,
explore or communicate in any way with a third party with respect to any
Transaction Proposal, or shall have resolved to do any of the foregoing and
publicly disclosed such resolution.
Section 10.3 Termination by SIC. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by the shareholders of RMAG or SIC, by SIC, if (a) RMAG or
SUB shall have failed to comply in any material respect with any of the
covenants or agreements contained in Articles I, II and V of this Agreement to
be complied with by RMAG or SUB at or prior to such date of termination, (b)
there exists a breach of any representation or warranty of RMAG or SUB contained
in this Agreement such that the closing conditions set forth in Article VIII
would not be satisfied, provided, however, that, with respect to either (a) or
(b), if such failure or breach is capable of being cured prior to the
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Effective Time, such failure or breach shall not have been cured within fifteen
(15) days of delivery to RMAG or SUB of written notice of such failure or
breach, or (c) the Board of Directors of RMAG or SUB shall have failed to
recommend or shall have withdrawn, modified or changed its recommendation of
this Agreement in a manner adverse to SIC or shall have recommended or issued a
neutral recommendation with respect to any proposal in respect of a Transaction
Proposal with a person or entity other than SIC or any Affiliate of SIC (or the
Board of Directors of RMAG or SUB, respectively, resolves to do any of the
foregoing), in each case in accordance with and solely to the extent permitted
by Section 5.2 above.
Section 10.4 Procedure for Termination. In the event of termination and
abandonment of the Merger by RMAG or SIC pursuant to this Article X, written
notice thereof shall forthwith be given to the other.
Section 10.5 Effect of Termination and Abandonment. In the event of
termination of this Agreement and abandonment of the Merger pursuant to this
Article X, no party hereto (or any of its directors or officers) shall have any
liability or further obligation to any other party to this Agreement, except as
provided in this Section 10.5 and in Section 5.3(b) hereof. Nothing in this
Section 10.5 shall relieve any party from liability for willful breach of this
Agreement.
ARTICLE XI
SURVIVABILITY; INVESTIGATIONS
Section 11.1 Survival of Representations and Warranties. The
representations and warranties of SIC, the SIC Shareholders (as applicable),
RMAG and SUB contained herein or in any certificate or other documents delivered
prior to the Effective Time shall survive and remain in full force and effect
for a period of forty-five (45) days after completion and delivery to RMAG of
SIC's audited financial statements for the year ended December 31, 2000 ("the
Survival Period"); provided, however, that representations set forth in Sections
3.2, 3.5, 3.9, 3.11, 4.2, 4.10, 4.13 and 4.17 shall survive until the expiration
of the statute of limitations. To the extent that written notice of any
indemnification claim for breach of any representation or warranty (indicating
with reasonable specificity at the basis for such claim, shall be delivered to
the other party within the Survival Period, such representation and warranty
shall survive the termination of Survival Period with respect to the subject
matter of such claim and shall continue until resolution of such claim. The
covenants and agreements contained herein shall survive the Effective Time and
continue in accordance with their respective terms.
Section 11.2 Losses. For purposes of this Agreement, the term "Loss" or
"Losses" shall mean each and all of the following items: claims, losses,
liabilities, obligations, payments, damages, judgments, fines, penalties,
amounts paid in settlement, and any related reasonable costs and expenses
(including, without limitation, interest which may be imposed in connection
therewith, costs and expenses of investigation, actions, suits, proceedings,
demands, assessments and reasonable fees and disbursements of counsel and other
experts) incurred by the person or entity seeking indemnification (the
"Indemnitee") (whether relating to claims asserted by or against third
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parties or to claims asserted against the party providing indemnification (the
"Indemnitor")). In the event there is a determination by any court of competent
jurisdiction, appropriate regulatory body or alternative dispute resolution
entity so authorized to make such determination, which shall make a finding
apportioning liability, each party shall accordingly be liable to the extent of
such finding of apportionment.
Section 11.3 Indemnification by SIC and the SIC Shareholders. Subject
to the provisions of this Article XI, prior to the Effective Time, SIC and the
SIC Shareholders shall indemnify and hold harmless RMAG and SUB and its
Affiliates and their respective officers, directors, employees, agents,
consultants, representatives and successors in accordance with the provisions of
Section 11.1, as to survival after the Effective Time, SIC and the SIC
Shareholders shall indemnify and hold harmless RMAG and the Surviving
Corporation and its Affiliates, and their respective officers, directors,
employees, agents, consultants, representatives and successors from and against
any and all Losses incurred by any of them arising out of or resulting from any
of the following:
(a) any misstatement by SIC or any SIC Shareholder or any inaccuracy in
any of the representations or warranties made by them as applicable in this
Agreement or in any ancillary document; or
(b) any failure by SIC or any SIC Shareholder to perform any of its
covenants or agreements contained in this Agreement or in any ancillary
document;
Section 11.4 Procedure for Indemnification. In the event that any
Indemnitee shall incur or suffer any Losses in respect of which indemnification
may be sought hereunder, the Indemnitee shall assert a claim for indemnification
by written notice (the "Notice") to the Indemnitor stating the nature and basis
of such claim. Promptly after receipt by an Indemnitee of written notice of the
assertion of a claim or the commencement of any action, litigation or proceeding
by any third party (a "Third-Party Claim") with respect to any matter for which
indemnification is or may be owing pursuant to Section 11.3, the Indemnitee
shall give notice to the Indemnitor and shall thereafter keep the Indemnitor
informed of all other information it receives with respect thereto; provided,
that failure of the Indemnitee to give the Indemnitor prompt notice and such
other information as provided herein shall not relieve the Indemnitor of any of
its obligations hereunder unless and then only to the extent that the Indemnitor
shall have been actually prejudiced thereby. The parties each agree to cooperate
and will cause the Indemnitor to cooperate with and render such assistance as
may reasonably be requested in order to insure the proper and adequate defense
of any such Third-Party Claim or proceeding, which assistance shall include,
without limitation, making appropriate personnel reasonably available for any
discovery or trial. If the Indemnitor fails or refuses to undertake the defense
of any such Third-Party Claim within thirty (30) days after delivery of the
notice, the Indemnitee shall have the right to take exclusive control of the
defense, negotiation and/or settlement of such Third-Party Claim at the
Indemnitor's expense. Neither the Indemnitor nor the Indemnitee shall settle or
compromise any Third-Party Claim without the consent of the other, which consent
shall not be unreasonably withheld or delayed; provided, that any settlement or
compromise includes an unconditional release of the Indemnitee from all
liabilities or obligations relating to the Third-Party Claim.
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Section 11.5 Payment. With respect to Third-Party Claims for which
indemnification is payable under this Agreement, such indemnification shall be
paid by the Indemnitor promptly upon (i) the entry of a final judgment against
the Indemnitee and the expiration of any applicable appeal period; (ii) the
entry of a non-appealable judgment or final appellate decision against the
Indemnitee; (iii) the entering into of any settlement agreement in accordance
with the provisions of this Article XI; or (iv) the entry of any consent order
or decree binding upon the Indemnitee. Notwithstanding the foregoing, reasonable
expenses of the Indemnitee which constitute Losses hereunder shall be reimbursed
on a current basis by the Indemnitor.
Section 11.6 Limitation. Notwithstanding anything to the contrary
contained in this Article 11, neither SIC or any SIC Shareholder shall have
liability for any Losses, until such Losses have exceeded $150,000 and the
maximum amount of any liability for Losses shall be limited to (a) $5.3 million
in the case of the SIC Shareholders and (b) $10,000,000 in the case of SIC.
Section 11.7 Investigation. The respective representations and
warranties of RMAG, SUB, SIC and the SIC Shareholders contained herein or in any
certificate or other documents delivered prior to or at the Closing shall not be
deemed waived or otherwise affected by any investigation made by any party
hereto.
Section 11.8 Satisfaction of Claims. Absent any claim for fraud or
other similar claim, RMAG agrees that any claim for Losses shall be satisfied in
the case of the SIC Shareholders from the RMAG Preferred Shares received by such
Shareholders pursuant to this Agreement and shall be satisfied 87% of Lidster
and 13% from Wong. For purposes of this Section 11.8, the RMAG Preferred Shares
shall be valued at the value of the shares if such Preferred Shares were
eligible for conversion at the date of any such claim for indemnification.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Notices. All notices shall be in writing delivered as
follows:
If to RMAG or SUB, to:
Registry Magic Incorporated
3998 FAU Boulevard, Suite 200-105
Boca Raton, FL 33431
Attention: Lawrence Cohen
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With a copy to:
Atlas, Pearlman, Trop & Borkson, P.A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33301
Attention: Joel D. Mayersohn, Esq.
If to SIC, to:
Synergex International Corporation
2330 Gold Meadow Way
Gold River, CA 95670
Attention: General Counsel
With a copy to:
McDonough, Holland & Allen
555 Capital Mall, Ninth Floor
Sacramento, CA 95814
Attention: Nancy P. Lee, Esq.
If to SIC Shareholders, to:
Michele Wong
Kenneth Lidster
c/o Synergex International Corporation
2330 Gold Meadow Way
Gold River, CA 95670
or to such other address as may have been designated in a prior notice pursuant
to this Section. Notices shall be deemed to be effectively served and delivered
(a) when delivered personally; (b) when given by telephone facsimile (with a
copy mailed by first-class U.S. mail); (c) one (1) business day following
deposit with a recognized national air courier service; or (d) three (3)
business days after being deposited in the United States mail in a sealed
envelope, postage prepaid, return receipt requested, to the appropriate party.
Section 12.2 Binding Effect. Except as may be otherwise provided
herein, this Agreement will be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of the
other parties. Except as otherwise specifically provided in this Agreement,
nothing in this Agreement is intended or will be construed to confer on any
person other than the parties hereto any rights or benefits hereunder.
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Section 12.3 Headings. The headings in this Agreement are intended
solely for convenience of reference and will be given no effect in the
construction or interpretation of this Agreement.
Section 12.4 Exhibits and Schedules. The Exhibits and schedules
referred to in this Agreement will be deemed to be a part of this Agreement.
Section 12.5 Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be deemed an original, and all of which
together will constitute one and the same document.
Section 12.6 Governing Law. This Agreement will be governed by the laws
of the State of Florida without regard to conflict of laws principles thereof.
Section 12.7 Waivers. Compliance with the provisions of this Agreement
may be waived only a written instrument specifically referring to this Agreement
and signed by the party waiving compliance. No course of dealing, nor any
failure or delay in exercising any right, will be construed as a waiver, and no
single or partial exercise of a right will preclude any other or further
exercise of that or any other right.
Section 12.8 Pronouns. The use of a particular pronoun herein will not
be restrictive as to gender or number but will be interpreted in all cases as
the context may require.
Section 12.9 Time Periods. Any action required hereunder to be taken
within a certain number of days will be taken within that number of calendar
days; provided, however, that if the last day for taking such action falls on a
weekend or a holiday, the period during which such action may be taken will be
automatically extended to the next business day.
Section 12.10 Modification. No supplement, modification or amendment of
this Agreement will be binding unless made in a written instrument that is
signed by all of the parties hereto and that specifically refers to this
Agreement.
Section 12.11 Entire Agreement. This Agreement and the agreements and
documents referred to in this Agreement or delivered hereunder are the exclusive
statement of the agreement among the parties concerning the subject matter
hereof. All negotiations among the parties are merged into this Agreement, and
there are no representations, warranties, covenants, understandings, or
agreements, oral or otherwise, in relation thereto among the parties other than
those incorporated herein and to be delivered hereunder.
Section 12.12 Severability. If any one or more of the provisions of
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality or enforceability of the remaining provisions of this
Agreement shall not be affected thereby. To the extent permitted by applicable
law, each party waives any provision of law which renders any provision of this
Agreement invalid, illegal or unenforceable in any respect.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
REGISTRY MAGIC INCORPORATED
By: /s/ Lawrence Cohen
-----------------------------------------
Lawrence Cohen, Its Chairman
SYNERGEX INTERNATIONAL CORPORATION
By: /s/ Michele C. Wong
-----------------------------------------
Michele C. Wong
Its President and Chief Executive Officer
RMAG ACQUISITION CORP.
By: /s/ Lawrence Cohen
-----------------------------------------
Lawrence Cohen, Its Chairman
SIC SHAREHOLDERS
/s/ Michele C. Wong
--------------------------------------------
Michele C. Wong
/s/ Kenneth Lidster
--------------------------------------------
Kenneth Lidster
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FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER is dated May
_____, 2000, by and among SYNERGEX INTERNATIONAL CORPORATION, certain
shareholders of SYNERGEX INTERNATIONAL CORPORATION, RMAG ACQUISITION CORP. and
REGISTRY MAGIC INCORPORATION.
PRELIMINARY STATEMENT
The parties have entered into an Agreement and Plan of Merger dated as
of February 11, 2000 (the "Merger Agreement") and have agreed to amend certain
provisions of the Merger Agreement as set forth below.
NOW, THEREFORE, in consideration of the agreements contemplated herein,
and other good and valuable consideration, the receipt and adequacy of which are
hereby conclusively acknowledged, the parties intend to be legally bound, agree
as follows:
1. The provisions of this Amendment shall govern and control over
any conflicting or inconsistent provisions in the Merger
Agreement, but except as modified hereby, all provisions of
the Merger Agreement remain unmodified and in full force and
effect and are hereby reaffirmed by each of the parties
hereto. Unless otherwise defined herein, all capitalized terms
have the same meaning as provided for therefore in the Merger
Agreement.
2. Section 1.1 of the Merger Agreement is amended inserting the
words ", Delaware" after the word corporation on the sixth
line of such section.
3. Section 5.5 shall be amended by inserting the words "and
amending its Articles of Incorporation to change its name to
Synergex International Corporation" after the words merger in
the sixth line of such section.
4. Each party represents and warrants the others as follows:
(a) The execution, delivery and performance of this Agreement (i) has
been duly authorized by all necessary or appropriate proceedings, corporate or
otherwise; (ii) does not violate a conflict of any provisions of the respective
Articles of Incorporation, Bylaws or standing resolutions, if applicable; and
(iii) does not violate or result in a breach or default (with the giving of
notice, the passage of time or otherwise) under contract, understanding,
judgment, order, writ, law or regulations applicable to the representing party
or its assets.
<PAGE> 168
(b) This Amendment is the valid, legal and binding obligation and the
Agreement of the representing party and is enforceable against it in accordance
with its terms.
5. This Agreement may be executed in multiple counterparts, each of
which will be deemed an original, and all of which together will constitute one
and the same document.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
the Agreement and Plan of Merger on the date first written above.
REGISTRY MAGIC INCORPORATED
By:
--------------------------------------
Lawrence Cohen, Its Chairman
SYNERGEX INTERNATIONAL CORPORATION
By:
--------------------------------------
Michelle C. Wong, Its President
and Chief Executive Officer
RMAG ACQUISITION CORP.
By:
--------------------------------------
Lawrence Cohen, Its Chairman
SIC SHAREHOLDERS
------------------------------------------
Michelle C. Wong
------------------------------------------
Kenneth Lidster
2
<PAGE> 169
Appendix B
VOTING AGREEMENT
VOTING AGREEMENT ("Agreement"), dated as of February 11, 2000, between
Kenneth Lidster ("Lidster"), Michele Wong ("Wong") (individually the
"Shareholder" and collectively the "Shareholders") and Registry Magic
Incorporated, a Florida corporation ("RMAG"). RMAG is sometimes herein referred
to as the "Company".
A. Each Shareholder is the record and beneficial owner of that number of
issued and outstanding shares (together with any shares acquired after the date
hereof, the "Shares") of Common Stock of Synergex International Corporation, a
California corporation ("SIC"), as indicated on Exhibit A attached hereto and
made a part hereof, which Shares represent approximately the percentages of the
currently issued and outstanding shares of SIC's Common Stock as indicated on
Exhibit A.
B. In order to induce RMAG to enter into the Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"), by and between SIC and
RMAG, RMAG has requested that the Shareholders enter into this Agreement with
respect to the Shares.
C. Unless otherwise defined herein, all capitalized terms used in this
Agreement shall have the meanings given to them in the Merger Agreement.
D. For good and valuable consideration, the adequacy and receipt of which
are hereby acknowledged, and in order to induce RMAG to enter into the Merger
Agreement, RMAG and the Shareholders hereby agree as follows:
1. Covenants.
(a) At any meeting of shareholders of SIC called to vote upon the
Merger and the Merger Agreement or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval (including by written
consent) with respect to the Merger and the Merger Agreement is sought, each
Shareholder shall, including by initiating a written consent solicitation if
requested by RMAG, vote (or cause to be voted) such Shareholder's Shares in
favor of the Merger, the adoption by SIC of the Merger Agreement and the
approval of the other transactions contemplated by the Merger Agreement.
(b) At any meeting of shareholders of SIC or at any adjournment thereof
or in any other circumstances upon which the Shareholders' vote, consent or
other approval is sought, each Shareholder shall vote (or cause to be voted)
such Shareholder's Shares against (i) any merger agreement or merger (other than
the Merger Agreement and the Merger), consolidation, combination, sale of
substantial assets, reorganization, recapitalization, dissolution, liquidation
or winding up of or by SIC or its Subsidiaries or any other Transaction Proposal
(as defined in the Merger Agreement) affecting SIC (collectively, "Alternative
Transactions") or (ii) any amendment of SIC's Amended and Restated Articles of
Incorporation or by-laws or other proposal or transaction involving SIC
<PAGE> 170
or any of its subsidiaries, which amendment or other proposal or transaction
would in any manner impede, frustrate, prevent or nullify, the Merger, the
Merger Agreement or any of the other transactions contemplated by the Merger
Agreement (collectively, "Frustrating Transactions").
(c) During the Term of this Agreement, except pursuant to a certain
Election Agreement dated February 11, 2000 between Lawrence Cohen, Lidster,
Wong, RMAG and SIC, Lidster and Wong shall not, (i) sell, transfer, pledge,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement (including any profit sharing arrangement) or understanding with
respect to the sale, transfer, pledge, assignment or other disposition of, the
Shares to any person other than RMAG or SIC, or their respective designee, (ii)
enter into any voting arrangement, whether by proxy, voting agreement, voting
trust, power-of-attorney or otherwise, with respect to the Shares or (iii) take
any other action that would in any way restrict, limit or interfere with the
performance of its obligations hereunder or the transactions contemplated
hereby.
2. Grant of Irrevocable Proxy Coupled with an Interest; Appointment of Proxy.
(a) Each Shareholder hereby irrevocably grants to and appoints any
individual who shall hereafter be designated by RMAG as such Shareholder's proxy
and attorney-in-fact (with full power of substitution), for and in the name,
place and stead of such Shareholder, to vote such Shareholder's Shares, or grant
a consent or approval in respect of such Shares, at any meeting of shareholders
of SIC or at any adjournment thereof or in any other circumstances upon which
their vote, consent or other approval is sought, (i) in favor of the Merger, the
adoption by SIC of the Merger Agreement and the approval of the other
transactions contemplated by the Merger Agreement and (ii) against any
Alternative Transaction or Frustrating Transaction.
(b) Each Shareholder represents that any proxies heretofore given in
respect of such Shareholder's Shares are not irrevocable, and that any such
proxies are hereby revoked.
(c) EACH SHAREHOLDER HEREBY AFFIRMS THAT THE PROXY SET FORTH IN THIS
SECTION 2 IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE UNTIL SUCH TIME AS THIS
AGREEMENT TERMINATES IN ACCORDANCE WITH ITS TERMS. The Shareholder hereby
further affirms that the irrevocable proxy is given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy is given to
secure the performance of the duties of such Shareholder under this Agreement.
Such Shareholder hereby ratifies and confirms all that such irrevocable proxy
may lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is
executed and intended to be irrevocable in accordance with the provisions of
________________ of the ________________________________.
3. Representations and Warranties of the Shareholder The Shareholder hereby
represents and warrants to RMAG as follows:
2
<PAGE> 171
(a) Authorization. Each Shareholder has the legal capacity to execute,
deliver and perform this Agreement. This Agreement constitutes a valid and
binding obligation of the Shareholder enforceable against him or her in
accordance with its terms. If the Shareholder is married and the Shares
constitute community property under applicable law, the spouse of each
Shareholder shall consent to be bound by the provisions of this Agreement by
executing the Consent of Spouse attached hereto as Exhibit B and made a part
hereof.
(b) No Conflict. The execution, delivery and performance by the
Shareholder of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) result in any breach or violation of
or be in conflict with or constitute a default under term of any law or
agreement or arrangement to which the Shareholder is a party or by which the
Shareholder is bound, (ii) require any filing with or authorization by any
governmental entity or (iii) require any consent or other action by any person
under, constitute a default under, or give rise to any right of termination,
cancellation or acceleration or to a loss of any benefit to which the
Shareholder is entitled under any provision of any agreement or other instrument
binding on the Shareholder.
(c) Ownership of Shares. Each Shareholder is the record and beneficial
owner of the Shares free and clear of any and all liens, pledges, restrictions,
charges or other adverse claims of any kind or nature. Each Shareholder has the
sole voting power, sole power of disposition, sole power of conversion, sole
power to demand appraisal rights and sole power to agree to all the matters set
forth in this Agreement, in each case with respect to all of the Shares with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement. Except for the
Election Agreement referred to above none of the Shares are subject to any
voting trust or other agreement or arrangement with respect to the voting of
such Shares. Each Shareholder's Shares and the certificates representing such
Shares are now, and at all times during the term hereof will be, held by the
Shareholder, or by a nominee or custodian for the benefit of the Shareholder.
The Shareholder owns of record or beneficially no shares of SIC Common Stock
other than such Shareholder's Shares.
(d) Merger Agreement. Each Shareholder understands and acknowledges
that RMAG is entering into the Merger Agreement in reliance upon the
Shareholder's execution and delivery of this Agreement.
4. Board Approval. The Board of Directors of RMAG have, to the extent required
by applicable law, duly and validly authorized and approved by all necessary
corporate action, this Agreement, the Merger Agreement and the transactions
contemplated hereby and thereby, so that by the execution and delivery hereof no
restrictive provision of any "fair price," "moratorium," "control-share
acquisition," "interested shareholders" or other similar anti-takeover statute
or regulation (including, without limitation, Sections 607.0901 and 607.0902 of
the Florida Business Corporation Act) or restrictive provision of any applicable
anti-takeover provision in the Articles of Incorporation or by-laws of RMAG is,
or will be,
3
<PAGE> 172
applicable to RMAG, the Shares, the Merger or any other transaction contemplated
by this Agreement.
5. Miscellaneous.
(a) Notices. All notices shall be in writing and shall be given as
follows:
<TABLE>
<S> <C>
if to Wong to: if to Lidster to:
--------------- ---------------
--------------- ---------------
--------------- ---------------
</TABLE>
- ---------------
<TABLE>
<S> <C>
with a copy to:
--------------- ---------------
--------------- ---------------
--------------- ---------------
</TABLE>
if to RMAG to:
Registry Magic Incorporated
3998 FAU Boulevard, Suite 200-105
Boca Raton, FL 33431
Attention: Lawrence Cohen
with a copy to:
Atlas, Pearlman, Trop & Borkson, P. A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33301
Telecopy: 954-766-7800
Attention: Joel D. Mayersohn, Esq.
or to such other address as may have been designated in a prior notice pursuant
to this Section. Notices shall be deemed effectively served and delivered upon
receipt.
(b) Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights or obligations
hereunder shall be assigned by the Shareholder without the prior written consent
of RMAG. Except as otherwise specifically provided in this Agreement, nothing in
this Agreement is intended or will be construed to confer on any person other
than the parties hereto any rights or benefits hereunder.
4
<PAGE> 173
(c) Governing Law. This Agreement will be governed by and construed
under California law, without regard to conflict of laws principles thereof.
(d) Waivers. Compliance with the provisions. of this Agreement may be
waived only by a written instrument specifically referring to this Agreement and
signed by the party waiving compliance. No course of dealing, nor any failure or
delay in exercising any right, will be construed as a waiver, and no single or
partial exercise of a right will preclude any other or further exercise of that
or any other right.
(e) Modification. No supplement, modification or amendment of this
Agreement will be binding unless made in a written instrument that is signed by
all the parties hereto and that specifically refers to this Agreement.
(f) Entire Agreement. This Agreement and the Merger Agreement are the
exclusive statement of the agreement among the parties hereto concerning the
subject matter hereof.
(g) Severability. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each party
waives any provision of law which renders any provision of this Agreement
invalid, illegal or unenforceable in any respect.
(h) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
(i) Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in a court of the United States. This
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto waives any right to trial by
jury with respect to any claim or proceeding related to or arising out of this
Agreement or any of the transactions contemplated hereby.
(j) Further Assurances. RMAG and the Shareholders will execute and
deliver, or cause to be executed and delivered, all further documents and
instruments and use their reasonable best efforts to take, or cause to be taken,
all actions necessary, proper or advisable under applicable law to consummate
and make effective the transactions contemplated by this Agreement and to vest
the power to vote each Shareholder's Shares as contemplated by Sections 1 and 2.
5
<PAGE> 174
(k) Termination. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate upon the earliest to occur of (i)
consummation of the Merger, (ii) the termination of the Merger Agreement in
accordance with its terms, unless prior to such termination a person or entity
shall have made a Transaction Proposal and (iii) twenty-four months from the
date hereof. Sections 1(b) and 2(a)(ii) shall terminate on the earlier of (x)
the date computed in accordance with the preceding sentence and (y) six months
after the termination of the Merger Agreement in accordance with its terms.
Nothing in this Section 5(k) shall relieve the Shareholder from liability for
breach of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
REGISTRY MAGIC INCORPORATED
By: /s/ Lawrence Cohen
------------------------------
Name: Lawrence Cohen
Title: Chairman
/s/ Kenneth Lidster
------------------------------
Kenneth Lidster, a Shareholder
/s/ Michele C. Wong
------------------------------
Michele C. Wong, a Shareholder
6
<PAGE> 175
Appendix C
VOTING AGREEMENT
VOTING AGREEMENT ("Agreement"), dated as of February 11, 2000, between
Alliant Holding & Transfer Company ("Alliant" or "Shareholder") and Synergex
International Corporation, a California corporation ("SIC"). SIC is sometimes
herein referred to as the "Company".
A. The Shareholder is the record and beneficial owner of that number of issued
and outstanding shares (together with any shares acquired after the date hereof,
the "Shares") of Common Stock of Registry Magic Incorporated, a Florida
corporation ("RMAG"), as indicated on Exhibit A attached hereto and made a part
hereof, which Shares represent approximately the percentages of the currently
issued and outstanding shares of RMAG's Common Stock as indicated on Exhibit A.
B. In order to induce SIC to enter into the Agreement and Plan of Merger, dated
as of the date hereof (the "Merger Agreement"), by and between SIC and RMAG, SIC
has requested that the Shareholders enter into this Agreement with respect to
the Shares.
C. Unless otherwise defined herein, all capitalized terms used in this Agreement
shall have the meanings given to them in the Merger Agreement.
D. For good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, and in order to induce SIC to enter into the Merger
Agreement, SIC and the Shareholder hereby agree as follows:
1. COVENANTS.
(a) At any meeting of shareholders of RMAG called to vote upon the
Merger and the Merger Agreement or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval (including by written
consent) with respect to the Merger and the Merger Agreement is sought, Alliant
shall, including by initiating a written consent solicitation if requested by
SIC, vote (or cause to be voted) the Shares in favor of the Merger, the adoption
by RMAG of the Merger Agreement and the approval of the other transactions
contemplated by the Merger Agreement.
(b) At any meeting of shareholders of RMAG or at any adjournment
thereof or in any other circumstances upon which Alliant's vote, consent or
other approval is sought, Alliant shall vote (or cause to be voted) the Shares
against (i) any merger agreement or merger (other than the Merger Agreement and
the Merger), consolidation, combination, sale of substantial assets,
reorganization, recapitalization, dissolution, liquidation or winding up of or
by RMAG or its Subsidiaries or any other Transaction Proposal (as defined in the
Merger Agreement) affecting RMAG (collectively, "Alternative Transactions") or
(ii) any amendment of RMAG's Amended and Restated Articles of Incorporation or
by-laws or other proposal or transaction involving RMAG or any of its
subsidiaries, which amendment or other proposal or transaction would in any
manner impede, frustrate, prevent or nullify, the Merger, the Merger Agreement
or any of the other transactions contemplated by the Merger Agreement
(collectively, "Frustrating Transactions").
<PAGE> 176
2. GRANT OF IRREVOCABLE PROXY COUPLED WITH AN INTEREST; APPOINTMENT OF PROXY.
(a) The Shareholder hereby irrevocably grants to and appoints any
individual who shall hereafter be designated by SIC as such Shareholder's proxy
and attorney-in-fact (with full power of substitution), for and in the name,
place and stead of such Shareholder, to vote such Shareholder's Shares, or grant
a consent or approval in respect of such Shares, at any meeting of shareholders
of RMAG or at any adjournment thereof or in any other circumstances upon which
their vote, consent or other approval is sought, (i) in favor of the Merger, the
adoption by RMAG of the Merger Agreement and the approval of the other
transactions contemplated by the Merger Agreement and (ii) against any
Alternative Transaction or Frustrating Transaction.
(b) The Shareholder represents that any proxies heretofore given in
respect of such Shareholder's Shares are not irrevocable, and that any such
proxies are hereby revoked.
(c) THE SHAREHOLDER HEREBY AFFIRMS THAT THE PROXY SET FORTH IN THIS
SECTION 2 IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE UNTIL SUCH TIME AS THIS
AGREEMENT TERMINATES IN ACCORDANCE WITH ITS TERMS. The Shareholder hereby
further affirms that the irrevocable proxy is given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy is given to
secure the performance of the duties of such Shareholder under this Agreement.
Such Shareholder hereby ratifies and confirms all that such irrevocable proxy
may lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is
executed and intended to be irrevocable in accordance with the provisions of
Section 607.0722 of the Florida Business Corporation Act.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. The Shareholder hereby
represents and warrants to SIC follows:
(a) AUTHORIZATION. The Shareholder has the legal capacity to execute,
deliver and perform this Agreement. This Agreement constitutes a valid and
binding obligation of the Shareholder enforceable against it in accordance with
its terms.
(b) NO CONFLICT. The execution, delivery and performance by the
Shareholder of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) result in any breach or violation of
or be in conflict with or constitute a default under term of any law or
agreement or arrangement to which the Shareholder is a party or by which the
Shareholder is bound, (ii) require any filing with or authorization by any
governmental entity or (iii) require any consent or other action by any person
under, constitute a default under, or give rise to any right of termination,
cancellation or acceleration or to a loss of any benefit to which the
Shareholder is entitled under any provision of any agreement or other instrument
binding on the Shareholder.
(c) OWNERSHIP OF SHARES. The Shareholder is the record and beneficial
owner of the Shares free and clear of any and all liens, pledges, restrictions,
charges or other adverse claims of any kind or nature. The Shareholder has the
sole voting power, sole power of disposition, sole power of conversion, sole
power to demand appraisal rights and sole power to agree to all the matters set
forth in this Agreement, in each case with respect to all of the Shares with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement. Except for the
Election Agreement referred to above none of the Shares are subject to any
voting trust or other agreement or arrangement with respect to the voting of
such Shares. The Shareholder's Shares and the certificates representing such
Shares are now, and at
2
<PAGE> 177
all times during the term hereof will be, held by the Shareholder, or by a
nominee or custodian for the benefit of the Shareholder. The Shareholder owns of
record or beneficially no shares of RMAG Common Stock other than such
Shareholder's Shares.
(d) MERGER AGREEMENT. The Shareholder understands and acknowledges that
SIC is entering into the Merger Agreement in reliance upon the Shareholder's
execution and delivery of this Agreement.
4. BOARD APPROVAL. The Board of Directors of SIC have, to the extent required by
applicable law, duly and validly authorized and approved by all necessary
corporate action, this Agreement, the Merger Agreement and the transactions
contemplated hereby and thereby, so that by the execution and delivery hereof no
restrictive provision of any "fair price," "moratorium," "control- share
acquisition," "interested shareholders" or other similar anti-takeover statute
or regulation or restrictive provision of any applicable anti-takeover provision
in the Articles of Incorporation or by-laws of SIC is, or will be, applicable to
SIC, the Shares, the Merger or any other transaction contemplated by this
Agreement.
5. MISCELLANEOUS.
(a) NOTICES. All notices shall be in writing and shall be given as
follows:
if to Alliant to:
Alliant Holding & Transfer Company
3311 Northeast 26th Avenue
Lighthouse Point, FL 33064
Attention: Lawrence Cohen
with a copy to:
Atlas Pearlman, P.A.
350 East Las Olas Blvd., Suite 1700
Fort Lauderdale, Florida 33301
Attention: Joel D. Mayersohn, Esq.
if to SIC to:
Synergex International Corporation
2330 Gold Meadow Way
Gold River, CA 95670
Attention: President and General Counsel
with a copy to:
McDonough, Holland & Allen
555 Capital Mall, Ninth Floor
Sacramento, CA 95814
Attention: Nancy P. Lee, Esq.
3
<PAGE> 178
or to such other address as may have been designated in a prior notice pursuant
to this Section. Notices shall be deemed effectively served and delivered upon
receipt.
(b) BINDING EFFECT. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights or obligations
hereunder shall be assigned by the Shareholder without the prior written consent
of SIC. Except as otherwise specifically provided in this Agreement, nothing in
this Agreement is intended or will be construed to confer on any person other
than the parties hereto any rights or benefits hereunder.
(c) GOVERNING LAW. This Agreement will be governed by and construed
under Florida law, without regard to conflict of laws principles thereof.
(d) WAIVERS. Compliance with the provisions. of this Agreement may be
waived only by a written instrument specifically referring to this Agreement and
signed by the party waiving compliance. No course of dealing, nor any failure or
delay in exercising any right, will be construed as a waiver, and no single or
partial exercise of a right will preclude any other or further exercise of that
or any other right.
(e) MODIFICATION. No supplement, modification or amendment of this
Agreement will be binding unless made in a written instrument that is signed by
all the parties hereto and that specifically refers to this Agreement.
(f) ENTIRE AGREEMENT. This Agreement and the Merger Agreement are the
exclusive statement of the agreement among the parties hereto concerning the
subject matter hereof.
(g) SEVERABILITY. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each party
waives any provision of law which renders any provision of this Agreement
invalid, illegal or unenforceable in any respect.
(h) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
(i) ENFORCEMENT. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in a court of the United States. This
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto waives any right to trial by
jury with respect to any claim or proceeding related to or arising out of this
Agreement or any of the transactions contemplated hereby.
(j) FURTHER ASSURANCES. SIC and the Shareholder will execute and
deliver, or cause to be executed and delivered, all further documents and
instruments and use their reasonable best
4
<PAGE> 179
efforts to take, or cause to be taken, all actions necessary, proper or
advisable under applicable law to consummate and make effective the transactions
contemplated by this Agreement and to vest the power to vote each Shareholder's
Shares as contemplated by Sections 1 and 2.
(k) TERMINATION. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate upon the earliest to occur of (i)
consummation of the Merger, (ii) the termination of the Merger Agreement in
accordance with its terms, unless prior to such termination a person or entity
shall have made a Transaction Proposal and (iii) twenty-four months from the
date hereof. Sections 1(b) and 2(a)(ii) shall terminate on the earlier of (x)
the date computed in accordance with the preceding sentence and (y) six months
after the termination of the Merger Agreement in accordance with its terms.
Nothing in this Section 5(k) shall relieve the Shareholder from liability for
breach of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
SYNERGEX INTERNATIONAL
CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
----------------------------
ALLIANT HOLDING & TRANSFER
COMPANY, a Shareholder
By:
--------------------------------
Name:
------------------------------
Title:
----------------------------
5
<PAGE> 180
EXHIBIT A
SHAREHOLDERS' OWNERSHIP OF SHARES OF RMAG
6
<PAGE> 181
Appendix D
CALIFORNIA CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
SS. 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the National Market System of the NASDAQ Stock Market,
and the notice of meeting of shareholders to act upon the reorganization
summarizes this section and Sections 1301, 1302, 1303 and 1304; provided,
however, that this provision does not apply to any shares with respect to which
there exists any restriction on transfer imposed by the corporation or by any
law or regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for payment
are filed with respect to 5 percent or more of the outstanding shares of that
class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
-1-
<PAGE> 182
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SS. 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND FOR
PURCHASE; TIME; CONTENTS
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SS. 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities,
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<PAGE> 183
the shareholder's certificates representing any shares which the shareholder
demands that the corporation purchase, to be stamped or endorsed with a
statement that the shares are dissenting shares or to be exchanged for
certificates of appropriate denomination so stamped or endorsed or (b) if the
shares are uncertificated securities, written notice of the number of shares
which the shareholder demands that the corporation purchase. Upon subsequent
transfers of the dissenting shares on the books of the corporation, the new
certificates, initial transaction statement, and other written statements issued
therefor shall bear a like statement, together with the name of the original
dissenting holder of the shares.
SS. 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR MARKET
VALUE; FILING; TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
SS. 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF
ISSUES; APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares is
in issue, the court shall determine, or shall
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<PAGE> 184
appoint one or more impartial appraisers to determine, the fair market value of
the shares.
SS. 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT; JUDGMENT;
PAYMENT; APPEAL; COSTS
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SS. 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST
To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
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<PAGE> 185
SS. 1307. DIVIDENDS ON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SS. 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL OF
DEMAND FOR PAYMENT
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
SS. 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SS. 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL
If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
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<PAGE> 186
SS. 1311. EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
SS. 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND MERGER
OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION; CONDITIONS
(a) No shareholder of a corporation who has a right under this chapter
to demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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<PAGE> 187
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits. The following is a complete list of exhibits filed as
part of this registration statement and which are incorporated in this
document.
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------
<S> <C>
2.1 Agreement and Plan of Merger, as amended*
3.1 Articles of Incorporation, as amended(1)
3.2 Form of Certificate of Amendment to Registry Magic's Articles of Incorporation*
3.3 By-Laws(1)
4.1 Voting Agreement between Michele Wong, Kenneth Lidster and Registry Magic*
4.2 Voting Agreement between Alliant Holding Corp. and Synergex International Corporation*
4.3 Election Agreement between Michele Wong, Kenneth Lidster, Lawrence Cohen, Registry Magic
Incorporated and RMAG Acquisition Corp.*
5.1 Opinion of Atlas Pearlman, P.A.
10.1 1999 Stock Option Plan(1)
10.2 Employment Agreement with Lawrence Cohen(1)
10.3 Line of Credit Agreement between Synergex International Corporation and Registry Magic
Incorporated*
10.4 Form of Employment Agreement with Michele Wong
10.5 Management Services Agreement between Synergex International Corporation and Registry Magic
Incorporated*
21. Subsidiaries of the Registrant*
23.1 Consent of BDO Seidman, LLP*
23.2 Consent of PricewaterhouseCoopers LLP*
23.3 Consent of Atlas Pearlman, P.A. (contained in such firm's opinion filed as Exhibit 5.1)
27.1 Financial Data Schedule - Registry Magic Incorporated*
27.2 Financial Data Schedule - Synergex International Corporation*
</TABLE>
- --------
* Filed herewith
(1) Filed as an exhibit to Registry's Registration Statement on Form SB-2
(File No. 333-47715) as filed with and declared effective by the
Commission on May 28, 1998.
Item 22. Undertakings.
(A) The undersigned Registrant undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of
a prospectus which is part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning
of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration
form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for the other Items
of the applicable form.
II-1
<PAGE> 188
The Registrant undertakes that every prospectus (i) that is filed under
the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant by the indicated provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant undertakes to respond to requests for
information that is incorporated by reference into the prospectus under Items 4,
10(b), 11, or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned Registrant undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
Company being acquired involved therein, that was not the subject of and
included in the registration statement when it becomes effective.
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<PAGE> 189
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Boca
Raton, State of Florida, on May 15, 2000.
REGISTRY MAGIC INCORPORATED
By: /s/ Lawrence Cohen
--------------------------------------
Lawrence Cohen, Acting Chief Executive
Officer and Chairman
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the capacity
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Lawrence Cohen Acting Chief Executive May 15, 2000
- ------------------------------------ Officer and Chairman
Lawrence Cohen (Principal Executive
Officer)
/s/ Cornelia Eldridge Director May 15, 2000
- ------------------------------------
Cornelia Eldridge
Director May 15, 2000
- ------------------------------------
Renney Senn
/s/ David Kaye Director May 15, 2000
- ------------------------------------
David Kaye
/s/ Martin Scott Treasurer and Secretary May 15, 2000
- ------------------------------------ (Principal Financial
Martin Scott and Accounting Officer)
</TABLE>
II-3
<PAGE> 190
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------
<S> <C>
2.1 Agreement and Plan of Merger, as amended*
3.1 Articles of Incorporation, as amended(1)
3.2 Form of Certificate of Amendment to Registry Magic's Articles of Incorporation*
3.3 By-Laws(1)
4.1 Voting Agreement between Michele Wong, Kenneth Lidster and Registry Magic*
4.2 Voting Agreement between Alliant Holding Corp. and Synergex International Corporation*
4.3 Election Agreement between Michele Wong, Kenneth Lidster, Lawrence Cohen, Registry Magic
Incorporated and RMAG Acquisition Corp.*
5.1 Opinion of Atlas Pearlman, P.A.
10.1 1999 Stock Option Plan(1)
10.2 Employment Agreement with Lawrence Cohen(1)
10.3 Line of Credit Agreement between Synergex International Corporation and Registry Magic
Incorporated*
10.4 Form of Employment Agreement with Michele Wong
10.5 Management Services Agreement between Synergex International Corporation and Registry Magic
Incorporated*
21. Subsidiaries of the Registrant
23.1 Consent of BDO Seidman, LLP*
23.2 Consent of PricewaterhouseCoopers LLP*
23.3 Consent of Atlas Pearlman, P.A. (contained in such firm's opinion filed as Exhibit 5.1)
27.1 Financial Data Schedule - Registry Magic Incorporated*
27.2 Financial Data Schedule - Synergex International Corporation*
</TABLE>
- -------------
* Filed herewith
(1) Filed as an exhibit to Registry's Registration Statement on Form SB-2
(File No. 333-47715) as filed with and declared effective by the
Commission on May 28, 1998.
II-4
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SYNERGEX INTERNATIONAL CORPORATION,
CERTAIN SHAREHOLDERS OF SYNERGEX INTERNATIONAL CORPORATION
RMAG ACQUISITION CORP.
AND
REGISTRY MAGIC INCORPORATED
DATED AS OF FEBRUARY 11, 2000
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 11, 2000 (the
"Agreement"), by and among SYNERGEX INTERNATIONAL CORPORATION, a California
corporation ("SIC"), REGISTRY MAGIC INCORPORATED, a Florida corporation
("RMAG"), and RMAG ACQUISITION CORP., a Delaware corporation ("SUB"), which is a
direct wholly-owned subsidiary of RMAG and, for the limited purposes of Sections
4.2, 4.3, 4.4, 4.5, 4.10, 4.13, 4.16, 4.17, 7.1, 7.3 and Article XI, Michele
Wong and Kenneth Lidster shareholders of SIC (each a "SIC Shareholder" and
collectively the "SIC Shareholders") SIC and SUB are hereinafter sometimes
collectively referred to as the "Constituent Corporations."
RECITALS
A. The Boards of Directors of SIC, RMAG and SUB deem it advisable and
in the best interests of each corporation and its respective shareholders that
SIC and RMAG combine in order to advance their long-term business interests, all
upon the terms and subject to the conditions of this Agreement.
B. It is intended that the combination be effected by a merger of SIC
with and into SUB with SUB surviving, which for Federal income tax purposes
shall be a tax-free reorganization described in Section 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. (a) In accordance with the provisions of this
Agreement, the California General Corporation Law ("CGCL") and the Delaware
General Corporation Law ("DGCL"), at the Effective Time, SIC shall be merged
(the "Merger") with and into SUB, and SUB shall be the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") and shall continue
its corporate existence under the laws of the State of Delaware. The name of the
Surviving Corporation shall be Synergex International Corporation. At the
Effective Time, the separate existence of SIC shall cease.
(b) The Merger shall have the effects on SIC and SUB, as Constituent
Corporations of the Merger, provided for under the CGCL and DGCL.
Section 1.2 Effective Time. The Merger shall become effective at the
time of filing of, or at such later time as specified in, an agreement of
merger, in the form required by and executed in accordance with the CGCL and the
DGCL, with the Secretary of State of the State of California
<PAGE> 3
in accordance with the provisions of Sections 1101, 1102 and 1103 of the CGCL
and with the Secretary of State of the State of Delaware in accordance with the
provisions of Section 252 of the DGCL (the "Certificate of Merger"). The date
and time when the Merger shall become effective is herein referred to as the
"Effective Time."
Section 1.3 Articles of Incorporation and Bylaws of Surviving
Corporation. The Certificate of Incorporation and Bylaws of SUB as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation and Bylaws of the Surviving Corporation until thereafter amended
as provided by law.
Section 1.4 Directors and Officers of Surviving Corporation. (a) The
directors of the Surviving Corporation shall be the same as RMAG at the
Effective Time, consistent with this Agreement and will hold office from and
after the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the Certificate of Incorporation
and Bylaws of the Surviving Corporation or as otherwise provided by law or their
earlier resignation or removal.
(b) The officers of SIC immediately prior to the Effective Time shall
be the officers of the Surviving Corporation and each will hold office from and
after the Effective Time until their respective successors are duly appointed
and qualify in the manner provided in the Bylaws of the Surviving Corporation or
as otherwise provided by law or their earlier resignation or removal.
Section 1.5 Further Assurances. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the Constituent Corporations acquired
or to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of each of the Constituent Corporations or
otherwise, all such deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of each of the Constituent Corporations or
otherwise, all such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all right, title and interest in, to and under
such rights, properties or assets in the Surviving Corporation or otherwise to
carry out this Agreement.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Effect on SIC Shares. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holders thereof:
2
<PAGE> 4
(a) The shares of SIC's common stock, no par value (the "SIC Shares"),
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive an aggregate of 1,000,000 shares of RMAG
Common Stock, $.001 par value per share (the RMAG "Common Stock") and shares of
RMAG Series A 6% Cumulative Nonvoting Convertible Preferred Stock having an
aggregate face value of $8,000,000 (the "RMAG Preferred Shares"). In the event
any options held by SIC Shareholders are exercised between the date hereof and
the Effective Date, the number of shares of RMAG Common Stock and RMAG Preferred
Shares to be received by each SIC Shareholder shall be proportionately adjusted
downward. The Articles of Amendment to RMAG's Articles of Incorporation setting
forth the terms and conditions of the RMAG Preferred Stock is attached as
Schedule 2.1 (a) hereto.
(b) All SIC Shares shall be canceled and retired, and each certificate
representing any such SIC Shares shall thereafter (i) represent only the right
to receive the RMAG Common Stock and RMAG Preferred Shares issuable in exchange
for such SIC Shares upon the surrender of such certificates in accordance with
Section 2.4 (and any cash payable in respect of fractional shares) and (ii)
entitle the holder thereof to vote with respect to, and receive dividends on,
such number of whole shares of RMAG Common Stock and RMAG Preferred Shares which
such holder is entitled to receive in exchange for such certificates, provided
that dividends shall be paid to such holder, without interest, only upon
surrender of certificates in accordance with Section 2.4.
(c) Notwithstanding anything to the contrary in this Agreement, any
holder of SIC Shares who shall exercise the rights of a dissenting shareholder
pursuant to and strictly in accordance with the provisions of Sections 1300
through 1312 of the CGCL shall be entitled to receive only the payment therein
provided for and shall not be entitled to receive RMAG Common Stock and RMAG
Preferred Shares. Such payment shall be made directly by the Surviving
Corporation.
Section 2.2 Effect on SIC Options. All outstanding SIC options shall at
the Effective Time be canceled and as soon as practicable following the date of
this Agreement, the SIC Board of Directors shall adopt such resolutions or take
such other actions as may be required to terminate any outstanding SIC options
or option plans.
Section 2.3 SUB Common Stock. Each share of common stock, $.0001 par
value, of SUB issued and outstanding immediately prior to the Effective Time
shall remain outstanding.
Section 2.4 Exchange Procedures. (a) RMAG shall authorize its transfer
agent to act as exchange agent hereunder (the "Exchange Agent") for the purposes
of exchanging certificates representing SIC Shares and shares of RMAG Common
Stock and RMAG Preferred Shares. As promptly as practicable after the Effective
Time, RMAG shall deposit with the Exchange Agent, in trust for the holders of
Certificates (as defined in Section 2.4(b) below), certificates representing the
shares of RMAG Common Stock and RMAG Preferred Shares issuable pursuant to
Section 2.1(a) in exchange for SIC Shares (the "SIC Certificates").
(b) Promptly after the Effective Time, the Exchange Agent shall mail or
cause to be mailed to each record holder, as of the Effective Time, of an
outstanding certificate or certificates
3
<PAGE> 5
which immediately prior to the Effective Time represented SIC Shares (the
"Certificates"), a letter of transmittal and instructions for use in effecting
the surrender of the Certificates for exchange therefor. Upon surrender to the
Exchange Agent of a Certificate, together with such letter of transmittal duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor that number of shares of RMAG Common Stock and RMAG Preferred
Shares which such holder has the right to receive under Section 2.1(a) (and any
amount of cash payable in lieu of fractional shares) and such Certificate shall
forthwith be canceled. If any such shares are to be issued to a person other
than the person in whose name the Certificate surrendered in exchange therefor
is registered, it shall be a condition of exchange that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such exchange shall pay any transfer or other
taxes required by reason of the exchange to a person other than the registered
holder of the Certificate surrendered or such person shall establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable.
(c) No dividends or other distributions with respect to the RMAG Common
Stock or RMAG Preferred Shares constituting all or a portion of the
consideration payable to the holders of SIC Shares shall be paid to the holder
of any unsurrendered Certificate representing SIC Shares until such Certificate
is surrendered as provided for in this Section 2.4. Subject to the effect of
applicable laws, following such surrender, there shall be paid, without
interest, to the record holder of the certificates representing RMAG Common
Stock and RMAG Preferred Shares (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
payable prior to or on the date of such surrender with respect to such whole
shares of RMAG Common Stock and RMAG Preferred Shares and not paid, and the
amount of cash payable in lieu of any fractional shares, less the amount of any
withholding taxes which may be required thereon under any provision of federal,
state, local or foreign tax law, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time, but prior to the date of surrender and a payment date subsequent
to the date of surrender payable with respect to such whole shares of RMAG
Common Stock or RMAG Preferred Shares, less the amount of any withholding taxes
which may be required thereon under any provision of federal, state, local or
foreign tax Law. RMAG shall make available to the Exchange Agent cash for these
purposes.
(d) Any portion of the RMAG Common Stock and RMAG Preferred Shares made
available to the Exchange Agent pursuant to Section 2.4(a) that remains
unclaimed by the holders of SIC Shares twelve (12) months after the Effective
Date shall be returned to RMAG, upon demand, and any such holder who has not
exchanged his, her or its SIC Shares in accordance with this Section 2.4 prior
to that time shall thereafter look only to RMAG for his, her or its claim for
RMAG Common Stock and RMAG Preferred Shares, (as the case may be), any cash in
lieu of fractional shares and certain dividends or other distributions. Neither
RMAG nor SUB shall be liable to any holder of SIC Shares with respect to any
RMAG Common Stock and RMAG Preferred Shares (or cash in lieu of fractional
shares) delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(e) If any Certificate representing SIC Shares shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen
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or destroyed and, if required by RMAG, the posting by such person of a bond in
such reasonable amount as RMAG may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificate the
consideration payable under Section 2.1(a) and, if applicable, any unpaid
dividends and distributions on shares of RMAG Stock deliverable with respect
thereof and any cash in lieu of fractional shares, in each case pursuant to this
Agreement.
Section 2.5 Fractional Shares. Notwithstanding any other provision of
this Agreement, each holder of SIC Shares who upon surrender of Certificates
therefor would be entitled to receive a fraction of a share of RMAG Common Stock
and RMAG Preferred Shares shall receive, in lieu of such fractional share, cash
in an amount equal to such fraction multiplied by the initial fair market value
of RMAG Common Stock and RMAG Preferred Shares. For purposes of this Agreement,
initial market value means the average of the closing bid and ask price of RMAG
Common Stock for the five trading days ending three trading days immediately
preceding the Closing.
Section 2.6 Transfers. From and after the Effective Time, there shall
be no transfers on the stock transfer books of SIC or the Surviving Corporation
of SIC Shares. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be canceled and exchanged as provided in this
Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RMAG AND SUB
RMAG and SUB jointly and severally represent and warrant to SIC and
each SIC Shareholder as follows:
Section 3.1 Organization. Each of RMAG and SUB is a corporation duly
organized, validly existing and in good standing under the laws of its
respective State of Incorporation. RMAG owns directly all of the outstanding
capital stock of SUB. Each of RMAG and SUB has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Except as set forth in Schedule 3.1, each of RMAG and
SUB is duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualifications or licenses necessary,
as indicated on Schedule 3.1 except in such jurisdictions where the failure to
be so duly qualified or licensed and in good standing would not individually or
in the aggregate have a material adverse effect on the business, operations,
assets, prospects, financial condition or results of operations of RMAG and
would not delay or prevent the consummation of the transactions contemplated
hereby (an "RMAG Material Adverse Effect"). RMAG previously has delivered to SIC
accurate and complete copies of its Articles of Incorporation and Bylaws, and
SUB's Certificate of Incorporation and Bylaws, each as currently in effect.
Section 3.2 Capitalization. (a) The authorized capital stock of RMAG
consists of 30,000,000 shares of RMAG Common Stock and 5,000,000 shares of RMAG
Preferred Shares. As
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of the date hereof, there are 5,355,405 shares of RMAG Common Stock issued and
outstanding and no shares held in treasury; and no shares of RMAG Preferred
Shares outstanding. As of the date hereof, there were outstanding under the RMAG
Stock Option Plans, or otherwise, RMAG Stock Options entitling the holders
thereof to purchase, in the aggregate, up to 854,756 RMAG Shares. Except as set
forth in Schedule 3.2 or in the RMAG SEC Reports, at the Effective Time there
will not be any existing options, warrants, calls, subscriptions, or other
rights or other agreements or commitments obligating RMAG to issue, transfer or
sell any shares of capital stock of RMAG or any other securities convertible
into or evidencing the right to subscribe for any such shares. All shares of
RMAG Common Stock and RMAG Preferred Shares to be issued at the Effective Time
shall be, when issued, duly authorized and validly issued, fully paid, and
nonassessable and subject to the terms of this Agreement free from liens,
charges, claims and encumbrances. All of the shares of RMAG Common Stock shall
be, when issued upon proper conversion of RMAG Preferred Shares, duly authorized
and validly issued, fully paid and nonassessable and subject to the terms of
this Agreement free from liens, charges, claims and encumbrances.
(b) The authorized capital stock of SUB consists of one hundred (100)
shares of common stock, $.0001 par value, of which one hundred (100) are issued
and outstanding and are validly issued, fully paid and nonassessable. As of the
date hereof, there are no outstanding Sub Stock Options entitling the holders
thereof to purchase SUB Shares. At the Effective Time there will not be any
existing options, warrants, calls, subscriptions, or other rights or other
agreements or commitments obligating SUB to issue, transfer or sell any shares
of capital stock of SUB or any other securities convertible into or evidencing
the right to subscribe for any such shares.
(c) Except for the SUB, RMAG has no subsidiaries.
Section 3.3 Authority. Each of RMAG and SUB has full corporate power
and authority to execute and deliver this Agreement and, subject to the
requisite approval of the shareholders of RMAG, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized and approved by the Boards of Directors of RMAG and SUB and by RMAG
as the sole shareholder of SUB, and, except for the requisite approval by the
shareholders of RMAG, no other corporate proceedings on the part of RMAG or SUB
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by each of RMAG and SUB and, assuming this Agreement constitutes a
legal, valid and binding agreement of SIC and the SIC Shareholders, constitutes
a legal, valid and binding agreement of RMAG and SUB, as the case may be,
enforceable against each of them in accordance with its terms, except as the
enforceability may be affected by applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and the possible unavailability of certain equitable
remedies, including the remedy of specific performance.
Section 3.4 No Violations: Consents and Approvals. Except as set forth
on Schedule 3.4, (a) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby nor compliance by RMAG
and SUB with any of the provisions hereof conflicts
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with, violates or results in any breach of (i) subject to obtaining the
requisite approval of RMAG's shareholders, any provision of the Articles of
Incorporation or Bylaws of either of RMAG or the Certificate of Incorporation or
Bylaws of SUB, (ii) any contract, agreement, instrument or understanding to
which RMAG or SUB is a party or by which RMAG, SUB or any of their respective
assets or properties is bound, or (iii) subject to the requisite approval of
RMAG's shareholders any law, judgment, decree, order, statute, rule or
regulation of any jurisdiction or governmental authority (a "Law") applicable to
RMAG or SUB or any of their respective assets or properties, excluding from the
foregoing clauses (ii) and (iii) conflicts, violations or breaches which, either
individually or in the aggregate, would not have an RMAG Material Adverse Effect
or materially impair RMAG's or SUB's ability to consummate the transactions
contemplated hereby or for which RMAG or SUB have received or, prior to the
Merger, shall have received appropriate consents or waivers.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any governmental entity is required by RMAG or SUB in
connection with the execution and delivery of the Agreement or the consummation
by RMAG or SUB of the transactions contemplated hereby, except (i) in
connection, or in compliance, with the provisions of the Securities Act of 1933,
as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (ii) the filing of the Certificate of Merger with
the Secretary of State of the States of California and Delaware, (iii) filings
with, and approval of, the NASDAQ in connection with obligations of RMAG
hereunder, and (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings, the failure of which to be obtained or
made would not, individually or in the aggregate, have an RMAG Material Adverse
Effect, or materially impair the ability of RMAG or SUB to perform its
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby.
Section 3.5 SEC Documents: RMAG Financial Statements. (a) RMAG has
filed with the Securities and Exchange Commission ("SEC") all documents required
to be filed under the Securities Act and the Exchange Act since the effective
date of its initial public offering (the "RMAG SEC Documents"). As of their
respective dates, the RMAG SEC Documents complied in all respects with the
requirements of the Securities Act and the Exchange Act, as the case may be, and
none of the RMAG SEC Documents contained any untrue statement of a material fact
or omitted 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.
(b) As of their respective dates, the financial statements of RMAG
included in the RMAG SEC Documents were prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated therein or in the notes thereto) and
present fairly the consolidated financial position of RMAG as at the dates
thereof and the consolidated results of its operations and statements of
cash-flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments and to any other adjustments
described therein). RMAG's balance sheet included in its Form 10-QSB for the
quarter ended October 31, 1999, shall be referred to as the RMAG Interim Balance
Sheet.
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(c) RMAG has no liability or obligation of any kind (whether contingent
or otherwise and whether due or to become due) except (i) as set forth on
Schedule 3.5, (ii) as set forth on the RMAG Interim Balance Sheet, or (iii) as
incurred in the ordinary course of business, consistent with past practice since
the date of the RMAG Interim Balance Sheet.
Section 3.6 Absence of Certain Changes. Since the date of the RMAG
Interim Balance Sheet, RMAG has been operated only in the ordinary course,
consistent with past practice, and there has not been any adverse change, or any
event, fact or circumstance which might reasonably be expected to result in an
adverse change, in either event that would have a RMAG Material Adverse Effect.
Without limiting the generality of the foregoing, except as set forth on
Schedule 3.6, since October 1, 1999, there has not been with respect to RMAG
any:
(a) sale or disposition of any material asset other than inventory in
the ordinary course;
(b) payment of any dividend, distribution or other payment to any
shareholder of RMAG or to any relative of any such shareholder other than
payments of salary and expense reimbursements made in the ordinary course of
business, consistent with past practice, for employment services actually
rendered or expenses actually incurred;
(c) incurrence or commitment to incur any liability individually or in
the aggregate material to RMAG, except such liabilities under RMAG's existing
credit facilities and liabilities incurred in connection with the Merger;
(d) waiver, release, cancellation or compromise of any indebtedness
owed to RMAG or claims or rights against others, exceeding $50,000 in the
aggregate;
(e) any change in any accounting method, principle or practice except
as required or permitted by generally accepted accounting principles; or
(f) unusual or novel method of transacting business engaged in by RMAG
or any change in RMAG's accounting procedures or practices or its financial or
equity structure.
Section 3.7 Proxy Statement/Prospectus Registration Statement. None of
the information regarding RMAG and SUB to be supplied by RMAG and SUB for
inclusion or incorporation by reference in (i) the registration statement on
Form S-4 (as it may be amended or supplemented from time to time, the
"Registration Statement") relating to RMAG Common Stock to be issued in
connection with the Merger and the shares of Common Stock to be issued upon
conversion of the RMAG Preferred Shares or (ii) the proxy statement to be
distributed in connection with the shareholders meeting of RMAG and SIC
contemplated by Section 5.5 (as it may be amended or supplemented from time to
time, the "Proxy Statement" and together with the prospectus to be included in
the Registration Statement, the "Proxy Statement/Prospectus") will, in the case
of the Registration Statement, at the time it becomes effective and at the
Effective Time, and, in the case of the Proxy Statement, at the time of its
mailing to shareholders of RMAG and SIC and at the time of their respective
shareholders' meetings, contain any untrue statement of a material fact or omit
to
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state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading in light of the circumstances when
made. If at any time prior to the Effective Time any event with respect to RMAG
or SUB shall occur which is required to be described in the Proxy Statement or
Registration Statement, such event shall be so described, and an amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the shareholders of RMAG and SIC. The Proxy Statement and the
Registration Statement will (with respect to RMAG) comply as to form in all
material respects with the provisions of the Securities Act and the Exchange
Act.
Section 3.8 Broker's Fees. Except as set forth on Schedule 3.8, neither
RMAG nor SUB nor any of RMAG's affiliates or their respective officers,
directors or agents has employed any broker, finder or financial advisor or
incurred any liability for any broker's fees, commissions, or financial advisory
or finder's fees in connection with any of the transactions contemplated by this
Agreement.
Section 3.9 Environmental Matters. RMAG has complied in all material
respects with, and has not been cited for any violation of, federal, state and
local environmental protection laws and regulations; and no material capital
expenditures will be required for compliance with any federal, state or local
laws or regulations now in force relating to the protection of the environment.
As used in this section, "hazardous material" means any hazardous or toxic
substance, material or waste that is regulated by any federal authority or by
any state or local authority where the substance, material or waste is located.
There are no underground storage tanks located on the real property owned by
RMAG, nor is RMAG aware of any underground storage tanks on the real property
leased by RMAG in which any hazardous material has been or is being stored, nor
has there been any spill, disposal, discharge or release of any hazardous
material into, upon or over that real property or into or upon ground or surface
water on that real property. There are no asbestos-containing materials
incorporated into the buildings or interior improvements that are part of the
real property or into other assets owned by RMAG, nor is there any electrical
transformer, fluorescent light fixture with ballasts or other equipment
containing polychlorinated biphenyls on the real property owned by RMAG. RMAG is
not aware of any asbestos-containing materials incorporated into the buildings
or interior improvements that are part of the real property or into other assets
leased by RMAG, nor is RMAG aware of any electrical transformer, fluorescent
light fixture with ballasts or other equipment containing polychlorinated
biphenyls on the real property leased by RMAG.
Section 3.10 Compliance With Laws. Except as set forth on Schedule
3.10, RMAG is not or has not conducted its business in violation of any Law,
including without limitation, any Law pertaining to environmental protection,
occupational health or safety, or employment practices except the violation of
which would not have an RMAG Material Adverse Effect.
Section 3.11 No Litigation. Except as set forth in the RMAG SEC
Documents or on Schedule 3.11, there is no claim, litigation, investigation or
proceeding by any person or governmental authority pending or, to RMAG's
knowledge threatened, against RMAG. There are no pending or, to RMAG's
knowledge, threatened controversies or disputes with, or grievances or claims
by, any employees or former employees of RMAG or any of its respective
predecessors of
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any nature whatsoever, including, without limitation, any controversies,
disputes, grievances or claims with respect to their employment, compensation,
benefits or working conditions, except for such litigation which would not have
a RMAG Material Adverse Effect.
Section 3.12 Absence of Certain Business Practices. Neither RMAG nor
any director, officer, employee or agent of the foregoing, nor any other person
acting on its behalf, directly or indirectly, has to RMAG's knowledge given or
agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person which (i) might subject RMAG to any damage
or penalty in any civil, criminal or governmental litigation or proceeding, (ii)
if not given in the past, might have had a RMAG Material Adverse Effect, or
(iii) if not continued in the future, might have a RMAG Material Adverse Effect
or which might subject RMAG to suit or penalty in any private or governmental
litigation or proceeding.
Section 3.13 Knowledge. The term "to RMAG's knowledge" shall mean the
actual knowledge of each director and officer of RMAG.
Section 3.14 No Undisclosed Information. No provision of this Article
IV or any Schedule or any document or agreement furnished by RMAG contains any
untrue statement of a material fact, or omits to state a material fact necessary
in order to make the statement contained herein, in light of the circumstances
under which such statements are made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SIC AND SIC SHAREHOLDERS
SIC represents and warrants to RMAG and SUB as follows, and for the
limited purposes of Sections 4.2, 4.3, 4.4, 4.5, 4.10, 4.13, 4.15 and 4.17, each
of the SIC Shareholders severally represent and warrant as follows:
Section 4.1 Organization. (a) SIC is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. SIC is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualifications or licenses necessary, as
indicated on Schedule 4.1, except in such jurisdictions where the failure to be
so duly qualified or licensed and in good standing would not individually or in
the aggregate have a material adverse effect on the business, operations,
assets, prospects, financial condition or results of operations of SIC and would
not delay or prevent the consummation of the transactions contemplated hereby (a
"SIC Material Adverse Effect").
(b) SIC previously has delivered to RMAG accurate and complete copies
of SIC's Articles of Incorporation and Bylaws, each as currently in effect.
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Section 4.2 Capitalization. (a) The authorized capital stock of SIC
consists of 1,500,000 SIC Shares. As of the date hereof, there are 779,750 SIC
Shares issued and outstanding. As of the date hereof, there were outstanding
under the SIC Stock Option Plans, all of which are listed on Schedule 4.2, SIC
Stock Options entitling the holders thereof to purchase, in the aggregate, up to
144,417 SIC Shares. Except as set forth on Schedule 4.2, at the Effective Time,
there will not be any existing options, warrants, calls, subscriptions, or other
rights or other agreements or commitments obligating SIC to issue, transfer or
sell any shares of capital stock of SIC or any other securities convertible into
or evidencing the right to subscribe for any such shares. All issued and
outstanding SIC Shares are, and all SIC Shares issued and outstanding at the
Effective Time shall be, duly authorized and validly issued, fully paid and
non-assessable and subject to the terms of this Agreement free from all liens,
charges, claims and encumbrances.
(b) SIC has no subsidiaries.
Section 4.3 Authority. SIC has full corporate power and authority to
execute and deliver this Agreement and, subject to the requisite approval of the
Merger and the adoption of this Agreement by SIC's shareholders, to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by SIC's Board of Directors and, except for the
requisite approval of the Merger and the adoption of this Agreement by SIC's
shareholders, no other corporate proceedings on the part of SIC are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
SIC's Board of Directors has determined that the transactions contemplated by
this Agreement, including the Merger, are in the best interests of SIC and its
shareholders and, except as provided in Section 5.2 below, have determined to
recommend to such shareholders that they vote in favor of this Agreement and the
consummation of the transactions contemplated hereby, including the Merger. This
Agreement has been duly and validly executed and delivered by SIC and the SIC
Shareholders, and assuming this Agreement constitutes a legal, valid and binding
agreement of RMAG and SUB, constitutes a legal, valid and binding agreement of
SIC and the SIC Shareholders, as the case may be, enforceable against each of
them in accordance with its terms, except as the enforceability may be affected
by applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and the
possible unavailability of certain equitable remedies, including the remedy of
specific performance.
Section 4.4 No Violations; Consents and Approvals. Except as set forth
on Schedule 4.4, (a) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby nor compliance by SIC
and the SIC Shareholders with any of the provisions hereof conflicts with,
violates or results in any breach of (i) subject to obtaining the requisite
approval of SIC's shareholders, any provision of the Articles of Incorporation
or Bylaws of SIC, (ii) any contract, agreement, instrument or understanding to
which SIC, or any SIC Shareholder is a party, or by which SIC, any SIC
Shareholder or any of their respective assets or properties is bound, or (iii)
subject to the requisite approval of SIC's shareholders, any Law applicable to
SIC, any SIC Shareholder or any of their respective assets or properties,
excluding from the foregoing clauses (ii) and (iii) conflicts, violations or
breaches which, either individually or in the aggregate, would not
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have a SIC Material Adverse Effect or materially impair SIC's or SIC
Shareholder's ability to consummate the transactions contemplated hereby or for
which SIC or SIC Shareholders have received or, prior to the Merger, shall have
received appropriate consents or waivers.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any governmental entity is required by SIC in connection
with the execution and delivery of the Agreement or the consummation by SIC of
the transactions contemplated hereby, except (i) the filing of the appropriate
merger documents with the Secretary of State of the States of California and
Delaware and (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings, the failure of which to be obtained or
made would not, individually or in the aggregate, have a SIC Material Adverse
Effect, or materially impair the ability of SIC to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
Section 4.5 Financial Statements. (a) Set forth as Schedule 4.5 are
(a)(i) audited balance sheets, statements of income, changes in shareholders'
equity and cash flows of SIC for the fiscal years ended December 31, 1998 and
(ii) unaudited balance sheet, statements of income, changes in shareholders'
equity and cash flows of SIC for the twelve month period ended December 31,
1999. Schedule 4.5 is accurate and complete, was prepared in accordance with
generally accepted accounting principals applied on a consistent basis during
the periods involved (except as may be indicated therein or in the notes
thereto) presents fairly the consolidated financial position and results of
operation of SIC as at the dates thereof and for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments and to any other adjustments described therein).
The audited balance sheet as of December 31, 1998 is sometimes herein referred
to as the "SIC Balance Sheet." The unaudited balance sheet at December 31, 1999
is sometimes herein referred to as the "SIC Interim Balance Sheet."
(b) SIC has no liability or obligation of any kind (whether contingent
or otherwise and whether due or to become due) except (i) as set forth on
Schedule 4.5, (ii) as set forth on the SIC Interim Balance sheet, or (iii) as
incurred in the ordinary course of business, consistent with past practice since
the date of the SIC Interim Balance Sheet.
Section 4.6 Absence of Certain Changes. Since the date of the SIC
Interim Balance Sheet, SIC has been operated only in the ordinary course,
consistent with past practice, and there has not been any adverse change, or any
event, fact or circumstance which might reasonably be expected to result in an
adverse change, in either event that would have an SIC Material Adverse Effect.
Without limiting the generality of the foregoing, except as set forth on
Schedule 4.6, since January 1, 2000, there has not been with respect to SIC any:
(a) sale or disposition of any material asset other than inventory in
the ordinary course;
(b) payment of any dividend, distribution or other payment to any
Shareholder of SIC or to any relative of any such Shareholder other than
payments of salary and expense
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reimbursements made in the ordinary course of business, consistent with past
practice, for employment services actually rendered or expenses actually
incurred;
(c) incurrence or commitment to incur any liability individually or in
the aggregate material to SIC, except such liabilities under SIC's existing
credit facilities and liabilities incurred in connection with the Merger;
(d) waiver, release, cancellation or compromise of any indebtedness
owed to SIC or claims or rights against others, exceeding $50,000 in the
aggregate;
(e) any change in any accounting method, principle or practice except
as required or permitted by generally accepted accounting principles; or
(f) unusual or novel method of transacting business engaged in by SIC
or any change in SIC's accounting procedures or practices or its financial or
equity structure.
Section 4.7 Proxy Statement Prospectus; Registration Statement. None of
the information regarding SIC to be supplied by SIC for inclusion or
incorporation by reference in the Registration Statement or the Proxy Statement
will, in the case of the Registration Statement at the time it becomes effective
and at the Effective Time, and in the case of the Proxy Statement, at the time
it is first mailed to shareholders of RMAG or SIC and at the time of their
respective shareholders meetings, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading in light of the
circumstances when made. If at any time prior to the Effective Time any event
with respect to SIC shall occur which is required to be described in the Proxy
Statement or Registration Statement, such event shall be so described, and an
amendment or supplement shall be promptly filed with the SEC and, as required by
law, disseminated to the shareholders of RMAG and SIC. The Proxy Statement and
the Registration Statement will (with respect to SIC) comply as to form in all
material respects with the provisions of the Securities Act and the Exchange
Act.
Section 4.8 State Antitakeover Statutes. The SIC Board of Directors has
approved this Agreement and the transactions contemplated hereby and such
approval constitutes approval of the Merger and the other transactions
contemplated hereby, including approval of the voting agreement (as defined in
Section 5.13 below) by the SIC Board of Directors as required by the CGCL. No
"business combination," "moratorium," "control share," "fair price," "interested
shareholder," affiliated transactions" or other state antitakeover statute or
regulation (i) prohibits or restricts SIC's ability to perform its obligations
under this Agreement (or any party's ability to perform their obligations under
the voting agreement) or either party's ability to consummate the Merger or to
the other transactions contemplated hereby or thereby, (ii) would have the
effect of invalidating or voiding this Agreement or the voting agreement or any
provision hereof, or (iii) would subject RMAG or SUB to any material impediment
or condition in connection with the exercise of any of their respective rights
under this Agreement.
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Section 4.9 Broker's Fees. Neither SIC nor any of its affiliates or
their respective officers, directors or agents has employed any broker, finder
or financial advisor or incurred any liability for any broker's fees,
commissions, financial advisory or finder's fees in connection with any of the
transactions contemplated by this Agreement.
Section 4.10 Environmental Matters. SIC has complied in all material
respects with, and has not been cited for any violation of, federal, state and
local environmental protection laws and regulations; and no material capital
expenditures will be required for compliance with any federal, state or local
laws or regulations now in force relating to the protection of the environment.
As used in this section, "hazardous material" means any hazardous or toxic
substance, material or waste that is regulated by any federal authority or by
any state or local authority where the substance, material or waste is located.
There are no underground storage tanks located on the real property owned by SIC
nor is SIC aware of any underground storage tanks on the real property leased by
SIC in which any hazardous material has been or is being stored, nor has there
been any spill, disposal, discharge or release of any hazardous material into,
upon or over that real property or into or upon ground or surface water on that
real property. There are no asbestos-containing materials incorporated into the
buildings or interior improvements that are part of the real property or into
other assets owned by SIC, nor is there any electrical transformer, fluorescent
light fixture with ballasts or other equipment containing polychlorinated
biphenyls on the real property owned by SIC. SIC is not aware of any
asbestos-containing materials incorporated into the buildings or interior
improvements that are part of the real property or into other assets leased by
SIC, nor is SIC aware of any electrical transformer, fluorescent light fixture
with ballasts or other equipment containing polychlorinated biphenyls on the
real property leased by SIC.
Section 4.11 Contracts. Schedule 4.11 sets forth a complete and
accurate list or description of:
(a) All contracts to which SIC is a party or by which it is bound which
(i) involve amounts in excess of $100,000 or payments based on profits or sales,
(ii) are not cancelable by SIC upon 30 days' notice or less, or (iii) involve
terms or quantities exceeding normal commitments in the ordinary course of
business.
(b) All contracts with wholesalers, distributors, dealers, sales
representatives, or cooperative associations to which SIC is a party or by which
it is bound and which involve amounts in excess of $100,000.
(c) All contracts with any federal, state or local governmental
authorities, agencies or subdivisions to which SIC is a party or by which it is
bound and which involve amounts in excess of $100,000.
(d) All contracts for the past or present disposal of hazardous or
infectious waste or other materials to which SIC is (or to SIC's knowledge was)
a party or by which it is (or to SIC's knowledge was) bound.
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(e) All employment, consulting, management, or agency contracts to
which SIC is a party or by which it is bound.
(f) All contracts containing an obligation of confidentiality with
respect to information furnished by SIC to a third party, or received by either
from a third party.
(g) All contracts limiting the freedom of SIC to compete in any line of
business, or with any person, or in any geographic area or market.
(h) All contracts providing for the present or future lease (whether as
lessee or lessor), purchase or sale of real property by SIC.
With respect to each contract set forth on Schedule 4.11, except as set
forth on Schedule 4.11: (i) each is legal, valid, binding and enforceable
against SIC, and to SIC's knowledge, against each other party thereto, and is in
full force and effect; (ii) each will continue to be legal, valid, binding and
enforceable against SIC, and to SIC's knowledge, against each other party
thereto, and will continue to be in full force and effect immediately following
the Effective Date in accordance with the terms thereof as in effect prior to
the Effective Date; and (iii) neither SIC nor to SIC's knowledge, any other
party, is in breach or default, and no event has occurred which, with notice or
lapse of time, or both, would constitute a breach or default or permit
termination, modification or acceleration under any such contract. SIC has not
been party to any discussions or received any correspondence concerning breach
or termination of any of the foregoing and, to SIC's knowledge, there is no
default under, or any violation of, any of the foregoing by any other party
thereto. SIC has performed all obligations required to be performed by it to
date and is not in default under any of the contracts, agreements, leases or
other documents to which it is a party. SIC has delivered or caused to be
delivered to, RMAG copies of each such contract listed on Schedule 4.11. Since
the date of the SIC Interim Balance Sheet, there has been no material
modification or termination of any such contract nor, to SIC's knowledge, is any
such modification or termination contemplated.
Section 4.12 Compliance With Laws. SIC is not or has not conducted its
business in violation of any Law, including without limitation, any Law
pertaining to environmental protection, occupational health or safety, or
employment practices except the violation of which would not have an SIC
Material Adverse Effect.
Section 4.13 No Litigation. There is no claim, litigation,
investigation or proceeding by any person or governmental authority pending or,
to SIC's knowledge threatened, against SIC. There are no pending or, to SIC's
knowledge, threatened controversies or disputes with, or grievances or claims
by, any employees or former employees of SIC or any of its respective
predecessors of any nature whatsoever, including, without limitation, any
controversies, disputes, grievances or claims with respect to their employment,
compensation, benefits or working conditions, except for such litigation which
would not have an SIC Material Adverse Effect.
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Section 4.14 Inventories. Except as set forth on Schedule 4.14, the
inventories reflected on the SIC Interim Balance Sheet are sufficient to cover
the immediate needs of SIC in the ordinary course of business as conducted by
SIC prior to the execution hereof.
Section 4.15 Permits and Licenses. Schedule 4.15 lists all permits,
licenses, approvals or authorizations of any government authority required to
conduct the business of SIC as currently conducted (the "Permits"). Except as
set forth on Schedule 4.15, all such Permits have been legally obtained and
maintained by SIC and are in full force and effect.
Section 4.16 Employee Benefits. All employee welfare benefit plans as
defined in Section 3(1) of the Employee Retirement Income Security Act of 1974
("ERISA"), employee pension benefit plans as defined in Section 3(2) of ERISA,
and all other employee benefit programs or arrangements of any type, written or
unwritten (collectively, the "Plans") maintained by SIC or to which SIC
contributes are listed on Schedule 4.16. In addition, Schedule 4.16 separately
sets forth any Plans which SIC, or any affiliate or predecessor of SIC,
maintained or contributed to within the six years preceding the date hereof.
(a) The Plans comply, with all applicable provisions of all Laws,
including, without limitation, the Code and ERISA, and have so complied during
all prior periods during which any such provisions were applicable. Without
limiting the foregoing, all of the Plans, and any related trust, intended to
meet the requirements for tax-favored treatment under the Code (including,
without limitation, Sections 401 and 501 and Subchapter B of the Chapter 1 of
the Code) meets and for all prior periods has met, such requirements in all
material respects.
(b) SIC and any other party involved in the administration of any of
the Plans (i) has complied in all material respects with the provisions of
ERISA, the Code or other Laws, applicable to such party, whether as an employer,
plan sponsor, plan administrator, or fiduciary of any of the Plans or otherwise,
(including without limitation the provisions of ERISA and the Code concerning
prohibited transactions), and (ii) has administered the Plans in accordance with
the terms. SIC has made all contributions required of it by any Law (including,
without limitation, ERISA) or contract under any of the Plans and no unfunded
liability exists with respect to any of the Plans.
(c) SIC has no responsibility or liability, contingent or otherwise,
with respect to any Plans or any employee benefits other than under the Plans
listed on Schedule 4.16. SIC has the right to amend or terminate, without the
consent of any other person, any of the Plans, except as prohibited by law and
any applicable collective bargaining agreement. Neither SIC, nor any affiliate
or predecessor of SIC, maintains or has ever maintained or been obligated to
contribute to (i) any defined benefit pension plan (as such term is defined in
Section 3(35) of ERISA), (ii) any multiemployer plan (as such term is defined in
Section 3(37) of ERISA), (iii) any severance plan or policy, or (iv) any
arrangement providing medical or other welfare benefits to retirees or other
former employees or their beneficiaries, except as required under part 6 of
Subtitle B of Title I of ERISA or Section 4980B(f) of the Code (hereinafter
collectively referred to as "COBRA").
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(d) There are no actions, suits or claims pending (other than routine
claims for benefits) or, to SIC's knowledge, any actions, suits, or claims
(other than routine claims for benefits) which could reasonably be expected to
be asserted, against any of the Plans, or the assets thereof, or against SIC or
any other party with respect to any of the Plans.
Section 4.17 Taxes. (a) SIC has duly filed with the appropriate
federal, state, local and foreign taxing authorities all Tax Returns (as defined
below) required to be filed by or with respect to SIC on or before the date
hereof. SIC has included its federal income Tax Returns for all periods ended on
or before December 31, 1998. All such Tax Returns are true, correct and complete
in all material respects as of the time of filing. SIC, with respect to the
federal income Tax Returns, and, with respect to any other Tax Returns, has paid
in full on a timely basis all Taxes (as defined below) due on such Tax Returns
or such Taxes that are otherwise due, except to the extent such Tax is being
contested in good faith through appropriate proceedings and for contested Taxes
only which adequate reserves have been established on the SIC Interim Balance
Sheet. Except as set forth on Schedule 4.17, the balance for accrued Taxes on
the SIC Interim Balance Sheet for the payment of accrued but unpaid Taxes
through the date thereof is correct and the amount of SIC's liability for unpaid
Taxes shall not exceed such balance for accrued but unpaid Taxes of the Group
and SIC, respectively. The balance of accrued Taxes have been determined in
accordance with generally accepted accounting principles, applied on a
consistent basis. All monies which SIC was required by Law to withhold from
employees have been withheld and either timely paid to the proper governmental
authority or set aside in accounts for such purposes and accrued on the books of
SIC.
(b) SIC has never been a member of an affiliated group filing
consolidated returns.
(c) (i) SIC has not received any notice of a deficiency or assessment
with respect to Taxes of SIC from any taxing authority which has not been fully
paid or finally settled, except to the extent any such deficiency or assessment
is being contested in good faith through appropriate proceedings and for which
adequate reserves have been established on the SIC Interim Balance Sheet; (ii)
there are no ongoing audits or examinations of any Tax Return relating to SIC
and no notice (oral or written) of audit or examination of any such Tax Return
has been received by SIC; (iii) In the last three years, the federal income Tax
Returns of SIC have not been audited by the Internal Revenue Service; and (iv)
To SIC's knowledge, no issue has been raised (either in writing or verbally,
formally or informally) on audit or in any other proceeding (and is currently
pending) with respect to Taxes of SIC by any taxing authority which, if resolved
against SIC, would have a SIC Material Adverse Effect. SIC has disclosed on its
federal income tax returns all positions taken therein that, SIC believes could
give rise to a substantial understatement penalty within the meaning of Code
Section 6662.
(d) SIC is not (nor has it ever been) a party to any tax sharing
agreement and has not assumed the liability for taxes of any other person under
law or contract.
(e) SIC (i) has not filed a consent pursuant to Code Section 341(f) nor
agreed to have Code Section 341(f)(2) apply to any disposition of a subsection
(f) asset (as such term is defined in Code Section 341(f)) owned by SIC; (ii)
has not agreed, or is not required, to make any adjustment
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under Code Section 481(a) by reason of a change in accounting method or
otherwise initiated by SIC that will affect the liability of SIC for Taxes;
(iii) has not made an election, or is required, to treat any asset of SIC as
owned by another person pursuant to the provisions of former Code Section
168(f)(8); (iv) is not now or has ever been a party to any agreement, contract,
arrangement, or plan that would result, separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Code Section
280G; (v) has not participated in an international boycott as defined in Code
Section 999; (vi) is not now or has ever been a "foreign person" within the
meaning of Code Section 1445(b)(2); (vii) is not now or has ever been a United
States real property holding corporation within the meaning of Code Section
897(c)(1)(A)(ii); or (viii) has not made any of the foregoing elections or is
required to apply any of the foregoing rules under any comparable state or local
tax provision.
(f) SIC is not required to report or pay any additional Taxes from any
joint venture, partnership or other arrangement or contract limited liability
company that could be treated as a partnership for federal income tax purposes.
(g) For purposes of this Section 4.17, the following terms shall have
the meaning given to them below:
(i) "Tax" means any of the Taxes, and "Taxes" means, with respect
to SIC, (i) all income taxes (including any tax on or based upon net income, or
gross income, or income as specially defined, or earnings, or profits, or
selected items of income, earnings or profits) and all gross receipts,
estimated, sales, use, ad valorem, transfer, franchise, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
windfall profits, environmental (including taxes under Code Section 59A),
alternative, add-on minimum, custom duties, capital stock, social security (or
similar), unemployment, disability, or other taxes, fees assessments, or charges
of any kind whatsoever, together with any interest, penalty, or addition
thereto, whether disputed or not, imposed by any taxing authority on the Group,
and (ii) any liability for payment of any amount of the Tax described in the
immediately preceding clause (i) as a result of being a "transferee" (within the
meaning of Code Section 6901 or any other applicable law) of another person or
successor, by contract, or otherwise, or a member of an affiliated,
consolidated, or combined group.
(ii) "Tax Return" means any return, declaration, report, claim or
refund, or information return or statement or other document (including any
related or supporting information) filed or required to be filed with any
appropriate federal, state, local and foreign governmental entity or authority
(individually or collectively, "taxing authority") or other authority in
connection with the determination, assessment or collection of any Tax paid or
payable by the Group or the administration of any Laws, regulations, or
administrative requirements relating to any such Tax.
Section 4.18 Customers. Except as set forth on Schedule 4.8, no
material customer served by SIC has, since December 31, 2000, canceled or
otherwise terminated, or to SIC's knowledge, made any threat to cancel or
otherwise terminate, its relationship with SIC. SIC has no knowledge that any
material customer is dissatisfied in any material respect with the performance
of SIC, or any
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of its employees or that any such customer intends to cancel or otherwise
terminate its relationship or to materially decrease its purchase of products
and/or services.
Section 4.19 Absence of Certain Business Practices. Neither SIC nor any
director, officer, employee or agent of the foregoing, nor any other person
acting on its behalf, directly or indirectly, has to SIC's knowledge given or
agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person which (i) might subject SIC to any damage
or penalty in any civil, criminal or governmental litigation or proceeding, (ii)
if not given in the past, might have had a SIC Material Adverse Effect, or (iii)
if not continued in the future, might have a SIC Material Adverse Effect or
which might subject SIC to suit or penalty in any private or governmental
litigation or proceeding.
Section 4.20 Intellectual Property. (a) Schedule 4.20(a) sets forth a
correct and complete list of (i) all U.S. and foreign trademarks, patents,
service marks, trade names, copyrights, mask works and designs which are
pending, applied for, granted, or registered in any country or jurisdiction of
the world and are owned by SIC and used in connection with its business; (ii)
all unregistered trademarks, patents, service marks, and trade names which are
owned by SIC and used in connection with its business; and (iii) all licenses,
contracts, permissions and other agreements relating to the business to which
SIC is a party relating in any way to rights in any of the foregoing. Except as
set forth on Schedule 4.20(a), title to all registered intellectual property is
recorded on records in the name of SIC and, to the extent applicable, all
affidavits of continued use and incontestability in respect of such registered
intellectual property have been timely filed.
(b) Except as disclosed and set forth on Schedule 4.20(b), (i) SIC owns
or possesses licenses or other valid rights to use, and upon consummation of the
transactions contemplated by this Agreement, the Surviving Corporation shall own
or possess licenses or other valid rights to use (without the making of any
payment to others or the obligation to grant rights to others in exchange), all
intellectual property necessary to the conduct of the business of SIC as
currently conducted, including, without limitation, all releases required in
connection with quotes, testimonials or likenesses utilized in editorial or
promotional material; (ii) SIC's right title and interest in such intellectual
property is not being opposed by any claim or demand or in any proceeding,
action, litigation or order to which SIC or any person or entity who has granted
a license or other right to use intellectual property to SIC or who has been
granted a license or other right to use intellectual property by SIC, is a party
or subject, nor to the knowledge of SIC is any such claim, demand, proceeding,
action, litigation, or court order threatened; and (iii) the conduct of the
business of SIC as currently conducted does not materially infringe or conflict
with any intellectual property of others.
Section 4.21 Insurance. SIC believes, on the basis of advice of
insurance advisors, that SIC carries insurance covering its assets, business,
equipment, properties, operations, employees, officers and directors of the type
and in amounts customarily carried by persons conducting business similar to
that of SIC. All such policies are in full force and effect and all premiums
have been paid to the extent they are due. Schedule 4.21 set forth a schedule of
each policy, the amount of coverage and the nature thereof.
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Section 4.22 Required Vote of SIC Shareholders. The affirmative vote of
the holders of a majority of the outstanding SIC Shares is required to approve
the Merger. No other vote of the shareholders of SIC is required by Law, the
Articles of Incorporation or Bylaws of SIC or otherwise in order for SIC to
consummate the Merger and the transactions contemplated hereby.
Section 4.23 Knowledge. The term "to SIC's knowledge" shall mean the
actual knowledge of each director and officer of SIC and, where applicable, each
SIC Shareholder.
Section 4.24 Labor. SIC has not experienced any strike, collective
labor agreements, or the collective bargaining disputes or claims of unfair
labor practices in the last five years. To SIC's knowledge, there is no
organizational effort presently being made by or on behalf of any labor union
with respect to the employees of SIC.
Section 4.25 No Undisclosed Information. No provision of this Article
IV or any Schedule or any document or agreement furnished by SIC or the SIC
Shareholders contains any untrue statement of a material fact, or omits to state
a material fact necessary in order to make the statement contained herein, in
light of the circumstances under which such statements are made, not misleading.
ARTICLE V
COVENANTS
Section 5.1 Conduct of Business of SIC and RMAG. Except as contemplated
by this Agreement or as expressly agreed to in writing by the other party,
during the period from the date of this Agreement to the Effective Time, SIC and
RMAG will each conduct their operations substantially as presently operated and
only in the ordinary course of business, in a normal manner consistent with past
practices and will use commercially reasonable efforts to preserve intact their
business organization, to keep available the services of their officers and
employees and to maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships with it and
will take no action which would adversely affect its ability to consummate the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, except as otherwise expressly provided in this Agreement, prior
to the Effective Time neither SIC nor RMAG will, without the prior written
consent of the other:
(a) amend its Articles of Incorporation or Bylaws;
(b) authorize for issuance, issue, sell, deliver, grant any options
for, or otherwise agree or commit to issue, sell or deliver any shares of its
capital stock or any securities convertible into shares of its capital stock,
other than pursuant to and in accordance with the terms of its stock option
plans;
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(c) recapitalize, split, combine or reclassify any shares of its
capital stock; declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock; or purchase, redeem or otherwise acquire any shares of its
own capital stock;
(d) (i) create, incur, assume, maintain or permit to exist any
long-term debt or any short-term debt for borrowed money other than under
existing lines of credit, relating to purchase money security interests or
obligations as a lessee under leases recorded as capital leases, each as
incurred in the ordinary course of business; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person, except in the ordinary
course of business and consistent with past practices; or (iii) make any loans,
advances or capital contributions to, or investments in, any other person;
(e) (i) increase in any manner the rate of compensation of any of its
directors, officers or other employees, except in the ordinary course of
business and in accordance with its customary past practices or as otherwise may
be contractually required; or (ii) pay or agree to pay any bonus, pension,
retirement allowance, severance or other employee benefit except as required
under currently existing employee benefit plans or in the RMAG SEC Documents;
(f) except as set forth on Schedule 5.1, sell or otherwise dispose of,
or encumber, or agree to sell or otherwise dispose of or encumber, any assets
other than inventory in the ordinary course of business;
(g) enter into any other agreement, commitment or contract, except
agreements, commitments or contracts for the purchase, sale or lease of goods or
services in the ordinary course of business consistent with past practice;
(h) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into any agreement in principle or an
agreement with respect to, any (i) plan of liquidation or dissolution, (ii)
acquisition of a material amount of assets or securities, (iii) disposition of a
material amount of assets or securities or (iv) material change in its
capitalization, or enter into a material contract or any amendment or
modification of any material contract or release or relinquish any material
contract right;
(i) SIC shall not cancel any insurance policy referred to in Section
4.22;
(j) engage in any unusual or novel method of transacting business or
change any accounting procedure or practice or its financial structure; or
(k) take any action the taking of which, or omit to take any action the
omission of which, would cause any of the representations and warranties herein
to fail to be true and correct in all respects as of the date of such action or
omission as though made at and as of the date of such action or omission.
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Section 5.2 No Solicitation. SIC and RMAG each agrees that, prior to
the Effective Time, except as provided below it shall not, and shall not
authorize or permit any of its directors, officers, employees, agents or
representatives to, directly or indirectly, solicit, initiate, facilitate or
encourage (including by way of furnishing or disclosing information), or take
any other action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to any Transaction Proposal
(as defined below), or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a Transaction Proposal or agree to or endorse any Transaction Proposal or
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it to take any such action; provided, however, that
nothing contained in this Agreement shall prohibit the SIC or RMAG Boards of
Directors, respectively, from, (i) furnishing information to or entering into
discussions or negotiations with any person or entity that makes an unsolicited
written, bona fide Transaction Proposal which the SIC or RMAG Board of
Directors, as the case may be, determines in good faith that such action is
necessary for the SIC or RMAG Board of Directors to comply with its fiduciary
duties to shareholders under applicable law or (ii) withdrawing, modifying or
changing its recommendation referred to in Section 4.3 if there exists a
Transaction Proposal and the SIC or RMAG Board of Directors, as the case may be,
and based upon the advise of independent legal counsel, determines in good faith
that such action is necessary for the SIC or RMAG Board of Directors to comply
with its fiduciary duties to shareholders under applicable law in connection
with such Transaction Proposal. SIC or RMAG, as the case may be, shall
immediately advise the other parties to this Agreement, orally and in writing,
of any inquiries or proposals relating to an Transaction Proposal known to it,
the material terms and conditions of such inquiry or proposal, and the identity
of the person or entity making such inquiry or proposal. SIC or RMAG, as the
case may be, shall give the other parties to this Agreement at least two (2)
business days advance notice of any information to be supplied to, and at least
three (3) days' advance notice of any agreement to be entered into with any
person or entity making such a proposal for a Transaction Proposal with respect
to SIC or RMAG. For purposes of this Agreement, "Transaction Proposal" shall
mean any of the following (other than the transactions between SIC, RMAG and SUB
contemplated by this Agreement) involving SIC or RMAG: (i) any merger,
consolidation, share exchange, recapitalization, business combination or other
similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of twenty percent (20%) or more of the assets of SIC or
RMAG, in a single transaction or series of transactions; (iii) any offer for, or
the acquisition (or right to acquire) of "beneficial ownership" by any person,
"group" or entity (as such terms are defined under Section 13(d) of the
Securities Exchange Act of 1934), of twenty percent (20%) or more of the
outstanding shares of capital stock of SIC or RMAG or the filing of a
registration statement under the Securities Act in connection therewith; or (iv)
any public announcement by SIC of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
Section 5.3 Access to Information. (a) From the date of this Agreement
until the Effective Time, SIC will provide RMAG and RMAG will provide SIC, and
their respective lenders and authorized representatives (including counsel,
environmental and other consultants, accountants and auditors) full access
during normal business hours to all facilities, personnel and operations and to
all books and records of SIC, RMAG and SUB, will permit the other party to make
such inspections
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as it may reasonably require (including without limitation any air, water or
soil testing or sampling deemed necessary) and will cause its officers to
furnish the other party with such financial and operating data and other
information with respect to its business and properties as the other party may
from time to time reasonably request.
(b) RMAG and SIC will hold and will cause their representatives to hold
in confidence, all documents and information furnished in connection with this
Agreement. Other than documents or information (i) available to the public, (ii)
which are or become known by RMAG or SIC from a source other than SIC or RMAG,
as the case may be, other than by a breach of a confidentiality obligation owed
to SIC or RMAG, respectively, or (iii) required by law to be disclosed.
Section 5.4 Registration Statement and Proxy Statement. RMAG shall file
with the SEC as soon as is reasonably practicable after the date hereof the
Proxy Statement/Prospectus and RMAG shall file the Registration Statement in
which the Proxy Statement/Prospectus shall be included. SIC shall cooperate with
RMAG with regard to such filings. RMAG and SIC shall use all commercially
reasonable efforts to have the Registration Statement declared effective by the
SEC as promptly as practicable. RMAG shall also take any action required to be
taken under applicable state blue sky or securities laws in connection with the
issuance of the RMAG Common Stock. RMAG and SIC shall promptly furnish to each
other all information, and take such other actions, as may reasonably be
requested in connection with any action by any of them in connection with the
preceding sentences.
Section 5.5 Shareholders' Meetings. Unless the SIC Board of Directors
shall have taken an action permitted by clause (ii) of Section 5.2 above, SIC
and RMAG each shall call a meeting of its respective shareholders to be held as
promptly as practicable (and in any event within 45 days after the Registration
Statement is declared effective) for the purpose of voting, in the case of SIC,
upon this Agreement and the Merger and, in the case of RMAG, upon the issuance
of the RMAG Common Stock and RMAG Preferred Shares pursuant to the Merger. Each
of SIC and RMAG shall, through their respective Boards of Directors, recommend
to their respective shareholders approval of such matters and will coordinate
and cooperate with respect to the timing of such meetings and shall use all
commercially reasonable efforts to hold such meetings on the same day and as
soon as practicable after the date hereof. Unless the SIC Board of Directors
shall have taken an action permitted by clause (ii) of Section 5.2 above, each
party shall use all commercially reasonable efforts to solicit from shareholders
of such party proxies in favor of such matters.
Section 5.6 Reasonable Efforts; Other Actions. SIC, RMAG and SUB each
shall use all commercially reasonable efforts promptly to take, or cause to be
taken, all other actions and do, or cause to be done, all other things
necessary, proper or appropriate under applicable Law to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, (i) the taking of any actions required to qualify the Merger
treatment as a tax-free reorganization within the meaning of Code Section
368(a)(2)(D), and (ii) the obtaining of all necessary consents, approvals or
waivers under its material contracts.
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Section 5.7 Public Announcements. Before issuing any press release or
otherwise making any public statements with respect to the Merger, RMAG, SUB and
SIC will consult with each other as to its form and substance and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by Law (it being agreed that the parties
hereto are entitled to disclose all requisite information concerning the
transaction and any filings required with the SEC).
Section 5.8 Notification of Certain Matters. Each of SIC and RMAG shall
give prompt notice to the other party of (i) any notice of, or other
communication relating to, a default or event which, with notice of lapse of
time or both, would become a default, received by it subsequent to the date of
this Agreement and prior to the Effective Time, under any contract material to
the financial condition, properties, businesses or results of operations of SIC
or RMAG, as the case may be, to which it is a party or is subject, (ii) any
notice or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement, (iii) any material adverse change in their
respective financial condition, properties, businesses or results of operations
or the occurrence of any event which is reasonably likely to result in any such
change, or (iv) the occurrence or existence of any event which would, or could
with the passage of time or otherwise, make any representation or warranty
contained herein untrue; provided, however, that the delivery of notice pursuant
to this Section 5.8 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice. Each party shall use its best
efforts to prevent or promptly remedy the same.
Section 5.9 Expenses. Except as otherwise provided herein, RMAG and
SUB, on the one hand, and SIC, on the other hand, shall bear their respective
expenses incurred in connection with the Merger, including, without limitation,
the preparation, execution and performance of this Agreement and the
transactions contemplated hereby, including all fees and expenses of its
representatives, counsel and accountants, $25,000 of the expenses incurred in
printing, mailing and filing (including without limitation, SEC filing fees) the
Proxy Statement/Prospectus shall be paid by SIC.
Section 5.10 Affiliates. SIC shall deliver to RMAG a letter identifying
all persons who, as of the date hereof, may be deemed to be "affiliates" thereof
for purposes of Rule 145 under the Securities Act (the "Affiliates") and shall
advise RMAG in writing of any persons who become Affiliates prior to the
Effective Time. SIC shall cause each person who is so identified as an Affiliate
to deliver to RMAG, no later than the earlier of the thirtieth (30th) day prior
to the Effective Time or the date such person becomes an Affiliate, a written
agreement substantially in the form of Exhibit A hereto.
Section 5.11 Stock Exchange Listing. RMAG shall file a listing
application on or before the Closing and thereafter shall use its best efforts
to effect approval to list on the NASDAQ SmallCap Stock Market, the RMAG Common
Stock to be issued pursuant to the Merger and, in connection with any conversion
by a former holder of SIC shares of his, her or its RMAG Preferred Shares issued
pursuant to the Merger, the underlying shares of RMAG Common Stock.
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Section 5.12 State Antitakeover Laws. If any "fair price" or "control
share acquisition" statute or other similar antitakeover regulation shall become
applicable to the transactions contemplated hereby, RMAG and SIC and their
respective Board of Directors shall use their reasonable best efforts to grant
such approvals and to take such other actions as are necessary so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and shall otherwise use their reasonable best
efforts to eliminate the effects of any such statute or regulation on the
transactions contemplated hereby.
Section 5.13 Voting Agreement; Election Agreement. Simultaneously, with
execution and delivery of this Agreement, (a) The SIC Shareholders shall deliver
to RMAG a voting agreement in the form attached hereto as Schedule 5.13(a) and
(b) the individuals listed on Schedule 5.13 shall deliver to RMAG the Election
Agreement in the form attached hereto as Schedule 5.13(b).
Section 5.14 Employment Agreement. At the Effective Time RMAG and the
Surviving Corporation shall enter into an employment agreement with each of the
persons listed on Schedule 5.14 in the forms set forth on Schedules 5.14(a)
through 5.14(b) (the "Employment Agreements").
Section 5.15 Post Merger Operations. (a) Throughout the three year
period immediately following the Effective Time, RMAG will operate its business
and the business of the Surviving Corporation headquartered in Gold River,
California. At the Effective Time, the Board of Directors of RMAG ("RMAG Board")
shall increase the size of the RMAG Board to consist of seven (7) members, two
(2) of which shall be initially designated by the SIC Shareholders and the
remaining five (5) shall be designated by RMAG. Such board size and composition
shall continue for a period of not less than three (3) years following the
Effective Time.
(b) For the first audited statements of the Surviving Corporation, such
auditors shall be chosen by the SIC shareholders and shall be either (i) a "big
five" accounting firm, (ii) BDO Seidman, or (iii) Grant Thornton.
Section 5.16 Lockup Agreement. Promptly after the execution and
delivery of this Agreement, but prior to the Effective Time, all SIC
shareholders shall deliver to RMAG lockup agreements by each such SIC
shareholder agreeing not to sell, transfer, encumber, pledge, hypothecate, or
otherwise dispose any shares of RMAG Common Stock received by such shareholder
pursuant to the Merger, in accordance with Section 2.1, for the following
periods:
(a) 25% of such RMAG Common Stock may be sold on or after the 90th day
after the Effective Time;
(b) an additional 25% of such RMAG Common Stock may be sold on or after
the 180th day after the Effective Time;
(c) an additional 25% of such RMAG Common Stock may be sold on or after
the 270th day after the Effective Time; and
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(d) all remaining RMAG Common Stock received by such shareholder may be
sold on or after the 360th day after the Effective Time. Such agreement shall be
substantially in the form attached hereto as Schedule 5.16.
Section 5.17 RMAG Stock Options. Upon execution of this Agreement, RMAG
shall create a pool of 575,000 Vested Stock Options and 575,000 Vesting Stock
Options (as defined below) (the "Merger Option Pool"), and at the Effective Time
will grant options from such Merger Option Pool to Merger Optionees (as defined
below) as follows:
(a) At the Effective Time, RMAG will grant to the persons designated by
SIC and mutually agreed to by SIC and RMAG, which agreement shall not be
unreasonably withheld ("Merger Optionees"), an aggregate of 575,000 incentive
stock options to purchase shares of RMAG's common stock (the "Vested Options").
The Vested Options shall be fully vested at the time of grant and shall be
exercisable for a ten (10) year period following the Effective Time at an
exercise price equal to the Fair Market Value of RMAG's Common Stock at the
Effective Time. If, and to the extent, the Vested Options do not qualify for
incentive stock options, such Vested Options, as to that portion only, will be
issued as non-statutory stock options. Each grantee of the Vested Options will
agree not to exercise the Vested Options prior to the first anniversary of the
Effective Time. The terms and conditions of the Vested Option agreements shall
be substantially in the form attached hereto as Schedule 5.17(a).
(b) In addition to the Vested Options described in Section 5.17 above,
RMAG will grant at the Effective Time to Merger Optionees designated by SIC and
mutually agreed to by SIC and RMAG, which agreement shall not be unreasonably
withheld, an additional 575,000 incentive stock options to purchase shares of
RMAG's common stock ("Vesting Options"). The Vesting Options shall vest over a
three (3) year period at the rate of 33.33% per year and shall be exercisable
for a ten (10) year period at an exercise price equal to the Fair Market Value
of RMAG's Common Stock at the Effective Time. In the event and to the extent,
that any portion of the options are not qualified for incentive stock options,
such Vesting Options, as to that portion only will be issued as non-statutory
options. The form of the Vesting Options shall be substantially in the form
attached hereto as Schedule 5.17(b). The performance criteria shall be
determined by SIC and RMAG prior to the Effective Time.
(c) RMAG shall cause the shares of RMAG's Common Stock issuable upon
exercise of Vested and Vesting Options to be registered on a Registration
Statement on Form S-8 or other appropriate form.
Section 5.18 Satisfaction of Conditions. SIC agrees to use its best
efforts to cause each of the conditions set forth in Article VII to RMAG and SUB
proceeding with the Closing to be satisfied on or before the Closing Date. RMAG
and SUB agree to use their respective best efforts to cause each of the
conditions set forth in Article VIII to SIC proceeding with the Closing to be
satisfied on or before the Closing Date.
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Section 5.19 First Bank of California Loans. SIC and the SIC
Shareholders will use their best efforts to obtain the consent of First Bank of
California ("First Bank"). In the event that SIC and the SIC Shareholders are
not able to cause the release of the guaranty as a condition to First Bank's
consent, the SIC Shareholders agree to remain as guarantors of the First Bank
loans. In such event, RMAG will indemnify the SIC Shareholders under such
guaranty, and furthermore, after the Effective Time, RMAG will use its
reasonable best efforts to cause either the release of such parties as
guarantor, or, alternatively, to cause a new bank to replace First Bank.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF RMAG, SUB AND SIC
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the closing of each of the following
conditions:
Section 6.1 Registration Statement. The Registration Statement shall
have become effective in accordance with the provisions of the Securities Act.
No stop order suspending the effectiveness of the Registration Statement shall
have been issued by the SEC and remain in effect. All necessary state securities
or blue sky authorizations shall have been received.
Section 6.2 Shareholder Approval. The requisite vote of the
shareholders of SIC and RMAG and SUB necessary to consummate the transactions
contemplated by this Agreement shall have been obtained.
Section 6.3 Consents and Approvals. All necessary consents and
approvals of any United States or any other governmental authority required for
the consummation of the transactions contemplated by this Agreement shall have
been obtained.
Section 6.4 Listing. The RMAG Common Stock issued in the Merger shall
have been authorized for listing on the NASDAQ SmallCap Stock Market.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF RMAG AND SUB
The obligation of RMAG and SUB to effect the Merger and to perform
under this Agreement is subject to the fulfillment on or before to the Closing
Date of the following additional conditions, any one or more of which may be
waived, in writing, by RMAG and SUB:
Section 7.1 Representations Accurate. The representations and
warranties of SIC and the SIC Shareholders, as applicable, contained herein
shall be true and correct on the date of this Agreement and at and on the
Closing Date as though such representations and warranties were made at and on
such date.
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Section 7.2 Performance. SIC shall have complied, in all material
respects, with all agreements, obligations and conditions required by this
Agreement to be complied with by it on or prior to the Closing Date.
Section 7.3 Officer's Certificate. RMAG and SUB shall have received a
duly executed certificate signed by the President or Chairman of SIC certifying
as to (i) compliance with the conditions set forth in Sections 7.1 and 7.2; (ii)
the accuracy and completeness of the Bylaws of SIC and the director and
shareholder resolutions of SIC approving this Agreement, the Merger and the
transactions contemplated hereby; and (iii) the identity and authority of the
officers and other persons executing documents on behalf of SIC. RMAG and SUB
shall have received a duly executed certificate signed by an SIC Shareholder
certifying as to the compliance with the condition set forth in Section 7.1.
Section 7.4 Certified Articles of Incorporation. RMAG and SUB shall
have received a certificate of the Secretary of State of the State of California
certifying the Articles of Incorporation of SIC and all amendments thereof,
dated not more than ten (10) days prior to the Closing Date.
Section 7.5 Good Standing. RMAG shall have received a certificate of
good standing, or its equivalent, dated no more than ten (10) days prior to the
Closing Date, from the state of incorporation of SIC and each other state in
which SIC is qualified to do business as set forth on Schedule 4.1.
Section 7.6 Legal Action. There shall be no pending or threatened legal
action or inquiry which challenges the validity or the legality of or seeks or
could reasonably be expected to prevent, delay or impose conditions on the
consummation of the Merger or would otherwise restrict RMAG's or the Surviving
Corporation's exercise of full rights to own and operate the business of SIC
subsequent to the Effective Time.
Section 7.7 Consents. RMAG and SUB shall have received copies of
consents of all third parties necessary for SIC to execute, deliver and perform
this Agreement and consummate the Merger including, but not limited to, the
consent of First Bank of California.
Section 7.8 SIC Documents. RMAG and SUB shall have received executed
copies of the (i) Voting Agreements; (ii) Election Agreements; (iii) Employment
Agreements; (iv) legal opinion of SIC's outside legal counsel, which legal
opinion will be in a form and substance reasonably acceptable to RMAG and its
counsel; and (v) Lockup Agreements.
Section 7.9 Dissenting Shares. On the Closing Date, the aggregate
number of SIC Shares with respect to which the holders shall be dissenting
shareholders entitled to relief under Sections 1301 and 1303 of the CGCL shall
not exceed five percent (5%) of all outstanding SIC Shares.
Section 7.10 Material Adverse Change. There shall have been no material
adverse change in the business, operations, assets, prospects, financial
condition or results of operations of SIC.
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Section 7.11 Agreements with Affiliates. RMAG and SUB shall have
received from each person who is an Affiliate under Section 5.10 an executed
copy of the written agreement referred to in Section 5.10 and such agreements
shall be in full force and effect and there shall be no breach, or in existence
any facts which with passage of time or otherwise could constitute a breach,
thereof.
Section 7.12 Certificate of Merger. SIC shall have delivered to RMAG
the Certificate of Merger as executed by duly authorized officers of SIC.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF SIC AND SIC SHAREHOLDERS
The obligations of SIC and SIC Shareholders to effect the Merger and to
perform under this Agreement is subject to the fulfillment on or before the
Closing Date of the following additional conditions, any one or more of which
may be waived, in writing, by SIC and SIC Shareholders:
Section 8.1 Representations Accurate. The representations and
warranties of RMAG and SUB contained herein shall be true and correct on the
date of this Agreement and at and on the Closing Date as though such
representations and warranties were made at and on such date.
Section 8.2 Performance. RMAG and SUB shall have complied, in all
material respects, with all agreements, obligations and conditions required by
this Agreement to be complied with by them on or prior to the Closing Date.
Section 8.3 Compliance Certificate. SIC and the SIC Shareholders shall
have received a certificate signed by the President or Chairman of each of RMAG
and SUB certifying as to (i) compliance with the conditions set forth in
Sections 8.1 and 8.2; (ii) the accuracy and completeness of the Bylaws of SUB
and, as applicable, the director and shareholder resolutions of RMAG and SUB
approving this Agreement, the Merger and the transactions contemplated hereby;
and (iii) the identity and authority of the officers and other persons executing
documents on behalf of RMAG and SUB.
Section 8.4 Certified Articles of Incorporation. SIC shall have
received a certificate of the Secretary of States of the State of Florida and
Delaware certifying the Articles of Incorporation of RMAG and the Certificate of
Incorporation of SUB and all amendments thereof, dated not more than ten (10)
days prior to the Closing Date.
Section 8.5 Good Standing. SIC shall have received a certificate of
good standing, or its equivalent, dated no more than ten (10) days prior to the
Closing Date, from the state of incorporation of RMAG and SUB and each other
state in which RMAG and SUB are qualified to do business, which states are set
forth on Schedule 8.5.
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Section 8.6 Legal Action. There shall be no pending or threatened legal
action or inquiry which challenges the validity or legality of or seeks or could
reasonably be expected to prevent, delay or impose conditions on the
consummation of the Merger.
Section 8.7 Consents. SIC shall have received copies of consents of all
third parties necessary for RMAG to execute, deliver and perform this Agreement
and consummate the Merger.
Section 8.8 RMAG Documents. SIC shall have received executed copies of
the (i) Election Agreements and (ii) legal opinion of RMAG's legal counsel,
which legal opinion will be a form and substance reasonably acceptably to SIC
and its counsel.
Section 8.9 Material Adverse Change. There shall have been no material
adverse change in the business, operations, assets, prospects, financial
condition or results of operations of RMAG or SUB.
Section 8.10 Certificate of Merger. SUB shall have delivered to SIC the
Certificate of Merger, executed by duly authorized officers of SUB.
ARTICLE IX
CLOSING
Section 9.1 Time and Place. Subject to the provisions of Articles VI,
VII, VIII and X, the closing of the Merger (the "Closing") shall take place at
the offices of Atlas, Pearlman, Trop & Borkson, P.A., as soon as practicable,
but in no event later than the second business day after the date on which each
of the conditions set forth in Articles VI, VII and VIII (other than those
conditions that by their nature are to be satisfied at the Closing but subject
to such conditions) have been satisfied or waived, in writing, by the party or
parties entitled to the benefit of such conditions; or at such other place, at
such other time, or on such other date as RMAG, SUB and SIC may, in writing,
mutually agree. The date on which the Closing actually occurs is herein referred
to as the "Closing Date."
Section 9.2 Filings at the Closing. Subject to the provisions of
Articles VI, VII, VIII and X hereof, SIC, RMAG and SUB shall cause to be
executed and filed at the Closing the Certificate of Merger and shall cause the
Certificate of Merger to be recorded in accordance with the applicable
provisions of the CGCL and the DGCL and shall take any and all other lawful
actions and do any and all other lawful things necessary to cause the Merger to
become effective.
ARTICLE X
TERMINATION AND ABANDONMENT
Section 10.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
shareholders of SIC and RMAG:
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(a) by mutual consent of RMAG and SIC;
(b) by either RMAG or SIC, if any court of competent jurisdiction in
the United States or other governmental body in the United States shall have
issued an order (other than a temporary restraining order), decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
Merger, and such order, decree, ruling or other action shall have become final
and nonappealable;
(c) by either RMAG or SIC, if the requisite shareholder approvals of
the shareholders of either RMAG or SIC are not obtained at a meeting of
shareholders duly called and held therefor; or
(d) by either RMAG or SIC if a merger shall not have been consummated
by September 30, 2000, provided that a party in material breach of this
Agreement may not terminate this Agreement.
Section 10.2 Termination by RMAG. This Agreement may be terminated and
the Merger may be abandoned, at any time prior to the Effective Time, before or
after the approval of the shareholders of RMAG or SIC, by RMAG if (a) SIC shall
have failed to comply in any material respect with any of the covenants or
agreements contained in Articles I, II and V of this Agreement to be complied
with by SIC at or prior to such date of termination, (b) there exists a breach
of any representation or warranty of SIC contained in this Agreement such that
the closing conditions set forth in Article VII would not be satisfied,
provided, however, that with respect to either (a) or (b), if such failure or
breach is capable of being cured prior to the Effective Time, such failure or
breach shall not have been cured within fifteen (15) days of delivery to SIC of
written notice of such failure or breach, (c) the Board of Directors of SIC
shall have failed to recommend, or shall have withdrawn, modified or changed its
recommendation of this Agreement or the Merger in a manner adverse to RMAG or
shall have recommended or issued a neutral recommendation with respect to any
proposal in respect of a Transaction Proposal (as defined in Section 5.2 above)
with a person or entity other than RMAG or any Affiliate of RMAG (or the SIC
Board of Directors resolves to do any of the foregoing), or (d) the Board of
Directors of SIC shall furnish or disclose nonpublic information or negotiate,
explore or communicate in any way with a third party with respect to any
Transaction Proposal, or shall have resolved to do any of the foregoing and
publicly disclosed such resolution.
Section 10.3 Termination by SIC. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by the shareholders of RMAG or SIC, by SIC, if (a) RMAG or
SUB shall have failed to comply in any material respect with any of the
covenants or agreements contained in Articles I, II and V of this Agreement to
be complied with by RMAG or SUB at or prior to such date of termination, (b)
there exists a breach of any representation or warranty of RMAG or SUB contained
in this Agreement such that the closing conditions set forth in Article VIII
would not be satisfied, provided, however, that, with respect to either (a) or
(b), if such failure or breach is capable of being cured prior to the
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Effective Time, such failure or breach shall not have been cured within fifteen
(15) days of delivery to RMAG or SUB of written notice of such failure or
breach, or (c) the Board of Directors of RMAG or SUB shall have failed to
recommend or shall have withdrawn, modified or changed its recommendation of
this Agreement in a manner adverse to SIC or shall have recommended or issued a
neutral recommendation with respect to any proposal in respect of a Transaction
Proposal with a person or entity other than SIC or any Affiliate of SIC (or the
Board of Directors of RMAG or SUB, respectively, resolves to do any of the
foregoing), in each case in accordance with and solely to the extent permitted
by Section 5.2 above.
Section 10.4 Procedure for Termination. In the event of termination and
abandonment of the Merger by RMAG or SIC pursuant to this Article X, written
notice thereof shall forthwith be given to the other.
Section 10.5 Effect of Termination and Abandonment. In the event of
termination of this Agreement and abandonment of the Merger pursuant to this
Article X, no party hereto (or any of its directors or officers) shall have any
liability or further obligation to any other party to this Agreement, except as
provided in this Section 10.5 and in Section 5.3(b) hereof. Nothing in this
Section 10.5 shall relieve any party from liability for willful breach of this
Agreement.
ARTICLE XI
SURVIVABILITY; INVESTIGATIONS
Section 11.1 Survival of Representations and Warranties. The
representations and warranties of SIC, the SIC Shareholders (as applicable),
RMAG and SUB contained herein or in any certificate or other documents delivered
prior to the Effective Time shall survive and remain in full force and effect
for a period of forty-five (45) days after completion and delivery to RMAG of
SIC's audited financial statements for the year ended December 31, 2000 ("the
Survival Period"); provided, however, that representations set forth in Sections
3.2, 3.5, 3.9, 3.11, 4.2, 4.10, 4.13 and 4.17 shall survive until the expiration
of the statute of limitations. To the extent that written notice of any
indemnification claim for breach of any representation or warranty (indicating
with reasonable specificity at the basis for such claim, shall be delivered to
the other party within the Survival Period, such representation and warranty
shall survive the termination of Survival Period with respect to the subject
matter of such claim and shall continue until resolution of such claim. The
covenants and agreements contained herein shall survive the Effective Time and
continue in accordance with their respective terms.
Section 11.2 Losses. For purposes of this Agreement, the term "Loss" or
"Losses" shall mean each and all of the following items: claims, losses,
liabilities, obligations, payments, damages, judgments, fines, penalties,
amounts paid in settlement, and any related reasonable costs and expenses
(including, without limitation, interest which may be imposed in connection
therewith, costs and expenses of investigation, actions, suits, proceedings,
demands, assessments and reasonable fees and disbursements of counsel and other
experts) incurred by the person or entity seeking indemnification (the
"Indemnitee") (whether relating to claims asserted by or against third
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parties or to claims asserted against the party providing indemnification (the
"Indemnitor")). In the event there is a determination by any court of competent
jurisdiction, appropriate regulatory body or alternative dispute resolution
entity so authorized to make such determination, which shall make a finding
apportioning liability, each party shall accordingly be liable to the extent of
such finding of apportionment.
Section 11.3 Indemnification by SIC and the SIC Shareholders. Subject
to the provisions of this Article XI, prior to the Effective Time, SIC and the
SIC Shareholders shall indemnify and hold harmless RMAG and SUB and its
Affiliates and their respective officers, directors, employees, agents,
consultants, representatives and successors in accordance with the provisions of
Section 11.1, as to survival after the Effective Time, SIC and the SIC
Shareholders shall indemnify and hold harmless RMAG and the Surviving
Corporation and its Affiliates, and their respective officers, directors,
employees, agents, consultants, representatives and successors from and against
any and all Losses incurred by any of them arising out of or resulting from any
of the following:
(a) any misstatement by SIC or any SIC Shareholder or any inaccuracy in
any of the representations or warranties made by them as applicable in this
Agreement or in any ancillary document; or
(b) any failure by SIC or any SIC Shareholder to perform any of its
covenants or agreements contained in this Agreement or in any ancillary
document;
Section 11.4 Procedure for Indemnification. In the event that any
Indemnitee shall incur or suffer any Losses in respect of which indemnification
may be sought hereunder, the Indemnitee shall assert a claim for indemnification
by written notice (the "Notice") to the Indemnitor stating the nature and basis
of such claim. Promptly after receipt by an Indemnitee of written notice of the
assertion of a claim or the commencement of any action, litigation or proceeding
by any third party (a "Third-Party Claim") with respect to any matter for which
indemnification is or may be owing pursuant to Section 11.3, the Indemnitee
shall give notice to the Indemnitor and shall thereafter keep the Indemnitor
informed of all other information it receives with respect thereto; provided,
that failure of the Indemnitee to give the Indemnitor prompt notice and such
other information as provided herein shall not relieve the Indemnitor of any of
its obligations hereunder unless and then only to the extent that the Indemnitor
shall have been actually prejudiced thereby. The parties each agree to cooperate
and will cause the Indemnitor to cooperate with and render such assistance as
may reasonably be requested in order to insure the proper and adequate defense
of any such Third-Party Claim or proceeding, which assistance shall include,
without limitation, making appropriate personnel reasonably available for any
discovery or trial. If the Indemnitor fails or refuses to undertake the defense
of any such Third-Party Claim within thirty (30) days after delivery of the
notice, the Indemnitee shall have the right to take exclusive control of the
defense, negotiation and/or settlement of such Third-Party Claim at the
Indemnitor's expense. Neither the Indemnitor nor the Indemnitee shall settle or
compromise any Third-Party Claim without the consent of the other, which consent
shall not be unreasonably withheld or delayed; provided, that any settlement or
compromise includes an unconditional release of the Indemnitee from all
liabilities or obligations relating to the Third-Party Claim.
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Section 11.5 Payment. With respect to Third-Party Claims for which
indemnification is payable under this Agreement, such indemnification shall be
paid by the Indemnitor promptly upon (i) the entry of a final judgment against
the Indemnitee and the expiration of any applicable appeal period; (ii) the
entry of a non-appealable judgment or final appellate decision against the
Indemnitee; (iii) the entering into of any settlement agreement in accordance
with the provisions of this Article XI; or (iv) the entry of any consent order
or decree binding upon the Indemnitee. Notwithstanding the foregoing, reasonable
expenses of the Indemnitee which constitute Losses hereunder shall be reimbursed
on a current basis by the Indemnitor.
Section 11.6 Limitation. Notwithstanding anything to the contrary
contained in this Article 11, neither SIC or any SIC Shareholder shall have
liability for any Losses, until such Losses have exceeded $150,000 and the
maximum amount of any liability for Losses shall be limited to (a) $5.3 million
in the case of the SIC Shareholders and (b) $10,000,000 in the case of SIC.
Section 11.7 Investigation. The respective representations and
warranties of RMAG, SUB, SIC and the SIC Shareholders contained herein or in any
certificate or other documents delivered prior to or at the Closing shall not be
deemed waived or otherwise affected by any investigation made by any party
hereto.
Section 11.8 Satisfaction of Claims. Absent any claim for fraud or
other similar claim, RMAG agrees that any claim for Losses shall be satisfied in
the case of the SIC Shareholders from the RMAG Preferred Shares received by such
Shareholders pursuant to this Agreement and shall be satisfied 87% of Lidster
and 13% from Wong. For purposes of this Section 11.8, the RMAG Preferred Shares
shall be valued at the value of the shares if such Preferred Shares were
eligible for conversion at the date of any such claim for indemnification.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Notices. All notices shall be in writing delivered as
follows:
If to RMAG or SUB, to:
Registry Magic Incorporated
3998 FAU Boulevard, Suite 200-105
Boca Raton, FL 33431
Attention: Lawrence Cohen
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With a copy to:
Atlas, Pearlman, Trop & Borkson, P.A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33301
Attention: Joel D. Mayersohn, Esq.
If to SIC, to:
Synergex International Corporation
2330 Gold Meadow Way
Gold River, CA 95670
Attention: General Counsel
With a copy to:
McDonough, Holland & Allen
555 Capital Mall, Ninth Floor
Sacramento, CA 95814
Attention: Nancy P. Lee, Esq.
If to SIC Shareholders, to:
Michele Wong
Kenneth Lidster
c/o Synergex International Corporation
2330 Gold Meadow Way
Gold River, CA 95670
or to such other address as may have been designated in a prior notice pursuant
to this Section. Notices shall be deemed to be effectively served and delivered
(a) when delivered personally; (b) when given by telephone facsimile (with a
copy mailed by first-class U.S. mail); (c) one (1) business day following
deposit with a recognized national air courier service; or (d) three (3)
business days after being deposited in the United States mail in a sealed
envelope, postage prepaid, return receipt requested, to the appropriate party.
Section 12.2 Binding Effect. Except as may be otherwise provided
herein, this Agreement will be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of the
other parties. Except as otherwise specifically provided in this Agreement,
nothing in this Agreement is intended or will be construed to confer on any
person other than the parties hereto any rights or benefits hereunder.
35
<PAGE> 37
Section 12.3 Headings. The headings in this Agreement are intended
solely for convenience of reference and will be given no effect in the
construction or interpretation of this Agreement.
Section 12.4 Exhibits and Schedules. The Exhibits and schedules
referred to in this Agreement will be deemed to be a part of this Agreement.
Section 12.5 Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be deemed an original, and all of which
together will constitute one and the same document.
Section 12.6 Governing Law. This Agreement will be governed by the laws
of the State of Florida without regard to conflict of laws principles thereof.
Section 12.7 Waivers. Compliance with the provisions of this Agreement
may be waived only a written instrument specifically referring to this Agreement
and signed by the party waiving compliance. No course of dealing, nor any
failure or delay in exercising any right, will be construed as a waiver, and no
single or partial exercise of a right will preclude any other or further
exercise of that or any other right.
Section 12.8 Pronouns. The use of a particular pronoun herein will not
be restrictive as to gender or number but will be interpreted in all cases as
the context may require.
Section 12.9 Time Periods. Any action required hereunder to be taken
within a certain number of days will be taken within that number of calendar
days; provided, however, that if the last day for taking such action falls on a
weekend or a holiday, the period during which such action may be taken will be
automatically extended to the next business day.
Section 12.10 Modification. No supplement, modification or amendment of
this Agreement will be binding unless made in a written instrument that is
signed by all of the parties hereto and that specifically refers to this
Agreement.
Section 12.11 Entire Agreement. This Agreement and the agreements and
documents referred to in this Agreement or delivered hereunder are the exclusive
statement of the agreement among the parties concerning the subject matter
hereof. All negotiations among the parties are merged into this Agreement, and
there are no representations, warranties, covenants, understandings, or
agreements, oral or otherwise, in relation thereto among the parties other than
those incorporated herein and to be delivered hereunder.
Section 12.12 Severability. If any one or more of the provisions of
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality or enforceability of the remaining provisions of this
Agreement shall not be affected thereby. To the extent permitted by applicable
law, each party waives any provision of law which renders any provision of this
Agreement invalid, illegal or unenforceable in any respect.
36
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
REGISTRY MAGIC INCORPORATED
By: /s/ Lawrence Cohen
-----------------------------------------
Lawrence Cohen, Its Chairman
SYNERGEX INTERNATIONAL CORPORATION
By: /s/ Michele C. Wong
-----------------------------------------
Michele C. Wong
Its President and Chief Executive Officer
RMAG ACQUISITION CORP.
By: /s/ Lawrence Cohen
-----------------------------------------
Lawrence Cohen, Its Chairman
SIC SHAREHOLDERS
/s/ Michele C. Wong
--------------------------------------------
Michele C. Wong
/s/ Kenneth Lidster
--------------------------------------------
Kenneth Lidster
37
<PAGE> 39
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER is dated May
_____, 2000, by and among SYNERGEX INTERNATIONAL CORPORATION, certain
shareholders of SYNERGEX INTERNATIONAL CORPORATION, RMAG ACQUISITION CORP. and
REGISTRY MAGIC INCORPORATION.
PRELIMINARY STATEMENT
The parties have entered into an Agreement and Plan of Merger dated as
of February 11, 2000 (the "Merger Agreement") and have agreed to amend certain
provisions of the Merger Agreement as set forth below.
NOW, THEREFORE, in consideration of the agreements contemplated herein,
and other good and valuable consideration, the receipt and adequacy of which are
hereby conclusively acknowledged, the parties intend to be legally bound, agree
as follows:
1. The provisions of this Amendment shall govern and control over
any conflicting or inconsistent provisions in the Merger
Agreement, but except as modified hereby, all provisions of
the Merger Agreement remain unmodified and in full force and
effect and are hereby reaffirmed by each of the parties
hereto. Unless otherwise defined herein, all capitalized terms
have the same meaning as provided for therefore in the Merger
Agreement.
2. Section 1.1 of the Merger Agreement is amended inserting the
words ", Delaware" after the word corporation on the sixth
line of such section.
3. Section 5.5 shall be amended by inserting the words "and
amending its Articles of Incorporation to change its name to
Synergex International Corporation" after the words merger in
the sixth line of such section.
4. Each party represents and warrants the others as follows:
(a) The execution, delivery and performance of this Agreement (i) has
been duly authorized by all necessary or appropriate proceedings, corporate or
otherwise; (ii) does not violate a conflict of any provisions of the respective
Articles of Incorporation, Bylaws or standing resolutions, if applicable; and
(iii) does not violate or result in a breach or default (with the giving of
notice, the passage of time or otherwise) under contract, understanding,
judgment, order, writ, law or regulations applicable to the representing party
or its assets.
<PAGE> 40
(b) This Amendment is the valid, legal and binding obligation and the
Agreement of the representing party and is enforceable against it in accordance
with its terms.
5. This Agreement may be executed in multiple counterparts, each of
which will be deemed an original, and all of which together will constitute one
and the same document.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
the Agreement and Plan of Merger on the date first written above.
REGISTRY MAGIC INCORPORATED
By:
--------------------------------------
Lawrence Cohen, Its Chairman
SYNERGEX INTERNATIONAL CORPORATION
By:
--------------------------------------
Michelle C. Wong, Its President
and Chief Executive Officer
RMAG ACQUISITION CORP.
By:
--------------------------------------
Lawrence Cohen, Its Chairman
SIC SHAREHOLDERS
------------------------------------------
Michelle C. Wong
------------------------------------------
Kenneth Lidster
2
<PAGE> 1
EXHIBIT 3.2
SERIES A 6% CUMULATIVE NON-VOTING CONVERTIBLE PREFERRED STOCK
1. Designation and Amounts. The designation of this series, which
consists of [779,750] shares of Preferred Stock, is the Series A 6% Cumulative
Non-Voting Convertible Preferred Stock (the "Series A Preferred Stock") and the
stated value shall be $10.259698 per share (the "Stated Value").
2. Dividends. The holders of the Series A Preferred Stock of the
Corporation shall be entitled to receive a 6% annual cumulative dividend,
payable quarterly in cash. Dividends shall be calculated from the date of
issuance (the "Issuance Date") and payable, in each case quarterly beginning on
the ____ day of ___________ of each year (the "Dividend Payment Date");
provided, however, that beginning the fifth quarter after the Issuance Date, the
dividend may be paid either in cash or, at the option of the Corporation, in
registered common stock of the Corporation, using a price per share of common
stock equal to the Conversion Market Value as defined in Section 3 below. The
right to receive dividends in cash during the first four quarters after the
Issuance Date may be waived by any holder of Series A Preferred Stock, as to the
dividends due to such holder, upon request to the Corporation in writing at
least five business days prior to a record date. Dividends shall be paid to
recordholders of shares of Series A Preferred Stock as of the close of business
on the record date for such dividend, which shall be the first day of each month
(whether or not a business day) as the case may be, next preceding the Dividend
Payment Date (the "Dividend Record Date"). The right of the holder of shares of
Series A Preferred Stock as of the Dividend Record Date to the relevant dividend
shall not be affected by the subsequent transfer or cancellation of such shares;
such dividend being payable to the holder as of the Dividend Record Date
notwithstanding such transfer or cancellation. No dividends may be paid on any
common stock, unless and until all accrued and unpaid dividends have been made
to the holders of Series A Preferred Stock.
3. Holder's Conversion of Series A Preferred Stock. During each of the
thirteenth (13th) through sixty-second (62nd) months after the Issuance Date,
any original holder or subsequent holder of Series A Preferred Stock shall be
entitled to convert up to an aggregate of two percent (2%) (the "Monthly
Allowance") of the original total Stated Value of all Series A Preferred Stock
held by the original holder into such number of fully paid and nonassessable
registered shares of common stock, par value $.001 per share ("Common Stock")
(rounded to the nearest whole share of Common Stock), as is determined by
dividing the Stated Value of the Series A Preferred Stock by the conversion
price of the common stock in effect at the date of conversion (the "Conversion
Price"). The Conversion Price of the common stock shall be the lesser of (i)
four dollars ($4.00) per share or (ii) the Conversion Market Value of the Common
Stock on the date of conversion. The holder may effect a conversion by delivery
of a conversion notice (the "Conversion Notice"), substantially in the form
provided in Exhibit A, to the Corporation. The Conversion Notice shall be
accompanied by the number of shares of Series A Preferred Stock being converted.
"Conversion Market Value" of the Common Stock is defined as the average of the
closing bid and asked price of the Corporation's Common Stock for the ninety
(90) trading day period immediately preceding the date of conversion; provided,
however, that the Conversion Market Value of the Common Stock shall
<PAGE> 2
not be less than two dollars ($2) per share. The date of conversion is the date
RMAG receives the Conversion Notice.
Any Series A Preferred Stock not converted up to the Monthly Allowance
can be rolled over to the following month, increasing the Monthly Allowance
during the following month for such holder; provided, however, that the
allowable conversion rate for any original holder or subsequent holder, after
such adjustment, shall not exceed an aggregate of thirty percent (30%) of the
original total Stated Value of all Series A Preferred Stock held by the original
holder in any one year. Notwithstanding the percentage limitations described in
this Paragraph 3, at any time during the sixty-third (63rd) through
seventy-second (72nd) months after the Issuance Date, the holder may convert all
remaining Series A Preferred Stock held by such holder. All unconverted Series A
Preferred Stock shall be converted on or before the end of the seventy-second
(72nd) month after the Issuance Date, at the Conversion Price.
4. Adjustment for Stock Dividends; Stock Splits, Etc. If, prior to the
date on which all shares of the Series A Preferred Stock are converted, the
Corporation shall (i) pay a dividend in shares of Common Stock, (ii) subdivide
its outstanding Common Stock, or (iii) combine its outstanding Common Stock into
a smaller number of shares of Common Shares (collectively, an "Adjustment
Event"), the Conversion Price in effect on the opening of business on the record
date shall thereupon be adjusted, or, if necessary, the right to convert shall
be amended, such that the number of shares of Common Stock receivable upon
conversion of the shares of Series A Preferred Stock immediately prior thereto
shall be adjusted so that the holders of the Series A Preferred Stock shall be
entitled to receive, upon the conversion of such shares of Series A Preferred
Stock, the kind and number of shares of Common Stock or other securities of the
Corporation which it would have owned or would have been entitled to receive
after the happening of any of the events described above had the Series A
Preferred Stock been converted immediately prior to the happening of such event
or any record date with respect thereto. Any adjustment made pursuant to this
paragraph 5 shall become effective immediately after the effective date of such
event and such adjustment shall be retroactive to the record date, if any, for
such event. Upon the occurrence of each Adjustment Event, the Corporation shall
promptly furnish to each holder of Series A Preferred Stock a writing setting
forth such adjustment and showing the facts upon which such adjustment is based.
5. Consolidation, Merger, Exchange, etc. In case the Corporation shall
enter into any consolidation, merger, combination, statutory share exchange or
other transaction in which the Common Stock is exchanged for or changed into
other stock or securities, money and/or any other property, then in any such
case the Series A Preferred Stock shall at the same time be similarly exchanged
or changed into preferred shares of the surviving entity providing the holders
of such preferred shares with the same relative rights and preferences as the
Series A Preferred Stock or, if such exchange or change cannot be effected, each
share of Series A Preferred Stock may be converted into the aggregate amount of
the stock and other property into which each share of Common Stock is exchanged
or changed in the transaction, times the number of shares of Common Stock into
which a share of Series A Preferred Stock is convertible immediately prior to
the consummation of such transaction.
<PAGE> 3
6. Reissuance of Certificates. In the event of a conversion pursuant
to these Articles of Amendment of less than all of the Series A Preferred Stock
represented by a particular Preferred Stock Certificate, the Corporation shall
promptly cause to be issued and delivered to the holder of such Series A
Preferred Stock a preferred stock certificate representing the remaining Series
A Preferred Stock which has not been so converted.
7. Reservation of Shares. The Corporation shall, so long as any of the
Series A Preferred Stock are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Stock, such number of registered shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Series A Preferred Stock then outstanding.
8. Voting Rights. Holders of Series A Preferred Stock shall have no
voting rights, except as required by law, including but not limited to the
Florida Business Corporation Act, and as expressly provided in these Articles of
Amendment.
9. Preferred Rank; Participation.
(a) All shares of Common Stock shall be of junior rank to all
Series A Preferred Stock in respect to the preferences as to
distributions and payments upon the liquidation, dissolution and
winding up of the Corporation. The rights of the shares of Common Stock
shall be subject to the preferences and relative rights of the Series A
Preferred Stock.
(b) The holders of the Series A Preferred Stock shall, as holders
of Series A Preferred Stock, be entitled to such dividends paid and
distributions made to the holders of Common Stock to the same extent as
if such holders of Preferred Stock had converted the Series A Preferred
Stock into Common Stock (without regard to any limitations on
conversion herein or elsewhere) and had held such shares of Common
Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the
dividend or distribution to the holders of Common Stock.
10. Vote to Change the Terms of Series A Preferred Stock. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than fifty percent (50%)
of the then outstanding Series A Preferred Stock, shall be required for any
change to these Articles of Amendment or the Corporation's Articles of
Incorporation which would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Series A Preferred Stock.
11. Lost or Stolen Certificates. Upon receipt by the Corporation of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of any Series A Preferred Stock Certificates, and, in the case of
loss, theft or destruction, of any indemnification undertaking by the holder to
the Corporation and, in the case of mutilation, upon surrender and cancellation
of the Series A Preferred Stock Certificate(s), the Corporation shall execute
and deliver new preferred stock certificate(s) of like tenor and date; provided,
however, the Corporation shall not be obligated to re-
<PAGE> 4
issue preferred stock certificates if the holder contemporaneously requests the
Corporation to convert such Series A Preferred Stock into Common Stock in which
case such Series A Preferred Stock shall be converted pursuant to the terms of
the Articles of Amendment and a preferred stock certificate shall only be issued
if required pursuant to the terms hereof.
12. Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in these Articles of Amendment shall be
cumulative and in addition to all other remedies available under these Articles
of Amendment, at law or in equity (including a decree of specific performance
and/or other injunctive relief), no remedy contained herein shall be deemed a
waiver of compliance with the provisions giving rise to such remedy and nothing
herein shall limit a holder's right to pursue actual damages for any failure by
the Corporation to comply with the terms of these Articles of Amendment. Amounts
set forth or provided for herein with respect to payments, conversion and the
like (and the computation thereof) shall be the amounts to be received by the
holder thereof and shall not, except as expressly provided herein, be subject to
any other obligation of the Corporation (or the performance thereof). The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of the Series A Preferred Stock and that
the remedy at law for any such breach may be inadequate. The Corporation
therefore agrees that, in the event of any such breach or threatened breach, the
holders of the Series A Preferred Stock shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
13. Failure or Indulgence Not Waiver. No failure or delay on the part
of a holder of Series A Preferred Stock in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
14. No Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
and performance of any of the terms to be observed or performed hereunder by the
Corporation but will at all times in good faith assist in the carrying out of
all the provisions hereof and in the taking of such action as may be necessary
or appropriate in order to protect the conversion rights of the holders of
Series A Preferred Stock against impairment. Notwithstanding any implications to
the contrary, the forgoing shall not have the result of requiring the approval
or consent of the Series A Preferred Stock in order to amend the Articles of
Incorporation or to permit the Corporation to engage in a reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, or
issuance or sale of securities. The holders of Series A Preferred Stock shall
only have those voting rights set forth in Paragraph 9.
<PAGE> 5
EXHIBIT A
REGISTRY MAGIC INCORPORATED
CONVERSION NOTICE
Reference is made to the Articles of Amendment to the Articles of Incorporation
(the "ARTICLES OF AMENDMENT"). In accordance with and pursuant to the Articles
of Amendment, the undersigned hereby elects to convert the number of shares of
Series A 6% Cumulative Non-Voting Convertible Preferred Stock (the "SERIES A
PREFERRED STOCK") of Registry Magic Incorporated, a Florida corporation (the
"COMPANY"), indicated below into shares of Common Stock, par value $.001 per
share (the "COMMON STOCK"), of the Company, by tendering the stock
certificate(s) representing the share(s) of Series A Preferred Stock specified
below as of the date specified below.
Date of Conversion:
---------------------------------------------------
Number of Series A Preferred Stock originally owned:
------------------
Number of Series A Preferred Stock to be converted:
-------------------
Stock certificate no(s). of Series A
Preferred Stock to be converted:
--------------------------------------
Please confirm the following information:
Conversion Price: $
--------
Number of shares of Common Stock
to be issued:
--------------------------------------------------------
Please issue the Common Stock into which the Series A Preferred Stock are being
converted in the following name and to the following address:
Issue to:
-----------------------------------
-----------------------------------
-----------------------------------
Facsimile Number:
-----------------------------------
Authorization:
-----------------------------------
By:
--------------------------------
Title:
-----------------------------
Dated:
---------------------------------------------------
Account Number:
(if electronic book entry transfer):
--------------------------------
Transaction Code Number
(if electronic book entry transfer):
--------------------------------
<PAGE> 1
EXHIBIT 4.1
VOTING AGREEMENT
VOTING AGREEMENT ("Agreement"), dated as of February 11, 2000, between
Kenneth Lidster ("Lidster"), Michele Wong ("Wong") (individually the
"Shareholder" and collectively the "Shareholders") and Registry Magic
Incorporated, a Florida corporation ("RMAG"). RMAG is sometimes herein referred
to as the "Company".
A. Each Shareholder is the record and beneficial owner of that number of
issued and outstanding shares (together with any shares acquired after the date
hereof, the "Shares") of Common Stock of Synergex International Corporation, a
California corporation ("SIC"), as indicated on Exhibit A attached hereto and
made a part hereof, which Shares represent approximately the percentages of the
currently issued and outstanding shares of SIC's Common Stock as indicated on
Exhibit A.
B. In order to induce RMAG to enter into the Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"), by and between SIC and
RMAG, RMAG has requested that the Shareholders enter into this Agreement with
respect to the Shares.
C. Unless otherwise defined herein, all capitalized terms used in this
Agreement shall have the meanings given to them in the Merger Agreement.
D. For good and valuable consideration, the adequacy and receipt of which
are hereby acknowledged, and in order to induce RMAG to enter into the Merger
Agreement, RMAG and the Shareholders hereby agree as follows:
1. Covenants.
(a) At any meeting of shareholders of SIC called to vote upon the
Merger and the Merger Agreement or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval (including by written
consent) with respect to the Merger and the Merger Agreement is sought, each
Shareholder shall, including by initiating a written consent solicitation if
requested by RMAG, vote (or cause to be voted) such Shareholder's Shares in
favor of the Merger, the adoption by SIC of the Merger Agreement and the
approval of the other transactions contemplated by the Merger Agreement.
(b) At any meeting of shareholders of SIC or at any adjournment thereof
or in any other circumstances upon which the Shareholders' vote, consent or
other approval is sought, each Shareholder shall vote (or cause to be voted)
such Shareholder's Shares against (i) any merger agreement or merger (other than
the Merger Agreement and the Merger), consolidation, combination, sale of
substantial assets, reorganization, recapitalization, dissolution, liquidation
or winding up of or by SIC or its Subsidiaries or any other Transaction Proposal
(as defined in the Merger Agreement) affecting SIC (collectively, "Alternative
Transactions") or (ii) any amendment of SIC's Amended and Restated Articles of
Incorporation or by-laws or other proposal or transaction involving SIC
<PAGE> 2
or any of its subsidiaries, which amendment or other proposal or transaction
would in any manner impede, frustrate, prevent or nullify, the Merger, the
Merger Agreement or any of the other transactions contemplated by the Merger
Agreement (collectively, "Frustrating Transactions").
(c) During the Term of this Agreement, except pursuant to a certain
Election Agreement dated February 11, 2000 between Lawrence Cohen, Lidster,
Wong, RMAG and SIC, Lidster and Wong shall not, (i) sell, transfer, pledge,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement (including any profit sharing arrangement) or understanding with
respect to the sale, transfer, pledge, assignment or other disposition of, the
Shares to any person other than RMAG or SIC, or their respective designee, (ii)
enter into any voting arrangement, whether by proxy, voting agreement, voting
trust, power-of-attorney or otherwise, with respect to the Shares or (iii) take
any other action that would in any way restrict, limit or interfere with the
performance of its obligations hereunder or the transactions contemplated
hereby.
2. Grant of Irrevocable Proxy Coupled with an Interest; Appointment of Proxy.
(a) Each Shareholder hereby irrevocably grants to and appoints any
individual who shall hereafter be designated by RMAG as such Shareholder's proxy
and attorney-in-fact (with full power of substitution), for and in the name,
place and stead of such Shareholder, to vote such Shareholder's Shares, or grant
a consent or approval in respect of such Shares, at any meeting of shareholders
of SIC or at any adjournment thereof or in any other circumstances upon which
their vote, consent or other approval is sought, (i) in favor of the Merger, the
adoption by SIC of the Merger Agreement and the approval of the other
transactions contemplated by the Merger Agreement and (ii) against any
Alternative Transaction or Frustrating Transaction.
(b) Each Shareholder represents that any proxies heretofore given in
respect of such Shareholder's Shares are not irrevocable, and that any such
proxies are hereby revoked.
(c) EACH SHAREHOLDER HEREBY AFFIRMS THAT THE PROXY SET FORTH IN THIS
SECTION 2 IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE UNTIL SUCH TIME AS THIS
AGREEMENT TERMINATES IN ACCORDANCE WITH ITS TERMS. The Shareholder hereby
further affirms that the irrevocable proxy is given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy is given to
secure the performance of the duties of such Shareholder under this Agreement.
Such Shareholder hereby ratifies and confirms all that such irrevocable proxy
may lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is
executed and intended to be irrevocable in accordance with the provisions of
________________ of the ________________________________.
3. Representations and Warranties of the Shareholder The Shareholder hereby
represents and warrants to RMAG as follows:
2
<PAGE> 3
(a) Authorization. Each Shareholder has the legal capacity to execute,
deliver and perform this Agreement. This Agreement constitutes a valid and
binding obligation of the Shareholder enforceable against him or her in
accordance with its terms. If the Shareholder is married and the Shares
constitute community property under applicable law, the spouse of each
Shareholder shall consent to be bound by the provisions of this Agreement by
executing the Consent of Spouse attached hereto as Exhibit B and made a part
hereof.
(b) No Conflict. The execution, delivery and performance by the
Shareholder of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) result in any breach or violation of
or be in conflict with or constitute a default under term of any law or
agreement or arrangement to which the Shareholder is a party or by which the
Shareholder is bound, (ii) require any filing with or authorization by any
governmental entity or (iii) require any consent or other action by any person
under, constitute a default under, or give rise to any right of termination,
cancellation or acceleration or to a loss of any benefit to which the
Shareholder is entitled under any provision of any agreement or other instrument
binding on the Shareholder.
(c) Ownership of Shares. Each Shareholder is the record and beneficial
owner of the Shares free and clear of any and all liens, pledges, restrictions,
charges or other adverse claims of any kind or nature. Each Shareholder has the
sole voting power, sole power of disposition, sole power of conversion, sole
power to demand appraisal rights and sole power to agree to all the matters set
forth in this Agreement, in each case with respect to all of the Shares with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement. Except for the
Election Agreement referred to above none of the Shares are subject to any
voting trust or other agreement or arrangement with respect to the voting of
such Shares. Each Shareholder's Shares and the certificates representing such
Shares are now, and at all times during the term hereof will be, held by the
Shareholder, or by a nominee or custodian for the benefit of the Shareholder.
The Shareholder owns of record or beneficially no shares of SIC Common Stock
other than such Shareholder's Shares.
(d) Merger Agreement. Each Shareholder understands and acknowledges
that RMAG is entering into the Merger Agreement in reliance upon the
Shareholder's execution and delivery of this Agreement.
4. Board Approval. The Board of Directors of RMAG have, to the extent required
by applicable law, duly and validly authorized and approved by all necessary
corporate action, this Agreement, the Merger Agreement and the transactions
contemplated hereby and thereby, so that by the execution and delivery hereof no
restrictive provision of any "fair price," "moratorium," "control-share
acquisition," "interested shareholders" or other similar anti-takeover statute
or regulation (including, without limitation, Sections 607.0901 and 607.0902 of
the Florida Business Corporation Act) or restrictive provision of any applicable
anti-takeover provision in the Articles of Incorporation or by-laws of RMAG is,
or will be,
3
<PAGE> 4
applicable to RMAG, the Shares, the Merger or any other transaction contemplated
by this Agreement.
5. Miscellaneous.
(a) Notices. All notices shall be in writing and shall be given as
follows:
<TABLE>
<S> <C>
if to Wong to: if to Lidster to:
--------------- ---------------
--------------- ---------------
--------------- ---------------
</TABLE>
- ---------------
<TABLE>
<S> <C>
with a copy to:
--------------- ---------------
--------------- ---------------
--------------- ---------------
</TABLE>
if to RMAG to:
Registry Magic Incorporated
3998 FAU Boulevard, Suite 200-105
Boca Raton, FL 33431
Attention: Lawrence Cohen
with a copy to:
Atlas, Pearlman, Trop & Borkson, P. A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33301
Telecopy: 954-766-7800
Attention: Joel D. Mayersohn, Esq.
or to such other address as may have been designated in a prior notice pursuant
to this Section. Notices shall be deemed effectively served and delivered upon
receipt.
(b) Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights or obligations
hereunder shall be assigned by the Shareholder without the prior written consent
of RMAG. Except as otherwise specifically provided in this Agreement, nothing in
this Agreement is intended or will be construed to confer on any person other
than the parties hereto any rights or benefits hereunder.
4
<PAGE> 5
(c) Governing Law. This Agreement will be governed by and construed
under California law, without regard to conflict of laws principles thereof.
(d) Waivers. Compliance with the provisions. of this Agreement may be
waived only by a written instrument specifically referring to this Agreement and
signed by the party waiving compliance. No course of dealing, nor any failure or
delay in exercising any right, will be construed as a waiver, and no single or
partial exercise of a right will preclude any other or further exercise of that
or any other right.
(e) Modification. No supplement, modification or amendment of this
Agreement will be binding unless made in a written instrument that is signed by
all the parties hereto and that specifically refers to this Agreement.
(f) Entire Agreement. This Agreement and the Merger Agreement are the
exclusive statement of the agreement among the parties hereto concerning the
subject matter hereof.
(g) Severability. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each party
waives any provision of law which renders any provision of this Agreement
invalid, illegal or unenforceable in any respect.
(h) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
(i) Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in a court of the United States. This
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto waives any right to trial by
jury with respect to any claim or proceeding related to or arising out of this
Agreement or any of the transactions contemplated hereby.
(j) Further Assurances. RMAG and the Shareholders will execute and
deliver, or cause to be executed and delivered, all further documents and
instruments and use their reasonable best efforts to take, or cause to be taken,
all actions necessary, proper or advisable under applicable law to consummate
and make effective the transactions contemplated by this Agreement and to vest
the power to vote each Shareholder's Shares as contemplated by Sections 1 and 2.
5
<PAGE> 6
(k) Termination. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate upon the earliest to occur of (i)
consummation of the Merger, (ii) the termination of the Merger Agreement in
accordance with its terms, unless prior to such termination a person or entity
shall have made a Transaction Proposal and (iii) twenty-four months from the
date hereof. Sections 1(b) and 2(a)(ii) shall terminate on the earlier of (x)
the date computed in accordance with the preceding sentence and (y) six months
after the termination of the Merger Agreement in accordance with its terms.
Nothing in this Section 5(k) shall relieve the Shareholder from liability for
breach of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
REGISTRY MAGIC INCORPORATED
By: /s/ Lawrence Cohen
------------------------------
Name: Lawrence Cohen
Title: Chairman
/s/ Kenneth Lidster
------------------------------
Kenneth Lidster, a Shareholder
/s/ Michele C. Wong
------------------------------
Michele C. Wong, a Shareholder
6
<PAGE> 1
EXHIBIT 4.2
VOTING AGREEMENT
VOTING AGREEMENT ("Agreement"), dated as of February 11, 2000, between
Alliant Holding & Transfer Company ("Alliant" or "Shareholder") and Synergex
International Corporation, a California corporation ("SIC"). SIC is sometimes
herein referred to as the "Company".
A. The Shareholder is the record and beneficial owner of that number of issued
and outstanding shares (together with any shares acquired after the date hereof,
the "Shares") of Common Stock of Registry Magic Incorporated, a Florida
corporation ("RMAG"), as indicated on Exhibit A attached hereto and made a part
hereof, which Shares represent approximately the percentages of the currently
issued and outstanding shares of RMAG's Common Stock as indicated on Exhibit A.
B. In order to induce SIC to enter into the Agreement and Plan of Merger, dated
as of the date hereof (the "Merger Agreement"), by and between SIC and RMAG, SIC
has requested that the Shareholders enter into this Agreement with respect to
the Shares.
C. Unless otherwise defined herein, all capitalized terms used in this Agreement
shall have the meanings given to them in the Merger Agreement.
D. For good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, and in order to induce SIC to enter into the Merger
Agreement, SIC and the Shareholder hereby agree as follows:
1. COVENANTS.
(a) At any meeting of shareholders of RMAG called to vote upon the
Merger and the Merger Agreement or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval (including by written
consent) with respect to the Merger and the Merger Agreement is sought, Alliant
shall, including by initiating a written consent solicitation if requested by
SIC, vote (or cause to be voted) the Shares in favor of the Merger, the adoption
by RMAG of the Merger Agreement and the approval of the other transactions
contemplated by the Merger Agreement.
(b) At any meeting of shareholders of RMAG or at any adjournment
thereof or in any other circumstances upon which Alliant's vote, consent or
other approval is sought, Alliant shall vote (or cause to be voted) the Shares
against (i) any merger agreement or merger (other than the Merger Agreement and
the Merger), consolidation, combination, sale of substantial assets,
reorganization, recapitalization, dissolution, liquidation or winding up of or
by RMAG or its Subsidiaries or any other Transaction Proposal (as defined in the
Merger Agreement) affecting RMAG (collectively, "Alternative Transactions") or
(ii) any amendment of RMAG's Amended and Restated Articles of Incorporation or
by-laws or other proposal or transaction involving RMAG or any of its
subsidiaries, which amendment or other proposal or transaction would in any
manner impede, frustrate, prevent or nullify, the Merger, the Merger Agreement
or any of the other transactions contemplated by the Merger Agreement
(collectively, "Frustrating Transactions").
<PAGE> 2
2. GRANT OF IRREVOCABLE PROXY COUPLED WITH AN INTEREST; APPOINTMENT OF PROXY.
(a) The Shareholder hereby irrevocably grants to and appoints any
individual who shall hereafter be designated by SIC as such Shareholder's proxy
and attorney-in-fact (with full power of substitution), for and in the name,
place and stead of such Shareholder, to vote such Shareholder's Shares, or grant
a consent or approval in respect of such Shares, at any meeting of shareholders
of RMAG or at any adjournment thereof or in any other circumstances upon which
their vote, consent or other approval is sought, (i) in favor of the Merger, the
adoption by RMAG of the Merger Agreement and the approval of the other
transactions contemplated by the Merger Agreement and (ii) against any
Alternative Transaction or Frustrating Transaction.
(b) The Shareholder represents that any proxies heretofore given in
respect of such Shareholder's Shares are not irrevocable, and that any such
proxies are hereby revoked.
(c) THE SHAREHOLDER HEREBY AFFIRMS THAT THE PROXY SET FORTH IN THIS
SECTION 2 IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE UNTIL SUCH TIME AS THIS
AGREEMENT TERMINATES IN ACCORDANCE WITH ITS TERMS. The Shareholder hereby
further affirms that the irrevocable proxy is given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy is given to
secure the performance of the duties of such Shareholder under this Agreement.
Such Shareholder hereby ratifies and confirms all that such irrevocable proxy
may lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is
executed and intended to be irrevocable in accordance with the provisions of
Section 607.0722 of the Florida Business Corporation Act.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. The Shareholder hereby
represents and warrants to SIC follows:
(a) AUTHORIZATION. The Shareholder has the legal capacity to execute,
deliver and perform this Agreement. This Agreement constitutes a valid and
binding obligation of the Shareholder enforceable against it in accordance with
its terms.
(b) NO CONFLICT. The execution, delivery and performance by the
Shareholder of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) result in any breach or violation of
or be in conflict with or constitute a default under term of any law or
agreement or arrangement to which the Shareholder is a party or by which the
Shareholder is bound, (ii) require any filing with or authorization by any
governmental entity or (iii) require any consent or other action by any person
under, constitute a default under, or give rise to any right of termination,
cancellation or acceleration or to a loss of any benefit to which the
Shareholder is entitled under any provision of any agreement or other instrument
binding on the Shareholder.
(c) OWNERSHIP OF SHARES. The Shareholder is the record and beneficial
owner of the Shares free and clear of any and all liens, pledges, restrictions,
charges or other adverse claims of any kind or nature. The Shareholder has the
sole voting power, sole power of disposition, sole power of conversion, sole
power to demand appraisal rights and sole power to agree to all the matters set
forth in this Agreement, in each case with respect to all of the Shares with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement. Except for the
Election Agreement referred to above none of the Shares are subject to any
voting trust or other agreement or arrangement with respect to the voting of
such Shares. The Shareholder's Shares and the certificates representing such
Shares are now, and at
2
<PAGE> 3
all times during the term hereof will be, held by the Shareholder, or by a
nominee or custodian for the benefit of the Shareholder. The Shareholder owns of
record or beneficially no shares of RMAG Common Stock other than such
Shareholder's Shares.
(d) MERGER AGREEMENT. The Shareholder understands and acknowledges that
SIC is entering into the Merger Agreement in reliance upon the Shareholder's
execution and delivery of this Agreement.
4. BOARD APPROVAL. The Board of Directors of SIC have, to the extent required by
applicable law, duly and validly authorized and approved by all necessary
corporate action, this Agreement, the Merger Agreement and the transactions
contemplated hereby and thereby, so that by the execution and delivery hereof no
restrictive provision of any "fair price," "moratorium," "control- share
acquisition," "interested shareholders" or other similar anti-takeover statute
or regulation or restrictive provision of any applicable anti-takeover provision
in the Articles of Incorporation or by-laws of SIC is, or will be, applicable to
SIC, the Shares, the Merger or any other transaction contemplated by this
Agreement.
5. MISCELLANEOUS.
(a) NOTICES. All notices shall be in writing and shall be given as
follows:
if to Alliant to:
Alliant Holding & Transfer Company
3311 Northeast 26th Avenue
Lighthouse Point, FL 33064
Attention: Lawrence Cohen
with a copy to:
Atlas Pearlman, P.A.
350 East Las Olas Blvd., Suite 1700
Fort Lauderdale, Florida 33301
Attention: Joel D. Mayersohn, Esq.
if to SIC to:
Synergex International Corporation
2330 Gold Meadow Way
Gold River, CA 95670
Attention: President and General Counsel
with a copy to:
McDonough, Holland & Allen
555 Capital Mall, Ninth Floor
Sacramento, CA 95814
Attention: Nancy P. Lee, Esq.
3
<PAGE> 4
or to such other address as may have been designated in a prior notice pursuant
to this Section. Notices shall be deemed effectively served and delivered upon
receipt.
(b) BINDING EFFECT. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights or obligations
hereunder shall be assigned by the Shareholder without the prior written consent
of SIC. Except as otherwise specifically provided in this Agreement, nothing in
this Agreement is intended or will be construed to confer on any person other
than the parties hereto any rights or benefits hereunder.
(c) GOVERNING LAW. This Agreement will be governed by and construed
under Florida law, without regard to conflict of laws principles thereof.
(d) WAIVERS. Compliance with the provisions. of this Agreement may be
waived only by a written instrument specifically referring to this Agreement and
signed by the party waiving compliance. No course of dealing, nor any failure or
delay in exercising any right, will be construed as a waiver, and no single or
partial exercise of a right will preclude any other or further exercise of that
or any other right.
(e) MODIFICATION. No supplement, modification or amendment of this
Agreement will be binding unless made in a written instrument that is signed by
all the parties hereto and that specifically refers to this Agreement.
(f) ENTIRE AGREEMENT. This Agreement and the Merger Agreement are the
exclusive statement of the agreement among the parties hereto concerning the
subject matter hereof.
(g) SEVERABILITY. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each party
waives any provision of law which renders any provision of this Agreement
invalid, illegal or unenforceable in any respect.
(h) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
(i) ENFORCEMENT. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in a court of the United States. This
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto waives any right to trial by
jury with respect to any claim or proceeding related to or arising out of this
Agreement or any of the transactions contemplated hereby.
(j) FURTHER ASSURANCES. SIC and the Shareholder will execute and
deliver, or cause to be executed and delivered, all further documents and
instruments and use their reasonable best
4
<PAGE> 5
efforts to take, or cause to be taken, all actions necessary, proper or
advisable under applicable law to consummate and make effective the transactions
contemplated by this Agreement and to vest the power to vote each Shareholder's
Shares as contemplated by Sections 1 and 2.
(k) TERMINATION. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate upon the earliest to occur of (i)
consummation of the Merger, (ii) the termination of the Merger Agreement in
accordance with its terms, unless prior to such termination a person or entity
shall have made a Transaction Proposal and (iii) twenty-four months from the
date hereof. Sections 1(b) and 2(a)(ii) shall terminate on the earlier of (x)
the date computed in accordance with the preceding sentence and (y) six months
after the termination of the Merger Agreement in accordance with its terms.
Nothing in this Section 5(k) shall relieve the Shareholder from liability for
breach of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
SYNERGEX INTERNATIONAL
CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
----------------------------
ALLIANT HOLDING & TRANSFER
COMPANY, a Shareholder
By:
--------------------------------
Name:
------------------------------
Title:
----------------------------
5
<PAGE> 6
EXHIBIT A
SHAREHOLDERS' OWNERSHIP OF SHARES OF RMAG
6
<PAGE> 1
EXHIBIT 4.3
ELECTION AGREEMENT
ELECTION AGREEMENT ("Agreement"), dated as of February _____, 2000,
effective at the Effective Time of the merger between Synergex International
Corporation, Registry Magic Incorporated and RMAG Acquisition Corp., between
Lawrence Cohen ("Cohen"), Michele Wong ("Wong"), Kenneth Lidster ("Lidster")
(individually "Shareholder" and collectively the "Shareholders") and Registry
Magic Incorporated, a Florida corporation ("RMAG").
A. The Shareholders are the record and beneficial owners of _________ issued and
outstanding shares, in the amounts indicated below (together with any shares
acquired after the date hereof, the "Shares") of common stock, par value $.001,
of RMAG:
<TABLE>
<CAPTION>
Shareholder No. of Shares
----------- -------------
<S> <C>
Cohen
Wong
Lidster
</TABLE>
B. As a condition to the Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), by and between Synergex International
Corporation, a California corporation ("SIC"), RMAG and RMAG Acquisition Corp.,
a Delaware corporation and wholly owned subsidiary of RMAG, the Shareholders
shall enter into this Agreement with respect to the Shares. Pursuant to the
Merger Agreement, the number of directors of RMAG will be expanded to seven (7)
directors, and the intent of the Shareholders, RMAG and SIC is that it will
remain at seven (7) throughout the term of the Agreement.
C. Unless otherwise defined herein, all capitalized terms used in this Agreement
shall have the meanings given to them in the Merger Agreement.
D. For good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, RMAG and the Shareholders hereby agree as follows:
1. Covenants. At any meeting of shareholders of RMAG called to vote upon the
election of the Board of Directors or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval (including by written
consent) with respect to the election of the Board of Directors is sought, for
the next three (3) years, each Shareholder shall, including by initiating a
written consent solicitation if requested by RMAG, vote (or cause to be voted)
the Shareholders' Shares in favor of the election of each other Shareholder and
such designees as designated by Cohen as directors of RMAG. Provided, however,
that Cohen may only designate four additional directors. If a vacancy on the
Board of Directors of RMAG occurs due to the death or resignation of Lidster
during the term of this Agreement, Wong may designate a director to replace him.
If a vacancy on the Board of Directors of RMAG occurs due to the death or
resignation of Wong during the term of this Agreement, Lidster may designate a
director to replace her.
<PAGE> 2
2. Grant of Irrevocable Proxy Coupled with an Interest; Appointment of Proxy.
(a) Solely with respect to the election of the Board of Directors, each
Shareholder hereby irrevocably grants to and appoints any individual who shall
hereafter be designated by RMAG, and each of them, such Shareholder's proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of such Shareholder, to vote such Shareholder's Shares, or grant a
consent or approval in respect of such Shares, at any meeting of shareholders of
the Company or at any adjournment thereof or in any other circumstances upon
which their vote, consent or other approval is sought in favor of each other
Shareholder's election as director of RMAG.
(b) The Shareholder represents that any proxies heretofore given in
respect of such Shareholders' Shares are not irrevocable, and that any such
proxies are hereby revoked.
(c) EACH SHAREHOLDER HEREBY AFFIRMS THAT THE PROXY SET FORTH IN THIS
SECTION 2 IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE UNTIL SUCH TIME AS THIS
AGREEMENT TERMINATES IN ACCORDANCE WITH ITS TERMS. Each Shareholder hereby
further affirms that the irrevocable proxy is given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy is given to
secure the performance of the duties of such Shareholder under this Agreement.
Such Shareholder hereby ratifies and confirms all that such irrevocable proxy
may lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is
executed and intended to be irrevocable in accordance with the provisions of
Section 607.0722 of the Florida Business Corporation Act.
3. Representations and Warranties of the Shareholders. The Shareholders hereby
represent and warrant to RMAG as follows:
(a) Authorization. Each Shareholder has the legal capacity to execute,
deliver and perform this Agreement. This Agreement constitutes a valid and
binding obligation of each Shareholder enforceable against him or her in
accordance with its terms. If a Shareholder is married and the Shares constitute
community property under applicable law, the spouse of each Shareholder shall
consent to be bound by the provisions of this Agreement by executing the Consent
of Spouse attached hereto as Exhibit A and made a part hereof.
(b) No Conflict. The execution, delivery and performance by each
Shareholder of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) result in any breach or violation of
or be in conflict with or constitute a default under term of any law or
agreement or arrangement to which a Shareholder is a party or by which a
Shareholder is bound, (ii) require any filing with or authorization by any
governmental entity or (iii) require any consent or other action by any person
under, constitute a default under, or give rise to any right of termination,
cancellation or acceleration or to a loss of any benefit to which a Shareholder
is entitled under any provision of any agreement or other instrument binding on
each Shareholder.
2
<PAGE> 3
(c) Ownership of Shares. Each Shareholder is the record and beneficial
owner of the Shares free and clear of any and all liens, pledges, restrictions,
charges or other adverse claims of any kind or nature. Each Shareholder has the
sole voting power, sole power of disposition, sole power of conversion, sole
power to demand appraisal rights and sole power to agree to all the matters set
forth in this Agreement, in each case with respect to all of the Shares with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement. Except for certain
Voting Agreements dated ___________ by and between (i) Lawrence Cohen and SIC,
and (ii) Kenneth Lidster, Michele Wong and RMAG, none of the Shares are subject
to any voting trust or other agreement or arrangement with respect to the voting
of such Shares. The Shareholders Shares and the certificates representing such
Shares are now, and at all times during the term hereof will be, held by each
Shareholder, or by a nominee or custodian for the benefit of the Shareholder.
The Shareholder owns of record or beneficially no shares of RMAG Common Stock
other than such Shareholder's Shares.
4. Board Approval. The Board of Directors of RMAG has, to the extent required by
applicable law, duly and validly authorized and approved by all necessary
corporate action, this Agreement, the Merger Agreement and the transactions
contemplated hereby and thereby, so that by the execution and delivery hereof no
restrictive provision of any "fair price," "moratorium," "control-share
acquisition," "interested shareholders" or other similar anti-takeover statute
or regulation (including, without limitation, Sections 607.0901 and 607.0902 of
the Florida Business Corporation Act) or restrictive provision of any applicable
anti-takeover provision in the Articles of Incorporation or by-laws of RMAG is,
or will be, applicable to SIC, RMAG, the Shares, the Merger or any other
transaction contemplated by this Agreement.
5. Miscellaneous.
(a) Notices. All notices shall be in writing and shall be given as
follows:
<TABLE>
<CAPTION>
if to Cohen to: if to Wong to: if to Lidster to:
<S> <C> <C>
------------------- ------------------- -------------------
------------------- ------------------- -------------------
------------------- ------------------- -------------------
with a copy to: with a copy to: with a copy to:
------------------- ------------------- -------------------
------------------- ------------------- -------------------
------------------- ------------------- -------------------
</TABLE>
3
<PAGE> 4
if to RMAG to:
Registry Magic Incorporated
3998 FAU Boulevard, Suite 200-105
Boca Raton, FL 33431
Attention: Lawrence Cohen
with a copy to:
Atlas, Pearlman, Trop & Borkson, P. A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33301
Telecopy: 954-766-7800
Attention: Joel D. Mayersohn, Esq.
or to such other address as may have been designated in a prior notice pursuant
to this Section. Notices shall be deemed effectively served and delivered upon
receipt.
(b) Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights or obligations
hereunder shall be assigned by a party without the prior written consent of all
other parties. Except as otherwise specifically provided in this Agreement,
nothing in this Agreement is intended or will be construed to confer on any
person other than the parties hereto any rights or benefits hereunder.
(c) Governing Law. This Agreement will be governed by and construed
under Florida law, without regard to conflict of laws principles thereof.
(d) Waivers. Compliance with the provisions. of this Agreement may be
waived only by a written instrument specifically referring to this Agreement and
signed by the party waiving compliance. No course of dealing, nor any failure or
delay in exercising any right, will be construed as a waiver, and no single or
partial exercise of a right will preclude any other or further exercise of that
or any other right.
(e) Modification. No supplement, modification or amendment of this
Agreement will be binding unless made in a written instrument that is signed by
all the parties hereto and that specifically refers to this Agreement.
(f) Entire Agreement. This Agreement and the Merger Agreement are the
exclusive statement of the agreement among the parties hereto concerning the
subject matter hereof.
(g) Severability. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent
4
<PAGE> 5
permitted by applicable law, each party waives any provision of law which
renders any provision of this Agreement invalid, illegal or unenforceable in any
respect.
(h) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
(i) Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in a court of the United States. This
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto waives any right to trial by
jury with respect to any claim or proceeding related to or arising out of this
Agreement or any of the transactions contemplated hereby.
(j) Further Assurances. RMAG and each Shareholder will execute and
deliver, or cause to be executed and delivered, all further documents and
instruments and use their reasonable best efforts to take, or cause to be taken,
all actions necessary, proper or advisable under applicable law to consummate
and make effective the transactions contemplated by this Agreement and to vest
the power to vote the Shareholder Shares as contemplated by Sections 1 and 2.
(k) Termination. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate upon the earliest to occur of (i) three (3)
years from the consummation of the Merger, and (ii) the termination of the
Merger Agreement in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
REGISTRY MAGIC INCORPORATED
By: /s/ Lawrence Cohen
-------------------------
Name: Lawrence Cohen
Title: Chairman
SHAREHOLDERS:
/s/ Lawrence Cohen
----------------------------
Lawrence Cohen
/s/ Michele Wong
----------------------------
Michele Wong
/s/ Kenneth Lidster
----------------------------
Kenneth Lidster
5
<PAGE> 1
EXHIBIT 10.3
LINE OF CREDIT NOTE
SYNERGEX INTERNATIONAL CORPORATION, a California corporation with its
principal place of business at 2330 Gold Meadow Way, Gold River, California
95670 ("Synergex"), and REGISTRY MAGIC INCORPORATED, a Florida corporation with
its principal place of business at 3998 FAU Boulevard, Suite 200-105, Boca
Raton, Florida 33431 ("RMAG"), agree as follows:
1. Advances. Registry will advance to Synergex up to Fifty
Thousand Dollars ($50,000) per month (or a total of $150,000) between April 1,
2000 and June 30, 2000, which funds shall be used to pay salaries and benefits
to the persons described in Exhibit A attached hereto. Advances hereunder will
be made by RMAG at the written request of Michele C. Wong, President and Chief
Executive Officer of Synergex (or such other persons as Synergex may authorize),
who is authorized to request advances and direct the disposition of any such
advances until written notice of the revocation of such authority is received by
RMAG at the office designated below. Any such advances will be conclusively
presumed to have been made to or for the benefit of Synergex when RMAG believes
in good faith that such requests and directions have been made by authorized
persons.
3. Repayment. In the event that the planned merger between
Synergex and RMAG does not close, Synergex promises to pay to the order of RMAG
the principal sum of One Hundred Fifty Thousand Dollars ($150,000) or so much
thereof as may have been advanced and outstanding hereunder, with interest
thereon at the rate per annum equal to the Prime Rate as published in The Wall
Street Journal, as in effect from time to time, plus two percent, in accordance
with the provisions of this note. The principal amount outstanding plus interest
will be payable in full in thirty-six (36) equal monthly payments beginning on
July 1, 2000 (unless extended by RMAG). Synergex shall make payments in lawful
money of the United States of America and in immediately available funds. All
payments shall be made to RMAG at such place as RMAG, through its Chairman, may
direct.
4. Default. Upon Synergex's failure to pay timely all or any
portion of the amounts specified above under this note within thirty (30) days
of the due date ("Default"), RMAG may, at its sole discretion, take any one or
more of the following actions:
(a) Declare all sums of principal and interest outstanding
hereunder immediately due and payable; or
(b) Enforce Synergex's obligation under this note by court action;
or
(c) In the sole discretion of RMAG, upon a determination of
hardship, grant an extension of time for payment by Synergex
provided that interest shall continue to accrue; or
(d) Take any action provided or allowed by law or this Agreement.
<PAGE> 2
All of RMAG's rights and remedies, whether evidenced hereby or by any other
writing, shall be cumulative and may be exercised singularly or concurrently.
Election by RMAG to pursue any remedy shall not exclude any other remedy.
5. Collateral. This note is secured by a security interest in
Synergex's inventory and assets, junior in priority to any security interest of
Synergex's banks. Synergex, to the extent permitted by law, waives presentment,
protest and demand, notice of protest, notice of demand and dishonor, and notice
of nonpayment of this note.
6. Collection. In any actions (a) to enforce or collect payment
on this note, whether or not legal action is instituted or prosecuted to
judgment, or (b) to enforce any judgment obtained in any related legal
proceeding, RMAG shall be entitled to all costs and expenses incurred, including
attorneys' fees.
7. Modification or Amendment. The provisions of this Agreement
may be modified at any time by agreement of the parties. Any such agreement
hereafter made shall be ineffective to modify this Agreement in any respect
unless in writing and signed by the parties against whom enforcement of the
modification or discharge is sought.
8. Waiver. Any of the terms or conditions of this Agreement may
be waived at any time by the party entitled to the benefit thereof, but no such
waiver shall affect or impair the right of the waiving party to require
observance, performance or satisfaction either of that term or condition as it
applies on a subsequent occasion or of any other term or condition hereof.
9. Governing Law. The rights and obligations of the parties and
the interpretation and performance of this Agreement shall be governed by the
law of California, excluding its conflict of laws rules.
REGISTRY MAGIC INCORPORATED SYNERGEX INTERNATIONAL CORPORATION
By: By
--------------------------------- --------------------------------------
(Lawrence Cohen) (Michele C. Wong)
Its Chairman Its President and Chief Executive Officer
-2-
<PAGE> 3
EXHIBIT A
[List of persons to be determined by the parties]
-3-
<PAGE> 1
EXHIBIT 10.5
MANAGEMENT SERVICES AGREEMENT
SYNERGEX INTERNATIONAL CORPORATION, a California corporation with its
principal place of business at 2330 Gold Meadow Way, Gold River, California
95670 ("Synergex"), and REGISTRY MAGIC INCOPORATED, a Florida corporation with
its principal place of business at 3998 FAU Boulevard, Suite 200-105, Boca
Raton, Florida 33431 ("RMAG"), agree as follows:
1. TERM. This Agreement will commence effective as of February 24,
2000, and will continue in effect until May 23, 2000 (the "Initial Term"), and
thereafter for successive one-month terms, unless terminated as provided in
Section 7 below.
2. SERVICES TO BE PROVIDED. Synergex will provide such executive,
accounting, sales, marketing and other management services as are agreed upon by
the parties, including sales and marketing assistance, preparation of marketing
and business plans, preparation of periodic income and cash flow statements,
assisting in the preparation of 10-Qs and other SEC filings, supervision of
staff, reviewing transactions and closing the books and records at the end of
each month (the "Services"). Synergex personnel will coordinate with and report
to Lawrence Cohen and David Kaye.
3. FEES AND EXPENSES. RMAG will pay to Synergex a monthly fee during
the term of this Agreement. During the Initial Term, the fee will be Ten
Thousand Dollars ($10,000) per month, plus all out-of-pocket travel expenses
reasonably incurred in connection with the Services. During any successive
terms, the fee will be as agreed by the parties; provided, however, that the
monthly fee during any successive term shall not be lower than the fee during
the Initial Term unless Synergex's duties are decreased proportionately. RMAG
also shall pay, or reimburse Synergex for, any services which are performed by a
third party and approved in advance by RMAG. The first monthly fee ($10,000)
shall be paid within five days after execution of this Agreement; thereafter,
each monthly fee ($10,000) shall be payable in advance on or before the
twenty-fourth (24th) day of each month during the Term. In addition, in the
event that the planned merger between Synergex and RMAG (the "Merger") does not
close, RMAG shall pay Synergex an additional fee equal to the product of Ten
Thousand Dollars ($10,000) times the number of months (and fraction of final
month as applicable) from the effective date of this Agreement until termination
or expiration. Expenses provided for by this Agreement shall be paid by RMAG
within ten (10) days after receipt by RMAG of Synergex's invoices, which shall
be submitted not more often than monthly.
4. MANNER AND DELIVERY OF SERVICES. With due regard to operating
schedules and requirements of RMAG, Synergex will determine the specific time
and place for performance of the Services and will have sole control over the
method and manner by which Synergex provides the Services. All Services
performed by Synergex will be performed in a professional manner and in
compliance with the reasonable quality standards set by RMAG.
5. INDEPENDENT CONTRACTOR STATUS; EMPLOYEES. RMAG and Synergex agree
that Synergex will perform all of the Services as an independent contractor, and
not as
<PAGE> 2
an employee, joint venturer or partner of RMAG. All staff required in the
performance of the Services will be employees or agents of Synergex. Synergex
will be responsible for federal, state and local taxes resulting from Synergex's
Services.
6. CONDUCT. At all times during the term of this Agreement, Synergex
and its agents and employees will act in accordance with all applicable federal,
state and local laws and regulations.
7. TERMINATION.
7.1. After the Initial Term, either party may terminate this
Agreement, with or without cause, upon fifteen (15) days' prior written notice
to the other party. In addition, the Agreement will automatically terminate in
the event, and on the date, that the Merger closes.
7.2. Should Synergex default in the performance of the
Agreement or materially breach any of its terms, RMAG, at its option, may
terminate this Agreement immediately by giving written notice of such
termination to Synergex. For the purpose of this Section 7, default or material
breach includes, but is not limited to, failure to complete the Services in a
timely manner, habitual neglect or intentional wrongdoing in the performance of
Synergex's duties, Synergex's breach of Section 8 regarding Confidential
Information and Inventions or the filing of a petition for bankruptcy by or
against Synergex.
7.3. All accrued and unpaid sums due Synergex will be paid
within thirty (30) days after termination of this Agreement.
8. CONFIDENTIAL INFORMATION AND INVENTIONS. Each of the parties have
previously executed or will execute nondisclosure agreements with the other
regarding the disclosure of proprietary and confidential information. Such
agreements shall remain in effect and continue to apply with regard to the
exchange of information hereunder that constitutes confidential information
under the terms of such agreements, respectively.
9. MISCELLANEOUS.
9.1. ENTIRE AGREEMENT. This document constitutes the entire
agreement between the parties, all oral agreements being merged herein, and
supersedes all prior representations. There are no representations, agreements,
arrangements or understandings, oral or written, between the parties relating to
the subject matter of this Agreement that are not fully expressed herein.
9.2. MODIFICATION OR AMENDMENT. The provisions of this
Agreement may be modified at any time by agreement of the parties. Any such
agreement hereafter made shall be ineffective to modify this Agreement in any
respect unless in writing and signed by the parties against whom enforcement of
the modification or discharge is sought.
-2-
<PAGE> 3
9.3. WAIVER. Any of the terms or conditions of this Agreement
may be waived at any time by the party entitled to the benefit thereof, but no
such waiver shall affect or impair the right of the waiving party to require
observance, performance or satisfaction either of that term or condition as it
applies on a subsequent occasion or of any other term or condition hereof.
9.4. NON-ASSIGNABILITY. This Agreement shall not be assigned
by any party without the prior written consent of the other parties.
9.5. SUCCESSION. Subject to the provisions otherwise contained
in this Agreement, this Agreement shall inure to the benefit of and be binding
on the successors and assigns of the respective parties.
9.6. NOTICES. Any notice under this Agreement shall be in
writing, and any written notice or other document shall be deemed to have been
duly given (i) on the date of personal service on the parties, (ii) on the third
business day after mailing, if the document is mailed by registered or certified
mail, (iii) one day after being sent by professional or overnight courier or
messenger service guaranteeing one-day delivery, with receipt confirmed by the
courier, or (iv) on the date of transmission if sent by telegram, telex,
telecopy or other means of electronic transmission resulting in written copies,
with receipt confirmed. Any such notice shall be delivered or addressed to the
parties at the addresses set forth above or at the most recent address specified
by the addressee through written notice under this provision. Failure to conform
to the requirement that mailings be done by registered or certified mail shall
not defeat the effectiveness of notice actually received by the addressee.
9.7. COUNTERPARTS. This Agreement may be executed in any
number of counterparts with the same effect as if the parties had all signed the
same document. All counterparts shall be construed together and shall constitute
one agreement.
9.8. GOVERNING LAW. The rights and obligations of the parties
and the interpretation and performance of this Agreement shall be governed by
the law of California, excluding its conflict of laws rules.
REGISTRY MAGIC INCORPORATED SYNERGEX INTERNATIONAL CORPORATION
By: /s/ Lawrence Cohen By /s/ Michele C. Wong
-------------------------------- --------------------------------
(Lawrence Cohen) (Michele C. Wong)
Its Chairman Its President and Chief Executive Officer
-3-
<PAGE> 1
EXHIBIT 21
Subsidiaries of Registry
None.
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Registry Magic, Inc.
Boca Raton, Florida
We hereby consent to the use in the Joint Proxy Statement and Prospectus
constituting a part of this Registration Statement of our report dated October
18, 1999, relating to the financial statements of Registry Magic, Inc., which is
contained in that Joint Proxy Statement and Prospectus, and to the incorporation
in the Joint Proxy Statement and Prospectus of our report dated October 18,
1999, relating to the financial statements of Registry Magic, Inc., appearing in
the Company's Annual Report on Form 10-KSB for the year ended July 31, 1999.
We also consent to the reference to us under the caption "Experts" in the Joint
Proxy Statement and Prospectus.
BDO Seidman, LLP
Miami, Florida
May 15, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Registry Magic, Incorporated (File No. 333-[ ]) of our report dated March 13,
2000 relating to the financial statements of Synergex International Corporation,
which appear in such Registration Statement. We also consent to the reference to
us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Sacramento, California
May 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 2,958,109
<SECURITIES> 0
<RECEIVABLES> 972,782
<ALLOWANCES> (342,366)
<INVENTORY> 186,667
<CURRENT-ASSETS> 3,835,995
<PP&E> 755,944
<DEPRECIATION> (382,268)
<TOTAL-ASSETS> 4,273,881
<CURRENT-LIABILITIES> 248,668
<BONDS> 0
0
0
<COMMON> 5,335
<OTHER-SE> 4,019,858
<TOTAL-LIABILITY-AND-EQUITY> 4,273,881
<SALES> 784,000
<TOTAL-REVENUES> 784,000
<CGS> 550,239
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,068,096
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (108,192)
<INCOME-PRETAX> (1,726,143)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,726,143)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,726,143)
<EPS-BASIC> (.30)
<EPS-DILUTED> (.30)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SYNERGEX
INTERNATIONAL CORPORATION FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 155,404
<SECURITIES> 0
<RECEIVABLES> 443,336
<ALLOWANCES> (72,845)
<INVENTORY> 0
<CURRENT-ASSETS> 3,098,962
<PP&E> 2,133,656
<DEPRECIATION> (1,489,340)
<TOTAL-ASSETS> 6,449,261
<CURRENT-LIABILITIES> 3,411,478
<BONDS> 855,526
0
0
<COMMON> 195,955
<OTHER-SE> 1,869,542
<TOTAL-LIABILITY-AND-EQUITY> 6,449,261
<SALES> 6,640,296
<TOTAL-REVENUES> 10,601,777
<CGS> 783,394
<TOTAL-COSTS> 6,994,608
<OTHER-EXPENSES> 6,673,038
<LOSS-PROVISION> 13,703
<INTEREST-EXPENSE> 163,229
<INCOME-PRETAX> 158,746
<INCOME-TAX> (153,656)
<INCOME-CONTINUING> 321,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 312,402
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
