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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 23, 1996
JMAR INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
STATE OF DELAWARE
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(State or other jurisdiction of incorporation)
1-10515 68-0131180
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(Commission File No.) (IRS Employer Identification No.)
3956 SORRENTO VALLEY BLVD., SAN DIEGO, CALIFORNIA 92121
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 535-1706
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NOT APPLICABLE
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(Former name of or former address, if changed since last report)
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Item 2. Acquisition of Assets
On May 23, 1996, the Registrant acquired (the "Acquisition")
approximately 94 percent of the outstanding common stock of California ASIC
Technical Services, Inc., a Nevada corporation ("CATS"), through a private
tender offer to the shareholders of CATS (the "Sellers"). As consideration for
the Acquisition, the Registrant issued to the Sellers an aggregate of 1,357,869
shares of its Common Stock. The shares issued by the Registrant are
unregistered, however, such shares may be registered in the future pursuant to
piggyback registration rights granted to the Sellers. The purchase price was
negotiated at arm's length.
In addition, concurrent with the closing, the Registrant loaned $400,000
of its funds to CATS and agreed to advance an additional $1,000,000 over an
eighteen month period to be used by CATS for equipment purchases and working
capital purposes.
CATS is engaged in the design, fabrication, assembly and testing of
application specific integrated circuits for the electronics industry. The
Registrant intends that the assets of CATS will continue to be used in the same
business.
The Registrant will account for the acquisition as a purchase.
Item 7. Financial Statements, Proforma Financial Information and Exhibits
It is impracticable to provide the financial statements of CATS prepared
pursuant to Rule 3.05 of Regulation S-X, and the proforma financial information
required pursuant to Article 11 of Regulation S-X. The required financial
statements and proforma information will be filed as soon as possible, but in
any event not later than August 6, 1996.
The following exhibit is filed as a part of this report:
2.1 Agreement of Purchase and Sale of Stock dated as of May 23,
1996, by and among JMAR Industries, Inc., Nancy Schwalbe,
Edwin Barrowcliff and California ASIC Technical Services, Inc.
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INDEX TO EXHIBITS
<TABLE>
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Located at Page
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<S> <C> <C>
Exhibit 2.1 Agreement of Purchase and Sale of Stock dated as of May
23, 1996, by and among JMAR Industries, Inc., Nancy
Schwalbe, Edwin Barrowcliff and California ASIC 5
Technical Services, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DATE: May 30, 1996 JMAR INDUSTRIES, INC.
(Registrant)
By: /s/ Dennis E. Valentine
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Dennis E. Valentine
Chief Financial Officer
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AGREEMENT OF PURCHASE AND SALE OF STOCK
THIS AGREEMENT OF PURCHASE AND SALE OF STOCK (this "Agreement"), dated
as of May 23, 1996, by and among JMAR Industries, Inc., a Delaware corporation
("JMAR"), Nancy Schwalbe and Edwin Barrowcliff (collectively, the "Majority
Shareholders") and California ASIC Technical Services, Inc., a Nevada
corporation, formerly known as Intrepid, Inc. ("CATS").
WITNESSETH:
WHEREAS, JMAR desires to purchase at least 80% of the outstanding
shares of CATS Common Stock directly from the CATS shareholders in an exchange
for newly issued shares of JMAR Common Stock in an offering which is exempt from
the state and federal securities registration requirements; and
WHEREAS, JMAR has sent a letter to all of the other CATS shareholders
extending to each of them an offer to sell a minimum of 80% of their shares to
JMAR (the "Offer Letter"); and
WHEREAS, the Majority Shareholders own in the aggregate 3,166,667
shares of the Common Stock of CATS representing approximately 77.61% of the
issued and outstanding shares of capital stock of CATS as of the date of this
Agreement; and
WHEREAS, JMAR desires to enter into an agreement with the Majority
Shareholders for the purchase of 100% of the shares of CATS Common Stock owned
by them and the Majority Shareholders desire to sell 100% of the shares of CATS
Common Stock they own to JMAR, for the purchase price and upon the terms and
subject to the conditions hereinafter set forth; and
WHEREAS, JMAR has also agreed to make certain advances to CATS and has
agreed to provide for certain employee incentive arrangements, contingent upon
the closing of this transaction;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants, agreements and undertakings hereinafter set forth in this Agreement,
the parties hereby agree as follows:
Exhibit 2.1
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ARTICLE 1
PURCHASE AND SALE OF STOCK;
CONSIDERATION AND TERMS OF PAYMENT
1.1 Sale of CATS Stock. Concurrent with the execution of
this Agreement (hereinafter referred to as the "Closing"), the Majority
Shareholders hereby sell, assign, transfer and deliver to JMAR and JMAR hereby
purchases and acquires from the Majority Shareholders one hundred percent (100%)
of the shares of CATS Common Stock owned by them, consisting of a total of
3,166,667 shares, free and clear of all pledges, security interests, liens,
charges, encumbrances, equities, claims, options and limitations of whatever
nature. Schedule 1.1 hereto sets forth the number of shares of CATS Common Stock
that each Majority Shareholder agrees hereby to sell to JMAR (collectively, the
"Purchased Shares").
1.2 Consideration. In consideration of the aforesaid
sale, assignment, transfer and delivery of all of the Purchased Shares to JMAR,
JMAR hereby issues and delivers to the Majority Shareholders as a group (in such
percentages to each Majority Shareholder as are set forth on Schedule 1.1
hereto) a total of 1,050,210 shares of JMAR Common Stock (referred to
hereinafter as the "JMAR Shares").
ARTICLE 2
COVENANTS OF THE PARTIES
2.1 Loans to CATS. JMAR hereby agrees to make the
following loans to CATS (all amounts so loaned are referred to hereinafter as
the "Advances"):
a. On the Closing Date, JMAR shall loan CATS the sum of
$500,000, consisting of cash in the amount of $400,000 and $100,000 which was
previously loaned to CATS by JMAR on February 7, 1996. In connection therewith,
on the Closing Date the Warrant issued to JMAR to secure the $100,000 loan shall
be canceled;
b. Ninety days following the Closing Date, JMAR shall
loan CATS an additional $500,000;
c. Subject to the satisfaction of the conditions set
forth in Section 2.1(e) below, at the end of the twelfth calendar month after
the Closing Date, JMAR shall loan CATS an additional $250,000; and
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d. Subject to the satisfaction of the conditions set
forth in Section 2.1(e) below, at the end of the eighteenth calendar month after
the Closing Date, JMAR shall loan CATS an additional $250,000.
e. JMAR's obligations to make the loans described in
Section 2.1(c) and (d) are contingent upon the achievement by CATS of a "Net
Profit" for the twelve calendar month period following the Closing Date in
excess of $339,600. For this purpose, "Net Profit" shall be defined as the net
profit of CATS for such twelve month period as reflected in an income statement
prepared in accordance with generally accepted accounting principles ("GAAP")
and reviewed by Arthur Andersen, LLP. The Majority Shareholders acknowledge and
agree that the Net Profit reflects (i) depreciation expense based upon the
revaluation of CATS' assets following the Closing, (ii) allocation of CATS'
share of JMAR's corporate general and administrative expense, (iii) amortization
of goodwill resulting from the purchase by JMAR of shares of CATS Common Stock
and (iv) interest expense related to advances by JMAR pursuant to this Section
2.1 or otherwise.
f. The outstanding balance of the Advances shall accrue
interest at an interest rate equal to the "prime rate" published from time to
time by the Bank of America and in effect as of the Closing Date, adjusted at
the end of each calendar quarter to reflect changes in the prime rate and
adjusted to an interest rate equal to the effective interest rate incurred by
JMAR in the event that JMAR borrows the funds from a third party to replace the
funds previously loaned by JMAR to CATS as an Advance and any funds loaned in
the future as a part of the Advances.
2.2 Election of CATS Directors; Actions Requiring
Approval of JMAR. JMAR agrees for a minimum of two years to vote its shares of
CATS Common Stock to elect Nancy Schwalbe and Edwin Barrowcliff and three
individuals designated by JMAR as directors of CATS.
2.3 Employment Agreements. Concurrently with the
execution by the parties of this Agreement, JMAR shall cause CATS to enter into
employment agreements (the "Employment Agreements") with Nancy Schwalbe, Edwin
Barrowcliff and Marvin Sepe, containing such terms and conditions as the parties
shall agree.
2.4 CATS Incentive Plan.
a. JMAR will cause CATS to adopt an incentive plan (the
"Incentive Plan") to be effective as of the Closing Date,
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which will provide for cash payments to CATS employees at the end of each
audited fiscal year based upon the financial performance of CATS during that
year. The amount of the cash pool which will be available for distribution shall
be:
i. For the period from the Closing Date to December 31, 1996:
10.0% of CATS' Operating Earnings (as defined in this Section
2.4);
ii. For the calendar year ending on December 31, 1997: 7.0833%
of CATS' Operating Earnings;
iii. For the calendar year ending on December 31, 1998: 3.833%
of CATS' Operating Earnings; and
iv. For the calendar year ending on December 31, 1999: 3.0% of
CATS' Operating Earnings.
"Operating Earnings" shall mean the net income of CATS for such period as
reflected in an income statement prepared in accordance with generally accepted
accounting principles ("GAAP") and reviewed by Arthur Andersen, LLP, before
deduction of (i) CATS' share of JMAR's corporate general and administrative
expense and (ii) CATS' federal and state income taxes.
b. The identity of the persons receiving such awards and
the amount awarded to such persons shall be determined by an incentive
compensation committee appointed by the Board of Directors of CATS. The CATS
Board shall appoint Edwin Barrowcliff and Nancy Schwalbe as members of the Stock
Option Committee to serve until the earlier of December 31, 1998 and the date on
which such person's Employment Agreement shall have terminated. For so long as
Edwin Barrowcliff and Nancy Schwalbe shall serve as President/Chief Executive
Officer and Executive Vice President/Chief Operating Officer, respectively, a
minimum of 50% of the cash pool will be allocated in the aggregate to Edwin
Barrowcliff and Nancy Schwalbe; provided, however, more than 50% of the cash
pool may be awarded to Edwin Barrowcliff and Nancy Schwalbe if approved by the
vote of the disinterested members of the CATS Board of Directors.
2.5 Eligibility for Stock Option Plans.
a. CATS Plan. JMAR and CATS agree that promptly
following the Closing, the Board of Directors of CATS will establish an employee
stock option plan which will provide for the grant of options to purchase CATS
Common Stock upon the terms and conditions set forth on Schedule 2.5 hereto. The
members of
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the committee administering this stock option plan shall consist of all of the
members of the Board of Directors of CATS.
b. JMAR Plan. JMAR agrees that following the Closing,
the key employees, officers and directors of CATS will also be eligible to
participate in JMAR's 1991 Stock Option Plan on the same basis as the key
employees, officers and directors of JMAR. Subject to the approval by JMAR's
shareholders at JMAR's 1996 Annual Shareholder Meeting of an amendment to JMAR's
1991 Stock Option Plan to increase the number of shares as to which options may
be granted, JMAR agrees to allocate 200,000 options thereunder to the key
employees, officers and directors of CATS. Said 200,000 options shall be
exclusive of the 100,000 stock options to be granted to Marvin Sepe pursuant to
his Employment Agreement, which options are being granted out of the number of
stock options previously authorized by the shareholders.
2.6 Grant of Warrants to Majority Shareholders and
Others.
a. As consideration for the cancellation of amounts owed
by CATS to each of the Majority Shareholders, concurrently with the execution of
this Agreement JMAR shall grant to each of the Majority Shareholders a fully
vested warrant to purchase 42,373 shares of JMAR Common Stock with an exercise
price of $2.01 per share, a term of five years and with no provisions for
premature cancellation or expiration.
b. As consideration for the cancellation of amounts owed
by CATS to Marvin Sepe and Leisa Sepe, concurrently with the execution of this
Agreement JMAR shall grant to Marvin Sepe and Leisa Sepe, jointly as husband and
wife, a single fully vested warrant to purchase 144,068 shares of JMAR Common
Stock with an exercise price of $2.01 per share and a term of five years and
with no provisions for premature cancellation or expiration.
c. As additional consideration for the cancellation of
amounts owed by CATS to the Majority Shareholders, concurrently with the
execution of this Agreement JMAR shall issue to each of the Majority
Shareholders a warrant (the "Warrant") to purchase 200,000 shares of JMAR Common
Stock, with an exercise price equal to $2.01 per share. The Warrant shall also
contain such other terms and conditions as are contained in JMAR's standard
warrant agreement.
2.7 Registration Rights. JMAR hereby agrees to use its
best efforts to include all of the shares of JMAR Common Stock issued to CATS
shareholders in connection with this Agreement and the Offer Letter in a Form
S-3 Registration
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Statement Act filed hereafter with the U.S. Securities and Exchange Commission
which upon the effectiveness thereof will allow for the public sale by such
persons of such shares. JMAR agrees to pay all of the costs and expenses of such
registration, other than the selling shareholder's respective commissions in
connection with the sale of their shares.
2.8 Completion of Purchase of Other CATS Shares. CATS and
the Majority Shareholders agree to use their best efforts to facilitate JMAR's
purchase of the shares of CATS Common Stock pursuant to the Offer Letter sent to
the other CATS shareholders.
2.9 Right to Maintain Fixed Interest in CATS. CATS and
the Majority Shareholders acknowledge that JMAR may acquire additional shares of
CATS Common Stock following the Closing and that JMAR desires to maintain its
percentage ownership of the outstanding shares of CATS capital stock, as such
ownership may increase from time to time. CATS and each of the Majority
Shareholders therefore agree that in the event that after the Closing Date CATS
should issue any additional shares of CATS Common Stock or any options, warrants
or other rights to receive additional CATS shares ("Additional Shares"), JMAR
shall have the right to receive a sufficient number of shares of CATS Common
Stock to allow JMAR to maintain the same percentage ownership in CATS after the
issuance of the Additional Shares as JMAR had immediately prior to such
issuance. JMAR's right to receive such shares shall be at a purchase price equal
to the consideration paid to CATS for the Additional Shares.
2.10 Change of CATS Name. The Majority Shareholders hereby
agree that promptly following the Closing Date JMAR and CATS will amend CATS'
Articles of Incorporation to change the name of CATS to a name of JMAR's choice
which reflects the relationship of CATS to the JMAR group.
2.11 Stockholder Agreements. CATS and each of the Majority
Shareholders acknowledges and agrees that this Agreement supersedes any
stockholder or comparable agreement, written or oral, that obligates or permits
CATS or such Majority Shareholder to purchase, or permits any such Majority
Shareholder or other shareholder of CATS to put to CATS for purchase by it, or
to purchase from any other stockholder of CATS, any shares of CATS capital
stock, and CATS and each of the Majority Shareholders hereby waive compliance
with any provisions contained in any such agreement which otherwise would be
applicable to the transactions contemplated herein. Each of the Majority
Shareholders further acknowledges and agrees that any such stockholder or other
agreements and any option, warrant or other right to acquire shares of CATS
capital stock held by the Majority Shareholders,
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other than those to be issued or to remain in existence as specifically provided
in this Agreement, are hereby canceled as of the Closing Date.
2.12 Payment of Accrued Salary. Promptly following the
execution of this Agreement, JMAR shall cause CATS to pay $5,000 each to Nancy
Schwalbe and Edwin Barrowcliff and $10,000 to Marvin Sepe as payment for all
amounts of accrued salary remaining on the balance sheet of CATS as of the
Closing Date.
2.13 Reduction of Technology to Writing. In view of the
significance to JMAR of the CATS Gate Array Technology (as defined in that
certain Gate Array Manufacturing and Sales Agreement, dated May 17, 1996,
between CATS and IMP Incorporated (the "IMP Agreement") and as described in the
CATS brochure attached hereto as Exhibit B), and the fact that some of that
technology is not reduced to writing, the Majority Shareholders agree to
generate or cause the generation of process specifications and procedures
describing the CATS Technology as it applies to producing ASICs utilizing the
IMP Gate Array Technology. These documents will be generated in the normal
course of business and will be completed within six months after the first parts
are produced which are consistent with the IMP production technology.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CATS AND THE MAJORITY
SHAREHOLDERS
The Majority Shareholders acknowledge that CATS is the survivor of a
merger of California ASIC Technical Services, Inc. into Intrepid, Inc. and that
each reference to CATS in this Agreement refers and applies to the combined
entities. CATS and each of the Majority Shareholders, jointly and severally,
represents and warrants on the date hereof to JMAR:
3.1 Organization; Qualification. CATS is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada. CATS has full corporate power and authority to own, lease and
operate its assets and properties and to carry on its business as now being
conducted, as and in the places where its assets and properties are now owned,
leased or operated and where such business is now being conducted. CATS is duly
qualified or licensed and in good standing in the State of California, which is
the only jurisdiction where the properties owned, leased or operated by it or
the nature of the business conducted by it require such qualification or
licensing, except for those jurisdictions where the failure to be so duly
qualified or licensed and in good
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standing would not have a material adverse impact on the business, condition
(financial or otherwise), assets, properties or results of operations of CATS.
3.2 Capitalization of CATS. As of the date of this
Agreement, the authorized capital stock of CATS consists of 25,000,000 shares of
Common Stock, of which 4,080,366 shares are issued and outstanding (collectively
the "CATS Shares"). All of the CATS Shares now issued are, and on the Closing
Date all of the CATS Shares will be, validly issued, fully paid and
nonassessable and not issued in violation of any preemptive rights. Except as
provided in those agreements entered into with several creditors of CATS to
issue an additional 281,971 shares of CATS Common Stock on or before the tenth
day after the Closing Date, and other than as provided in this Agreement, there
is not outstanding any subscription, option, warrant, call, right or other
agreement or commitment obligating CATS or the Majority Shareholders or, to the
best knowledge of the Majority Shareholders, any other shareholders of CATS, to
issue, sell, deliver or transfer (including any right of conversion or exchange
under any outstanding security or other instrument) any shares of capital stock
or any other securities of CATS. There are no outstanding contractual
obligations of CATS or any of the Majority Shareholders or, to the best
knowledge of the Majority Shareholders, any other person or entity, to
repurchase, redeem or otherwise acquire any outstanding shares of CATS' capital
stock.
3.3 Title to CATS Stock. Each of the Majority
Shareholders owns beneficially and of record the number of shares of CATS Common
Stock as set forth on Schedule 1.1 hereto, free and clear of all pledges,
security interests, liens, charges, encumbrances, equities, claims, options or
limitations affecting his or her ability to transfer such shares to JMAR.
Concurrently with the execution of this Agreement, each of the Majority
Shareholders is hereby transferring to JMAR good title to the portion of the
Purchased Shares owned by him or her, free and clear of all pledges, security
interests, liens, charges, encumbrances, equities, claims, options or
limitations of whatever nature.
3.4 Authority Relative to this Agreement. Each of the
Majority Shareholders has the full power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby with
respect to the Purchased Shares owned by him or her and to perform any other
obligations of such parties contemplated hereunder. This Agreement has been duly
and validly executed and delivered by each of the Majority Shareholders and this
Agreement is, and all other agreements entered into by any
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of the Majority Shareholders under this Agreement will be, the legal, valid and
binding agreement and obligation of each of the Majority Shareholders
enforceable against each in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally or by general principles of equity,
including principles governing the availability of equitable remedies.
3.5 Consents and Approvals; No Violation. Neither the
execution and delivery of this Agreement by any of the Majority Shareholders nor
the consummation by the Majority Shareholders of the transactions contemplated
hereby will (i) require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority or
other third party, except for any such consents, approvals, authorization,
permits, filings or notifications which have been obtained or the absence of
which in any case or in the aggregate would not have a Material Adverse Impact
(as defined below); (ii) result in a breach of the terms, conditions or
provisions of, constitute a default (or an event which, upon notice or lapse of
time or both, would constitute a default) under or cause, permit or give rise to
any right of termination, cancellation or acceleration under any of the terms,
conditions or provisions of any note, bond, deed of trust, mortgage, indenture,
lease, license, joint venture, loan or credit agreement or any other agreement
or other instrument or obligation to which CATS or any of the Majority
Shareholders is a party or by which any of their respective properties or assets
may be bound, except for such breaches, events, defaults or rights of
termination, cancellation or acceleration which individually or in the aggregate
would not have a Material Adverse Impact; (iii) conflict with or result in a
violation of any provision of (A) any applicable statute, rule, regulation or
ordinance, which conflicts or violations in any case or in the aggregate would
have a Material Adverse Impact, or (B) any material order, writ, injunction,
judgment, award, decree, permit, concession, grant, franchise or license
applicable to CATS or any of the Majority Shareholders or any material portion
of their respective properties or assets; or (iv) result in or require the
creation or imposition of any lien or other encumbrance on any of the Purchased
Shares or any material portion of the properties or assets of CATS.
For purposes of this Agreement, the term "Material Adverse Impact"
shall mean a material adverse impact on the business, assets, properties,
results of operations or condition (financial or otherwise) of CATS or an impact
on the power, right or ability of any Majority Shareholder to consummate the
transactions contemplated hereby, including without limitation the power, right
or ability to deliver at Closing good and
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marketable title to the Purchased Shares, free and clear of all pledges,
security interests, liens, charges, encumbrances, equities, claims, options and
limitations of whatever nature.
3.6 Financial Statement Matters; Undisclosed Liabilities.
(a) Attached hereto as Exhibit A are: (a) the
audited balance sheet of CATS as of December 31, 1993, the balance
sheets of CATS as of December 31, 1994 and December 31, 1995 (the "1995
Balance Sheet"), and the related statements of operations for the years
then ended, together with the notes thereto (collectively, the
"Financial Statements") and (ii) the unaudited balance sheet of CATS as
of March 31, 1996 and the related income statement for the three months
then ended (the "Interim Statements"). The Financial Statements and
Interim Statements are complete and fairly present the assets,
liabilities, financial condition and results of operations of CATS as
of the respective dates and for the respective periods thereof and,
except as set forth on Schedule 3.6, have been prepared from the books
and records of CATS in conformity with generally accepted accounting
principles ("GAAP") applied on a basis consistent with that of prior
periods, subject in the case of the Interim Statements to normal
year-end audit adjustments and to the omission of notes thereto.
(b) CATS does not have any debt, liability or
obligation of any material nature, secured or unsecured (whether
absolute, accrued, contingent or otherwise, and whether due or to
become due) ("Liabilities") except (i) Liabilities reflected or
reserved against in the 1995 Balance Sheet, (ii) Liabilities incurred
in the ordinary course of business after December 31, 1995 in
accordance with the terms of this Agreement (applied as if Section 3.7
hereof had been effective from the close of business on December 31,
1995), (iii) Liabilities incurred not in the ordinary course of
business since December 31, 1995 and which are either (x) disclosed on
Schedule 3.6 or (y) involve less than $5000 in the aggregate or (iv)
Liabilities arising out of the contracts listed on Schedule 3.10.
(c) There are no written or oral agreements
obligating CATS to pay any bonuses, severance benefits or other
compensation to any employees of CATS except for any such compensation
or benefits payable or made available to all employees of CATS or
otherwise disclosed on Schedule 3.6 hereto.
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(d) No amounts or other obligations are owed by
CATS to Jonathan Fink for any reason, including but not limited to
obligations to pay cash or to issue securities which may have arisen in
connection with a proposed private offering of shares of CATS Common
Stock.
3.7 Absence of Certain Changes or Events. Since December
31, 1995, except as otherwise contemplated by this Agreement, CATS has conducted
its business only in the ordinary course and consistent with its prior practice
and, except as set forth on Schedule 3.7, has not:
(a) incurred, created, assumed or guaranteed any
obligation, liability or indebtedness, absolute,
accrued, contingent, or otherwise, whether due or to
become due, except liabilities incurred in the
ordinary course of business and consistent with its
prior practice, none of which liabilities, in any
case or in the aggregate, might have a Material
Adverse Impact;
(b) mortgaged, pledged or subjected to lien, charge,
security interest or any other encumbrance or
restriction any of its property, business or assets,
tangible or intangible other than in the ordinary
course of business and consistent with its past
practice;
(c) sold, transferred, leased to others or otherwise
disposed of any material portion of its assets,
except for inventory sold in the ordinary course of
business;
(d) received any notice of termination of any contract,
lease or other agreement which, in any case or in the
aggregate, has had or might have in the future a
Material Adverse Impact;
(e) suffered any change, event or condition which, in any
case or in the aggregate, has had or may have a
Material Adverse Impact;
(f) entered into any agreement or made any commitment to
take any of the types of action described in
subparagraphs (a) through (d) above.
3.8 Properties and Related Matters. Except as set forth
in Schedule 3.8 hereto, CATS has good and marketable title to, or a valid
leasehold interest in, or a valid license to use,
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all of the personal property used in and material to the business, operations or
financial condition of CATS, including, without limitation, good and marketable
title to the properties and assets reflected in the Unaudited Balance Sheet
(other than those which have been disposed of since the date thereof in the
ordinary course of business, consistent with prior practice and in accordance
with the terms of this Agreement), in each case free and clear of all security
interests, mortgages, deeds of trust, claims, liens, pledges, charges or other
encumbrances or adverse claims of any nature whatsoever, except (i) as indicated
in Schedule 3.8 hereto, (ii) liens for current taxes not yet due and payable,
(iii) statutory liens of warehousemen, mechanics and materialmen and other like
statutory liens which arose in the ordinary course of business, and (iv) such
other encumbrances and easements which do not, individually or in the aggregate,
materially detract from the value or interfere with the use of the properties
affected thereby, for the purposes for which they are currently used (the
exceptions described in the foregoing clauses (i), (ii), (iii) and (iv) being
referred to as "Permitted Encumbrances"). CATS owns no real property or any
buildings or other improvements thereon. Except as set forth on Schedule 3.8,
there are no existing defaults by CATS under any mortgage, easement, right of
way, covenant, restriction or agreement affecting any material portion of its
properties or assets.
3.9 Patents, Trademarks, Trade Names, Etc.
(a) Schedule 3.9 hereto is a complete and
correct list of all patents, trademarks, service marks, trade names,
registered user names and copyrights (including all applications for
the registration thereof), and all licenses and other agreements
relating thereto, and all agreements relating to third party
technology, know-how and processes (collectively the "Intellectual
Property"), which are used in the business of CATS and are owned or
held by or registered in the name of CATS or in which CATS has any
rights as licensor, licensee or otherwise. Except as set forth on such
Schedule 3.9 hereto, (i) the Intellectual Property is owned by CATS or
CATS has a valid right or license to use the same; (ii) CATS has
received no notice or claim disputing its right to own or use any such
Intellectual Property; and (iii) to the best knowledge of CATS and the
Majority Shareholders, CATS's right to own or use any such Intellectual
Property is not disputed by any third party. Except as set forth on
Schedule 3.9 hereto, the Intellectual Property which is owned by CATS
is owned free and clear of any license, sublicense, agreement, right,
understanding, judgment, order, decree, stipulation, lien,
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adverse claim, charge or encumbrance of any nature whatsoever. CATS
owns or has all necessary rights to all patents, trademarks, trade
names, copyrights, licenses, technology, know-how, processes and other
intellectual property used in or necessary to operate the business of
CATS in the manner in which it has heretofore been operated. None of
the Intellectual Property or any of the technology covered thereby or
any of the know-how included therein has been misappropriated from any
person. CATS is not infringing upon or otherwise acting adversely to
any such property owned by any other person, and there is no claim or
action by any person pending or, to the best knowledge of CATS or the
Majority Shareholders, threatened with respect thereto.
(b) Except as set forth on Schedule 3.9 hereto,
to the best knowledge of CATS and the Majority Shareholders, no third
party has infringed on or improperly used any of the Intellectual
Property, and there is no action or proceeding instituted by CATS
pending in which an act constituting an infringement of any of the
rights to the Intellectual Property was alleged to have been committed
by a third party. Except as set forth on Schedule 3.9 hereto, CATS has
not taken or omitted to take any action which would have the effect of
waiving any rights to the Intellectual Property, the waiver of which
would have the effect of making JMAR or CATS unable to operate any part
of the business of CATS as currently conducted or of allowing any other
person to compete more effectively with JMAR (or its subsidiaries) or
CATS following the Closing Date than it now does with CATS.
(c) Schedule 3.9 hereto accurately discloses and
briefly describes all licenses, sublicenses or agreements by which CATS
holds or has given to others the right to use the Intellectual
Property. Except as set forth in Schedule 3.9 hereto, CATS is not in
default, and, to the best knowledge of CATS and the Majority
Shareholders, no third party is in default, under any such license,
sublicense or agreement.
(d) The CATS ASIC Technology (as defined in the
CATS brochure attached hereto as Exhibit B) is owned by CATS free and
clear of any license, sublicense, agreement, right, understanding,
judgment, order, decree, stipulation, lien, adverse claim, charge or
encumbrance of any nature whatsoever. The CATS ASIC Technology can
produce ASICs in small volume (up to 1,000 semiconductor chips of a
given design) which will have identical performance to those with the
same design produced by high volume production
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processes. CATS will have all of the necessary technology and the
capability (assuming the performance by JMAR of its funding obligations
hereunder) to perform CATS' obligations under the IMP Agreement. All of
the representations and other factual statements made by CATS in the
IMP Agreement are true and correct. The Majority Shareholders
acknowledge the value of the CATS ASIC Technology to CATS and JMAR and
represent and warrant that all of the material features of the CATS
ASIC Technology can be reduced to writing within no more than three
weeks after being instructed to reduce said technology to writing.
3.10 Contracts.
(a) Schedule 3.10 hereto contains a complete and
correct list of all agreements, contracts and commitments
(collectively, the "Material Contracts"), whether written or oral, (i)
to which CATS is a party or by which it is bound, or (ii) by which any
of the assets, properties or business of CATS are bound and, in either
case, which constitute:
(A) mortgages, indentures, security
agreements and other agreements and instruments relating to
the borrowing of money by, or any extension of credit to,
CATS;
(B) employment agreements referred to
in Section 3.11 below, consulting and agency agreements and
employee benefit plans;
(C) sales agency, manufacturer's
representative, distributorship or marketing agreements;
(D) open orders or commitments for the
purchase of raw materials, supplies or finished products with
a purchase price of more than an aggregate of $5,000 per order
or commitment;
(E) open orders or commitments for the
sale of goods, products or services with a selling price of
more than an aggregate of $5,000 per order or commitment;
(F) licenses to or from others of
Intellectual Property, and licenses of computer software;
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(G) agreements or commitments for
capital expenditures in excess of $10,000 for any single
project or related series of projects;
(H) brokerage or finder's agreements;
(I) partnership, joint venture or other
arrangements or agreements involving a sharing of profits or
expenses;
(J) contracts or commitments to sell,
lease or otherwise dispose of any assets, properties or
business other than in the ordinary course of business;
(K) contracts or commitments, including
royalty agreements, with any employee, director, officer,
shareholder or affiliate of CATS;
(L) contracts or commitments limiting
the freedom of CATS to compete in any line of business or in
any geographic area or with any person;
(M) agreements providing for
disposition of any part of the business or operations of CATS
other than sales of inventory in the ordinary course of
business;
(N) other agreements, contracts and
commitments which in any case involve payments or receipts of
more than $10,000;
(O) any other agreements, contracts and
commitments material to the business, operations or financial
condition of CATS.
(b) CATS has delivered or made available to JMAR complete
and correct copies of all written Material Contracts, together with all
amendments thereto, and accurate descriptions of all oral Material Contracts,
listed on Schedule 3.10 hereto or required to be listed thereon. Except as set
forth on Schedule 3.10, such Material Contracts are in full force and effect and
there does not exist thereunder any material default or event or condition
which, after notice or lapse of time or both, would constitute a material
default thereunder by CATS or, to the best knowledge of CATS and the Majority
Shareholders, by any other party thereto.
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3.11 Employment Matters; Employee Benefit Plans; ERISA.
(a) Schedule 3.11 hereto sets forth a complete
and correct list of all persons who are currently employed by CATS and
who may be reasonably expected to receive in 1996 aggregate
compensation in excess of U.S. $50,000, which list includes the
positions and compensation rates of such persons. Except as set forth
in Schedule 3.11 hereto, CATS is not a party to or bound by any written
employment agreement or, to the best knowledge of CATS and the
Shareholders, any oral employment agreement (other than employment
arrangements terminable at will without liability on the part of the
employer or upon payment of no more than applicable statutory or
regulatory severance or termination benefits) or any collective
bargaining agreement applicable to any of its employees. Except for
COBRA Benefits (as defined below), no agreement, understanding or
employee plan or arrangement covers or provides compensation or
benefits to individuals, or their dependents, following their cessation
of employment with CATS, and CATS has not agreed or otherwise become
obligated to provide such postemployment benefits.
(b) Schedule 3.11 hereto contains a complete and
correct list of all employee benefits, stock option, deferred
compensation and other fringe benefit plans, programs or arrangements
established, maintained or contributed to by CATS which covers
employees or former employees of CATS (the "Employee Benefit Plans").
(c) CATS does not maintain, participate in,
contribute to, nor is it or has it been required to contribute to, nor
has it agreed to establish, maintain, participate in or contribute to,
any "employee welfare benefit plan" (as such term is defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and the regulations promulgated thereunder), including any
multiemployer welfare benefit plan.
(d) Neither CATS nor any entity with which CATS
is or has ever been under common control or otherwise affiliated
(within the meaning of Section 414 of the Code) ("Common Control
Entity") has ever established, maintained, participated in, terminated
or withdrawn from, contributed to, or is or has ever been required to
contribute to, or has agreed to establish, maintain, participate in,
contribute to or terminate or withdraw from, any "employee pension
benefit
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plan" (as defined in Section 3(2) of ERISA and the regulations
promulgated thereunder), including any multiemployer pension benefit
plan.
(e) Except as specifically set forth in Schedule
3.11 hereto, with respect to any and all of the Employee Benefit Plans,
(i) CATS has performed all material obligations required to be
performed by it under the Employee Benefit Plans; (ii) CATS is not in
material default under or in material violation of, nor, to the best
knowledge of CATS and the Shareholders, is there any such default or
violation by any other party to any of the Employee Benefit Plans;
(iii) CATS is in material compliance with the requirements prescribed
by all statutes, orders or governmental rules or regulations applicable
to such Employee Benefit Plans, including but not limited to, ERISA and
the Code; and (iv) all requirements for or regarding coverage under all
group health plans of CATS under Section 4980B of the Code or Section
601 et. seq. of ERISA ("COBRA Benefits") (including without limitation
all requirements as to notice, payment of premiums, offering of
elections and providing benefits) have, in all material respects, been
fully complied with and satisfied.
3.12 Transactions with Certain Persons. Except as set
forth on Schedule 3.12 hereto, during the past three years CATS has not,
directly or indirectly purchased, leased or otherwise acquired any property or
obtained any services from, or sold, leased or otherwise disposed of any
property or furnished any services to, or otherwise dealt with (except with
respect to remuneration for services rendered as a director, officer or employee
of CATS), in the ordinary course of business or otherwise, (i) any beneficial
owner of the capital stock of CATS, or (ii) any person, firm or corporation
which, directly or indirectly, alone or together with others, controls, is
controlled by or is under common control with CATS. Except as set forth on
Schedule 3.12, CATS does not owe any amount to, and does not have any contract
with or express commitment to, any shareholders, directors, officers, employees
or consultants (other than compensation for current services not yet due and
payable and reimbursement of expenses arising in the ordinary course of
business), and none of such persons owes any amount to CATS.
3.13 Taxes. Except as set forth on Schedule 3.13 hereto:
(a) all taxes, including without limitation, income,
property, sales, use, franchise, added value,
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employees' income withholding and social security
taxes, imposed by the United States or by any state,
municipality, subdivision or instrumentality of the
United States, or by any other taxing authority,
which are due and payable by CATS, and all interest
and penalties thereon, whether disputed or not
(hereinafter, "Tax" or "Taxes"), the failure of which
to pay when due and payable has had or is likely to
have a Material Adverse Impact, have been paid in
full;
(b) all tax returns required to be filed in connection
with the taxes described in subparagraph (a) have
been accurately prepared and duly and timely filed,
the failure of which to file has had or is likely to
have a Material Adverse Impact, and all deposits
required by law to be made by CATS with respect to
any such Taxes have been duly made;
(c) CATS does not have any Tax deficiency or claim
outstanding, proposed or assessed against it which
has had or is likely to have a Material Adverse
Impact, and there is no basis for any such deficiency
or claim; and
(d) there is not now in force any extension of time with
respect to the date on which any tax return was or is
due to be filed by or with respect to CATS, or any
waiver or agreement by CATS for the extension of time
for the assessment of any Tax, the failure of which
to pay when due and payable has had or is likely to
have a Material Adverse Impact.
3.14 Litigation. Except as set forth in Schedule 3.14
hereto, there are no actions, suits, proceedings, claims, investigations or
examinations pending or threatened against or affecting CATS or any of its
properties or assets or against or affecting any of the Majority Shareholders,
at law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
which, if adversely determined, would (i) have a Material Adverse Impact or (ii)
question or challenge the validity of this Agreement or any action taken or to
be taken by any of the Majority Shareholders pursuant to this Agreement or which
will or could otherwise prevent or interfere with the consummation of the
transactions contemplated hereby, and none of the Majority Shareholders knows or
has reason to be aware of any basis for any of the same.
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3.15 Compliance with Laws and Regulations. Except as set
forth in Schedule 3.15 hereto, CATS has complied with all existing United States
and foreign laws, rules, regulations, ordinances, orders, judgments and decrees
applicable to its business, properties or operations as presently conducted
except for any instances of noncompliance which would not individually or in the
aggregate have a Material Adverse Impact. Neither CATS nor any of the Majority
Shareholders have committed any violations of the federal or state securities
laws, rules or regulations, including the making of any statements of material
fact in connection with the purchase or sale of CATS securities which are
inaccurate, incomplete or otherwise misleading or engaging in any act, practice
or course of business which operates or would operate as a fraud or deceit.
3.16 Brokers, Finders etc. Except as set forth in Schedule
3.6, no broker, finder or other person is entitled to any brokerage or finder's
commission, fee or similar compensation in connection with the transactions
contemplated by this Agreement by reason of any action taken by any of the
Majority Shareholders.
3.17 Investment in JMAR Shares. Each of the Majority
Shareholders acknowledges and agrees that, except to the extent affected by
JMAR's agreement in Section 2.8 above to include the JMAR Shares in a
registration statement, with respect to the JMAR Shares to be acquired
hereunder: (1) the JMAR Shares are being acquired by each Majority Shareholder
for his or her own account without the participation of any other person, with
the intent of holding such shares for investment and without the intent of
participating, directly or indirectly, in a distribution of the JMAR Shares and
not with a view to, or for resale in connection with, any distribution of such
shares or any portion thereof; (2) the JMAR Shares are not being acquired based
upon any oral representation by any person with respect to the future value of
such shares but rather upon an independent examination and judgment as to the
prospects of JMAR; (3) the JMAR Shares to be received were not offered to
Majority Shareholders by means of publicly disseminated advertisements or sales
literature; (4) each Shareholder agrees to continue to bear the economic risk of
the investment in the JMAR Shares for an indefinite period and will not offer
for sale, sell or transfer the JMAR Shares other than pursuant to an effective
registration under or exemption from the Securities Act of 1933, as amended (the
"Securities Act") and applicable state securities laws, with evidence of
compliance therewith satisfactory to JMAR. JMAR shall be entitled to rely upon
an opinion of counsel satisfactory to it with respect to compliance with the
above laws; (5) JMAR may refuse to permit the transfer of the JMAR Shares held
by a
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Majority Shareholder unless the transfer is pursuant to an effective
registration under the Act or unless the request for transfer is accompanied by
an opinion of counsel acceptable to JMAR to the effect that neither the sale nor
the proposed transfer will result in any violation of the Securities Act or the
securities laws of any state or other jurisdiction; and (6) a legend indicating
that the JMAR Shares have not been registered under United States federal or
state securities laws and referring to the restrictions on transferability and
sale of such shares contained herein may be placed on the certificate or
certificates evidencing such shares delivered to each Majority Shareholder or
any substitute therefor and any transfer agent of JMAR may be instructed to
require compliance therewith.
3.18 Disclosure. None of the statements, representations
or warranties made by CATS or any of the Majority Shareholders in this Agreement
or in any Exhibit, Schedule, document or other writing delivered to JMAR
hereunder contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary to be stated in order to
make the statements, representations or warranties contained herein or therein
not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF JMAR
JMAR represents and warrants on the date hereof to each of the
Majority Shareholders as follows:
4.1 Organization; Qualification. JMAR is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. JMAR is duly qualified to do business as a foreign
corporation and in good standing in the State of California.
4.2 Authorization of Agreement. JMAR has the full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. All actions and proceedings on
the part of JMAR necessary to authorize the execution and delivery of this
Agreement, the issuance of the JMAR Shares and the consummation of the
transactions contemplated hereby by it have been duly and validly taken. This
Agreement has been duly and validly executed and delivered by JMAR and
(assuming, to the extent its obligations are dependent thereon, due execution
and delivery by CATS and each of the Majority Shareholders) this Agreement
constitutes the legal, valid and binding agreement and obligation of JMAR
enforceable against it in accordance with its terms, except as
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enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights generally or by general principles of
equity, including principles governing the availability of equitable remedies.
4.3 JMAR Shares. The JMAR Shares will, when issued, have
been duly authorized and when delivered, will be duly and validly issued, fully
paid and nonassessable shares of Common Stock of JMAR and will not have been
issued in violation of any preemptive or other right of any other person.
4.4 Consents and Approvals; No Violations. Neither the
execution and delivery of this Agreement by JMAR nor the consummation of the
transactions contemplated hereby will (i) conflict with or result in any breach
of any provision of the Certificate of Incorporation or Bylaws of JMAR; (ii)
require any consent, approval, authorization or permit of, or filing with or
notification to, any United States or foreign governmental or regulatory
authority or other third party, except filings in connection with federal or
state securities laws, which filings have either been accomplished or will be
accomplished prior to the Closing Date or within the appropriate time period
following the Closing Date; (iii) result in a breach of the terms, conditions or
provisions of, constitute a default (or an event which, upon notice or lapse of
time or both, would constitute a default) under or cause, permit or give rise to
any right of termination, cancellation or acceleration under any of the terms,
conditions or provisions of any note, bond, deed of trust, mortgage, indenture,
lease, license, joint venture, loan or credit agreement or any other agreement
or other instrument or obligation to which JMAR or any of its respective
subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound, except for such breaches, events, defaults or
rights of termination, cancellation or acceleration which would not have a
materially adverse impact on the business, assets, financial condition or
prospects of JMAR and its subsidiaries taken as a whole, nor impair JMAR's
power, right or ability to consummate the transactions contemplated hereby; (iv)
conflict with or result in a violation of any provision of any applicable
statute, rule, regulation or ordinance or any material order, writ, injunction,
judgment, award, decree, permit, concession, grant, franchise or license
applicable to JMAR or any of its respective subsidiaries or any material portion
of the properties or assets of JMAR and its subsidiaries taken as a whole which
conflicts or violations would have a materially adverse impact on the business,
assets, financial conditions or prospects of JMAR and its subsidiaries taken as
a whole, or impair JMAR's power, right or ability to consummate the transactions
contemplated hereby.
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4.5 Brokers Finders, etc. JMAR has utilized the services
of Jay Embry and Mogador Partners to assist in the negotiations related to this
Agreement and the transactions contemplated hereby and shall be solely
responsible for the payment of any fees or commissions as a result thereof;
provided, however, JMAR shall not be responsible for the amounts owed by CATS to
Jay Embry which are described on Schedule [3.6] hereto. Except for Jay Embry and
Mogador Partners all negotiations relating to this Agreement and the
transactions, contemplated hereby have been carried on without the intervention
of any person acting on behalf of JMAR in such manner as to give rise to any
claim against JMAR or CATS or any of their respective subsidiaries or affiliates
for any brokerage or finder's commission, fee or similar compensation.
4.6 Disclosure. None of the statements, representations
or warranties made by JMAR in this Agreement or in any Exhibit, Schedule,
document or other writing delivered to CATS hereunder contains or will contain
any untrue statement of a material fact, or omits or will omit to state any
material fact necessary to be stated in order to make the statements,
representations or warranties contained herein or therein not misleading.
ARTICLE 5
THE CLOSING
5.1 Time of Closing. The closing of the sale and purchase
contemplated by this Agreement (the "Closing") will take place concurrently with
the execution of this Agreement on May 23, 1996. The date on which the Closing
occurs is herein referred to as the "Closing Date."
5.2 Deliveries by CATS and the Majority Shareholders.
Concurrently with the execution of this Agreement, CATS and the Majority
Shareholders hereby deliver the following to JMAR:
(a) Stock certificates representing all of the
Purchased Shares, either duly endorsed in blank or accompanied by duly
executed instruments of transfer, and any other documents that are
necessary to transfer to JMAR good and marketable title to all shares
of Purchased Shares;
(b) Evidence of having obtained any consents
required by Section 3.5;
(c) Written resignations of the current
directors and officers of CATS effective as of the Closing Date; and
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(d) Evidence of the approval by the CATS Board
of Directors of CATS obligations under this Agreement and in connection
with the transactions contemplated hereunder.
(e) A copy of a written agreement satisfactory
to JMAR in its sole discretion executed between CATS and at least one
credible semiconductor manufacturer setting forth the basic terms of a
proposed "operating alliance" between that company and CATS. This
agreement shall also cover such matters as: the types of orders to be
referred to CATS; the relationships between the sales forces (both
in-house employees of the semiconductor manufacturer and its outside
sales representatives) of the manufacturer and CATS regarding the
processing of "small orders" to CATS; the commission arrangements when
CATS transfers graduated orders (those which have grown large enough to
meet minimum requirements) to semiconductor manufacturers; and any
other aspects of the relationship that are important to the operation
of the alliance.
(f) A market research report prepared by Marvin
Sepe satisfactory to JMAR in its sole discretion which identifies the
approximate size of the "small order" and "prototype" gate array
markets for which CATS will be competing and an assessment of the
current and expected competition.
(g) Evidence of the cancellation of all
outstanding options, warrants, and other rights to purchase or
otherwise receive shares of CATS Common Stock or any other CATS
security shall have been canceled.
(h) Evidence that no more than 35 non-accredited
investors (as defined in the SEC's Regulation D) shall be issued shares
of JMAR Common Stock in connection with the sale of their CATS shares
to JMAR pursuant to this Agreement and the Offer Letter.
(i) An opinion letter from CATS' and the
Majority Shareholders' corporate counsel in substantially similar form
to the opinion letter previously provided to said counsel.
(j) Copies of executed agreements between CATS
and the creditors listed on Schedule 5.2 hereto to make the payments
set forth on said schedule in complete satisfaction of all amounts
owing to said creditors.
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(k) Executed copies of the Employment Agreements
signed by Nancy Schwalbe, Edwin Barrowcliff and Marvin Sepe,
respectively.
(l) An executed copy of the Escrow Agreement (as
provided for in Section 7.4 of this Agreement) signed by the Majority
Shareholders and delivery to the escrow holder thereunder of the stock
certificates evidencing the JMAR Shares and stock transfers executed in
blank.
(m) All other agreements, documents, instruments
and writings required to be delivered by CATS and the Majority
Shareholders at the Closing under this Agreement.
5.3 Deliveries by JMAR. As soon as practicable (but no
later than 5 business days) after the execution of this Agreement, JMAR will
deliver the following to Majority Shareholders:
(a) Stock certificates representing the JMAR
Shares issued in the name of the Majority Shareholders. Within 5
business days after the Closing Date said stock certificates shall be
delivered to the escrow holder to hold pursuant to the terms of the
Escrow Agreement;
(b) Evidence of payment of the $400,000 as a
loan to CATS pursuant to Section 2.1(a);
(c) Evidence of cancellation of the promissory
note for the $100,000 loan made by JMAR to CATS in February, 1996 and
cancellation of the warrant originally issued to JMAR to secure said
note.
(d) Executed copies of the Employment Agreements
signed by CATS;
(e) The warrants described in Section 2.7 issued
in the names of the Majority Shareholders and Marvin Sepe and Leisa
Sepe, respectively.
(f) Executed copy of the Escrow Agreement signed
by JMAR.
(g) Evidence of having obtained any consents
required by Section 4.4.
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(h) All other agreements, documents, instruments
and writings required to be delivered by JMAR at the Closing under this
Agreement.
ARTICLE 6
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties of the parties made in
Articles 3 and 4 shall expire and be deemed terminated and extinguished on
December 31, 1998, except for the representations and warranties contained in
Sections 3.2 and 3.3 which shall survive the Closing and continue in full force
and effect indefinitely, subject to any applicable statute of limitations, and
except for the representations and warranties set forth in Section 3.13 which
shall survive until 90 days after the expiration of the statute of limitations
applicable to the matters set forth therein.
ARTICLE 7
INDEMNIFICATION
7.1 Obligation of the Majority Shareholders to Indemnify.
The Majority Shareholders agree, jointly and severally, to indemnify, defend and
hold harmless JMAR (and its directors, officers, employees, agents, subsidiaries
and affiliates, and their respective successors and assigns (collectively,
"Affiliates")) and CATS from and against all losses, liabilities, damages,
deficiencies, costs or expenses (including interest, penalties and reasonable
attorneys' fees and disbursements) ("Losses") which JMAR, CATS or any of JMAR's
Affiliates shall incur or suffer based upon, arising out of or otherwise in
respect of or involving (i) any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of CATS or any of the Majority
Shareholders contained in this Agreement or in any other agreement, document or
other papers delivered hereunder, (ii) any third party claim or claims made or
threatened against CATS or JMAR or affecting the shares of CATS Common Stock
purchased by JMAR based upon or arising out of or otherwise involving any act or
omission of CATS or either of the Majority Shareholders which are determined to
be in violation of any law, rule or regulation, which act or omission occurred
prior to the Closing Date, and (iii) any claim or claims by any shareholder or
former shareholder of CATS alleging the violation of any state or federal
securities law, rule or regulation, except for any action or claim based upon
misstatements or omissions by JMAR contained in the Offer Letter sent by JMAR to
the CATS shareholders, unless such misstatements or omissions
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were based primarily upon the representations and warranties of the Majority
Shareholders. Notwithstanding the foregoing, the Majority Shareholders shall not
be obligated to indemnify JMAR or CATS for any claim arising out of or based
upon the issuance by JMAR of the warrant to Marvin and Leisa Sepe in payment of
accrued salary as provided in Section 2.6(c) of this Agreement, except to the
extent that the information provided to JMAR evidencing the indebtedness owing
to Marvin and Leisa Sepe is not accurate.
7.2 Obligation of JMAR to Indemnify. JMAR agrees to
indemnify, defend and hold harmless each of the Majority Shareholders from and
against any and all Losses which any of them shall incur or suffer based upon,
arising out of or otherwise in respect of or involving (i) any inaccuracy in or
any breach of any representation, warranty, covenant or agreement of JMAR
contained in this Agreement or in any other agreement, document or other papers
delivered hereunder, and (ii) any action or claim by CATS shareholders based
upon misstatements or omissions by JMAR contained in the Offer Letter to the
CATS shareholders, unless such misstatements or omissions were based primarily
upon the representations and warranties of the Majority Shareholders.
7.3 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. Promptly after receipt
by any party hereto (the "Indemnitee") of notice of any demand, claim or
circumstances that, with the lapse of time, would give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other party
(or parties) obligated to provide indemnification pursuant to Section 7.1 or 7.2
(the "Indemnifying Party"). The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount (estimated, if
necessary) of the Loss that has been or may be suffered by the Indemnitee.
(b) Opportunity to Defend. The Indemnifying Party may
elect to compromise or defend, at its own expense and by its own counsel, any
Asserted Liability. If the Indemnifying Party elects to compromise or defend
such Asserted Liability, it shall within 30 days (or sooner, if the nature of
the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the
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Indemnitee of its election as herein provided or contests its obligation to
indemnify under this Agreement, the Indemnitee may pay, compromise or defend
such Asserted Liability. Notwithstanding the foregoing, neither the Indemnifying
Party nor the Indemnitee may settle or compromise any claim over the objection
of the other, provided, however, that consent to settlement or compromise shall
not be unreasonably withheld. In any event, the Indemnitee and the Indemnifying
Party may participate, at their own expense, in the defense of such Asserted
Liability. If the Indemnifying Party chooses to defend any claim, the Indemnitee
shall make available to the Indemnifying Party any books, records or other
documents within its control that are necessary or appropriate for such defense.
7.4 Limit of Liability of the Majority Shareholders.
a. The maximum dollar amount of indemnification for
which the Majority Shareholders shall be liable under Section 7.1 hereof (the
"Maximum Indemnification Amount") shall be equal to $2,200,418 which is equal to
(i) the total number of JMAR Shares issued at the Closing to the Majority
Shareholders as a group, multiplied by $2.00 per share, plus (ii) $100,000.
b. The Majority Shareholders' indemnification
obligations under Section 7.1 of this Agreement shall be secured by delivering
all of the JMAR Shares to an escrow holder pursuant to the terms of an Escrow
Agreement executed by the parties. The Majority Shareholders also agree that all
JMAR Shares issued to them hereafter upon the exercise of the warrants issued to
them pursuant to Sections 2.6(a) and 2.6(c) of this Agreement shall be delivered
directly to the Escrow Agent to hold pursuant to the terms of the Escrow
Agreement. The Escrow Agreement shall provide that JMAR Shares may be released
to the Majority Shareholders at the end of each three-month period after the
Closing Date as follows: (i) only that number of JMAR Shares may be released
which is in excess of that number of JMAR Shares which has an "aggregate market
value" of 200% of the Maximum Indemnification Amount plus $250,000, less the
aggregate amount of claims for indemnification under Section 7.1 as to which
there has been a "final determination" pursuant to the Escrow Agreement (the
"Minimum Security Level"). For purposes of this Section 7.4, "aggregate market
value" shall mean the number of JMAR Shares then held in escrow multiplied by
the average of the daily per share closing price of JMAR Common Stock as
reported on the NASDAQ National Market System for said three-month period; (ii)
the Majority Shareholders may only sell their JMAR Shares prior to December 31,
1998 with the prior written consent of JMAR which may refuse its consent if, in
its sole discretion, JMAR determines that the timing of the sale, amount of
shares proposed
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to be sold or other circumstances of the proposed sale are not in the best
interests of JMAR or its shareholders or may otherwise have an adverse impact on
the price of JMAR's shares of Common Stock; and (iii) if after the release from
the escrow of any JMAR Shares to the Majority Shareholders the "aggregate market
value" of the JMAR Shares held in the escrow at the end of any subsequent three
month period shall decline below the Minimum Security Level, then within five
days after the delivery by JMAR of written notice of such fact to the Majority
Shareholders, the Majority Shareholders shall redeliver to the escrow holder a
sufficient number of JMAR Shares to result in the "aggregate market value" of
the JMAR shares being not less than the Minimum Security Level. In the event
that such redelivery of additional shares does not occur by the fifth day
following delivery of said notice, then the termination date of the escrow shall
be extended beyond December 31, 1998 by two days for each day that such
redelivery is delayed. Subject to the repayment of the outstanding balance of
the $250,000 loan which is also secured by the JMAR Shares held in escrow, the
remaining JMAR Shares held in escrow pursuant to the Escrow Agreement shall be
returned to the Majority Shareholders on December 31, 1998; provided, however,
that to the extent that on December 31, 1998 there are any pending
indemnification claims hereunder, the escrow agent shall retain a number of JMAR
Shares with an "aggregate market value" on December 31, 1998 equal to 200% of
the amount of such pending indemnification claims until such claims are
resolved.
c. Deductible. Notwithstanding the foregoing, the
Majority Shareholders shall be obligated to indemnify JMAR under Section 7.1 of
this Agreement only to the extent that the aggregate amount of all claims for
indemnification under this Article 7 shall have exceeded $5,000.
ARTICLE 8
COVENANT NOT TO COMPETE
As additional consideration for and a material inducement to
JMAR to enter into this Agreement and in order to assure JMAR that it will
receive the full value of its purchase of all of the capital stock of CATS, each
of the Majority Shareholders (collectively, the "Insiders") hereby make the
following covenants to JMAR:
8.1 Without the prior consent of JMAR, each of the
Insiders agrees that he or she will not, as a partner, employee, officer,
director, manager, agent, associate, investor, or otherwise, directly or
indirectly, own, purchase, organize or take preparatory steps for the
organization of, build, finance,
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acquire, lease, operate, manage, or invest in any business, or permit his or her
name to be used or employed in connection with any business in competition with
CATS, JMAR or any of JMAR's subsidiaries as such businesses are conducted at any
time within the earlier of (i) five years from the date of this Agreement or
(ii) the date of termination of the Insider's employment by CATS or JMAR. If
neither CATS, JMAR nor any of JMAR's subsidiaries are conducting a specific
business at the termination of an Insider's employment and neither company has
any formal plan or intentions to conduct such specific business within the time
period set forth in Section 8.5 of this Agreement, then the Insiders may engage
in such specific business with the prior written consent of JMAR which shall not
be unreasonably withheld.
8.2 The covenants and other provisions contained herein
shall cover the activities of the Insiders in every part of the United States in
which CATS, JMAR or any of JMAR's subsidiaries is conducting its business (the
"Territory").
8.3 The covenants contained in this Article 8 shall be
construed as if each covenant is divided into separate and distinct covenants in
respect of the business of CATS, JMAR or any of JMAR's subsidiaries, each
capacity in which the Insiders are prohibited from competing and each part of
the Territory in which CATS, JMAR or any of JMAR's subsidiaries is carrying on
its business. Each such covenant shall constitute separate and several covenants
distinct from all other such covenants.
8.4 The Insiders each recognizes that the territorial
restrictions contained in this Article 8 are properly required for the adequate
protection of the business of CATS, JMAR and any of JMAR's subsidiaries and that
in the event any covenant or other provision contained in this Article 8 shall
be deemed to be illegal, unenforceable, or unreasonable by a court or other
tribunal of competent jurisdiction with respect to any part of the Territory,
such covenant or provision shall not be affected with respect to any other part
of the Territory, and the Insiders each agree and submit to the reduction of
said territorial restriction to such an area as said court shall deem
reasonable.
8.5 The covenants contained in this Article 8 shall be
effective as to each Insider until the later of (i) the fifth anniversary of the
Closing Date and (ii) two years after the termination of said Insider's
employment by CATS, JMAR or any of JMAR's subsidiaries.
8.6 The Insiders each acknowledge that (i) the covenants
and the restrictions contained in this Article 8 are necessary, fundamental, and
required for the protection of the
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business of CATS, JMAR and JMAR's subsidiaries; (ii) such covenants relate to
matters which are a special, unique, and extraordinary character that gives each
of such covenants a special, unique, and extraordinary value; and (iii) a breach
of any of such covenants or any other provision of this Article 8 will result in
irreparable harm and damages to CATS and JMAR which cannot be adequately
compensated by a monetary award. Accordingly, it is expressly agreed by each of
the Insiders that in addition to all other remedies available at law or in
equity, CATS and JMAR shall be entitled to the immediate remedy of a temporary
restraining order, preliminary injunction, or such other form of injunctive or
equitable relief as may be used by any court of competent jurisdiction to
restrain or enjoin the Insiders from breaching any such covenant or provision or
to specifically enforce the provisions hereof.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 Waiver and Amendment. This Agreement may be amended
or supplemented at any time, but only by written agreement of CATS, the Majority
Shareholders and JMAR. Any term or provision of this Agreement may be waived at
any time by the party which is entitled to the benefits thereof, but only in a
writing signed by such party. Any such waiver with respect to a failure to
observe any such provision shall not operate as a waiver of any subsequent
failure to observe such provision unless otherwise expressly provided in such
waiver.
9.2 Entire Agreement. This Agreement and the additional
documents called for herein together contain the entire agreement between CATS,
the Majority Shareholders and JMAR with respect to the purchase and sale of the
Purchased Shares and the related transactions and supersede all prior
arrangements or understandings with respect thereto, including without
limitation the letter of intent entered into between the parties to this
Agreement.
9.3 Expenses. Except as otherwise provided in this
Agreement, JMAR, on the one hand, and CATS and the Majority Shareholders, on the
other hand, shall be responsible for and shall pay their respective expenses
incurred in connection with this Agreement and the transactions contemplated
hereby; provided, however, at the Closing JMAR shall reimburse CATS for the
actual costs and expenses, including attorneys' fees and costs, incurred by CATS
and the Majority Shareholders in connection with the negotiation and
documentation of the letter of intent entered into by the parties and this
Agreement in an amount not to exceed $15,000.
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9.4 Notices. All notices, consents, requests,
instructions, approvals and other communications provided for herein shall be
validly given, made or served, if in writing and delivered personally, sent by
registered or certified mail, postage prepaid, sent by established overnight
delivery service, or transmitted by facsimile (except for legal process) to:
If to JMAR:
JMAR Industries, Inc.
3690 Sorrento Valley Blvd.
San Diego, CA 92121
Attention: President
Telecopier: (619) 535-1706
with a copy to:
Parker, Milliken, Clark, O'Hara & Samuelian
333 South Hope Street, 27th Floor
Los Angeles, California 90071-1488
Attention: Joseph G. Martinez
Telecopier: (213) 683-6669
If to the Majority Shareholders:
Nancy Schwalbe
24701 Woodhill Lane
Lake Forest, California 92630
Edwin Barrowcliff
24702 Woodhill Lane
Lake Forest, California 92630
with a copy to:
Timothy Smoot, Esq.
Suite 112
7002 Moody Street
La Palma, California 90623-1181
Telecopier: (310) 402-0643
or to such other address or telecopier number as any party hereto may, from time
to time, designate in a written notice given in a like manner. Notice given by
mail as set out above shall be deemed delivered three days after the date it is
postmarked. Notice given by overnight delivery service shall be deemed delivered
when received. Notice given by facsimile shall be
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deemed given when transmitted, provided that the sender retains a written
confirmation of such transmission and mails an original thereof to the other
party within one business day after said transmission.
9.5 Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights, interests
or obligations hereunder, shall be assigned by any party hereto without the
prior written consent of all the other parties. This Agreement is not intended
to confer upon any other party, except the parties hereto, any rights or
remedies hereunder.
9.6 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California as applied
to residents of the State of California entering into contracts to be wholly
performed therein, without giving effect to principles of conflict of laws.
9.7 Arbitration. Except for breaches of the covenants or
other provisions of Article 8 of this Agreement as to which JMAR may also seek
equitable remedies in state or federal court, any controversy or claim arising
out of or relating to this Agreement, the Offer Letter or the breach thereof,
shall be settled by arbitration at Los Angeles, California, in accordance with
the Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award of the arbitrator(s) shall be entered in any court with
appropriate jurisdiction as the final binding judgment. The arbitrators shall
not be permitted to award punitive or other exemplary damages as a part of such
award. The provisions of California Code of Civil Procedure Section 1283.05 are
hereby incorporated into and made applicable to this Agreement. In addition to
any other relief as may be granted, the prevailing party shall be entitled to
reasonable attorneys' fees in such arbitration, with the amount thereof to be
determined by the arbitrator or the court.
9.8 Counterparts. This Agreement may be executed in any
number of counterparts, each of which independently shall have the same effect
as if it were the original and all of which taken together shall constitute one
and the same document. Executed signature pages which are transmitted by
facsimile to the other party shall be deemed to have been delivered on the date
so transmitted provided that an originally executed signature is delivered to
the other party within 3 business days thereafter.
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9.9 Interpretation. The parties acknowledge that this
Agreement has been negotiated by both parties and that neither this Agreement
nor any of its provisions should be interpreted for or against any party on the
basis said party or its attorney drafted the Agreement or the provision in
question.
9.10 Descriptive Headings. Descriptive headings are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date and year first above written.
JMAR INDUSTRIES. INC.
By:/s/ JOHN S. MARTINEZ
--------------------------------------
John S. Martinez, Chief Executive
Officer
CALIFORNIA ASIC TECHNICAL SERVICES,
INC.
By:/s/ NANCY SCHWALBE
--------------------------------------
Nancy Schwalbe, Chief Executive
Officer
By:/s/ EDWIN BARROWCLIFF
--------------------------------------
Edwin Barrowcliff, President
/s/ NANCY SCHWALBE
--------------------------------------
Nancy Schwalbe
/s/ EDWIN BARROWCLIFF
--------------------------------------
Edwin Barrowcliff
33
