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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant Filed by a Party other than the Registrant
Check the appropriate box:
|X| Preliminary Proxy Statement
| | Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
| | Definitive Proxy Statement
| | Definitive Additional Materials
| | Soliciting Material Pursuant to ss.240.14a-12
PURE BIOSCIENCE
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
| | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PURE BIOSCIENCE
1725 Gillespie Way
El Cajon, California 92020
(619) 596-8600
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PROXY STATEMENT
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Notice of SPECIAL Meeting of Shareholders
To Be Held January 16, 2004
TO THE SHAREHOLDERS OF PURE BIOSCIENCE
NOTICE HEREBY IS GIVEN that a Special Meeting of Shareholders of PURE
BIOSCIENCE, a California corporation (the "Company"), will be held at the
offices of the Company, 1725 Gillespie Way, El Cajon, California on January 16,
2004, 10:30 a.m., Pacific Time, and at any and all adjournments thereof, for the
purpose of considering and acting upon the following Proposals:
Proposal No. 1: APPROVAL OF THE SALE OF THE WATER TREATMENT DIVISION
Proposal No. 2: AUTHORIZATION FOR THE BOARD OF DIRECTORS TO DECLARE A REVERSE
SPLIT OF THE OUTSTANDING COMMON STOCK ONLY AND AS WHEN DEEMED
NECESSARY BY THE BOARD TO MAINTAIN THE LISTING OF THE COMPANY'S
COMMON STOCK ON THE NASDAQ SMALLCAP MARKET ON OR BEFORE JANUARY
31, 2004 ON THE BASIS OF UP TO ONE SHARE OF COMMON STOCK FOR
EVERY THREE SHARES OUTSTANDING ON THE EFFECTIVE DATE WITH EACH
RESULTING FRACTIONAL SHARE ROUNDED UP TO THE NEXT WHOLE SHARE.
This Special Meeting is called as provided for by California law and the
Company's By-laws.
Only holders of the outstanding Common Stock of the Company of record at the
close of business on November 25, 2003 will be entitled to notice of and to vote
at the Meeting or at any adjournment or adjournments thereof.
All shareholders, whether or not they expect to attend the Special Meeting of
Shareholders in person, are urged to sign and date the enclosed Proxy and return
it promptly in the enclosed postage-paid envelope which requires no additional
postage if mailed in the United States. The giving of a proxy will not affect
your right to vote in person if you attend the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Dennis Atchley
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DENNIS ATCHLEY
SECRETARY
El Cajon, California
November 25, 2003
PURE BIOSCIENCE
1725 Gillespie Way
El Cajon, California 92020
(619) 596-8600
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PROXY STATEMENT
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Notice of SPECIAL Meeting of Shareholders
To Be Held January 16, 2004
GENERAL INFORMATION
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The enclosed Proxy is solicited by and on behalf of the Board of Directors of
PURE Bioscience, a California corporation (the "Company"), for use at the
Company's Special Meeting of Shareholders to be held at the offices of the
Company, 1725 Gillespie Way, El Cajon, California on January 16, 2004, at 10:30
a.m. Pacific Time, and at any adjournment thereof. It is anticipated that this
Proxy Statement and the accompanying Proxy will be mailed to the Company's
shareholders on or before December 12, 2003.
Any person signing and returning the enclosed Proxy may revoke it at any time
before it is voted by giving written notice of such revocation to the Company,
or by voting in person at the Meeting. The expense of soliciting proxies,
including the cost of preparing, assembling and mailing this proxy material to
shareholders, will be borne by the Company. It is anticipated that solicitations
of proxies for the Meeting will be made only by use of the mail; however, the
Company may use the services of its Directors, Officers and employees to solicit
proxies personally or by telephone without additional salary or compensation to
them. Brokerage houses, custodians, nominees and fiduciaries will be requested
to forward the proxy soliciting materials to the beneficial owners of the
Company's shares held of record by such persons, and the Company will reimburse
such persons for their reasonable out-of-pocket expenses incurred by them in
that connection.
All shares represented by valid proxies will be voted in accordance therewith at
the Meeting. Shares not voting as a result of a proxy marked to abstain will be
counted as part of total shares voting in order to determine whether or not a
quorum has been achieved at the Meeting. Shares registered in the name of a
broker-dealer or similar institution for beneficial owners to whom the
broker-dealer distributed notice of the Annual Meeting and proxy information and
which such beneficial owners have not returned proxies or otherwise instructed
the broker-dealer as to voting of their shares, will be counted as part of the
total shares voting in order to determine whether or not a quorum has been
achieved at the Meeting. Abstaining proxies and broker-dealer non-votes will not
be counted as part of the vote on any business at the Meeting on which the
shareholder has abstained.
The Company's Annual Report to Shareholders for the fiscal year ended July 31,
2003 has been previously mailed or is being mailed simultaneously to the
Company's shareholders, but does not constitute part of these proxy soliciting
materials.
SHARES OUTSTANDING AND VOTING RIGHTS
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All voting rights are vested exclusively in the holders of the Company's Common
Stock with each common share entitled to one vote. Only shareholders of record
at the close of business on November 25, 2003 are entitled to notice of and to
vote at the Meeting or any adjournment thereof. On November 25, 2003, the
Company had 13,454,088 shares of its Common Stock outstanding, each of which is
entitled to one vote on all matters to be voted upon at the Meeting. No
fractional shares are presently outstanding. A majority of the Company's
outstanding voting stock represented in person or by proxy shall constitute a
quorum at the Meeting. The affirmative vote of a majority of the votes cast,
providing a quorum is present, is necessary to approve the Proposals.
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PROPOSAL NO. 1. Sale of the water treatment division
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SUMMARY OF PROPOSED ASSET SALE TERMS
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The following summary highlights the material terms of the proposed sale of the
assets of our water treatment division to Data Recovery Continuum, Inc., a
Delaware corporation ("DRCI" or the "Buyer") and our use of the proceeds. This
summary does not contain all of the information that may be important for you to
consider in evaluating the proposed sale. We have included cross references to
direct you to more complete information that appears elsewhere in this proxy
statement. You should read this entire proxy statement, the Agreement for the
Purchase and Sale of Assets and the other documents attached to this proxy
statement in their entirety to fully understand the asset sale and its
consequences to you before voting. A copy of the Agreement for the Purchase and
Sale of Assets between PURE Bioscience and Data Recovery Continuum, Inc. dated
November 24, 2003 governing the asset sale is attached to this proxy statement
as an exhibit.
The Companies. PURE Bioscience develops and markets technology-based products in
the bioscience and water treatment sectors. Our products in our water treatment
division include the Fillmaster(R) branded pharmaceutical water purification,
measuring and dispensing equipment and the Nutripure(R) branded residential
water filtration and treatment products. In the fiscal year ended July 31, 2003,
sales from the water treatment division account for approximately 95% of our
sales revenue. We are also involved with proprietary bioscience technologies
including our Axenohl(R) branded antimicrobials and Triglycylboride(TM)
pesticides. The pesticide products have been approved by the US Environmental
Protection Agency (EPA) and are ready-to-market. The first derivative product
from the antimicrobial technology, our Axen-30(R) hard surface disinfectant, has
also been approved by the EPA and is ready-to-market. We are engaged in
additional testing and regulatory processes to enter additional markets with the
Axenohl antimicrobial technology.
Data Recovery Continuum, Inc. is a privately held California-based holding
company that is involved with various high tech business opportunities. Lee
Brukman is a control person of Data Recover Continuum, Inc. Mr. Brukman is also
a control person of Next9 LLC which holds 2 million shares, or approximately 15%
of our common stock.
Assets Transferred and Liabilities Assumed. We are selling substantially all of
the assets of our water treatment division, including substantially all of the
related machinery, equipment, inventory, work in process, licenses, customer
lists and some of our agreements and contracts. Other than trade payables, DRCI
will assume substantially all other current liabilities related to the water
treatment division. DRCI is also offering employment to all of the water
treatment division's staff. See "Description of the Asset Sale - Assets
Transferred and Liabilities Assumed" on Page 10.
Included in this transaction, but not subject to or contingent upon shareholder
approval, we are also selling our $2.0 million Note and Deed of Trust asset to
DRCI for face value ($2.0 million trust deed plus accrued interest less $435,000
due to Next9 LLC). The Trust Deed was acquired in August of 2003 in exchange for
2,000,000 shares of our common stock.
Purchase Price. If the proposed sale to DRCI is consummated, DRCI will pay us
$2.75 million in cash at the closing. DRCI will also pay an additional $250,000
six months later and another $1,000,000 one year after closing after the
Nutripure 2000 Countertop water purifier reaches certain agreed upon volume and
sales projections in connection with a rollout program with a large general
merchandise retailer. In the event the sales of Nutripure products do not
achieve the projected levels the additional payment amounts will be reduced on a
pro rata basis. See "Description of Asset Sale - Consideration to be Received in
the Asset Sale" on Page 10.
Also at closing DRCI has agreed to deposit an additional $1.6 million into
escrow to purchase the Company's Trust Deed receivable at face value. We will
incur no gain or loss on this portion of the agreement.
Conditions to the Transaction. DRCI has the right to terminate the sale if
certain conditions are not satisfied prior to closing, including the following.
o no injunctions;
o our representations and warranties and those of DCRI remain true at
closings;
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o performance by us and by DCRI to deliver all documents required and
perform all obligations required by the Agreement for the Purchase and
Sale of Assets;
o the water treatment division shall not have suffered a material
adverse effect
o delivery of legal opinions of our counsel and that of DCRI; and
o PURE Bioscience stockholder approval of the sale.
See "Other Material Terms of the Agreement for the Purchase and Sale of Assets -
Conditions to the Closing" on Page 11.
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Representations and Warranties. The Agreement for the Purchase and Sale of
Assets contains customary representations, warranties and covenants. Most
representations and warranties will survive the closing for one year with some
customary exceptions. See "Other Material Terms of the Agreement for the
Purchase and Sale of Assets -- Representations and Warranties," on Page 10.
Indemnification. We have agreed to indemnify DRCI for any losses and claims
against it arising from our breach of any covenants or any representations or
warranties in the Agreement for the Purchase and Sale of Assets and other
matters. See "Other Material Terms of the Agreement for the Purchase and Sale of
Assets - Indemnification" on Page 11.
Post-Closing Agreements. DRCI will also pay an additional $250,000 six months
following the closing and an additional $1,000,000 one year after closing after
the Nutripure 2000 Countertop water purifier reaches certain agreed upon volume
and sales projections in connection with a rollout program with a large general
merchandise retailer. In the event the sales of Nutripure products do not
achieve the projected levels the additional payment amounts will be reduced on a
pro rata basis. In addition, we have agreed that we will not, for a period of
five years following the closing date, enter into product markets with water
filtration equipment that competes with the water treatment division anywhere in
the world.
QUESTIONS AND ANSWERS ABOUT THE PROPOSAL
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What am I being asked to vote upon?
Each stockholder is being asked to vote in favor of a transaction in which we
will sell substantially all of the assets of our water treatment division, other
than accounts receivable, to DCRI for $2.75 million in cash plus up to $1.25
million in deferred payments over the next year.
Why has the Board decided to sell the water treatment division?
Our Board of Directors unanimously decided that it is in the best interest of
PURE Bioscience to sell the water treatment division assets. Currently, we are
devoting our funds and efforts to pursue two lines of business: selling
commercial and consumer water treatment equipment and selling and further
developing our bioscience technologies. We believe we should focus our efforts
solely and specifically on marketing, selling and further developing the
bioscience technologies because we believe that products derived from our
bioscience technologies will return significantly higher margins in
significantly larger markets than those of the water treatment division. We
believe that the sale of our water treatment division will generate sufficient
capital to fund marketing, selling and further development of our bioscience
technologies until products from the bioscience division result in positive cash
flow. See "Proposal to Approve the Sale of the Water Treatment Division -
Reasons for Engaging in the Asset Sale" on Page 11.
What will PURE Bioscience receive in exchange for the water treatment division
assets?
DRCI will pay us $2.75 million in cash plus up to $1.25 million in deferred
payments over the next year and will assume current liabilities other than trade
payables. In addition to funds received in exchange for the water treatment
division, we will receive $1.6 million in the same escrow transaction in
exchange for our Note and Deed of Trust asset.
What will the stockholders receive if the asset sale is approved and closes?
There will be no distributions made to the stockholders as a result of the sale
of the water treatment division assets. Rather, we will use the proceeds from
the sale primarily to fund the marketing, selling and further development of our
bioscience technologies, especially our Axenohl antimicrobial technology.
What was the process by which PURE Bioscience chose to sell the water treatment
division assets to DRCI?
We explored a variety of strategic alternatives including continued funding of
our bioscience division in part through revenue generated by our existing water
treatment division and/or through capital generated through private sales of our
common stock or issuance of debt. After reviewing our available alternatives,
our Board of Directors decided to pursue an asset sale of our water treatment
division, and our financial advisors introduced us to an interested potential
buyer, DRCI. We have negotiated with DRCI during the past two months to develop
terms of the sale that represented the best value for selling the water
treatment division.
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What will be the management structure of PURE Bioscience after the sale?
Michael L. Krall, President and CEO of PURE Bioscience will stay with PURE
Bioscience as will the other Officers and Directors. Those employees who are
currently involved with the bioscience division will remain with PURE Bioscience
after the sale.
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What are the risks of the proposed asset sale?
If the stockholders approve the sale of the water treatment division assets and
the sale is consummated, we will be selling our main revenue producing business
and we will become less diversified. We will become a bioscience company.
Although we have commercialized two pesticide products based on our
Triglycylboride technology as well as the first product derived from our Axenohl
antimicrobial technology, further product development will require additional
investment and will likely be subject to US Environmental Protection Agency
(EPA) or US Food and Drug Administration (FDA) governmental regulatory
approvals, but high profit potentials in large markets are possible if
additional products are developed and are granted appropriate regulatory
approvals.
What will occur if the sale transaction is not approved?
If the sale transaction is not approved, we will not consummate the sale. We
will continue to operate our ongoing business and re-evaluate our strategic
alternatives.
What are the federal tax consequences of the asset sale to PURE Bioscience?
We believe we will be able to apply our approximately $12.1 million tax loss
carry forward to offset most of the taxable gain from the sale of the water
treatment division.
Am I entitled to appraisal or dissenter's rights?
Stockholders are not entitled to any dissenter's or appraisal rights with
respect to the sale of the water treatment division assets under California law
or our Articles of Incorporation.
Where and when is the special meeting?
The special meeting will be held on Friday, January 16, 2004 at 10:30 a.m. local
time, at our offices at 1725 Gillespie Way, El Cajon, California 92020.
Who may vote?
Holders of our common stock at the close of business on November 25, 2003, the
record date, may vote at the meeting or any adjournment or postponement of the
meeting. On November 25, 2003, 13,454,088 shares of our common stock were issued
and outstanding. Each stockholder is entitled to one vote per share.
How do I vote?
You may vote by proxy or in person at the meeting. To vote by proxy, please
complete, sign, date and return your proxy card in the postage-prepaid envelope
provided.
How do proxies work?
Giving your proxy means that you authorize us to vote your shares at the special
meeting in the manner you direct. If you sign, date and return the enclosed
proxy card but do not specify how to vote, we will vote your shares FOR the sale
of the assets of the water treatment business. We do not know of any other
matters that will be brought before the special meeting. If, however, other
matters are properly brought before the special meeting, we will vote your proxy
on those matters as determined by the person identified on the proxy card as
your proxy.
How do I revoke my proxy?
You may revoke your proxy before it is voted by submitting a new proxy with a
later date, or by provided written notice of such revocation to the Secretary of
PURE Bioscience at our offices at 1725 Gillespie Way, El Cajon, California
92020.
What happens if I chose not to submit a proxy or to vote?
If you do not submit a proxy and do not vote at the special meeting, your shares
will not be counted toward the quorum.
What is a "quorum"?
To vote on proposals at the special meeting, a quorum must be present. A quorum
requires the presence, in person or by proxy, of the holders of at least a
majority of the votes entitled to be cast at the meeting. Abstentions and broker
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non-votes are counted as present and entitled to vote for purposes of
determining a quorum. A broker non-vote occurs when you fail to provide voting
instructions to your broker for shares that your broker holds on your behalf in
a nominee name, which is commonly referred to as holding your shares in "street
name." Under those circumstances, your broker may be authorized to vote for you
on some routine items but is prohibited from voting on other items. Those items
for which your broker cannot vote result in broker non-votes.
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How many votes are required to approve the sale of the water treatment division?
The affirmative vote of a majority of the votes casts is necessary for approval
of the sale of the water treatment division assets.
Who pays for this proxy solicitation?
Our Board of Directors is soliciting your proxy. We will pay the expenses of
preparing and distributing this proxy statement and soliciting proxies,
including the reasonable expenses of brokerages houses and other custodians,
nominees and fiduciaries for forwarding solicitation materials to beneficial
owners.
Where can I find more information about PURE Bioscience and this proposal?
You can get more information about us by inspecting our annual, quarterly and
other reports which we file with the US Securities and Exchange Commission
(SEC), by copying them at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington D.C. 20549 or by calling the SEC at 1-800-SEC-0330. You can
obtain these reports from the SEC website at www.sec.gov through the EDGAR
system or by contacting us directly at the address and telephone number below.
If you have other questions about the proposal or the special meeting you can
contact us at the following address:
PURE Bioscience
ATTN: Investor Relations
1725 Gillespie Way
El Cajon, California 92020
(619) 596-8600
The information contained or incorporated in this proxy statement constitutes
the information we believe you should rely on in deciding how to vote on the
proposal. We have not authorized anyone to provide you with information that is
different from what is contained or incorporated in this proxy statement. This
proxy statement is dated November 25, 2003. You should not assume that the
information contained in this proxy statement is accurate as of any date other
than this date.
RISK FACTORS
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Risks if Asset Sale is Not Approved
If the asset sale is not approved, PURE Bioscience will continue to operate the
water treatment division unless and until it is able to negotiate another
transaction that the Board of Directors believes is acceptable to the
stockholders and to PURE Bioscience. As discussed below under "Proposal to
Approve the Sale of the Water Treatment Division - Reasons for Engaging in the
Asset Sale," the Board of Directors believes that this transaction relieves the
need for additional funding to properly continue the marketing, selling and
further development of our bioscience technologies while still making the
necessary investments in the water treatment division to maintain our historical
growth rates. To the extent that we do not obtain needed capital through the
sale of the water treatment division, we will have to obtain it through the
issuance of additional debt or equity or through other means, any one of which
may reduce the value to us, perhaps substantially, of any commercialization of
bioscience products. There is no guarantee that we would be able to obtain such
funding on terms acceptable to us or at all.
Risks if the Asset Sale is Approved
The sale might not be consummated even though the stockholders approve the sale.
Stockholder approval is only one of the closing conditions. If the remaining
closing conditions are not satisfied or waived, the sale might not be
consummated, even if the stockholders approve the sale.
By completing the asset sale, we lose our historical revenue stream and become
less diversified. By selling our water treatment division assets, we will be
selling approximately 95% of our current source of revenue generation (based
upon results from the July 31, 2003 fiscal year end). We will become a
bioscience company focused on the marketing, selling and continued development
of our Axenohl antimicrobial technology and our Triglycylboride pesticide
technology. We may invest in other complementary technologies in the future, but
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we have no current specific plans to do so at this time. This transaction would
increase our business risk because we will be less diversified than before the
sale of the water treatment division assets and because our remaining business
is in the relatively high-risk, but potentially hi reward, field of applied
biotechnology.
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After the sale, we will become a biotechnology company in a highly regulated
field with high investment costs and high risks. After the sale, we will be a
biotechnology company. We currently have two pesticide products, RoachX and AntX
and one antimicrobial product, Axen-30 hard surface disinfectant, being sold or
ready for sale. We intend to fund and manage additional EPA regulated product
development internally and in conjunction with current regulatory consultants,
and we do not expect to be able to introduce additional EPA regulated
antimicrobial products for several months. It may be several years before we are
able to introduce any FDA regulated antimicrobial pharmaceutical products. To
that end, we have partnered with Therapeutics, Inc., a California based drug
development company, which has assumed responsibility for funding and managing
the testing and regulatory process for potential FDA regulated Axenohl-based
pharmaceutical products. The FDA and comparable agencies in many foreign
countries impose substantial limitations on the introduction of new products
through costly and time-consuming laboratory and clinical testing and other
procedures. The process of obtaining FDA and other required regulatory approvals
is lengthy, expensive and uncertain.
Even after we have invested substantial funds in further development of our
Axenohl-based products and related technology, and even if the results of our
efforts are favorable, there can be no guarantee that we will be granted
necessary regulatory approvals.
If we successfully bring additional EPA or FDA regulated products to market,
there is no assurance that we will be able to successfully manufacture or market
the products or that potential customers will buy them, if for example, a
competitive product has greater efficacy or is deemed more cost effective. In
addition, the market in which we will sell any such products is dominated by a
number of large, well-capitalized corporations, which may impact our ability to
successfully market our products or maintain any technological advantage we
might develop. We also would be subject to changes in regulations governing the
manufacture and marketing of our products, which could increase our costs,
reduce any competitive advantage we may have and/or adversely affect our
marketing effectiveness.
FORWARD LOOKING STATEMENTS
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When used in this proxy statement, the words "estimate," "project," "intend,"
"expect" and similar expressions are intended to identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this proxy
statement. Actual results may differ materially from those contemplated in
forward-looking statements and projections. Risks and uncertainties that may
cause such differences include, but are not limited to, our ability to close the
sale of the water treatment division assets, the effects on PURE Bioscience if
the sale is not completed, and other risk factors detailed under "Risk Factors,"
above and in our Securities and Exchange Commission filings, including our Form
10-K for the year ended July 31, 2003.
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PROPOSAL TO APPROVE THE SALE OF THE WATER TREATMENT DIVISION
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If the sale of the water treatment division is approved by our stockholders, we
intend to complete the sale of substantially all of the assets of the water
treatment division to DCRI pursuant to the terms of the Agreement for the
Purchase and Sale of Assets. We expect to use the net proceeds of the sale to
fund the marketing, selling and continued development of our bioscience
technologies, especially our Axenohl antimicrobial technology. A detailed
description of the asset sale and related information is included in this proxy
statement. Descriptions of the asset sale in this proxy statement are qualified
in their entirety by reference to the Agreement for the Purchase and Sale of
Assets that is attached to this proxy statement as an exhibit. Stockholders are
encouraged to read the Agreement for the Purchase and Sale of Assets in its
entirety.
PURE Bioscience
PURE Bioscience (formerly Innovative Medical Services) began as a provider of
pharmaceutical water purification products. Although our current revenues are
still primarily from the pharmacy industry, we have expanded from our niche
pharmacy market into other, broader markets with new products, including
residential and commercial water filtration systems, and bioscience products
based upon our silver ion bioscience technologies and boric acid based pesticide
technologies. Because of this business development evolution, in September 2003,
shareholders approved a name change from Innovative Medical Services to PURE
Bioscience.
Water Treatment Division The Fillmaster(R) pharmaceutical water purification,
dispensing and measuring products include the Pharmapure(R) water purification
system, the FMD 550 dispenser, the patented Fillmaster 1000e computerized
dispenser and the patented Scanmaster(TM) bar code reader. We also market
proprietary National Sanitation Foundation certified replacement filters for the
Fillmaster Systems.
Our Nutripure(R) line of water treatment and filtration systems includes the
Nutripure 3000S-Series whole-house water softening systems, the Nutripure Elite
reverse osmosis point-of-use systems, the Nutripure 2000 countertop water
filtration system and the Nutripure Sport filtered sport bottle.
Bioscience Division Our bioscience division features a liquid disinfectant
called Axenohl(R). A patented new molecule, silver dihydrogen citrate, Axenohl
is an electrolytically generated source of stabilized ionic silver that can
serve as the basis for a broad range of products in diverse markets. Axenohl is
colorless, odorless, tasteless, non-caustic and formulates well with other
compounds. Axenohl-based antimicrobial technology is distinguished from
competitors in the marketplace because of its superior efficacy and reduced
toxicity.
In March 2003, we obtained Environmental Protection Agency (EPA) registration
for our Axen-30(TM) hard surface disinfectant. Axen-30 is a 30-part per million
use dilution formula of Axenohl. Efficacy claims for Axen-30 include a 30-second
kill time and 24-hour residual kill on standard indicator bacteria; a 2-minute
kill time on the resistant strains of bacteria, MRSA and VRE; a 10-minute kill
time on fungi; a 30-second kill time on HIV Type I; and a 10-minute kill time on
certain other viruses. These claims distinguish the efficacy of Axen-30 from
many leading commercial and consumer products currently on the market. In
addition, Axen-30 has the lowest toxicity ratings. PURE Bioscience plans to
pursue EPA approvals for additional applications including disinfecting wipes,
food contact surface sanitization and water treatment. In September 2003, we
announced the first significant commercialization of our hard surface
disinfectant.
We plan to pursue additional regulatory approvals for other applications.
Additional possible uses for this product include wound care, topical infection
care, personal disinfecting retail products, food processing, and food safety
applications which may require FDA approvals, as well as municipal water
treatment and point-of-use/point-of-entry water treatment products, which may
require additional EPA approvals.
In September 2003 we announced an agreement with Therapeutics, Inc., a drug
development company based in La Jolla, California, for the development and
commercialization of Food and Drug Administration (FDA) regulated Axenohl-based
products. Therapeutics, Inc. will fund and direct all development activities and
FDA regulatory filings and will initially focus on development of Axenohl-based
products for the treatment of bacterial, viral and fungal mediated diseases and
conditions.
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The bioscience division also includes a patent-pending pesticide technology,
Triglycylboride(TM) which, like Axenohl, provides effective results without
human toxicity and is an alternative to traditional poisons. Triglycylboride has
been formulated into EPA approved RoachX(TM) and AntX(TM), the key products in
the Company's Innovex(TM) line of pest control products. In addition, the
Innovex line features two formulas of EPA-exempt non-toxic TrapX rodent lure,
Pro's Choice(TM) caulk for pest control operators, and EPA approved
CleanKill(TM), the Axen-based hard surface disinfectant for the pest control
industry. The pest control products are being marketed to both commercial pest
control and consumer products companies.
United States Department of Agriculture testing confirms that RoachX is over 96%
effective in three to four days with one application for indoor and outdoor
eradication of cockroaches, and can be used near children and food preparation
areas. Boric acid is a well-known and effective deterrent of cockroaches and
will kill them on contact, but cockroaches do not naturally eat the repellent.
Although many pesticide products contain boric acid as the listed active
ingredient, we believe RoachX to be new because of the endothermic reaction
caused by the combination of boric acid and polyglycol that produces three
unique results: 1) The formula protects the boric acid from water and humidity,
2) When combined with an attractant, the cockroaches perceive the formulation as
food and will actually eat the polyglycol-encapsulated boric acid, and 3) The
formula acts as a time-released pesticide, allowing the cockroach to return to
the nest before it dies and then becomes a "bait station" for other roaches in
the colony. We believe the product line, containing particular formulas and
attractants for specific pests, is effective against cockroaches, ants, palmetto
bugs, silverfish, waterbugs, ticks, fleas, lice and garden pests.
We are currently maintaining our initial strategy of marketing our Innovex pest
control product line to industry wholesalers, and we are in the process of
significantly expanding our marketing reach. We have taken a high level,
executive-to-executive approach with leading national pest control companies,
including the two largest companies in this sector which, as of the date of this
report, are both evaluating the product line. We have also launched an
aggressive marketing program to directly target individual pest control
operators to either sell directly or create a grass roots demand from pest
control professionals for the products to be carried by their distributors. As a
final measure to maximize market reach, we plan to offer a private label program
which should fortify sales to pest control professionals as well as provide a
cost-effective entry into the consumer retail marketplace. We believe the
competitive advantages of these products should allow favorable outcomes from
both of the additional marketing strategies.
History
PURE Bioscience was incorporated in the State of California on August 24, 1992,
to pursue the immediate business of manufacturing and marketing the Fillmaster
and subsequently a broadly based business of delivering advanced technology,
equipment and supplies to not only the pharmacy industry, but also other
healthcare markets and to retail consumers.
In the past five years, PURE Bioscience transitioned from a one-product company
supplying a niche market to a multi-division company managing new products and
programs. In addition to expanding the Fillmaster product line with the
Fillmaster 1000e and the Scanmaster, we launched a line of residential water
treatment and filtration products. In 1997, we developed and launched the
now-patented Fillmaster 1000e computerized, electronic dispenser as an upgrade
dispenser to the Fillmaster pharmaceutical water purification and dispensing
system. In 1997 and 1998 we developed our entry-level residential water system,
Nutripure(R) NP2000CT. After 18 months of extensive market research, PURE
Bioscience completed development of this carbon countertop system and released
the product in June 1998. In 1999 we developed and launched yet another
enhancement to our Fillmaster pharmaceutical water purification and dispensing
system, the Scanmaster bar code reader.
Through acquisition, we have also expanded into the bioscience arena with our
Axenohl antimicrobial products and our Innovex pesticide products.
In 2001 we acquired the marketing rights and patent to our boric acid pesticide
technologies. The first of these products developed, RoachX, launched in October
2001. In mid-2002 we expanded our Innovex line of pesticides to include RoachX,
AntX75, two formulas of TrapX, Pro's Choice silicone caulk and CleanKill, a hard
surface disinfectant for use in the pest control industry that uses Axenohl
disinfecting technology.
13
In 1999, we began investigating marketing opportunities for a silver-ion based
technology called Axenohl. The Axenohl patent was owned at the time by NVID
International.
Early in 2000, after concluding that we wished to pursue development and
marketing of the Axenohl technology, we engaged in a marketing and licensing
agreement with NVID International for Axenohl for specific market segments in
specific geographic areas. In late 2001, as part of a litigation settlement with
NVID regarding the marketing rights to Axenohl, we acquired the patent to the
Axenohl technology.
In March 2003, we received Environmental Protection Agency (EPA) registration
for the first commercialized Axenohl-based product: new Axen-30 formulated
Category IV hard surface disinfectant product for commercial, industrial and
consumer applications. Axen-30 is a 30-part per million (ppm) use-dilution
formula of our patented antimicrobial technology, Axenohl. The additional EPA
approval allows us to expand the existing Axen efficacy claims as a hard surface
disinfectant to include a 30 second kill time on standard indicator bacteria, a
24 hour residual kill on standard indicator bacteria, a 2 minute kill time on
some resistant strains of bacteria, 10 minute kill time on fungi, 30 second kill
time on HIV Type I, and 10 minute kill time on other viruses. These claims
distinguish the efficacy of Axen-30 from many of the leading commercial and
consumer products currently on the market, while maintaining lower toxicity
ratings.
In July 2003 we received a second United States patent granted for the unique
disinfectant Axenohl. U.S. patent 6,583,176 was issued on June 24, 2003 and
covers the formulation of the Axenohl aqueous disinfectant in combination with
ethyl alcohol. U.S. patent 6,583,176 is a division of the first U.S. patent
6,197,814 issued on March 6, 2001 covering the basic Axenohl formulation and the
method of making.
In September 2003, PURE Bioscience announced the first significant
commercialization of its hard surface disinfectant, Axen-30(R), which is sold by
EnvirOx L.L.C. of Danville, Illinois, as Critical Care(TM), a new commercial
disinfectant-fungicide-virucide. Also in September, the Company announced an
agreement with Therapeutics, Inc., a drug development company based in La Jolla,
California, for the development and commercialization of FDA regulated
Axenohl-based products. Therapeutics, Inc. will fund and direct all development
activities and FDA regulatory filings and will initially focus on development of
Axenohl-based products for the treatment of bacterial, viral and fungal mediated
diseases and conditions.
Data Recovery Continuum, Inc.
Data Recovery Continuum, Inc. is a privately held California-based holding
company that is involved with various high tech business opportunities. Lee
Brukman is a control person of Data Recover Continuum, Inc. Mr. Brukman is also
a control person of Next9 LLC which holds 2 million shares, or approximately 15%
of our common stock.
Description of the Asset Sale
On October 29, 2003, we announced that we signed a term sheet to sell our water
treatment business to Data Recovery Continuum, Inc., for $2.75 million in cash
plus up to $1.25 million in deferred payments over the next year. Upon the
closing of the asset sale, we will assign and DRCI will assume and agree to
perform those obligations outstanding on or arising after the closing date
relating to the operation of the water treatment division (including various
liabilities related to our employees).
Consideration to be Received in the Asset Sale. In exchange for the water
treatment division assets, DRCI will pay us $2.75 million in cash at closing
plus up to $1.25 million in deferred payments over the next year and assume
current liabilities other than trade payables related to the water treatment
division. In addition to funds received in exchange for the water treatment
division, we will receive $1.6 million in the same escrow transaction in
exchange for our Note and Deed of Trust asset.
Assets Transferred and Liabilities Assumed. We are selling and transferring
substantially all of the assets of our water treatment division (other than
accounts receivable), which includes substantially all of the water treatment
equipment, work-in-process, inventory, licenses, customer lists and some
contracts and agreements. DRCI will assume our obligations under the assumed
contracts. DRCI also is hiring substantially all of the water treatment
division's staff and assuming or otherwise relieving us of related employee
obligations. However, any obligation not expressly assumed by DRCI pursuant to
the Agreement for the Purchase and Sale of Assets will remain our
responsibility, which will include obligations related to any employee severance
payments, change-in-control severance payments, worker's compensation claims,
stock options, taxes, liabilities related to excluded assets and undisclosed or
contingent liabilities, if any. In addition, in the same escrow transaction, we
are transferring our Note and Deed of Trust to DRCI.
14
Other Material Terms of the Agreement for the Purchase and Sale of Assets
Representations and Warranties. The Agreement for the Purchase and Sale of
Assets contains customary representations and warranties from us to DRCI
relating to, among other things:
o due organization and qualification;
o authorization;
o non-contravention;
o title to property, principal equipment, sufficiency of assets;
o lease and sublease;
o compliance with laws;
o absence of litigation;
o business employees of the water treatment division;
o matters related to contracts;
o environmental matters;
o intellectual property;
o brokers;
o taxes;
o product liability and recalls;
o customers and suppliers;
o restrictions on the business;
DRCI has made representations and warranties to us regarding its legal capacity
and authority to enter into and perform its obligations under the Agreement for
the Purchase and Sale of Assets as well as sufficiency of funds available to pay
the purchase price and expenses incurred by DRCI in connection with the
transaction.
Most of our and DRCI's representations and warranties expire at the one year
anniversary of the closing. Some, related to title matters survive indefinitely
and others, related principally with environmental liabilities expire 90 days
after the respective statute of limitations for such claims expire.
Conditions to the Closing. The closing of the sale will be held promptly after
approval by our stockholders and the satisfaction of all other conditions to
closing. The obligation of DRCI to purchase the assets of the water treatment
division is subject to various conditions, which must be satisfied prior to
January 31, 2004, including the following:
o no injunctions;
o our representations and warranties and those of DCRI remain true at
closings;
o performance by us and by DCRI to deliver all documents required and
perform all obligations required by the Agreement for the Purchase and
Sale of Assets;
o the water treatment division shall not have suffered a material
adverse effect
o delivery of legal opinions of our counsel and that of DCRI; and o
approval by our stockholders of the sale of the water treatment
division assets.
Indemnification. We have agreed to indemnify DRCI for any losses and claims
against it arising from:
o our breach of any covenants or any representations or warranties in
the Agreement for the Purchase and Sale of Assets
o any liabilities we have agreed to retain;
o any of the assets DRCI did not purchase;
o some claims arising out of conduct that occurred prior to the closing;
o taxes; and
o bulk transfer laws.
DRCI has agreed to indemnify us for any of our losses resulting from any
inaccuracy in or breach or nonperformance of any of DRCI's representations,
warranties, covenants or agreements, its conduct and operation of the water
treatment division after the closing and its failure to pay, perform or
otherwise discharge the liabilities it agreed to assume as part of its purchase
of the water treatment division.
15
Noncompetition. We have agreed that for a period of five years immediately
following the closing date we will not directly or indirectly operate, perform
or have any ownership interest in a business that develops, manufactures, sells,
installs and point-of-use water filtration equipment.
Reasons for Engaging in the Asset Sale
Our Board of Directors believes that the proposed sale of the water treatment
division assets to DRCI under the terms of the Agreement for the Purchase and
Sale of Assets is in our best interests and the best interests of our
stockholders. The Board believes that the sale positions us to accelerate the
continued development and commercialization of our bioscience technologies
because products derived from these technologies have potentially higher profit
margins in potentially significantly larger markets. In particular, the current
strategy focuses on marketing, selling and continued development of our Axenohl
antimicrobial technology. The sale of the water treatment division allows us to
focus all resources exclusively on our bioscience technologies without the
distraction of simultaneously managing two different businesses.
In addition, the sale of the water treatment division assets relieves the need
to raise capital through sales of common stock, reducing potential future
dilution, or the need to take on debt in order to execute the bioscience
business plan. The proceeds from this transaction should allow us to be self
sufficient until our bioscience technologies result in positive cash flow.
The proceeds from the transaction will be used to eliminate our debt and provide
the necessary bulk capital infusion to advance the commercialization and
regulatory approval of existing products while allowing us to conduct research
and development of new products based on our bioscience technologies.
Simultaneous with continued testing and regulatory work, we will apply proceeds
from the sale of the water treatment division toward expanding our sales and
marketing of our currently commercialized products, our Axen-30 hard surface
disinfectant and the pesticide products.
Background, Past Contacts and Negotiations
In August of 2003 the Company completed a financing arrangement with Next9 LLC,
of which Lee Brukman is a control person, which included the acquisition of a
$2,000,000 Trust Deed receivable and $35,000 related accrued interest and
issuing a $435,000 note payable resulting in a net increase of $1,600,000 in
equity during the period. This note receivable was in exchange for the issuance
of 2,000,000 shares of the Company's common stock to a party unrelated to the
Company, and that is fully secured by specific assets other than the equity
instruments granted. Lee Brukman is also a control person of DRCI.
16
On November 24, 2003, we issued a Promissory Note to DRCI in consideration of
$4.75 million. Under the terms of the Agreement for the Purchase and Sale of
Assets, the Promissory Note will be forgiven upon the closing of the
transaction. Otherwise, the Promissory Note is due and payable 120 days from the
funding of the $4.75 million.
Recommendation of the Board of Directors to Stockholders
Our Board of Directors has unanimously approved the sale of the water treatment
division assets and the Agreement for the Purchase and Sale of Assets. Our Board
of Directors believes that the sale of the water treatment division assets is in
the best interests of PURE Bioscience and our stockholders and recommends that
stockholders vote in favor of the sale of the water treatment division assets
pursuant to the Agreement for the Purchase and Sale of Assets
Vote Required for Approval
The affirmative vote of a majority of the votes duly cast by the holders of
common stock is required to adopt this proposal.
CONFLICTS OF INTEREST: INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
--------------------------------------------------------------------------------
See "Security Ownership of Certain Beneficial Owners and of Management" on
Page 18.
ACCOUNTING TREATMENT OF THE ASSET SALE
--------------------------------------
Under generally accepted accounting principles, upon consummation of the sale of
our water treatment division assets, we will remove the net assets sold from our
consolidated balance sheet and record the gain on the sale, net of transaction
costs, severance and other related costs, including applicable state and federal
income taxes, in our consolidated statement of income.
MATERIAL TAX CONSEQUENCES OF THE ASSET SALE
-------------------------------------------
The following is a summary of the principal material United States federal and
California income tax consequences relating to the proposed sale of our water
treatment division assets to Data Recovery Continuum, Inc. (DRCI). The following
summary is based on the current provisions of the Internal Revenue Code,
existing, temporary, and proposed Treasury regulations there under, and current
administrative rulings and court decisions. Future legislative, judicial or
administrative actions or decisions, which may be retroactive in effect, may
affect the accuracy of any statements in this summary with respect to the
transactions entered into or contemplated prior to the effective date of those
changes.
The proposed sale of our water treatment division assets to DRCI will be a
transaction taxable to us for United States federal and California income tax
purposes. We will recognize taxable income equal to the amount realized on the
sale in excess of our tax basis in the assets sold. The amount realized on the
sale will consist of the cash we receive in exchange for the assets sold, plus
the amount of related liabilities assumed by DRCI.
Although the sale of our water treatment division assets to DRCI will result in
a taxable gain to us, a portion of the taxable gain will be offset to the extent
of current year losses from operations plus available net operating loss carry
forwards, as currently reflected on our consolidated federal and California
income tax returns. The taxable gain will differ from the gain to be reported in
the PURE Bioscience financial statements due to temporary tax differences and
certain other differences between the tax laws and generally accepted accounting
principles.
We believe we will be able to apply our approximately $12.1 million tax loss
carry forward without limitation against the taxable gain from the sale of the
water treatment division assets. However, due to the limitation of net operating
loss carry forwards under the federal alternative minimum tax system, a portion
of the taxable gain reduced by our net operating loss carry forwards may be
subject to the federal alternative minimum income tax. The availability and
amount of net operating loss carry forwards are subject to audit and adjustment
by the Internal Revenue Service. In the event that the Internal Revenue Service
adjusts the net operating loss carry forwards, we may incur an increased tax
liability.
Our stockholders will experience no federal income tax consequences as a result
of the consummation of the proposed sale of our water treatment division assets
to DRCI.
17
REGULATORY APPROVALS
We are not required to comply with any federal or state regulatory requirements
or obtain approval from any federal or state agency in connection with the asset
sale.
18
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------
The following unaudited pro forma condensed consolidated financial statements
are based on the historical consolidated financial statements of PURE Bioscience
and subsidiaries incorporated by reference into this proxy statement, adjusted
to give effect to the disposition of the Water treatment division in accordance
with the Agreement for the Purchase and Sale of Assets dated November 24, 2003
between us and DRCI.
The unaudited pro forma consolidated balance sheets give effect to the proposed
transaction as if it occurred on the date of the balance sheet. The cash
proceeds and resulting gain are only included in the July 31, 2003 balance
sheet. The unaudited pro forma consolidated statements of operations for the
years ended July 31, 2003 and July 31, 2002 give effect to the transaction as if
it had occurred as of August 1, 2001.
The pro forma consolidated financial information is presented for illustrative
purposes only, and is not necessarily indicative of the operating results or
financial position that would have occurred if all of the events as described
above had occurred on the first day of the respective periods presented, nor is
it necessarily indicative of our future operating results or financial position.
The unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the historical consolidated financial statements for
PURE Bioscience included or incorporated by reference in this proxy statement.
19
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------------------------------------------------------
July 31 July 31
2003 2002
--------------------------------------- -----------------------------------------
Sale of Water Sale of Water
Historical Division Proforma Historical Division Proforma
---------- ---------- ----------- ---------- ------------- ----------
ASSETS
Current Assets
Cash and cash equivalents $ 251,087 $ 4,105,000)(2) $ 4,356,087 $ 151,257 $ - $ 151,257
Accounts receivable,
net of allowance
for doubtful accounts of
$63,500 at July 31, 2003
and $111,000 at July 31, 2002 163,895 - 163,895 166,601 - 166,601
Due from officers and employees 61 - 61 209,437 - 209,437
Inventories 287,940 (197,821)(1) 90,119 595,071 (412,597)(1) 182,474
Prepaid expenses and other
current assets 6,655 - 6,655 177,445 - 177,445
---------- ---------- ----------- ---------- ------------ ----------
Total current assets 709,638 3,907,179 4,616,817 1,299,811 (412,597) 887,214
---------- ---------- ----------- ---------- ------------ ----------
Property, Plant and Equipment
Property, plant and equipment 432,743 (183,074)(1) 249,669 613,909 (209,042)(1) 404,867
---------- ---------- ----------- ---------- ------------ ----------
Total property, plant and
equipment 432,743 (183,074) 249,669 613,909 (209,042) 404,867
---------- ---------- ----------- ---------- ------------ ----------
Noncurrent Assets
Deposits 9,341 - 9,341 8,954 - 8,954
Patents and licenses 2,475,280 - 2,475,280 2,626,376 - 2,626,376
---------- ---------- ----------- ---------- ------------ ----------
Total noncurrent assets 2,484,621 - 2,484,621 2,635,330 - 2,635,330
---------- ---------- ----------- ---------- ------------ ----------
Total assets $ 3,627,002 $ 3,724,105 $ 7,351,107 $ 4,549,050 $ (621,639) $ 3,927,411
============ ============ =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable $ 1,079,128 $ - $ 1,079,128 $ 591,031 $ - $ 591,031
Accrued liabilities 150,688 - 150,688 118,975 - 118,975
Income taxes payable - 120,000 (2) 120,000 - - -
Notes payable 180,513 - 180,513 - - -
Loans from shareholders 600,000 - 600,000 500,000 - 500,000
---------- ---------- ----------- ---------- ------------ ----------
Total current liabilitiees 2,010,329 120,000 2,130,329 1,210,006 - 1,210,006
---------- ---------- ----------- ---------- ------------ ----------
Stockholders' Equity
Class A common stock, no par value:
authorized 50,000,000 shares,
issued and outstanding
10,594,088 at July 31, 2003 and
8,400,899 at July 31, 2002 14,758,203 1,600,000(2) 16,358,203 13,976,448 - 13,976,448
Warrants: issued and outstanding
1,037,429 warrants 788,473 - 788,473 8,610 - 8,610
Accumulated deficit (13,930,003) 2,004,105(1) (11,925,898) (10,646,014) (621,639)(1) (11,267,653)
----------- ---------- ----------- ---------- ------------ ----------
Total stockholders' equity 1,616,673 3,604,105 5,220,778 3,339,044 (621,639) 2,717,405
---------- ---------- ----------- ---------- ------------ ----------
Total liabilities and
stockholders equity $ 3,627,002 $ 3,724,105 $ 7,351,107 $ 4,549,050 $ (621,639) $ 3,927,411
============= ============ ============ =========== ============ ===========
The accompanying notes are an integral part of these financial statements
20
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------------------------------------------------------
For the Year Ended For the Year Ended
July 31 July 31
2003 2002
--------------------------------------- --------------------------------------------
Sale of Water Sale of Water
Historical Division Proforma Historical Division Proforma
Net revenues $ 2,589,496 $ (2,473,756) $ 115,740 $ 3,206,448 $ (2,188,965) $ 1,017,483
Cost of sales 1,533,970 (1,447,548) 86,422 1,598,553 (1,261,747) 336,806
----------- ------------ --------- ----------- ------------- -----------
Gross profit 1,055,526 (1,026,208) 29,318 1,607,895 (927,218) 680,677
----------- ------------ --------- ----------- ------------- -----------
Selling expenses 466,198 - 466,198 749,348 - 749,348
General and administrative expenses 2,182,097 (407,105) 1,774,992 2,027,875 (404,867) 1,623,008
Research and development 981,493 - 981,493 780,510 - 780,510
Start-up costs 635,376 - 635,376 47,831 - 47,831
----------- ------------ --------- ----------- ------------- -----------
Total operating costs 4,265,164 (407,105) 3,858,059 3,605,564 (404,867) 3,200,697
----------- ------------ --------- ----------- ------------- -----------
Loss from operations (3,209,638) (619,103) (3,828,741) (1,997,669) (522,351) (2,520,020)
----------- ------------ --------- ----------- ------------- -----------
Other income and (expense):
Interest income 1,333 - 1,333 9,999 - 9,999
Interest Expense (98,765) - (98,765) (39,024) - (39,024)
Other 23,081 - 23,081 (2,400) (800) (3,200)
----------- ------------ --------- ----------- ------------- -----------
Total other income (expense) (74,351) - (74,351) (31,425) (800) (32,225)
----------- ------------ --------- ----------- ------------- -----------
Loss from continuing operations $ (3,283,989) $ (619,103) $(3,903,092) $ (2,029,094) $ (523,151) $ (2,552,245)
============ ============ =========== ============ ============= ============
Net loss per common share, basic and diluted
Continuing operations $ (0.36) $ (0.07) $ (0.43) $ (0.27) $ (0.07) $ (0.34)
Discontinued operations - - - (0.02) - (0.02)
----------- ------------ ---------- ------------ ------------- ------------
Net loss $ (0.36) $ (0.07) $ (0.43) $ (0.29) $ (0.07) $ (0.36)
=========== ============ ========== ============ ============= ============
The accompanying notes are an integral part of these financial statements
21
NOTES TO UNAUDITED PRO FORMA BALANCE SHEETS
-------------------------------------------
Divestiture
On October 29, 2003, PURE Bioscience and subsidiaries ("PURE") announced that it
had entered into an agreement (the "Agreement For The Purchase and Sale of
Assets") to sell substantially all of the assets and certain related liabilities
of the Water treatment division, including substantially all of the related
machinery, equipment, inventory, work in process, licenses, customer lists and
certain intellectual property and certain agreements and contracts to Data
Recovery Continuum, Inc. (DRCI). The sale will be accounted for by PURE
Bioscience as a discontinued operation.
If the proposed transaction is consummated, DRCI will pay $2.75 million in cash
at the closing. DRCI will also pay an additional $250,000 six months later and
another $1,000,000 one year after closing after the Nutripure 2000 Countertop
water purifier reaches certain agreed upon volume and sales projections in
connection with a rollout program with a large general merchandise retailer. In
the event the sales of Nutripure products do not achieve the projected levels
the additional payment amounts will be reduced on a pro rata basis. Also at
closing DRCI has agreed to deposit an additional $1.6 million into escrow to
purchase the Company's Trust Deed receivable at face value ($2.0 million trust
deed plus accrued interest less $435,000 due to Next9 LLC), PURE Bioscience will
incur no gain or loss on this portion of the agreement. The Trust Deed was
acquired in August of 2003 in exchange for 2,000,000 shares of PURE common
stock.
(1) To give effect to the disposition of the Water treatment division as of the
balance sheet date presented. Pursuant to the Agreement for the Purchase and
Sale of Assets, PURE Bioscience will sell substantially all of the assets of the
Water treatment division, including substantially all of the related machinery,
equipment, inventory, work in process, licenses, customer lists and certain
intellectual property and certain agreements and contracts to DRCI. Therefore,
the adjustment removes the related historical assets and liabilities of the
Water treatment division that will not be retained by PURE Bioscience.
(2) To give effect to the net cash proceeds, gain on disposition and related
taxes as a result of the sale of the Water treatment division as if it occurred
on July 31, 2003. The cash amount reflects the $2.75 million payment from DRCI
and direct costs of the transaction of $245,000, plus the $1.6 million for the
sale of the Trust Deed, for net proceeds of $4.105 million. The gain reflected
in accumulated deficit is composed primarily of the cash proceeds, net of the
net assets sold, direct costs, and taxes payable.
22
PROPOSAL NO. 2 AUTHORIZATION FOR THE BOARD OF DIRECTORS TO DECLARE A
REVERSE SPLIT OF THE OUTSTANDING COMMON STOCK ONLY AND AS
WHEN DEEMED NECESSARY BY THE BOARD TO MAINTAIN THE LISTING
OF THE COMPANY'S COMMON STOCK ON THE NASDAQ SMALLCAP MARKET
ON OR BEFORE JANUARY 31, 2004 ON THE BASIS OF UP TO ONE
SHARE OF COMMON STOCK FOR EVERY THREE SHARES OUTSTANDING ON
THE EFFECTIVE DATE WITH EACH RESULTING FRACTIONAL SHARE
ROUNDED UP TO THE NEXT WHOLE SHARE.
--------------------------------------------------------------------------------
On October 30, 2003 the Board of Directors approved submitting a reverse stock
split of the Company's Common Stock to the Company's shareholders if the Board
subsequently determines that a reverse split would be necessary to keep the
Common Stock eligible to be quoted on The Nasdaq SmallCap Market ("Nasdaq"). It
is recommended that the shareholders approve giving the Board the authority to
subsequently declare an up to 3-to-1 reverse stock split of the Company's Common
Stock on or before January 31, 2004. Assuming that a reverse stock split would
cause the trading price of the Company's Common Stock to increase in the same
proportion as the amount of the split, a reverse stock split may be necessary if
the quoted bid price of the Common Stock remains below $1.00 per share thereby
maintaining Nasdaq eligibility of a bid price of not less than $1.00. The
effective date for any subsequently declared reverse stock split will be
approximately ten days following notice to Nasdaq that a reverse split has been
declared. No fractional shares will be issued and no cash will be paid for
fractional shares. Instead, each fractional share would be rounded up to a whole
share.
The Board of Directors does not intend to declare a reverse split at this time
and does not believe that a reverse split will be necessary. However, as the
Board believes that maintenance of the NASDAQ listing is critical to the
Company's ability to raise capital and to maintaining shareholder liquidity, the
Board believes it is in the best interest of the Company and its shareholders
that the Board have the authority to act promptly to maintain the NASDAQ
listing.
Effect of Reverse Split on Holders of Odd Lots of Shares
If authorized by the shareholders and subsequently declared by the Board, a
reverse split may result in shareholders having an "odd lot" of less than 100
shares if their resulting total number of shares is not a multiple of 100. A
securities transaction of 100 or more shares is a "round lot" transaction of
shares for securities trading purposes and a transaction of less than 100 shares
is an "odd lot" transaction. Round lot transaction are the standard size
requirements for securities transactions and odd lot transactions may result in
higher transaction costs to the odd lot seller.
Vote Required for Approval
The affirmative vote of a majority of the votes duly cast by the holders of
common stock is required to adopt this proposal.
23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND OF MANAGEMENT
-----------------------------------------------------------------
The following table sets forth the number of shares of the Company's Common
Stock beneficially owned as of November 25, 2003 by individual directors and
executive officers and by all directors and executive officers of the Company as
a group. Based upon a review of the Company's shareholders list as of November
25, 2003, there are two other registered holders of five percent or more of the
Company's Common Stock. As of November 25, 2003 there were 13,454,088 shares
outstanding.
Name and Address of Common Stock Percentage of Shares
Beneficial Owner Title Ownership Outstanding (%)
---------------------------- ------------------------- --------------------- ------------------------
Dennis Atchley Secretary 243,860 (1) 1.81
Gene Auerbach Chief Operating Officer 175,000 (2) 1.30
Gregory Barnhill Director 425,000 (3) 3.16
Dennis Brovarone Director 506,483 (4) 3.76
Gary Brownell Treasurer, CFO/Director 450,321 (5) 3.35
Patrick Galuska Director 420,690 (6) 3.13
Michael L. Krall President, CEO/Chairman 1,353,560 (7) 10.06
Eugene Peiser Director 476,136 (8) 3.54
Donna Singer Executive VP, Director 403,356 (9) 3.00
Directors and Officers as a Group
(9 individuals) 4,454,406 (10) 33.11
Next9 LLC 2,000,000 (11) 14.87
Jeffery P. Dauenhauer 700,000 5.20
(1) Includes presently exercisable options to acquire up to 200,000 shares.
(2) Includes presently exercisable options to acquire up to 150,000 shares.
(3) Includes presently exercisable options to acquire up to 250,000 shares.
(4) Includes presently exercisable options to acquire up to 435,000 shares.
(5) Includes presently exercisable options to acquire up to 400,000 shares.
(6) Includes presently exercisable options to acquire up to 350,000 shares.
(7) Includes presently exercisable options to acquire up to 731,250 shares.
(8) Includes presently exercisable options to acquire up to 400,000 shares.
(9) Includes presently exercisable options to acquire up to 375,000 shares.
(10) Includes presently exercisable options held by all of the above
officers and directors to acquire up to 2,814,250 shares.
(11) Lee Brukman is a control person of Next9 LLC
REQUEST FOR MORE INFORMATION
----------------------------
Shareholders may obtain more information by means of the internet through the
SEC's EDGAR system at www.sec.gov. Documents incorporated by reference are also
available, without charge, excluding exhibits unless they have been specifically
incorporated by reference in this proxy statement, upon written or oral request
by contacting:
PURE Bioscience
1725 Gillespie Way
El Cajon, CA 92020
(619) 596-8600
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
-----------------------------------------
Any proposal by a shareholder to be presented at the Company's 2004 Annual
Meeting of Shareholders, including nominations for election as directors must be
received at the offices of the Company, 1725 Gillespie Way, El Cajon, California
92020, no later than January 31, 2004.
OTHER MATTERS
-------------
We know of no other matters to be submitted at the Special meeting. If any other
matter properly comes before the Special Meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
our Board of Directors may recommend.
24
PROXY PROXY SOLICITED BY THE BOARD OF DIRECTORS OF PROXY
PURE BIOSCIENCE
The undersigned appoints Michael L. Krall (and Donna Singer, if Mr. Krall is
unable to serve), as the undersigned's lawful attorney and proxy, with full
power of substitution and appointment, to act for and in the stead of the
undersigned to attend and vote all of the undersigned's shares of the Common
Stock of PURE BIOSCIENCE, a California corporation, at the Special Meeting of
Shareholders to be held at the Company's corporate office at 1725 Gillespie Way,
El Cajon, California 92020 , at 10:30 am. Pacific Standard Time, on January 16,
2004 and any and all adjournments thereof, for the following purposes:
PROPOSAL NO.1 SALE OF THE WATER TREATMENT DIVISION
| | FOR | | AGAINST | | ABSTAIN
MANAGEMENT INTENDS TO VOTE SHARES FOR PROPOSAL NO. 1 UNLESS OTHERWISE
INSTRUCTED IN THIS PROXY. ---
PROPOSAL NO. 2 AUTHORIZATION FOR THE BOARD OF DIRECTORS TO DECLARE A
REVERSE SPLIT OF THE OUTSTANDING COMMON STOCK ONLY AND AS
WHEN DEEMED NECESSARY BY THE BOARD TO MAINTAIN THE LISTING
OF THE COMPANY'S COMMON STOCK ON THE NASDAQ SMALLCAP MARKET
ON OR BEFORE JANUARY 31, 2004 ON THE BASIS OF UP TO ONE
SHARE OF COMMON STOCK FOR EVERY THREE SHARES OUTSTANDING ON
THE EFFECTIVE DATE WITH EACH RESULTING FRACTIONAL SHARE
ROUNDED UP TO THE NEXT WHOLE SHARE.
| | FOR | | AGAINST | | ABSTAIN
MANAGEMENT INTENDS TO VOTE SHARES FOR PROPOSAL NO. 2 UNLESS OTHERWISE
INSTRUCTED IN THIS PROXY. ---
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN ACCORDANCE
WITH THE SHAREHOLDER'S SPECIFICATION ABOVE. THIS PROXY CONFERS DISCRETIONARY
AUTHORITY IN RESPECT TO MATTERS FOR WHICH THE SHAREHOLDER HAS NOT INDICATED A
PREFERENCE OR IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE TIME OF THE
MAILING OF THE NOTICE OF THE SPECIAL MEETING OF SHAREHOLDERS TO THE
UNDERSIGNED.
In the Shareholder's discretion the Proxy is authorized to vote on such other
business as may properly be brought before the meeting or any adjournment or
postponement thereof.
The undersigned revokes any proxies heretofore given by the undersigned and
acknowledges receipt of the Notice of the Special Meeting of Shareholders and
Proxy Statement and the Annual Report to Shareholders furnished herewith.
Dated: 200__
----------------------
--------------------------------------------------
Signature
--------------------------------------------------
Signature if held jointly
Signature(s) should agree with the name(s) hereon. Executors, administrators,
trustees, guardians and attorneys should indicate when signing. Attorneys
should submit powers of attorney.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PURE
BIOSCIENCE. PLEASE SIGN AND RETURN THIS PROXY TO PURE BIOSCIENCE, C/O
COMPUTERSHARE INVESTOR SERVICES, P.O. BOX 1596, DENVER, CO 80201. THE GIVING
OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE
MEETING.
AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS
by and between
PURE BIOSCIENCE
as SELLER
and
DATA RECOVERY CONTINUUM, INC.
as BUYER
DATED AS OF November 24, 2003
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PURE and DRCI
AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS
THIS AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS ("AGREEMENT") is made as
of October 30, 2003 by and between PURE BIOSCIENCE, a California corporation
("SELLER" or "PURE"), and DATA RECOVERY CONTINUUM, INC., a Delaware corporation
("BUYER" or "DRCI").
R E C I T A L S
A. WHEREAS, Seller is, among other things, engaged in the
manufacturing, marketing, sales and distribution of water purification,
filtration, measuring and dispensing equipment for use by pharmacies and
consumers, including Fillmaster, Scanmaster and Pharmapure products, for
pharmacy use; and Nutripure(R) products for consumer point-of-use water
filtration and provide technical support related to such water and
dispensing system products. Seller also owns a Note for Real Estate secured
by a Deed of Trust (collectively, the "BUSINESS");
B. WHEREAS, the Business is composed of certain assets and liabilities
that are currently part of Seller;
C. WHEREAS, Seller desire to sell, transfer and assign to Buyer, and
Buyer desires to purchase and assume from Seller, the Purchased Assets (as
hereinafter defined), and Buyer is willing to assume, the Assumed
Liabilities (as hereinafter defined), in each case as more fully described
and upon the terms and subject to the conditions set forth herein; and
D. WHEREAS, Seller and Buyer desire to enter into each Assignment and
Bill of Sale for the Purchased Assets, and a Sublease(s) (collectively, the
"COLLATERAL AGREEMENTS").
NOW, THEREFORE, in consideration of the mutual agreements and covenants
herein contained and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. DEFINITIONS
1.1 DEFINED TERMS
For the purposes of this Agreement, in addition to the words and phrases
that are described throughout the body of this Agreement, the following words
and phrases shall have the following meanings:
"AFFILIATE" of any Person means any Person that controls, is controlled by,
or is under common control with such Person. As used herein, "CONTROL" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such entity, whether through
ownership of voting securities or other interests, by contract or otherwise.
"PRINCIPAL EQUIPMENT" means the computers, servers, machinery and equipment
(including any related spare parts, dies, molds, tools, and tooling) and other
similar items used by Seller primarily in the conduct of the Business. Principal
Equipment includes rights to the warranties received from the manufacturers and
distributors of said items and to any related claims, credits, rights of
recovery and setoff with respect to said items, but only to the extent such
rights are assignable.
"PROPRIETARY INFORMATION" means all information (whether or not protectable
by patent, copyright, mask works or trade secret rights) not generally known to
the public (except for patents), including, but not limited to, works of
authorship, inventions, discoveries, patentable
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PURE and DRCI
subject matter, patents, patent applications, industrial models, industrial
designs, trade secrets, trade secret rights, software, works, copyrightable
subject matters, copyright rights and registrations, mask works, know-how and
show-how, trademarks, trade names, service marks, emblems, logos, insignia and
related marks and registrations, specifications, technical manuals and data,
libraries, blueprints, drawings, proprietary processes, product information and
development work-in-process.
"REASONABLE COMMERCIAL EFFORTS" means that the obligated party is required
to make a diligent, reasonable and good faith effort to accomplish the
applicable objective. Such obligation, however, does not require an expenditure
of funds or the incurrence of a liability on the part of the obligated party,
nor does it require that the obligated party act in a manner that would be
contrary to normal commercial practices in order to accomplish the objective.
The fact that the objective is or is not actually accomplished is no indication
that the obligated party did or did not in fact utilize its reasonable
commercial efforts in attempting to accomplish the objective.
2 PURCHASE AND SALE OF THE BUSINESS
2.1 PURCHASE AND SALE OF ASSETS
Upon the terms and subject to the conditions of this Agreement and in
reliance on the representations and warranties contained herein, on the Closing
Dates, Seller shall grant, bargain, sell, transfer, assign, convey and deliver
to Buyer, and Buyer shall purchase, acquire and accept from Seller all of the
right, title and interest in, to and under the Purchased Assets that Seller
possesses and has the right to transfer as the same shall exist on the Closing
Date. For purposes of this Agreement, "PURCHASED ASSETS" shall mean all the
assets, properties and rights used by Seller whether tangible or intangible,
real, personal or mixed, set forth or described in Sections 2.1(a) through
2.1(j), inclusive, whether or not any of such assets, properties or rights have
any value for accounting purposes or are carried or reflected on or specifically
referred to in Seller's books or financial statements and as set forth in
Schedule 2.1
(a) the Sublease(s);
(b) the Principal Equipment and the Purchased Leased Equipment;
(c) the Fixtures and Supplies;
(d) the Inventory;
(e) the Intellectual Property;
(f) the Contracts;
(g) the Business Records;
(h) the accounts receivable that are billed directly by the Business
for goods or services billed after the date of Second Closing;
(i) the Note and Deed of Trust
(j) 100% of the outstanding Common Stock of the Innovative Medical
Services, Inc.
2.2 PURCHASE PRICE
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PURE and DRCI
(a) In consideration of the sale, transfer, assignment, conveyance
and delivery by Seller of the Purchased Assets to Buyer and in
addition to assuming the Assumed Liabilities, the Purchase Price
for the Note receivable and Deed of Trust is $2,000,000.00 plus
accrued interest and the Purchase Price for the Purchased Assets
is $2,750,000.00 plus Post Closing payments to Seller of
$1,250,000.00 set forth in Paragraph 2.2(e).
(b) The Purchase Price shall be paid to Seller by Buyer as follows:
i. Buyer shall credit to SELLER at the Second Closing, an
approximate amount of $2,000,000.00 as the purchase price
for the Note pursuant to Escrow instructions attached which
sets forth the exact amount accounting for principal and
interest to date.
ii. The Purchase Price also includes the payment by Seller to
NEXT9, LLC. pursuant to its Note to NEXT9, LLC. for
$435,000.00, in form set forth in SCHEDULE 2.2(a) and
delivered by the SELLER to the Escrow Agent prior to
Closing.
iii. Buyer shall pay to Escrow Agent at the Second Closing, an
amount equal to $2,750,000.00 as the purchase price for the
Purchased Assets.
(c) All deposits of funds shall be in cash by wire transfer of
immediately available funds to an account designated by the
Escrow instructions at least two (2) Business Days prior to each
Closing.
(d) Attached hereto as SCHEDULE 2.2(b) is a Valuation of the
Inventory as of October 31, 2003 (the "10/31/03 INVENTORY
STATEMENT"). A valuation of Inventory at three business days
prior to the Second Closing shall be made. The Purchase Price at
the Second Closing shall be adjusted to reflect any difference in
Inventory valuation in excess of $1,000.00
(e) POST CLOSING PAYMENTS:
i. $250,000.00 six months after the Nutripure 2000 Countertop
has been in at least 2000 Wal-Mart stores, and has met the
projections attached as Exhibit "D"; and
ii. $1,000,000.00 after the Nutripure 2000 Countertop has been
in at least 2000 Wal-Mart stores for an additional six
months, and has met the projections attached as Exhibit "D".
iii. In the event the sales of Nutripure products do not achieve
the projections described in Exhibit "D", then the amounts
indicated in 2.2(c)(i) and in 2.2(c)(ii) above shall be
reduced on a pro rata basis. For example, if the net sales
for the Nutripure 2000 is fifty percent of the projections
in Exhibit "D", then the amounts paid by DRCI to PURE shall
be fifty percent (i.e., $125,000.00 and $500,000.00
respectively).
2.3 ASSUMED LIABILITIES
On the second Closing Date, Buyer shall execute and deliver to Seller the
one or more Assumption Agreements and one or more Lease Assignments or Subleases
as needed pursuant to which Buyer or any such Buyer Designee shall accept,
assume and agree to pay, perform or otherwise discharge, in accordance with the
respective terms and subject to the respective conditions thereof, the
liabilities and obligations of Seller pursuant to and under the Assumed
Liabilities. "ASSUMED LIABILITIES" shall mean only those liabilities and
obligations set forth in this Section 2.3, whether or not any such obligation
has a value for accounting purposes or is carried or reflected on or
specifically referred to in either Seller's books or financial statements:
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PURE and DRCI
(a) the personal days and floating holidays of Transferred Employees;
(b) the liabilities and obligations arising on or after the Closing
Date under the Assumed Leases;
(c) with respect to the Business, any product warranty liabilities
arising from sales of products in the ordinary course of business;
(d) All other Encumbrances and other obligations related to the
Purchased Assets that are specifically identified in this Agreement or the
Schedules hereto; and
(e) the obligations and liabilities with respect to the Transferred
Employees, the Business or the Purchased Assets, known or unknown, absolute
or contingent, the basis of which arises or accrues on or after the Closing
Date.
2.4 FURTHER ASSURANCES; FURTHER CONVEYANCES AND ASSUMPTIONS; CONSENT OF
THIRD PARTIES
(a) From time to time following the second Closing, Seller agrees to
make available to Buyer all confidential and non-confidential data in
personnel records of Transferred Employees as is reasonably necessary for
Buyer to transition such employees into Buyer's records.
(b) From time to time following the Closing, Seller and Buyer shall,
and shall cause their respective Affiliates to, execute, acknowledge and
deliver all such further conveyances, notices, assumptions, releases and
acquittances and such other instruments, and shall take such further
actions, as may be necessary or appropriate to assure fully to Buyer and
its Affiliates and their respective successors or assigns, all of the
properties, rights, titles, interests, estates, remedies, powers and
privileges intended to be conveyed to Buyer and/or its Affiliates under
this Agreement and the Collateral Agreements and to assure fully to Seller
and its Affiliates and their successors and assigns, the assumption of the
liabilities and obligations intended to be assumed by Buyer and/or its
Affiliates under this Agreement and the Collateral Agreements, and to
otherwise make effective the transactions contemplated hereby and thereby.
2.5 NO LICENSES
No title, right or license of any kind is granted to Buyer pursuant to this
Agreement with respect to Seller's or any of its Affiliate's Proprietary
Information, other than that of the Schedule 2.1 (e) Purchased Assets either
directly or indirectly, by implication, by estoppel or otherwise.
2.6 BULK SALES LAW
Buyer hereby waives compliance by Seller with the requirements and
provisions of any "bulk-transfer" Laws of any jurisdiction, that may otherwise
be applicable with respect to the sale of any or all of the Purchased Assets to
Buyer.
2.7 TAXES
(a) Other than real estate transfer taxes which shall be paid as set forth
in the last sentence of this Section 2.7(a) Buyer and Seller shall be
independently responsible for the payment of their applicable tax liabilities,
recording and filing fees that may be imposed, assessed or payable by reason of
the operation or as a result of this Agreement including the sales, transfers,
leases, rentals, licenses, and assignments contemplated hereby, except for
Seller's net income and capital gains taxes or franchise or other taxes based on
Seller's net income. Buyer and Seller agree to each pay one-half (1/2) of any
applicable real estate transfer taxes that arise as a result of this Agreement.
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(b) Buyer shall be responsible for all taxes attributable to, levied upon
or incurred in connection with the Purchased Assets pertaining to the period (or
that portion of the period) immediately beginning after the Closing Date. Seller
shall be responsible for all taxes attributable to, levied upon or incurred in
connection with the Purchased Assets pertaining to the period (or that portion
of the period) prior to or on the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that:
3.1 ORGANIZATION AND QUALIFICATION
Seller 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 carry on the Business as currently conducted
and to own or lease and operate the Purchased Assets. Seller is duly qualified
to do business and is in good standing as a foreign corporation (in any
jurisdiction that recognizes such concept) in each jurisdiction where the
ownership or operation of the Purchased Assets or the conduct of the Business
requires such qualification, except for failures to be so qualified or in good
standing, as the case may be, that could not reasonably be expected to have a
Material Adverse Effect.
3.2 SUBSIDIARY - Innovative Medical Services, Inc.
Seller has a wholly owned subsidiary, Innovative Medical Services, Inc., a
newly formed Nevada corporation which is duly organized and validly existing
under the Laws of the state of Nevada. The subsidiary has all requisite
corporate or similar power and authority to own, lease and operate the Purchased
Assets owned by it and to carry on its portion of the Business as presently
conducted and is duly qualified to do business and is in good standing as a
foreign corporation or other entity (in any jurisdiction that recognizes such
concept) in each jurisdiction where the ownership or operation of its properties
and assets or the conduct of its business requires such qualification, except
for failures to be so duly organized, validly existing, qualified or in good
standing that could not reasonably be expected to have a Material Adverse
Effect. The Subsidiary is the only Affiliate of Seller that has title to any
Purchased Asset or any obligation that is an Assumed Liability, in each case
related to the Business as currently conducted.
3.3 AUTHORIZATION; BINDING EFFECT
(a) Seller has all requisite corporate power and authority to execute and
deliver this Agreement and the Collateral Agreements to which it will be a party
and to effect the transactions contemplated hereby and thereby and has duly
authorized the execution, delivery and performance of this Agreement and the
Collateral Agreements to which it will be a party by all requisite corporate
action.
(b) This Agreement has been duly executed and delivered by Seller and this
Agreement is, and the Collateral Agreements to which Seller has title to any
asset reasonably expected to be a Purchased Asset or an obligation reasonably
expected to be an Assumed Liability will be a party when duly executed and
delivered by Seller will be, valid and legally binding obligations of Seller
enforceable against Seller as applicable, in accordance with their respective
terms, except to the extent that enforcement of the rights and remedies created
hereby and thereby may be affected by bankruptcy, reorganization, moratorium,
insolvency and similar Laws of general application affecting the rights and
remedies of creditors and by general equity principles.
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3.4 NON-CONTRAVENTION
(a) The execution, delivery and performance of this Agreement by Seller and
the Collateral Agreements by Seller and the consummation of the transactions
contemplated hereby and thereby do not and will not: (i) result in a breach or
violation of any provision of Seller's charter, by-laws or similar
organizational document, (ii) violate or result in a breach of or constitute an
occurrence of default under any provision of, result in the acceleration or
cancellation of any obligation under, or give rise to a right by any party to
terminate or amend its obligations under, any mortgage, deed of trust,
conveyance to secure debt, note, loan, indenture, lien, lease, agreement,
instrument, order, judgment, decree or other arrangement or commitment to which
Seller is a party or by which it is bound and which relates to the Business or
the Purchased Assets, which violation, breach or default could be reasonably
expected to have a Material Adverse Effect, or (iii) violate any order,
judgment, decree, rule or regulation of any court or any Governmental Body
having jurisdiction over Seller, the Subsidiary or the Purchased Assets, and
which violation could be reasonably expected to have a Material Adverse Effect.
3.5 TITLE TO PROPERTY; PRINCIPAL EQUIPMENT; SUFFICIENCY OF ASSETS
(a) Seller has and at the Closing will have good and valid title to, or a
valid and binding leasehold interest or license in, all real and personal
tangible Purchased Assets free and clear of any Encumbrance except for Permitted
Encumbrances.
(b) Each material item of Principal Equipment is in good operating
condition, in light of its respective age, for the purposes for which it is
currently being used, but is otherwise being transferred on a "where is" and, as
to condition, "as is" basis.
3.7 REAL ESTATE
(a) Exhibit "B" contains a complete and accurate description of the
Premises to be sublet to BUYER by SELLER. Buyer has been provided with a
complete and correct copy of the sublease. Except as set forth in Exhibit "B",
the Lease held by SELLER is in full force and effect and to Seller's knowledge,
Seller has not violated, and the landlord has not waived, any of the material
terms or conditions of the lease and to Seller's knowledge, all the material
covenants to be performed by the Seller and the landlord under the Lease prior
to the date hereof or the Closing Date, as applicable, have been performed in
all material respects.
(b) The use of the Leased Premises as presently used by the Business, does
not violate any local zoning or similar land use laws or governmental
regulations which violation could reasonably be expected to have a Material
Adverse Effect. Seller is not in violation of or in noncompliance with any
covenant, condition, restriction, order or easement affecting the Leased
Premises where such violation or noncompliance could reasonably be expected to
have a Material Adverse Effect. There is no condemnation or, to the best
knowledge of Seller, threatened condemnation affecting the Leased Premises.
3.8 COMPLIANCE WITH LAWS; LITIGATION
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(a) Seller engaged in the conduct of the Business (including the use and
occupation of the Premises) is in compliance in all material respects with all
applicable Laws and all decrees, orders, judgments, permits and licenses of or
from governmental bodies except for failures to comply that could not reasonably
be expected to have a Material Adverse Effect.
(b) There are no actions, suits, proceedings, arbitrations or governmental
investigations pending or, to Seller's knowledge, threatened against it with
respect to the Business that could be reasonably expected to have a Material
Adverse Effect.
3.9 BUSINESS EMPLOYEES
(a) SCHEDULE 3.9(a) contains a complete and accurate list of all the
Business Employees as of October 31, 2003, showing for each Business Employee,
the name, position held, service date, salary or wages and aggregate annual
compensation for Seller's last fiscal year. None of the Business Employees is
covered by any union, collective bargaining or other similar labor agreements.
(b) Except as set forth in SCHEDULE 3.9(b), with respect to all Business
Employees, Seller does not currently maintain, contribute to or has any
liability under any employee benefit plan.
(d) As relates to the Business, there is not presently pending or existing,
and to Seller's knowledge there is not threatened, (i) any strike, slowdown,
picketing, or work stoppage, (ii) any application for certification of a
collective bargaining agent, or (iii) except as set forth in SCHEDULE 3.8(b),
any controversies pending, or to Seller's knowledge, threatened between Seller
and its employees that could reasonably be expected to have a Material Adverse
Effect.
3.10 CONTRACTS
SCHEDULE 3.10 contains a complete and accurate list of all outstanding
Contracts that would require over the full term thereof payments by or to Seller
of more than $250,000 (the "MATERIAL CONTRACTS"). The Material Contracts include
all existing contracts and commitments of Seller that are (i) primarily related
to the Business, or (ii) by which the Purchased Assets may be bound or affected,
in each case whether written or oral. Each of such Material Contracts is valid,
binding and enforceable against Seller and, to Seller's knowledge, the other
parties thereto in accordance with its terms and is in full force and effect.
Except as set forth on SCHEDULE 3.10, Seller is not in default or breach of or
is otherwise delinquent in performance under any such Material Contracts which
default or breach could reasonably be expected to have a Material Adverse
Effect, and, to Seller's knowledge, each of the other parties thereto has
performed in all material respects all obligations required to be performed by
it under, and is not in default in any material respect under, any of such
Contracts and no event has occurred that, with notice or lapse of time, or both,
would constitute such a default.
3.11 ENVIRONMENTAL MATTERS
(a) the operations of the Business and the Premises comply in all material
respects with all applicable environmental protection laws;
(b) Seller has obtained all environmental, health and safety governmental
permits necessary for its operations, and all such governmental permits are in
good standing and Seller is in compliance with all terms and conditions of such
permits except where the failure to obtain, maintain in good standing or be in
compliance with, such permits could not reasonably be expected to have a
Material Adverse Effect;
(c) The Seller, or any of the Premises or the operations of the Business,
is not subject to any on-going investigation by, order from or agreement with
any person respecting (i) any environmental protection law, or (ii) any remedial
action arising from the release or threatened release of a hazardous substance
into the environment;
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(d) Seller is not subject to any judicial or administrative proceeding,
order, judgment, decree or settlement alleging or addressing a violation of or
liability under any environmental protection law;
(e) Seller has filed all notices required to be filed under any
environmental protection law indicating past or present treatment, storage or
disposal of a hazardous substance or reporting a spill or release of a hazardous
substance into the environment except where the failure to file any such notices
could not reasonably be expected to have a Material Adverse Effect;
(f) there is not now, nor to Seller's knowledge, has there ever been, on or
in any Premise any underground storage tanks;
(g) Seller has not received any written notice, or to Seller's knowledge,
other claim to the effect that it is or may be liable to any person as a result
of the release or threatened release of a hazardous substance;
(h) to Seller's knowledge, there have been no releases, or threatened
releases of any hazardous substances into, on or under any of the Premises, in
any case in such a way as to create any liability (including the costs of
investigation and remediation) under any applicable environmental protection
law; and
(i) Seller has delivered to Buyer true and complete copies of all
asbestos and other environmental reports disclosing the presence of
asbestos or other hazardous materials on any of the Premises.
3.12 INTELLECTUAL PROPERTY
(a) Seller owns or has a valid right to grant the licenses in all of the
copyrights, know how, patents, service marks, trademarks, trade secrets and
other proprietary intellectual property rights that it is assigning or licensing
to Buyer collectively, the "INTELLECTUAL PROPERTY").
(b) To the knowledge of the senior management of the Business and the
members of Seller's intellectual property legal department, none of the products
of the Business manufactured and currently sold by Seller infringe any
intellectual property rights owned by any other Third Party. To Seller's
knowledge, there are no claims or demands of any Third Party pertaining to the
Intellectual Property being assigned or licensed to Buyer, excluding immaterial
assertions of rights which have not been presented in the form of a specific
claim or demand, with respect to the operation of the Business by Seller as of
the date hereof with respect to the Purchased Assets. To the knowledge of the
senior management of the Business and the members of Seller's intellectual
property legal department, no proceedings have been instituted, are pending, or
are threatened which challenge the rights of Seller in respect any of the
Intellectual Property, excluding immaterial assertions of rights which have not
been presented in the form of a specific claim or demand.
(c) At the Closing, Seller will provide, either by assignment or license to
Buyer all of the Intellectual Property which is necessary for Buyer to conduct
the Business as it is presently conducted and to make, have made, use, lease,
import, offer to sell or sell the products, as such products existed as of the
Closing Date, of the Business. Buyer's sole remedy for breach of this Section
3.12(c) shall be the assignment or licensing by Seller to Buyer of those
components of such Intellectual Property which are required by Buyer to conduct
the Business after the Closing and to make, have made, use, lease, import, offer
to sell or sell any products of the Business as to which ownership or license
rights were not adequately conveyed.
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3.13 BROKERS
Other than GunAllen Financial, Inc., the fees and expenses of which will be
paid by Seller, no broker, investment banker, financial advisor or other Person
is entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Seller or any Affiliate.
3.14 TAXES
Seller has paid or will pay when due or finally settled all taxes relating
to the Business or to the Purchased Assets which are or become due and payable
for all periods up to and including the Closing Date. Seller has properly filed
on a timely basis, or so will file, when due, all tax returns relating to the
Business or the Purchased Assets for all periods up to and including the Closing
Date. There are no Encumbrances for taxes (other than Assumed Liabilities) on
the Purchased Assets.
3.15 PRODUCT LIABILITY AND RECALLS
(a) Since August 1, 1992, there has been no action, suit, claim, inquiry,
proceeding or investigation in any case by or before any court or governmental
body pending or, to the best knowledge of Seller, threatened, against or
involving the Business relating to any product alleged to have been designed,
manufactured or sold by the Business and alleged to have been defective or
improperly designed or manufactured.
(b) Since August 1, 1992, there has been no pending, or to the best
knowledge of Seller, threatened recall or investigation of any product sold by
Seller in connection with the Business.
3.16 CUSTOMER AND SUPPLIERS
SCHEDULE 3.16 contains a list setting forth the 10 largest customers of the
Business, by dollar amount, over the 12 months ended July 31, 2003, and the 10
largest suppliers of the Business, by dollar amount, over the 12 months ended
July 31, 2003. All purchase and sale orders and other commitments for purchases
and sales made by Seller in connection with the Business have been made in the
ordinary course of business in accordance with past practices, and no payments
have been made to any supplier or customers or any of their respective
representatives other than payments to such suppliers for the payment of the
invoiced price of supplies purchased or goods sold in the ordinary course of
business.
3.17 RESTRICTIONS ON THE BUSINESS
Except for this Agreement, to the best knowledge of Seller, there is no
agreement, judgment, injunction, order or decree binding upon Seller or any of
its Affiliates affecting Seller's or its Affiliates' conduct of the Business as
currently conducted.
3.18 SCHEDULE D PROFORMA
The Proforma projections set forth in Exhibit D represent the good faith
estimations and stated assumptions of the Seller based upon its experience.
Seller makes no representation or warranty that actual results will meet or
exceed these Proforma projections. The only effect of failure to meet or exceed
said projections being post closing payment adjustment to Seller as per
Paragraph 2.2 (e)
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3.19 NO OTHER REPRESENTATIONS OR WARRANTIES
Except for the representations and warranties contained in this Section 3,
and Exhibit "D" not withstanding, neither the Seller, any Affiliate or any other
Person makes any representations or warranties, and Seller hereby disclaims any
other representations or warranties, whether made by Seller or any Affiliate, or
any of their officers, directors, employees, agents or representatives, with
respect to the execution and delivery of this Agreement or any Collateral
Agreement, the transactions contemplated hereby or the Business, notwithstanding
the delivery or disclosure to Buyer or its representatives of any documentation
or other information with respect to any one or more of the foregoing.
Notwithstanding anything to the contrary herein, no representation or warranty
contained in this Section 3 is intended to, or do, cover or otherwise pertain to
any assets that are not included in the Purchased Assets or any liabilities that
are not included in the Assumed Liabilities.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that:
4.1 ORGANIZATION AND QUALIFICATION
Each of Buyer is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
and each of Buyer and any Buyer Designee has all requisite corporate power and
authority to carry on its business as currently conducted and to own or lease
and operate its properties. Buyer is duly qualified to do business and is in
good standing as a foreign corporation (in any jurisdiction that recognizes such
concept) in each jurisdiction where the ownership or operation of its assets or
the conduct of its business requires such qualification, except for failures to
be so qualified or in good standing, as the case may be, that could not
reasonably be expected to have a material adverse effect on Buyer's business
taken as a whole.
4.2 AUTHORIZATION; BINDING EFFECT
(a) Each of Buyer has all requisite corporate power and authority to
execute and deliver this Agreement and the Collateral Agreements, as the case
may be, and to effect the transactions contemplated hereby and thereby and has
duly authorized the execution, delivery and performance of this Agreement and
the Collateral Agreements, as the case may be, by all requisite action
(corporate or other).
(b) This Agreement has been duly executed and delivered by and this
Agreement is, and the Collateral Agreements when duly executed and delivered by
Buyer will be, valid and legally binding obligations of Buyer, enforceable
against it in accordance with their terms, except to the extent that enforcement
of the rights and remedies created hereby and thereby may be affected by
bankruptcy, reorganization, moratorium, insolvency and similar Laws of general
application affecting the rights and remedies of creditors and by general equity
principles.
4.3 NO VIOLATIONS
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(a) The execution, delivery and performance of this Agreement and the
Collateral Agreements by Buyer and the consummation of the transactions
contemplated hereby and thereby do not and will not (i) result in a breach or
violation of any provision of Buyer's charter or by-laws or similar
organizational document, (ii) violate or result in a breach of or constitute an
occurrence of default under any provision of, result in the acceleration or
cancellation of any obligation under, or give rise to a right by any party to
terminate or amend its obligations under, any material mortgage, deed of trust,
conveyance to secure debt, note, loan, indenture, lien, lease, agreement,
instrument, order, judgment, decree or other material arrangement or commitment
to which Buyer is a party or by which it or its assets or properties are bound
which violation, breach or default could be reasonably expected to have a
material adverse effect on Buyer or (iii) violate any material order, judgment,
decree, rule or regulation of any court or any Governmental Body having
jurisdiction over Buyer or any of its respective properties which could be
reasonably expected to have a material adverse effect on Buyer.
4.4 BROKERS
Other than GunAllen Financial, Inc., the fees and expenses of which will be
paid by Buyer, no broker, investment banker, financial advisor or other Person
is entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Buyer or any Affiliate.
4.5 NO OTHER SELLER REPRESENTATIONS AND WARRANTIES
(a) With respect to the Purchased Assets, the Business, or any other rights
or obligations to be transferred hereunder or under the Collateral Agreements or
pursuant hereto or thereto, Buyer has not been induced by and has not relied
upon any representations, warranties or statements, whether express or implied,
made by Seller, any Affiliate, or any agent, employee, attorney or other
representative of Seller or by any Person representing or purporting to
represent Seller that are not expressly set forth in this Agreement or in the
Collateral Agreements (including the Schedules and Exhibits hereto and thereto),
whether or not any such representations, warranties or statements were made in
writing or orally.
(b) Buyer acknowledges that it has made its own assessment of the future of
the Business and is sufficiently experienced to make an informed judgment with
respect thereto. Buyer further acknowledges that the Exhibit "D" Pro Forma
notwithstanding, neither Seller nor any Affiliate has made any warranty, express
or implied, as to the future of the Business or its profitability for Buyer, or
with respect to any forecasts, projections or business plans prepared by or on
behalf of Seller and delivered to Buyer in connection with the Business and the
negotiation and the execution of this Agreement.
(c) To the extent reasonably apparent from its context, disclosure by
Seller on any one Schedule delivered pursuant to this Agreement at or prior to
the Closing shall be disclosure as to all such Schedules and, to the extent such
disclosure conflicts with any representation or warranty of Seller, Seller shall
have no liability for breach of any such representation or warranty relating to
such conflicts.
4.6 SUFFICIENCY OF FUNDS
The Buyer (i) has funds available to pay the Purchase Price and any
expenses incurred by Buyer in connection with the transactions contemplated by
this Agreement; (ii) has the resources and capabilities (financial or otherwise)
to perform hereunder and under the Collateral Agreements; and (iii) has not
incurred any obligation, commitment, restriction or liability of any kind,
absolute or contingent, present or future, which would impair or adversely
affect such resources and capabilities.
4.7 NO OTHER REPRESENTATIONS OR WARRANTIES
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Except for the representations and warranties contained in this Section 4,
neither the Buyer, any Affiliate or any other Person makes any representations
or warranties, and Buyer hereby disclaims any other representations or
warranties, whether made by Buyer or any Affiliate, or any of their officers,
directors, employees, agents or representatives, with respect to the execution
and delivery of this Agreement or any Collateral Agreement or the transactions
contemplated, notwithstanding the delivery or disclosure to Seller or its
representatives of any documentation or other information with respect to any
one or more of the foregoing.
5. CERTAIN COVENANTS
5.1 ACCESS AND INFORMATION
(a) Seller will give, and cause its Affiliates to give, to Buyer and its
Affiliates and to their respective officers, employees, accountants, counsel and
other representatives reasonable access during Seller's or the applicable
Affiliate's normal business hours throughout the period prior to the Closing to
all of Seller's or the applicable Affiliate's properties, books, contracts,
commitments, reports of examination and records directly relating to the
Business or the Purchased Assets. Seller shall assist, and cause its Affiliates
to assist, Buyer and its Affiliates in making such investigation and shall cause
its counsel, accountants, engineers, consultants and other non-employee
representatives to be reasonably available to Buyer for such purposes; IT BEING
UNDERSTOOD that Buyer shall reimburse Seller or the applicable Affiliate
promptly for reasonable and necessary out of pocket expenses incurred by Seller
or any Affiliate in complying with any such request by or on behalf of Buyer.
(b) After the Closing Date, Seller and Buyer will provide, and will cause
their respective Affiliates to provide, to each other and to their respective
officers, employees, counsel and other representatives, upon request (subject to
any limitations that are reasonably required to preserve any applicable
attorney-client privilege or Third-Party confidentiality obligation), reasonable
access for inspection and copying of all Business Records, Governmental Permits,
Licenses, Contracts and any other information existing as of the Closing Date
and relating to the Business or the Purchased Assets, and will make their
respective personnel reasonably available for interviews, depositions and
testimony in any legal matter concerning transactions, operations or activities
relating to the Business or the Purchased Assets, and as otherwise may be
necessary or desirable to enable the party requesting such assistance to: (i)
comply with reporting, filing or other requirements imposed by any foreign,
local, state or federal court, agency or regulatory body; (ii) assert or defend
any claims or allegations in any litigation or arbitration or in any
administrative or legal proceeding other than claims or allegations that one
party to this Agreement has asserted against the other; or (iii) subject to
clause (ii) above, perform its obligations under this Agreement. The party
requesting such information or assistance shall reimburse the other party for
all out-of-pocket costs and expenses incurred by such party in providing such
information and in rendering such assistance. The access to files, books and
records contemplated by this Section 5.1(b) shall be during normal business
hours and upon reasonable prior notice and shall be subject to such reasonable
limitations as the party having custody or control thereof may impose to
preserve the confidentiality of information contained therein.
(c) Buyer agrees to preserve all Business Records, Licenses and
Governmental Permits in accordance with its corporate policies related to
preservation of records. Buyer further agrees that, to the extent Business
Records, Licenses or Governmental Permits are placed in storage, they will be
indexed in such a manner as to make individual document retrieval possible in an
expeditious manner.
5.2 CONDUCT OF BUSINESS
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From and after the date of this Agreement and until the Closing Date,
except as otherwise contemplated by this Agreement or the Schedules hereto or as
Buyer shall otherwise consent to in writing, Seller and the Subsidiary, with
respect to the Business:
(a) will carry on the Business in the ordinary course consistent with
past practice including taking or refraining from taking any actions likely
to significantly change its existing relationships with customers,
suppliers and others having business relationships with the Business;
(b) will not permit, other than in the ordinary course of business
consistent with past practice or as may be required by Law or a
Governmental Body, all or any of the Purchased Assets (real or personal,
tangible or intangible) presently and actively used in the operation of the
Business to be sold, licensed or subjected to any Encumbrance (other than a
Permitted Encumbrance);
(c) will not acquire, sell, lease, license, transfer or dispose of any
asset that would otherwise be a Purchased Asset except in the ordinary
course of business consistent with past practice;
(d) will not terminate or materially extend or materially modify any
Material Contract except in the ordinary course of business consistent with
past practice;
(e) will not do any other act which would cause any representation or
warranty of Seller in this Agreement to be or become untrue in any material
respect or intentionally omit to take any action necessary to prevent any
such representation or warranty from being untrue in any material respect
at such time;
(f) will not increase the compensation payable or to become payable to
any of the Business Employees, except for increases in the ordinary course
of business and consistent with past practice, or otherwise enter into or
alter any employment, consulting, or service agreement, except in the
ordinary course of business and consistent with past practice, or enter
into any retention agreements or agreements for enhanced or extraordinary
severance with any Business Employees other than at the request of Buyer;
(g) will not commence, enter into, or alter any profit sharing,
deferred compensation, bonus, stock option, stock purchase, pension,
retirement, or incentive plan or any fringe benefit plan for employees of
the Business, except in the ordinary course of business and consistent with
past practice;
(h) will not sever or terminate any Business Employees except for
cause or in the ordinary course of business; or
(i) will not enter into any agreement or commitment with respect to
any of the foregoing.
5.3 TAX REPORTING AND ALLOCATION OF CONSIDERATION
Seller and Buyer acknowledge and agree that (i) Seller will be responsible
for and will perform all tax withholding, payment and reporting duties with
respect to any wages and other compensation paid by Seller to any Business
Employee in connection with operating the Business prior to or on the Closing
Date, and (ii) Buyer will be responsible for and will perform all tax
withholding, payment and reporting duties with respect to any wages and other
compensation paid by Buyer to any Transferred Employee in connection with
operating the Business after the Closing Date.
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5.4 BUSINESS EMPLOYEES
(a) As of the Closing Date, Buyer shall make offers of employment to
all Business Employees listed on SCHEDULE 3.9(a) (including those absent
due to vacation, holiday, illness, leave of absence or short-term
disability, but excluding any Business Employees on long-term disability).
Seller shall cooperate in facilitating the performance of Buyer's
obligation to make such offers. Business Employees who accept Buyer's offer
of employment, as of the effective date of their employment with Buyer,
shall be referred to as "TRANSFERRED EMPLOYEES".
(b) As of the Closing Date, Buyer shall provide Transferred Employees,
until at least December 31, 2003, a total compensation package of salary
and benefits that, in the aggregate, are substantially similar to that
offered by Seller or its applicable Subsidiary immediately prior to the
Closing Date. Except as otherwise agreed to in this Section 5.4, Buyer
shall be under no obligation to establish any pension plan or any retiree
medical, dental, or life insurance plans for Business Employees. Except as
expressly set forth in this Section 5.4, Seller or its designated
Affiliates shall retain or reimburse Buyer for all liabilities and
obligations with respect to benefits accrued under all benefit plans or
arrangements maintained, administered, or contributed to by Seller or its
Affiliates, including any such plans or arrangements applicable to Business
Employees, employees, or former employees (including any beneficiary
thereof). Except as expressly set forth in this Section 5.4, no assets of
any benefit plan or arrangement maintained, administered, or contributed to
by Seller or any Affiliate thereof shall be transferred to Buyer or any
Affiliate thereof. Buyer's benefit plans and policies, including vacation,
retirement, severance and welfare plans, shall recognize (i) for purposes
of satisfying any deductibles, co-pays and out-of-pocket maximums during
the coverage period that includes the Closing Date, any payment made by any
Transferred Employee towards deductibles, co-pays and out-of-pocket
maximums in any health or other insurance plan of Seller, and (ii) for
purposes of determining eligibility to participate, vesting and for any
schedule of benefits based on service (other than for benefits accrued
under any defined benefit plan not described in Section 5.4(g)), all
service with Seller, including service with predecessor employers that was
recognized by Seller and any prior unbridged service with Seller, provided
that such service shall not be recognized to the extent such recognition
would result in a duplication of benefits.
(c) Employment with Buyer of Transferred Employees shall be effective
as of the Business Day following the close of business on the Closing Date,
except that the employment of individuals receiving short-term disability
benefits or on approved leave of absence on the Closing Date will become
effective as of the date they present themselves for work with the Buyer.
5.5 COLLATERAL AGREEMENTS; LEASED EQUIPMENT
(a) (i) On or prior to the Closing Date, Buyer shall execute and
deliver to Seller, and Seller or the Subsidiary shall execute and deliver
to Buyer the Collateral Agreements;(ii) Prior to the Closing Date, Seller
and Buyer shall negotiate in good faith any required transition services to
be provided by the Seller.
5.6 CONTACTS WITH SUPPLIERS, EMPLOYEES AND CUSTOMERS
Seller and Buyer agree to cooperate in contacting any suppliers to, or
customers of, the Business or any Business Employees in connection with or
pertaining to any subject of this Agreement.
5.7 NON-COMPETITION
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(a) Seller agrees that, as part of the consideration for the payment
of the Purchase Price, for a period of five (5) years immediately following
the Closing Date, neither Seller nor any of its Affiliates will,(i)
directly or indirectly, operate, perform or have any ownership interest in
a business that develops, manufactures, sells, installs any point-of-use
water filtration equipment, (ii) purchase or otherwise acquire by merger,
purchase of assets, stock, controlling interest or otherwise any Person or
business or engage in any similar merger and acquisition activity with any
Person the primary business of which is not in competition with the
Business. In addition, for these purposes, ownership of securities of a
company whose securities are publicly traded under a recognized securities
exchange not in excess of 10% of any class of such securities shall not be
considered to be competition with the Business.
(b) Seller acknowledges that the restrictions set forth in Section 5.7
constitute a material inducement to Buyer's entering into and performing
this Agreement. Seller further acknowledges, stipulates and agrees that a
breach of such obligation could result in irreparable harm and continuing
damage to Buyer for which there may be no adequate remedy at law and
further agrees that in the event of any breach of said obligation, Buyer
may be entitled to injunctive relief and to such other relief as is proper
under the circumstances.
6. CONFIDENTIAL NATURE OF INFORMATION
6.1 CONFIDENTIALITY AGREEMENT
Buyer agrees that the Confidentiality Agreement shall apply to (a) all
documents, materials and other information that it shall have obtained regarding
Seller or its Affiliates during the course of the negotiations leading to the
consummation of the transactions contemplated hereby (whether obtained before or
after the date of this Agreement), any investigations made in connection
therewith and the preparation of this Agreement and related documents and (b)
all analyses, reports, compilations, evaluations and other materials prepared by
Buyer or its counsel, accountants or financial advisors that contain or
otherwise reflect or are based upon, in whole or in part, any of the provided
information; PROVIDED, HOWEVER, that subject to Section 6.2(a), the
Confidentiality Agreement shall terminate as of the Closing with respect to
Buyer's obligations thereunder and shall be of no further force and effect
thereafter with respect to information of Seller or a Subsidiary the ownership
of which is transferred to Buyer.
6.2 SELLER'S PROPRIETARY INFORMATION
(a) Except as provided in Section 6.2(b), after the Closing and for a
period of five (5) years following the Closing Date, Buyer agrees that it
will keep confidential all of Seller's and its Affiliates' Proprietary
Information that is received from, or made available by, Seller in the
course of the transactions contemplated hereby, including, for purposes of
this Section 6.2, information about Seller's and its Affiliates' business
plans and strategies, marketing ideas and concepts, especially with respect
to unannounced products and services, present and future product plans,
pricing, volume estimates, financial data, product enhancement information,
business plans, marketing plans, sales strategies, customer information
(including customers' applications and environments), market testing
information, development plans, specifications, customer requirements,
configurations, designs, plans, drawings, apparatus, sketches, software,
hardware, data, prototypes, connecting requirements or other technical and
business information, except for such Proprietary Information as is
conveyed to Buyer as part of the Purchased Assets.
(b) Notwithstanding the foregoing, such Proprietary Information shall
not be deemed confidential and Buyer shall have no obligation with respect
to any such Proprietary Information that: (i) at the time of disclosure was
already known to Buyer other than through this transaction, free of
restriction as evidenced by documentation in Buyer's possession; (ii) is or
becomes publicly known through publication, inspection of a product, or
otherwise, and through no negligence or other wrongful act of Buyer; (iii)
is received by Buyer from a Third Party without similar restriction and
without breach of any agreement; (iv) to the extent it is independently
developed by Buyer; or (v) is, subject to Section 6.2(c), required to be
disclosed under applicable Law or judicial process.
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(c) If Buyer (or any of its Affiliates) is requested or required (by
oral question, interrogatory, request for information or documents,
subpoena, civil investigative demand or similar process) to disclose any
Proprietary Information, Buyer will promptly notify Seller of such request
or requirement and will cooperate with Seller such that Seller may seek an
appropriate protective order or other appropriate remedy. If, in the
absence of a protective order or the receipt of a waiver hereunder, Buyer
(or any of its Affiliates) is in the opinion of Buyer's counsel compelled
to disclose the Proprietary Information or else stand liable for contempt
or suffer other censure or significant penalty, Buyer (or its Affiliate)
may disclose only so much of the Proprietary Information to the party
compelling disclosure as is required by Law. Buyer will exercise its (and
will cause its Affiliates to exercise their) reasonable commercial efforts
to obtain a protective order or other reliable assurance that confidential
treatment will be accorded to such Proprietary Information.
6.3 BUYER'S PROPRIETARY INFORMATION
(a) Except as provided in Section 6.3(b), after the Closing Date and
for a period of five (5) years thereafter, Seller agrees that it will keep
confidential all of Buyer's and its Affiliates' Proprietary Information
that is conveyed to Buyer or a Buyer Designee as part of the Purchased
Assets, including, for purposes of this Section 6.3, information about the
Business' business plans and strategies, marketing ideas and concepts,
especially with respect to unannounced products and services, present and
future product plans, pricing, volume estimates, financial data, product
enhancement information, business plans, marketing plans, sales strategies,
customer information (including customers' applications and environments),
market testing information, development plans, specifications, customer
requirements, configurations, designs, plans, drawings, apparatus,
sketches, software, hardware, data, prototypes, connecting requirements or
other technical and business information.
(b) Notwithstanding the foregoing, such Proprietary Information
regarding the Business shall not be deemed confidential and Seller shall
have no obligation with respect to any such Proprietary Information that:
(i) is or becomes publicly known through publication, inspection of a
product, or otherwise, and through no negligence or other wrongful act of
Seller; (ii) is received by Buyer from a Third Party without similar
restriction and without breach of any agreement; or (iii) is, subject to
Section 6.3(c), required to be disclosed under applicable Law or judicial
process.
(c) If Seller (or any of its Affiliates) is requested or required (by
oral question, interrogatory, request for information or documents,
subpoena, civil investigative demand or similar process) to disclose any
Proprietary Information regarding the Business, Seller will promptly notify
Buyer of such request or requirement and will cooperate with Buyer such
that Buyer may seek an appropriate protective order or other appropriate
remedy. If, in the absence of a protective order or the receipt of a waiver
hereunder, Seller (or any of its Affiliates) is in the opinion of Seller's
counsel compelled to disclose the Proprietary Information or else stand
liable for contempt or suffer other censure or significant penalty, Seller
(or its Affiliate) may disclose only so much of the Proprietary Information
to the party compelling disclosure as is required by Law. Seller will
exercise its (and will cause its Affiliates to exercise their) reasonable
commercial efforts to obtain a protective order or other reliable assurance
that confidential treatment will be accorded to such Proprietary
Information.
6.4 CONFIDENTIAL NATURE OF AGREEMENT
Except to the extent that disclosure thereof is required under accounting,
stock exchange or Federal Securities Laws disclosure obligations, or labor
relations law, both parties agree that the terms and conditions of this
Agreement, and all attachments and amendments hereto and thereto shall be
considered Proprietary Information protected under this Article 6.
Notwithstanding anything in this Article 6 to the contrary, in the event that
any such Proprietary Information is also subject to a limitation on disclosure
or use contained in another written agreement between Buyer and Seller or either
of their respective Affiliates that is more restrictive than the limitation
contained in this Article 6, then the limitation in such agreement shall
supersede this Article 6.
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7. CLOSING - ESCROW
7.1 Closing shall be managed by Allison-McCloskey Escrow Company located at
4820 El Cajon Blvd., San Diego, CA, as Escrow Agent pursuant to the Escrow
Instructions attached. At the Closing, the following transactions shall take
place:
7.2 CLOSING DATES
Each Closing shall take place at the offices of the Escrow Agent at 5:00
p.m. local time. The first Closing date shall be November 24, 2003, and the
second Closing date shall be on the first business day following the PURE
Bioscience Shareholders Meeting to be held on or about mid January 2004.
7.3 PAYMENT OF ESCROW FEES: Buyer and Seller to each pay one-half (1/2) of
the fees and expenses charged by Allison-McCloskey Escrow Company to manage the
escrow closings.
8. CONDITIONS PRECEDENT TO CLOSING
8.1 GENERAL CONDITIONS
The respective obligations of Buyer and Seller to effect a Closing of the
transactions contemplated hereby are subject to the fulfillment, prior to or at
each Closing, of each of the following conditions:
(a) NO INJUNCTIONS. No order of any court or administrative agency
shall be in effect that enjoins, restrains, conditions or prohibits
consummation of this Agreement or the Collateral Agreements.
8.2 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
The obligations of Buyer to effect the Closing of the transactions
contemplated hereby are subject to the fulfillment, prior to or at the Closings,
of each of the following conditions, any of which may be waived in writing by
Buyer:
(a) REPRESENTATIONS AND WARRANTIES OF SELLER TRUE AT CLOSINGS. The
representations and warranties of Seller contained in this Agreement or in
any schedule, certificate or document delivered pursuant to the provisions
hereof or in connection with the transactions contemplated hereby shall be
true and correct in all material respects at and as of the Closing Dates,
as though such representations and warranties were made at and as of the
Closing Dates, except to the extent that such representations and
warranties are made as of a specified date, in which case such
representations and warranties shall be true in all material respects as of
the specified date.
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(b) PERFORMANCE BY SELLER. Seller shall have delivered all of the
documents required under the Escrow Instructions and shall have otherwise
performed in all material respects all obligations and agreements and
complied in all material respects with all covenants and conditions
required by this Agreement to be performed or complied with by it prior to
or at the Closings, including executing the Collateral Agreements.
(c) MATERIAL ADVERSE EFFECT. There shall not have been any Material
Adverse Effect from the date hereof to the Closing Date.
(d) LEGAL OPINION. Delivery to Escrow prior to second Closing of an
opinion or opinions of Counsel for Seller dated the Closing Date with
respect to the matters described in Sections 3.1, 3.2, 3.3 and 3.4 (other
than subparagraph (a)(ii)) in a form and subject to such exceptions as are
customary for transactions similar to those contemplated hereby, which form
shall be reasonably acceptable to Buyer;
8.3 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
The obligations of Seller to effect the Closings of the transactions
contemplated hereby are subject to the fulfillment, prior to or at the Closing
of each of the following conditions, any of which may be waived in writing by
Seller:
(a) REPRESENTATIONS AND WARRANTIES OF BUYER TRUE AT CLOSINGS. The
representations and warranties of Buyer contained in this Agreement or in
any certificate or document delivered pursuant to the provisions hereof or
in connection with the transactions contemplated hereby shall be true in
all material respects at and as of the Closing Dates as though such
representations and warranties were made at and as of the Closing Dates,
except to the extent that such representations and warranties are made as
of a specified date, in which case such representations and warranties
shall be true in all material respects as of the specified date.
(b) PERFORMANCE BY BUYER. Buyer or a Buyer Designee shall have
delivered all of the documents required under the Escrow Instructions and
shall have otherwise performed in all material respects all obligations and
agreements and complied in all material respects with all covenants and
conditions required by this Agreement to be performed or complied with by
it prior to or at the Closings including executing the Collateral
Agreements.
(c) LEGAL OPINION. Delivery to Escrow prior to second Closing of an
opinion or opinions of Counsel for Buyer dated the Closing Date with
respect to the matters described in Sections 4.1, 4.2 and 4.3 (other than
subparagraph (a)(ii)) in a form and subject to such exceptions as are
customary for transactions similar to those contemplated hereby, which form
shall be reasonably acceptable to Seller;
9. STATUS OF AGREEMENTS
The rights and obligations of Buyer and Seller under this Agreement shall
be subject to the following terms and conditions:
9.1 EFFECT OF BREACH
In the event of a material breach of any representation, certification or
warranty, or agreement or covenant of Seller under this Agreement that is
discovered by the Buyer prior to Closing and that cannot be or is not cured by
Seller upon prior notice and the passage of a reasonable period of time, the
Buyer may elect not to proceed with the Closings hereunder, which shall be the
Buyer's sole remedy for such breach except for retained liquidated damages
portion of the Purchase Price of the Note receivable and Deed of Trust set forth
in Paragraph 2.2.
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9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of Buyer and Seller contained in this
Agreement shall survive the Closing for twelve (12) months provided, however,
that (i) the representations and warranties in Sections 3.5(a) and 3.12(a)
relating to title matters shall survive the Closings and shall not terminate and
(ii) the representations and warranties in Section 3.11 relating to
environmental matters shall survive the Closing and shall terminate at the close
of business on the 90th day following the expiration of the applicable statute
of limitations with respect to the environmental liabilities in question.
Neither Seller nor Buyer shall have any liability whatsoever with respect to any
such representations or warranties after the survival period for such
representation or warranty expires.
9.3 GENERAL AGREEMENT TO INDEMNIFY
(a) Seller and Buyer shall indemnify, defend and hold harmless the
other party hereto and any director, officer or Affiliate of the other
party (each an "INDEMNIFIED PARTY") from and against any and all claims,
actions, suits, proceedings, liabilities, obligations, losses, and damages,
amounts paid in settlement, interest, costs and expenses (including
reasonable attorney's fees, court costs and other out-of-pocket expenses
incurred in investigating, preparing or defending the foregoing)
(collectively, "LOSSES") incurred or suffered by any Indemnified Party to
the extent that the Losses arise by reason of, or result from (i) the
failure of any representation or warranty of such party contained in this
Agreement to have been true in all material respects when made and as of
the Closing Date except as expressly provided otherwise in Section 8.2(a)
or 8.3(a), or (ii) the breach by such party of any covenant or agreement of
such party contained in this Agreement to the extent not waived by the
other party.
(b) Seller further agrees to indemnify and hold harmless Buyer from
and against any Losses incurred by Buyer arising out of, resulting from, or
relating to: (i) the Excluded Liabilities; (ii) Buyer's waiver of any
applicable Bulk Sales Laws; (iii) any claim, demand or liability for the
Taxes accruing in connection with the Purchased Assets prior to and
including the Closing Date or Seller's agreement to pay one-half (1/2) of
the real estate transfer taxes referred to in Section 2.7.
(c) Buyer further agrees to indemnify and hold harmless Seller with
respect to: (i) any failure of Buyer to discharge any of the Assumed
Liabilities; (ii) any claim, demand or liability for the Taxes referred to
in Section 2.7 other than one-half (1/2) of the real estate transfer taxes
allocated to Seller; and (iii) any medical, health or disability claims of
any Transferred Employee, except for claims for expenses incurred on or
before the close of business on the Closing Date in accordance with the
terms of the applicable Benefit Plan of Seller.
(d) Amounts payable in respect of the parties' indemnification
obligations shall be treated as an adjustment to the Purchase Price. Buyer
and Seller agree to cooperate in the preparation of a supplemental Asset
Acquisition Statement as a result of any adjustment to the Purchase Price
pursuant to the preceding sentence. Whether or not the Indemnifying Party
(as defined below) chooses to defend or prosecute any Third-Party Claim (as
defined in Section 9.4(a)), both parties hereto shall cooperate in the
defense or prosecution thereof and shall furnish such records, information
and testimony, and attend such conferences, discovery proceedings,
hearings, trials and appeals, as may be reasonably requested in connection
therewith or as provided in Section 5.1.
(e) The amount of the Indemnifying Party's liability under this
Agreement shall be determined taking into account any applicable insurance
proceeds actually received by, and other savings, including tax savings,
that actually reduce the overall impact of the Losses upon, the Indemnified
Party. The indemnification obligations of each party hereto under this
Article 9 shall inure to the benefit of the directors, officers and
Affiliates of the other party hereto on the same terms as are applicable to
such other party.
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(f) The Indemnified Party may not make a claim for indemnification
under Section 9.3(a)(i) for breach by the Indemnifying Party of a
particular representation or warranty after the expiration of the survival
period specified in Section 9.2.
(g) The indemnification provided in this Article 9 shall be the sole
and exclusive remedy after the Closing Date for damages available to the
parties to this Agreement for breach of any of the terms, conditions,
representations or warranties contained herein or any right, claim or
action arising from the transactions contemplated by this Agreement;
PROVIDED, HOWEVER, this exclusive remedy for damages does not preclude a
party from bringing an action for (i) specific performance or other
equitable remedy to require a party to perform its obligations under this
Agreement or any Collateral Agreement, or (ii) based on fraud or
intentional misrepresentation.
(h) Notwithstanding anything contained in this Agreement to the
contrary, no party shall be liable to the other party for indirect,
special, punitive, exemplary or consequential loss or damage (including any
loss of revenue or profit) arising out of this Agreement, PROVIDED,
HOWEVER, the foregoing shall not be construed to preclude recovery by the
Indemnified Party in respect of Losses directly incurred from (i) Third
Party Claims or (ii) any claim based on fraud or intentional
misrepresentation. Both parties shall mitigate their damages.
(i) The rights to indemnification under Section 9.3 shall not be
subject to set-off for any claim by the Indemnifying Party against any
Indemnified Party, whether or not arising from the same event giving rise
to such Indemnified Party's claim for indemnification.
9.4 GENERAL PROCEDURES FOR INDEMNIFICATION
(a) The Indemnified Party seeking indemnification under this Agreement
shall promptly notify the party against whom indemnification is sought (the
"INDEMNIFYING PARTY") of the assertion of any claim, or the commencement of
any action, suit or proceeding by any Third Party, in respect of which
indemnity may be sought hereunder and will give the Indemnifying Party such
information with respect thereto as the Indemnifying Party may reasonably
request, but failure to give such notice shall not relieve the Indemnifying
Party of any liability hereunder (unless and to the extent that the
Indemnifying Party has suffered material prejudice by such failure). The
Indemnifying Party shall have the right, but not the obligation,
exercisable by written notice to the Indemnified Party within thirty (30)
days of receipt of notice from the Indemnified Party of the commencement of
or assertion of any claim, action, suit or proceeding by a Third Party in
respect of which indemnity may be sought hereunder (a "THIRD-PARTY CLAIM"),
to assume the defense and control the settlement of such Third-Party Claim
that (i) involves (and continues to involve) solely money damages, or (ii)
involves (and continues to involve) claims for both money damages and
equitable relief against the Indemnified Party that cannot be severed,
where the claims for money damages are the primary claims asserted by the
Third Party and the claims for equitable relief are incidental to the
claims for money damages.
(b) The Indemnifying Party or the Indemnified Party, as the case may
be, shall have the right to participate in (but not control), at its own
expense, the defense of any Third-Party Claim that the other is defending,
as provided in this Agreement.
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(c) The Indemnifying Party, if it has assumed the defense of any
Third-Party Claim as provided in this Agreement, shall not consent to a
settlement of, or the entry of any judgment arising from, any such
Third-Party Claim without the Indemnified Party's prior written consent
(which consent shall not be unreasonably withheld or delayed) unless such
settlement or judgment relates solely to monetary damages. The Indemnifying
Party shall not, without the Indemnified Party's prior written consent,
enter into any compromise or settlement that (i) commits the Indemnified
Party to take, or to forbear to take, any action, or (ii) does not provide
for a complete release by such Third Party of the Indemnified Party. The
Indemnified Party shall have the sole and exclusive right to settle any
Third-Party Claim, on such terms and conditions as it deems reasonably
appropriate, to the extent such Third-Party Claim involves equitable or
other non-monetary relief against the Indemnified Party, and shall have the
right to settle any Third-Party Claim involving money damages for which
Indemnifying Party has not assumed the defense pursuant to this Section 9.4
with the written consent of the Indemnifying Party, which consent shall not
be unreasonably withheld or delayed.
(d) In the event an Indemnified Party shall claim a right to payment
pursuant to this Agreement, such Indemnified Party shall send written
notice of such claim to the Indemnifying Party. Such notice shall specify
the basis for such claim. As promptly as possible after the Indemnified
Party has given such notice, and subject to the limitations set forth in
Section 9.3, the Indemnified Party and the Indemnifying Party shall
establish the merits and amount of such claim by mutual agreement, or, if
necessary, by arbitration in a manner reasonably determined by mutual
agreement of such parties.
10. MISCELLANEOUS PROVISIONS
10.1 NOTICES
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given upon receipt if (i) mailed by certified
or registered mail, return receipt requested, (ii) sent by Federal Express or
other express carrier, fee prepaid, (iii) sent via facsimile with receipt
confirmed, or (iv) delivered personally, addressed as follows or to such other
address or addresses of which the respective party shall have notified the
other.
If to Seller, to: PURE BIOSCIENCE
Attn: Michael L. Krall, President,
1725 Gillespie Way
El Cajon, CA 92020
Facsimile: (619) 596-8791
With a copy to: PURE BIOSCIENCE
Attn: Dennis Atchley, Esq. General Counsel
1725 Gillespie Way
El Cajon, CA 92020
Facsimile: (619) 596-8791
If to Buyer, to: DATA RECOVERY CONTINUUM, INC.
Attn: Lee Brukman, President
Post Office Box 105
La Jolla, CA 92038
Facsimile: _______________________
10.2 EXPENSES
Except as otherwise provided in this Agreement, each party to this
Agreement will bear all the fees, costs and expenses that are incurred by it in
connection with the transactions contemplated hereby, whether or not such
transactions are consummated.
10.3 ENTIRE AGREEMENT; MODIFICATION
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The agreement of the parties, which is comprised of this Agreement, the
Schedules and Exhibits hereto and the documents referred to herein and such
other written agreements between the parties dated the date hereof, sets forth
the entire agreement and understanding between the parties and supersedes any
prior agreement or understanding, written or oral, relating to the subject
matter of this Agreement. With respect to the Purchased Assets, the Business, or
any other rights or obligations to be transferred hereunder or pursuant hereto,
no party has been induced by or has relied upon any representations, warranties,
or statements, whether express or implied, made by any other party, its agents,
employees, attorneys or other representatives or by any Person representing or
purporting to represent the other party that are not expressly set forth in this
Agreement or the Collateral Agreements (including the Schedules and Exhibits
hereto and thereto), whether or not any such representations, warranties or
statements were made in writing or orally. No amendment, supplement,
modification or waiver of this Agreement shall be binding unless executed in
writing by the party to be bound thereby, and in accordance with Section 11.4.
10.4 ASSIGNMENT; BINDING EFFECT; SEVERABILITY
This Agreement may not be assigned by any party hereto without the other
party's written consent; provided that, Buyer may transfer or assign in whole or
in part to one or more Buyer Designee its the right to purchase all or a portion
of the Purchased Assets, but no such transfer or assignment will relieve Buyer
of its obligations hereunder. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the successors, legal representatives and
permitted assigns of each party hereto. The provisions of this Agreement are
severable, and in the event that any one or more provisions are deemed illegal
or unenforceable the remaining provisions shall remain in full force and effect
unless the deletion of such provision shall cause this Agreement to become
materially adverse to either party, in which event the parties shall use
reasonable commercial efforts to arrive at an accommodation that best preserves
for the parties the benefits and obligations of the offending provision.
10.5 GOVERNING LAW
This agreement shall be governed by and construed and interpreted in
accordance with the laws of the state of California as to all matters, including
matters of validity, construction, effect, enforceability, performance and
remedies. The parties agree that any action to enforce the terms and conditions
of this agreement shall be brought only in the courts of the State of California
in and for the County of San Diego.
10.6 EXECUTION IN COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
11. TERMINATION AND WAIVER
11.1 TERMINATION
This Agreement may be terminated at any time prior to the Closing Date by:
(a) MUTUAL CONSENT. The mutual written consent of Buyer and Seller;
(b) COURT OR ADMINISTRATIVE ORDER. Buyer or Seller if there shall be
in effect a non-appealable order of a court or government administrative
agency of competent jurisdiction prohibiting the consummation of the
transactions contemplated hereby.
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(c) DELAY. Buyer or Seller if the Closing shall not have occurred by
March 31, 2004, provided that the terminating party is not otherwise in
material default or breach of this Agreement.
11.2 EFFECT OF TERMINATION
In the event of the termination of this Agreement in accordance with
Section 11.1, this Agreement shall become void and have no effect, without any
liability on the part of any party or its directors, officers or stockholders,
except for the obligations of the parties hereto as provided in Article 6,
Sections 10.2 and this Section 11.2.
11.3 WAIVER OF AGREEMENT
Any term or condition hereof may be waived at any time prior to the Closing
Date by the party hereto which is entitled to the benefits thereof by action
taken by its Board of Directors or its duly authorized officer or employee,
whether before or after the action of such party; PROVIDED, HOWEVER, that such
action shall be evidenced by a written instrument duly executed on behalf of
such party by its duly authorized officer or employee. The failure of either
party to enforce at any time any provision of this Agreement shall not be
construed to be a waiver of such provision nor shall it in any way affect the
validity of this Agreement or the right of such party thereafter to enforce each
and every such provision. No waiver of any breach of this Agreement shall be
held to constitute a waiver of any other or subsequent breach.
11.4 AMENDMENT OF AGREEMENT
This Agreement may be amended with respect to any provision contained
herein at any time prior to the Closing Date by action of the parties hereto
taken by their Boards of Directors or by their duly authorized officers or
employees, whether before or after such party's action; PROVIDED, HOWEVER, that
such amendment shall be evidenced by a written instrument duly executed on
behalf of each party by its duly authorized officer or employee.
11.5 DISPUTES; WAIVER OF JURY TRIAL
(a) Prior to initiating any litigation with respect to this Agreement,
the parties shall first in good faith consult among appropriate officers of
Buyer and Seller, which shall begin promptly after one party has delivered
to the other a written request for consultation. At any time thereafter,
either party may request in writing that the dispute be referred to
appropriate Senior Executives of Buyer and Seller. Within ten (10) Business
Days after such request, the Senior Executives (and not their designees)
shall meet and attempt in good faith to resolve the dispute.
(b) The parties hereby irrevocably and unconditionally waive trial by
jury in any legal action or proceeding relating to this Agreement or any
Collateral Agreement and for any counterclaim therein. IN WITNESS WHEREOF,
each party has caused this Agreement to be duly executed on its behalf by
its duly authorized officer as of the date first written above.
PURE BIOSCIENCE
By: /s/ Michael L. Krall Date: November 25, 2003
------------------------------------ ----------------------
Michael L. Krall, President
By: /s/ Dennis B. Atchley Date: November 25, 2003
------------------------------------ ----------------------
Dennis B. Atchley, Esq., Secretary
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DATA RECOVERY CONTINUUM,INC.
By: /s/ Lee Brukman Date: November 25, 2003
------------------------------------ ----------------------
Lee Brukman, President
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EXHIBIT A
ASSIGNMENT And BILL OF SALE
--------------------------------------------------------
TO BE PROVIDED AT CLOSE OF ESCROW
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EXHIBIT B
Facilities Sublease
--------------------------------------------------------
TO BE PROVIDED AT CLOSE OF ESCROW
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EXHIBIT D
Nutripure CT2000 Proforma
TO BE PROVIDED AT CLOSE OF ESCROW
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PROMISSORY NOTE
DUE March __, 2004
(120 days from funding)
TO BE PROVIDED AT CLOSE OF ESCROW
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SCHEDULE 2.1
PURCHASED ASSETS
Definitive List to be provided prior to November 14, 2003
--------------------------------------------------------
TO BE PROVIDED AT CLOSE OF ESCROW
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SCHEDULE 2.1(a)
Assumed Lease(s)
--------------------------------------------------------
TO BE PROVIDED AT CLOSE OF ESCROW
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Schedule 2.1 (b) and (c)
Fixed Assets
--------------------------------------------------------
TO BE PROVIDED AT CLOSE OF ESCROW
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SCHEDULE 2.3(d)
VALUATION OF INVENTORIES
as of
October 31, 2003
TO BE PROVIDED AT CLOSE OF ESCROW
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SCHEDULE 3.7(a)
Assumed Lease(s)
--------------------------------------------------------
TO BE PROVIDED AT CLOSE OF ESCROW
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SCHEDULE 3.9(a)
Business Employees as of October 31, 2003
--------------------------------------------------------
TO BE PROVIDED AT CLOSE OF ESCROW
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SCHEDULE 3.10
Outstanding Contracts
--------------------------------------------------------
TO BE PROVIDED AT CLOSE OF ESCROW
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SCHEDULE 3.16
10 Largest Customers Of The Business,
By Dollar Amount, Over The 12 Months
Ended July 31, 2003,
--------------------------------------------------------
TO BE PROVIDED AT CLOSE OF ESCROW
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