SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
CET SERVICES, INC.
_______________________________________________________________________
(Name of Registrant as Specified in its Charter)
_______________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
(1) Title of each class of securities to which transaction applies:
Common Stock, no par value
(2) Aggregate number of securities to which transaction applies:
78,994,826
(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):
$0.17 - Based on the average of the high and low prices reported as
reported on the OTC Bulletin Board on May 29, 2008.
(4) Proposed maximum aggregate value of transaction:
$13,429,120.42
(5) Total fee paid:
$527.76
[X] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-011(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:
__________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
__________________________________________________________________
(3) Filing Party:
__________________________________________________________________
(4) Date Filed:
__________________________________________________________________
CET SERVICES, INC.
12503 E. Euclid Dr., #30
Centennial, Colorado 80111
(720) 875-9115
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 12, 2008
TO THE SHAREHOLDERS OF CET SERVICES, INC.:
NOTICE HEREBY IS GIVEN that a Special Meeting of Shareholders of CET
Services, Inc., a California corporation (the "Company"), will be held at the
offices of BioMedical Technology Solutions, Inc., 9800 Mt. Pyramid Court,
Suite 350, Englewood, Colorado, on Tuesday, August 12, 2008 at 9:00 a.m.
Mountain Daylight Time and at any and all adjournments thereof, for the
purpose of considering and acting upon the following matters.
1. The approval of an Agreement and Plan of Merger pursuant to which a
wholly-owned subsidiary of the Company would be merged with and into
BioMedical Technology Solutions, Inc. ("BMTS") and the Company would issue
shares of its common stock to the security holders of BMTS;
2. The approval of a change of the Company's state of domicile from
California to Colorado;
3. The approval of an amendment to the articles of incorporation to
increase the authorized number of shares of the Company's common and
preferred stock;
4. The approval of a reverse split of the outstanding shares of the
Company's common stock;
5. The approval of the change of the Company's name to "BioMedical
Technology Solutions Holdings, Inc.;"
6. The approval of the Company's 2008 Equity Incentive Plan.
7. To consider a shareholder proposal; and
8. The transaction of such other business as may properly come before
the meeting or any adjournment thereof.
Only holders of the no par value common stock of the Company of record
at the close of business on July 7, 2008, will be entitled to notice of and
to vote at the Meeting or at any adjournment or adjournments thereof. The
proxies are being solicited by the Board of Directors of the Company. It is
anticipated that this Proxy Statement and the accompanying Proxy will be
mailed to the Company's shareholders on or about July 25, 2008.
All shareholders, whether or not they expect to attend the Annual
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
Steven H. Davis, President
Centennial, Colorado
July 25, 2008
2
TABLE OF CONTENTS
Page
SUMMARY OF THE MERGER .......................................... 6
Parties to the Merger (page 19) .............................. 6
Reasons for the Merger (page 22).............................. 6
Recommendations to Shareholders (page 22)..................... 7
The Merger (page 19).......................................... 7
Merger Consideration (page 19)................................ 7
CET's Directors and Officers Have Financial Interests in
the Merger (page 26)........................................ 7
CET Shareholder Approval ..................................... 8
Potential Break-Up Fee (page 57) ............................. 8
QUESTIONS AND ANSWERS ABOUT THE MERGER ......................... 9
RISK FACTORS ................................................... 12
Risks Relating to the Merger ................................. 12
Risks Relating to the Business of BMTS ....................... 13
Risks Related to the Business, Finances and Operation of the
Combined Companies ......................................... 14
MARKET PRICES AND DIVIDENDS .................................... 15
Recent Closing Prices ........................................ 15
Historical Market Price Data ................................. 15
Number of Shareholders ....................................... 15
Dividends .................................................... 15
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS ...... 16
THE SPECIAL MEETING ............................................ 17
Proxies ...................................................... 17
Shares Outstanding and Voting Rights ......................... 17
Independent Registered Public Accounting Firm ................ 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . 18
THE MERGER (PROPOSAL NO. 1) .................................... 19
General ...................................................... 19
Structure .................................................... 19
Background of the Merger ..................................... 20
CET's Reasons for the Merger; Recommendation of CET's
Board of Directors ......................................... 22
Rights of Dissenting Shareholders ............................ 24
Financial Interests of CET's Directors and Officers in
the Merger ................................................. 26
BMTS's Reasons for the Merger ................................ 27
Board of Directors and Management of CET Following the Merger. 28
Operations Following the Merger .............................. 28
Public Trading Markets ....................................... 29
CET Dividends ................................................ 29
Regulatory and Other Approvals Required for the Merger ....... 29
Indemnification and Insurance ................................ 29
INFORMATION ABOUT CET SERVICES, INC. ........................... 29
General ...................................................... 29
Contact Information .......................................... 30
Current Property Interests of CET and the Effects of Merger .. 31
Information Incorporated by Reference ........................ 32
3
INFORMATION ABOUT BMTS ......................................... 32
Corporate History ............................................ 32
Contact Information .......................................... 32
Business Overview ............................................ 32
The BMTS Solution ............................................ 32
Key Elements of the Demolizer[R] Technology .................. 33
Sales Strategy ............................................... 34
Manufacturing ................................................ 34
Intellectual Property ........................................ 34
Competitors .................................................. 36
Competitive Advantages of BMTS ............................... 36
Regulatory Matters ........................................... 37
Employees and Consultants .................................... 37
RISK FACTORS ASSOCIATED WITH BMTS .............................. 37
Risks Related to Our Business ................................ 38
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
OF BMTS ........................................................ 44
General ...................................................... 44
Critical Accounting Policies and Estimates ................... 44
Principles of Consolidation .................................. 44
Revenue Recognition .......................................... 45
Intangibles .................................................. 45
Inventory Valuation .......................................... 45
Results of Operations ........................................ 46
Liquidity and Capital Resources .............................. 48
Capital Commitments .......................................... 49
Contractual Obligations at December 31, 2007 ................. 49
Off-Balance Sheet Transactions ............................... 49
Common Stock Dividend Policy ................................. 49
MANAGEMENT OF CET AND BMTS AFTER THE MERGER .................... 49
Directors and Executive Officers ............................. 49
Executive Compensation ....................................... 50
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF BMTS ............................................. 51
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF BMTS ......... 52
THE MERGER AGREEMENT ........................................... 53
Terms of the Merger .......................................... 53
Closing and Effective Time of the Merger ..................... 54
Reincorporation Merger ....................................... 54
Representations, Warranties, Covenants and Agreements ........ 54
Conditions to the Completion of the Merger ................... 55
Conduct of Business of CET and BMTS Pending the Merger ....... 56
No Solicitation of Other Transactions ........................ 57
Termination .................................................. 57
Effect of Termination ........................................ 58
Fees and Expenses ............................................ 58
Amendments; Waiver; Assignment ............................... 58
ACCOUNTING TREATMENT ........................................... 59
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER ..................................................... 59
4
CHANGE OF DOMICILE (PROPOSAL NO. 2) ............................ 60
The Reincorporation Proposal ................................. 60
Comparison of Shareholder Rights ............................. 62
Rights of Dissenting Shareholders ............................ 67
Federal Income Tax Consequences of the Reincorporation
Merger ..................................................... 67
AMENDMENT TO ARTICLES OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF COMMON AND PREFERRED STOCK
(PROPOSAL NO. 3) ............................................... 68
Vote Required and Board of Directors' Recommendation ......... 68
APPROVAL OF A REVERSE STOCK SPLIT (PROPOSAL NO. 4) ............. 68
Procedure .................................................... 69
Fractional Shares ............................................ 70
No Dissenters' Rights ........................................ 70
Federal Income Tax Consequences of the Reverse Stock Split ... 70
Vote Required and Board of Directors' Recommendation ......... 71
APPROVAL OF NAME CHANGE (PROPOSAL NO. 5) ....................... 71
APPROVAL OF 2008 EQUITY INCENTIVE PLAN (PROPOSAL NO. 6) ........ 72
General ...................................................... 72
Summary of the 2008 Plan ..................................... 72
Exercise Price; Payment ...................................... 74
Option Exercise .............................................. 74
Term ......................................................... 75
Purchase Price ............................................... 75
Consideration ................................................ 75
Vesting ...................................................... 75
Termination of Employment or Relationship as a Director or
Consultant ................................................. 76
Stock Appreciation Rights .................................... 77
Federal Income Tax Considerations ............................ 78
Vote Required; Recommendation of the CET Board of Directors .. 80
SHAREHOLDER PROPOSAL (PROPOSAL NO. 5) .......................... 81
OTHER BUSINESS ................................................. 81
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR THE ANNUAL
MEETING TO BE HELD IN 2009 ..................................... 82
WHERE YOU CAN FIND MORE INFORMATION ............................ 82
INFORMATION INCORPORATED BY REFERENCE .......................... 83
INFORMATION IN THIS PROXY STATEMENT ............................ 83
INDEX TO FINANCIAL STATEMENTS .................................. F-1
APPENDIX A - AGREEMENT AND PLAN OF MERGER AND AMENDMENT NO. 1 TO AGREEMENT
AND PLAN OF MERGER
APPENDIX B - 2008 EQUITY INCENTIVE PLAN
APPENDIX C - CALIFORNIA CORPORATIONS CODE SECTIONS 1300-1313
5
SUMMARY OF THE MERGER
The following summary highlights selected information from this proxy
statement about the proposed merger with Biomedical Technology Solutions,
Inc., and may not contain all of the information that is important to you.
Accordingly, we encourage you to read carefully this entire proxy statement,
its appendices and the documents referred to or incorporated by reference in
this proxy statement. In this proxy statement, unless the context requires
otherwise, the terms "CET," "the company," "we," "our," "ours" and "us" refer
to CET Services, Inc. and its subsidiaries. The term "merger agreement"
refers to the Agreement and Plan of Merger, dated as of May 8, 2008, as
amended on July 9, 2008 by and among CET Services, Inc., a California
corporation, Biomedical Technology Solutions, Inc., a Colorado corporation
and CET Acquisition Corp., a Colorado corporation and a wholly-owned
subsidiary of CET. The term "BMTS" refers to Biomedical Technology Solutions,
Inc., "Merger Sub" refers to CET Acquisition Corp. The term "CET-Colorado"
refers to a wholly-owned subsidiary of CET that has been formed for the
purpose of effecting a change of CET's domicile to Colorado.
Parties to the Merger (page 19)
The parties to the merger are CET, BMTS and Merger Sub.
CET's business is currently related to property development, primarily
in urban areas and preferably having an environmental remediation requirement
as an element of the project. The report of GHP Horwath, P.C. on CET's
financial statements at December 31, 2007 includes a paragraph stating that
there is substantial doubt about CET's ability to continue as a going
concern.
BMTS markets and distributes on-site biomedical waste treatment
technology.
Merger Sub is a newly formed, wholly-owned subsidiary of CET organized
for the purpose of facilitating the acquisition of BMTS.
Reasons for the Merger (page 22)
Our board of directors approved the merger agreement as a consequence of
the change in our business operations over the past several years which has
resulted in operating losses. As a result of our losses from operations, the
American Stock Exchange delisted our stock from trading on that exchange.
The board of directors believes that the prospects for the real estate
development business in the Denver area are poor and accordingly CET's
operations have been scaled back significantly. Our board of directors also
believes that BMTS has a good business plan and has had increasing sales of
its product. The BMTS management team appears to be very energetic and
focused on its market segment. Based on this, our board of directors
believes that the value to be received by our shareholders in the merger with
BMTS would be greater than that available to us if we continue our current
operations. The value that may be received by our shareholders include a
potential increase in the market price of our common stock and greater
liquidity for our stock as a result of increased interest in the market for
our stock as a result of the BMTS operations.
6
Recommendations to Shareholders (page 22)
Our board of directors determined that the merger agreement and the
proposed merger were fair to and in the best interests of our shareholders,
and recommends that our shareholders vote "FOR" the approval of the merger
agreement and the transactions contemplated thereby.
Our board of directors has not sought nor received a fairness opinion
from an unaffiliated party as to whether the merger is fair to our non-
management shareholders due to the expense of obtaining such an opinion.
In connection with the merger, Steven H. Davis, our President, CEO and a
director will acquire certain of our real estate properties, subject to
certain liabilities, for approximately $510,000 in cash. Although this
transaction is intended to provide additional working capital for BMTS and
not to provide Mr. Davis with a special benefit, there is no assurance that
Mr. Davis will not receive a benefit as a result of the merger in addition to
those he would receive as a shareholder of CET.
The Merger (page 19)
The merger agreement provides for the merger of Merger Sub with and into
BMTS. Upon the completion of the merger, the separate corporate existence of
Merger Sub will cease and BMTS will continue as a wholly-owned subsidiary of
CET. The merger would be a "reverse merger" with BMTS and would involve a
complete change of control of CET, and a complete change in the management of
CET. After the merger, CET's operations would primarily be through BMTS. A
portion of the real estate assets of CET would be sold to Steven H. Davis in
connection with the closing, and the remaining real estate holdings are
expected to be liquidated by CET some time after the closing.
Merger Consideration (page 19)
The merger agreement provides that each share of BMTS common stock
issued and outstanding immediately prior to the effective time of the merger
will be converted into the right to receive the number of validly issued,
fully paid and non-assessable shares of CET common stock equal to the
exchange ratio. The exchange ratio will be determined based upon the number
of shares of CET outstanding at the effective time and the number of
outstanding shares of BMTS common stock at the effective time of the merger,
such that the pre-merger shareholders of CET will own 6% and the BMTS
shareholders will own 94% of the total issued and outstanding shares of CET,
on a fully diluted basis, immediately following the completion of the merger.
In addition, CET will assume all BMTS options, warrants and convertible notes
outstanding immediately prior to the effective time, and these convertible
securities will become exercisable or convertible for CET common stock at the
effective time of the merger. The number of shares of CET common stock and
the exercise or conversion price of CET common stock that will become subject
to these convertible securities will be adjusted in accordance with the
exchange ratio. The persons who are shareholders of BMTS at the time of the
merger will receive approximately 78,176,884 shares of CET common stock in
exchange for all of the outstanding shares of BMTS common stock as merger
consideration at the closing of the merger.
7
CET's Directors and Officers Have Financial Interests in the Merger (page 26)
In connection with the merger, Steven H. Davis, our President, CEO and a
director will acquire certain of our real estate properties, subject to
certain liabilities, for approximately $510,000 in cash.
CET Shareholder Approval
Holders of a majority of our shares outstanding will be required to vote
in favor of the merger agreement in order to approve the merger, the name
change, the reverse split, and the increase in authorized capital. The
adoption of the Equity Incentive Plan requires the affirmative vote of a
majority of the shares voting, either in person or by proxy, at the Special
Meeting.
Potential Break-Up Fee (page 57)
In the event that either party to the merger agreement were to terminate
the merger agreement for no reason specified in the merger agreement, and the
other party continues to be willing and able to proceed with the merger, then
the terminating party shall immediately pay the other party the sum of
$250,000 as a break-up fee. This could result in a substantial liability to
us if we were to terminate the merger agreement for reasons other than those
described in the merger agreement. (See "The Merger Agreement - Termination")
Authorized and Outstanding Shares of Common Stock After the Merger
The following table sets forth information regarding the capitalization of
CET giving effect to the following transactions more fully described in this
proxy statement:
* the merger;
* the Amendment to the Articles of Incorporation to increase
the authorized capital of CET;
* the reverse split (assuming a reverse split ratio of one-
for-three (1-for-3); and
* the adoption of the 2008 Equity Incentive Plan and the
authorization to issue up to 2.0 million shares of common
stock pursuant to grants made under that plan:
Number of Shares of Common Stock
Issued and Outstanding 27,927,958
Authorized and Reserved for Issuance (1) 5,333,093
Authorized and Unreserved 68,738,949
__________
(1) Includes 6,667 shares of common stock reserved for issuance upon
exercise of CET options outstanding prior to the merger; 3,326,426 shares of
common stock reserved for issuance upon the exercise of BMTS options and
warrants assumed by CET in the merger; and 2.0 million shares of common stock
reserved for issuance under the 2008 Equity Incentive Plan.
8
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers about the proposed merger are
provided for your convenience, and briefly address some commonly asked
questions about the merger and merger agreement. You should carefully read
this entire proxy statement, its appendices and the documents referred to or
incorporated by reference in this proxy statement.
Q. Why am I receiving this proxy statement?
A. CET and BMTS have agreed to a business combination under the terms of the
Agreement and Plan of Merger dated May 8, 2008 and amended on July 9, 2008,
which is described in this proxy statement. This agreement is referred to as
the merger agreement. A copy of the merger agreement, as amended, is attached
to this proxy statement as Appendix C, which we encourage you to review.
In order to complete the merger, CET's shareholders must vote to approve (i)
the merger agreement; (ii) a change of CET's state of domicile from
California to Colorado; (iii) an amendment to the articles of incorporation
to increase the number of authorized shares of common stock; (iv) a reverse
split of the outstanding shares of CET's common stock; (v ) an amendment to
CET's articles of incorporation to change the name of CET to "BioMedical
Technology Solutions Holdings, Inc."; and (vi) the approval of the Company's
2008 Equity Incentive Plan. This proxy statement contains important
information about the proposed merger, the other proposals and the Special
Meeting of CET's shareholders. You should read it carefully.
Your vote is important. We encourage you to vote as soon as possible after
carefully reviewing this proxy statement.
Q. Why is CET proposing the merger with BMTS?
A. Our board of directors approved the merger agreement as a consequence of
the change in our business operations over the past several years which has
resulted in operating losses. As a result of our losses from operations, the
American Stock Exchange delisted our stock from trading on that exchange.
Our board of directors believes that the value to be received by our
shareholders as a result of the merger with BMTS would be greater than that
available to us if we continue our current operations.
Q. What vote is required in order to approve the matters related to the
merger BMTS?
A. The approval of each of the proposals except the approval of the 2008
Stock Incentive Plan will require the affirmative vote of holders of a
majority of the outstanding shares of CET's common stock. The approval of
CET's 2008 Stock Incentive Plan will require the affirmative vote of a
majority of the shares present at the Special meeting
Q. What will happen in the proposed merger with BMTS?
A. As a consequence of the merger, BMTS will be merged with a wholly-owned
subsidiary of CET and continue as a wholly owned subsidiary of CET.
Shareholders of BMTS will become shareholders of CET and will own
approximately 94% of the shares of CET common stock outstanding immediately
after the merger, on a fully diluted basis. In addition, CET will assume all
outstanding options, warrants and convertible notes to acquire BMTS common
9
stock, which convertible securities will become exercisable or convertible
for shares of CET common stock in the merger.
Q. What will CET shareholders receive in the proposed merger with BMTS?
A. CET shareholders will not receive anything in the merger with BMTS. CET
shareholders will continue to hold the shares of CET common stock that they
owned prior to the merger. The current shareholders of CET now own all of
the outstanding shares of CET common stock. Immediately after the merger,
the current shareholders of CET would hold approximately 6% of the shares of
common stock then outstanding.
Q. What if I object to the proposed merger? Do I have appraisal rights?
A. Yes. CET Shareholders will have dissenters' rights in connection with the
merger and the change of CET's domicile to Colorado under applicable
California corporation law. See the section entitled "Rights of Dissenting
Shareholders."
Q. Who will manage CET after the merger with BMTS?
A. As a result of the merger, the current directors will resign and be
replaced by Donald G. Cox, Gex F. Richardson and William Sparks, currently
members of the board of directors of BMTS. It is expected that all of the
executive officers of BMTS will continue in their respective positions after
the merger. None of CET's current officers or directors will continue in his
position after the merger.
Q. What happens if the merger is not consummated?
A. CET would continue to operate its current business and may seek to enter
into another transaction. If the merger is not consummated due to any reason
not otherwise covered in the merger agreement, a $250,000 break-up fee would
be applicable. This could result in a substantial liability to us if we were
to terminate the merger agreement for reasons other than those described in
the merger agreement.
Q. When do you expect the merger to be completed?
A. It is currently anticipated that the merger will be consummated with
BMTS on or before August 15, 2008. For a description of the conditions to
completion of the merger, see the section entitled "Conditions to the
Completion of the Merger."
Q. What do I need to do now?
A. CET urges you to read carefully and consider the information contained in
this proxy statement, including the appendices, and to consider how the
merger will affect you as a shareholder of CET. You should then vote as soon
as possible in accordance with the instructions provided in this proxy
statement and on the enclosed proxy card.
10
Q. How do I vote?
A. If you are a holder of record of CET common stock, you may vote in person
at the Special Meeting or by submitting a proxy for the Special Meeting. You
may submit your proxy by completing, signing, dating and returning the
enclosed proxy card in the accompanying pre-addressed postage paid envelope.
If you hold your shares in "street name," which means your shares are held of
record by a broker, bank or nominee, you must provide the record holder of
your shares with instructions on how to vote your shares.
Q. What will happen if I abstain from voting or fail to vote?
A. An abstention or failure to vote by a CET shareholder will have the
effect of voting against the proposals that require the affirmative vote of a
majority of the common stock outstanding. An abstention will have the effect
of voting against the stock option plan proposal, but failures to vote will
have no effect on the stock option plan proposal.
Q. If my shares are held in "street name," will my broker, bank or nominee
automatically vote my shares for me?
A. No. Your broker, bank or nominee cannot vote your shares unless you
provide instructions on how to vote in accordance with the information and
procedures provided to you by your broker, bank or nominee.
Q. Can I change my vote after I have mailed my signed proxy or direction
form?
A. Yes. Send a later-dated, signed proxy card to CET's secretary at the
address of CET's corporate headquarters prior to the date of the Annual
Meeting or attend the annual meeting in person and vote. You also may revoke
your proxy by sending a notice of revocation to CET's secretary.
Q. What are the federal income tax consequences of the merger with BMTS?
A. The merger with BMTS is intended to qualify as a tax free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code and no
federal tax gain or loss will be recognized by CET's shareholders who are
U.S. citizens as a result of the merger. For a description of the material
federal income tax consequences of the merger, please see the information set
forth in "Material United States Federal Income Tax Consequences of the
Merger." Stockholders who are not U.S. citizens should consult their tax
advisors.
Q. Who can help answer my questions?
A. If you have questions about the merger or if you need additional copies
of the proxy statement or the enclosed proxy card you should contact:
Steven H. Davis, President
CET Services, Inc.
12503 E. Euclid Dr., #30
Centennial, Colorado 80111
(720) 875-9115
You may also obtain additional information about CET from documents filed
with the SEC by following the instructions in the section entitled "Where You
Can Find More Information."
11
RISK FACTORS
Risks Relating to the Merger
CET's current shareholders will have a significantly reduced ownership and
voting interest after the merger and will exercise significantly less
influence over management.
After the completion of the merger, CET's current shareholders will own
a significantly smaller percentage of CET than they currently own. Following
completion of the merger CET's current shareholders will own approximately 6%
of the combined entity. Consequently, the current CET shareholders will have
significantly less influence over the management and policies of CET after
the merger.
The assumption by CET in the merger of options, warrants and convertible
notes to acquire BMTS common stock will further dilute the ownership position
of CET's current shareholders. As of May 29, 2008, there were outstanding
options, warrants and convertible notes to acquire approximately 1,060,000
shares of BMTS common stock. Assuming an exchange ratio of 8.64276 CET
shares for one BMTS share, these convertible securities will become
exercisable to purchase approximately 9,161,326 shares of CET common stock
following the merger, without giving effect to the proposed reverse split.
In addition, BMTS may issue additional options, warrants and convertible
notes before the merger, all of which will result in CET's current
shareholders holding a smaller percentage of CET's common stock on a fully
diluted basis, taking into account the shares of CET common stock issuable
upon exercise or conversion of these options, warrants and convertible notes.
The issuance by BMTS of options, warrants and convertible notes before the
merger will not reduce the number of shares of CET common stock that will be
issued to BMTS's shareholders in the merger.
There will be a substantial number of shares of CET's common stock available
for sale in the future that may increase the volume of common stock available
for sale in the open market and may cause a decline in the market price of
our common stock.
After giving effect to the merger, the related reverse stock split and
the amendment to increase the number of outstanding shares of stock, there
will be approximately 67,000,000 shares of authorized but unissued shares of
common stock available for issuance in future offerings of CET's securities,
which number of shares will vary depending on the size of the reverse stock
split. The issuance of common stock in the future would have a dilutive
effect on CET's shareholders.
CET may waive one or more of the conditions to the mergers without
resoliciting shareholders.
Each of the conditions in the merger agreement to CET's obligations to
complete the merger may be waived, in whole or in part by CET. CET's Board
may evaluate the materiality of any such waiver to determine whether
amendment of this proxy statement and resolicitation of proxies is necessary.
However, CET's Board does not expect any such waiver to be significant enough
to require resolicitation of shareholders, although it also would expect to
determine if a waiver could affect the consideration to be issued in the
merger in a material manner. If the Board were to determine that a waiver
12
would materially alter the relative values of the consideration in the
merger, CET's Board would likely resolicit proxies. In the event that any
such waiver is not determined to be significant enough to require
resolicitation of shareholders, CET will have the discretion to complete the
mergers without seeking further shareholder approval.
The merger agreement limits CET's ability to pursue alternatives to the
merger.
The merger agreement contains provisions that could adversely impact
competing proposals to acquire CET or limit CET's ability to enter into other
business combinations. BMTS required CET to agree to these provisions as a
condition to BMTS's willingness to enter into the merger agreement. These
provisions, however, would discourage a third party that might have an
interest in acquiring CET or entering into another type of business
combination from considering or proposing such a transaction, even if that
party were prepared to give better terms than the merger agreement.
Our current directors and executive officers own shares of common stock and
have other interests in the merger that are different from yours.
Certain of our officers and directors have significant ownership of our
common stock and have different interests in the proposed merger and related
transactions.
In connection with the merger, Steven H. Davis, the President, CEO and a
Director of CET will acquire certain real estate properties owned by CET in
connection with the closing of the merger. While the transaction has been
approved by a majority of our disinterested directors, we have not obtained
an independent fairness opinion with respect to this transaction. Mr. Davis
may receive an additional benefit from the merger as a result of his purchase
of the real estate properties from CET if he is able to resell the properties
at a higher price or otherwise generate income from these properties.
In addition, Steven H. Davis and Craig C. Barto, a Director of CET, own
21.2% and 12.7% of the shares of CET common stock now outstanding,
respectively. Because of these ownership positions, these persons would have
a greater stake in any benefits from the merger than other current CET
shareholders.
We have not obtained a fairness opinion with respect to the merger due
to the expense of obtaining such an opinion. As a result, shareholders will
need to rely on the judgment of our Board of Directors as to the fairness of
the transaction.
Risks Relating to the Business of BMTS.
For a discussion of the risks related to the business of BMTS see "RISK
FACTORS ASSOCIATED WITH BMTS."
13
Risks Relating to the Business, Finances and Operations of the Combined
Companies
BMTS has incurred substantial losses, CET has experienced negative cash flow,
and the combined companies may never become profitable.
BMTS has incurred cumulative net operating losses and both companies
have experienced negative cash flow. It is expected that the combined company
will continue to experience operating losses and negative cash flow for the
near future, which will impact the financial results of CET. Accordingly,
there can be no assurance that CET's revenues will ever exceed its expenses
or, in the event that it does achieve profits, that it will remain
profitable.
The combined companies will require additional funding which may not be
available on favorable terms or at all.
After the Merger, CET and BMTS will require additional funds to support
its working capital requirements or for other purposes and may seek to raise
additional funds through public or private equity financing, bank debt
financing or from other sources. Adequate funds may not be available when
needed or may not be available on favorable terms. If additional funds are
raised by issuing equity securities or convertible debt securities, existing
shareholders may be diluted or have their rights subordinated to newly-issued
senior securities. If funding is insufficient at any time in the future, the
combined companies may not be able to take advantage of business
opportunities or respond to competitive pressures, any of which could harm
its business.
14
MARKET PRICES AND DIVIDENDS
Recent Closing Prices
The closing price for CET's common stock on the OTC Bulletin Board on
May 13, 2008, the last trading day before announcement of the execution of
the merger agreement was $0.20. On July 17, 2008, the closing price on the
OTC Bulletin Board was $0.26.
Historical Market Price Data
Since July 2007, the Company's Common Stock has been quoted on the OTC
Bulletin Board ("OTCBB") under the symbol "CETR". From July 1995 until May
2007 the Company's Common Stock was listed on the American Stock Exchange.
The following table sets forth the high and low sale prices for the Company's
Common Stock as reported on the OTCBB and AMEX for the periods indicated:
Quarter Ended High Low
-------------- ---- -----
March 31, 2006 $ 0.52 $ 0.30
June 30, 2006 1.20 0.26
September 30, 2006 0.89 0.65
December 31, 2006 0.85 0.30
March 31, 2007 0.53 0.30
June 30, 2007 0.46 0.20
September 30, 2007 0.35 0.15
December 31, 2007 0.25 0.06
March 31, 2008 0.15 0.04
June 30, 2008 0.30 0.17
Number of Shareholders
The number of record holders of CET's common stock at July 7, 2008 was
36. This does not include approximately 340 shareholders that hold their
shares in street name.
Dividends
The Board of Directors does not anticipate paying cash dividends on the
Company's Common Stock in the foreseeable future as it intends to retain
future earnings to finance the growth of the business. The payment of future
cash dividends will depend on such factors as earnings levels, anticipated
capital requirements, the operating and financial conditions of the Company,
and other factors deemed relevant by the Board of Directors. The California
Corporations Code provides that a corporation may not pay dividends if the
corporation is, or as a result of the distribution would likely be, unable to
meet its liabilities as they mature.
15
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this proxy statement constitutes forward-
looking statements. You can identify these statements by forward-looking
words such as "may," "expect," "anticipate," "contemplate," "believe,"
"estimate," "intends," and "continue" or similar words. You should read
statements that contain these words carefully because they:
* discuss future expectations;
* contain projections of future results of operations or financial
condition; or
* state other "forward-looking" information.
There may be events in the future that we are not able to predict
accurately or over which we have no control. The risk factors and cautionary
language discussed in this proxy statement provide examples of risks,
uncertainties and events that may cause actual results to differ materially
from the expectations described by us or BMTS in such forward-looking
statements, including among other things:
* the number and percentage of our shareholders voting against the
merger proposal;
* outcomes of government reviews, inquiries, investigations and
related litigation;
* continued compliance with government regulations;
* fluctuations in customer demand;
* management of rapid growth;
* general economic conditions;
* BMTS's business strategy and plans; and
* the results of future financing efforts.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this proxy statement.
All forward-looking statements included herein attributable to any of
us, BMTS or any person acting on either party's behalf are expressly
qualified in their entirety by the cautionary statements contained or
referred to in this section. Except to the extent required by applicable laws
and regulations, CET and BMTS undertake no obligations to update these
forward-looking statements to reflect events or circumstances after the date
of this proxy statement or to reflect the occurrence of unanticipated events.
Before you grant your proxy or instruct how your vote should be cast or
vote on the adoption of the merger agreement and other proposals, you should
be aware that the occurrence of the events described in the "Risk Factors"
section and elsewhere in this proxy statement could have a material adverse
effect on CET and/or BMTS.
16
THE SPECIAL MEETING
The enclosed Proxy is solicited by and on behalf of the Board of
Directors of CET Services, Inc., a California corporation (the "Company"),
for use at the Company's Special Meeting of Shareholders to be held at the
offices of BioMedical Technology Solutions, Inc., 9800 Mt. Pyramid Court,
Suite 350, Englewood, Colorado, on Tuesday, August 12, 2008 at 9:00 a.m.
Mountain Daylight 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 about July 25, 2008.
Proxies
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 these proxy
materials 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
mails; 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 Outstanding and Voting Rights
All voting rights are vested exclusively in the holders of the Company's
no par value common stock, with each share entitled to one vote. Only
shareholders of record at the close of business on July 7, 2008, are entitled
to notice of and to vote at the Meeting or any adjournment thereof. On July
7, 2008, the Company had 5,606,989 shares of its no par value common stock
outstanding, each share of which is entitled to one vote on all matters to be
voted upon at the Meeting.
A majority of the Company's outstanding common stock represented in
person or by proxy shall constitute a quorum at the Meeting.
Independent Registered Public Accounting Firm
GHP Horwath, P.C. served as the Company's principal accountants during
the last fiscal year and has been selected to serve in that capacity for the
current fiscal year. It is not expected that any representative of GHP
Horwath, P.C. will be present at the Meeting. However, if a representative
is present at the Meeting, such representative will be given an opportunity
to make a statement if they desire to do so and be permitted to respond to
any appropriate questions.
17
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of
the Company's no par value common stock owned beneficially, as of July 7,
2008, by any person, who is known to the Company to be the beneficial owner
of 5% or more of such common stock, and, in addition, by each Director, and
Executive Officer of the Company, and by all Directors, Nominees for
Director, and Executive Officers of the Company as a group. Information as
to beneficial ownership is based upon statements furnished to the Company by
such persons.
Name and Address Amount and Nature of Percent
of Beneficial Owners Beneficial Ownership of Class
- ----------------------- -------------------- --------
Craig C. Barto 713,554 (1) 12.7%
2901 Orange Ave.
Long Beach, CA 90807
Steven H. Davis 1,185,907 (2) 21.2%
12503 E. Euclid Dr. # 30
Centennial, CO 80111
John D. Hendrick 11,100 (3) 0.2%
62 W. Plaza Drive,
Highlands Ranch, CO 80126
All directors and 1,910,561 34.0%
executive officers
as a group (3 persons)
Ross C. Gordon 367,000 6.5%
234 Michelle Lane
Alamo, CA 94507
__________________
(1) Includes 703,554 shares held directly and 10,000 shares underlying stock
options exercisable within 60 days held by Mr. Barto.
(2) Includes 1,185,907 shares held directly.
(3) Includes 1,100 shares held directly and 10,000 shares underlying stock
options exercisable within 60 days held by Mr. Hendrick.
18
THE MERGER
(PROPOSAL NO. 1)
The following discussion contains material information pertaining to the
merger. This discussion is subject, and qualified in its entirety by
reference, to the merger agreement attached as Appendix A to this proxy
statement. We urge you to read and review the entire merger agreement as well
as the discussion in this proxy statement.
General
At the special meeting, CET's shareholders will be asked to consider and
vote upon a proposal to adopt the merger agreement. The adoption of the
merger agreement will constitute the adoption of the transactions it
contemplates, including, among others, the merger of Merger Sub with and into
BMTS and the issuance of CET common stock to the security holders of BMTS.
Structure
The merger agreement provides for the merger of Merger Sub, a wholly-
owned subsidiary of CET, with and into BMTS. Upon the completion of the
merger, the separate corporate existence of Merger Sub will cease and BMTS
will continue as the surviving entity.
The merger agreement provides that each share of BMTS common stock
issued and outstanding immediately prior to the effective time of the merger
will be converted into the right to receive the number (referred to as the
"Exchange Ratio") of validly issued, fully paid and non-assessable shares of
CET common stock resulting by dividing 78,176,884 (approximately) by the
number of outstanding shares of BMTS common stock at the effective time of
the merger. Upon completion of the merger, all pre-merger shares of BMTS
common stock will no longer be outstanding and will be converted into shares
of CET. In addition, upon effectiveness of the merger, all options, warrants
and convertible notes to acquire BMTS common stock that are outstanding
immediately prior to the effectiveness of the merger will cease to represent
a right to acquire shares of BMTS common stock and will be assumed by CET and
converted into options, warrants or convertible notes, as applicable, to
acquire a number of shares of CET common stock equal to the number of shares
of BMTS common stock issuable upon exercise or conversion of these BMTS
convertible securities multiplied by the Exchange Ratio. In addition, the per
share exercise or conversion price at which CET common stock can be purchased
after the merger upon exercise or conversion of such assumed and converted
BMTS options, warrants and convertible notes will be equal to the exercise or
conversion prices provided for under the terms of such BMTS convertible
security divided by the Exchange Ratio. The number of CET shares issuable
under each such converted BMTS option, warrant and convertible note will be
rounded down to the nearest whole share.
Also as a result of the merger, the outstanding shares of Merger Sub
will be converted into shares of BMTS. As a result of conversion, the sole
shareholder of BMTS post merger will be CET.
The actual number of shares of CET to be issued in the merger will be
adjusted at the time of closing to result in the total number of shares
issued to the shareholders of BMTS, together with the total number of shares
issuable upon exercise of BMTS options and warrants, will represent, in the
19
aggregate, 94% of the total issued and outstanding shares of CET post merger.
In negotiating the level of consideration to be paid to the BMTS
shareholders, the parties considered, among other things, the nature of CET's
real estate assets; the prices at which BMTS has been able to raise capital
in private transactions; and the long term business prospects of BMTS
compared to CET's business prospects. CET also considered the value of the
technology owned by BMTS. CET did not give significant weight to the
comparative amount of assets or revenues of the two companies because BMTS is
still in the process of developing the market for its product and those
amounts do not reflect the prospects for the business of BMTS.
At the special meeting, CET's shareholders will be asked to approve a
reincorporation merger, by which CET would change its domicile from
California to Colorado. The reincorporation of CET is a condition to the
merger. As a result, the stock issued as merger consideration will be common
stock of CET-Colorado.
Background of the Merger
Incorporated in February 1988 pursuant to the laws of the State of
California, CET was engaged in environmental consulting, engineering,
remediation, and related construction activities for more than a decade. By
1998, revenues exceeded $66 million, close to 50% of which was derived from
work performed for the Environmental Protection Agency ("EPA"). However, in
August, 1999, the EPA issued a notice of suspension, alleging that the
company engaged in intentional misconduct with respect to billing for
services under various contracts with the EPA. The Company has denied all
allegations of wrongdoing in its relations with the EPA and has cooperated in
full with the investigation.
An Administrative Agreement with EPA allowed the lifting of the
suspension in November, 1999. However, EPA revenues under the then-existing
contract never recovered to prior levels. The EPA exercised the third year
option of the contract in January, 2000, and was empowered to issue delivery
orders for up to $42 million in value; actual EPA revenues for 2000 were
$13.1 million. The fourth and final option year was exercised in January
2001, with an empowered value of $44 million; actual EPA revenues in 2001
were $12.3 million. In addition, revenue generation from other federal
agencies also failed to recover to pre-1999 levels.
In view of the diminished level of EPA delivery orders received and with
no assurance that delivery orders would increase even if CET was successful
in obtaining another EPA contract, management decided to forgo bidding on a
new contract. At the billing levels experienced in the 2001-2002 period, the
overhead costs necessary to perform EPA work made such efforts marginally
profitable, at best.
In addition, after careful review of the potential business available
and the highly competitive bidding practices being encountered, the Company
decided to not seek additional contracts in the water/wastewater treatment
and services market. The Company's main focus is currently property
development, primarily in urban areas and preferably having an environmental
remediation requirement as an element of the project.
In September 2005, CET received a written notice from the American Stock
Exchange (the "AMEX") advising that the Company was not in compliance with
20
the AMEX's listing requirements (contained in Section 1003(a)(ii) of the AMEX
Company Guide) because its has a shareholders equity of less than $4,000,000
and losses from continuing operations and/or net losses in three out of its
four most recent fiscal years. In order to maintain its AMEX listing, CET
submitted a plan advising the AMEX of action it would take to bring the
Company into compliance with the continued listing standards within a maximum
of 18 months. The AMEX accepted the plan and CET was able to continue its
listing during the plan period which was to end on May 1, 2007.
In view of the potential delisting of CET's shares on the AMEX,
management of CET began reviewing possible ways to maintain its listing by
coming into compliance with the AMEX listing requirements. One of the
alternatives that were considered was to enter into a reverse acquisition
with another company.
In April 2006, CET and Zoi Interactive Technologies, Inc. ("Zoi")
entered into a letter of intent to acquire Zoi through a reverse acquisition.
The parties ultimately negotiated the final terms of the merger agreement
which was executed on February 16, 2007. Although CET undertook all of its
obligations under the merger agreement with Zoi, Zoi was unable to make
progress on the matters for which it was responsible, and on July 10, 2007
CET exercised its right to terminate the merger agreement. During the period
that CET pursued the merger with Zoi, in May 2007 CET's common stock was
delisted from the AMEX.
After the termination of the merger agreement with Zoi, CET reviewed
proposals related to four possible reverse acquisitions but it was determined
that none of these proposals provided the financial or business framework
necessary for CET to seriously consider a reverse acquisition or merger. In
particular, the other merger candidates were either looking for a highly
leveraged business buy-out or were unable to raise sufficient capital to
exercise their business plans. Additionally, the proposed managements of
these companies were inexperienced in their target industries. CET was
seeking a candidate with experienced management that was capable of raising
capital to execute a reasonable business plan.
During this period, CET's operations experienced a substantial slow down
as a result of the conditions in the real estate market in the Denver
metropolitan area. Due to this downturn, CET laid off one employee in
October 2007. In early 2008 CET's Chief Financial Officer reduced his work
to part time which left CET with one full time employee.
In January 2008, Dale Bleck, who was then CET's Chief Financial Officer,
became employed by BMTS as its chief financial officer. When he began
working for BMTS, he soon learned that BMTS was interested in becoming a
publicly-held entity. Mr. Bleck advised the management of BMTS that CET was
looking for a company that was interested in doing a reverse acquisition with
CET. Thereafter, Mr. Bleck introduced Steven H. Davis, CET's President to
Donald G. Cox, President of BMTS. After both companies had reviewed doing a
possible reverse acquisition, in March, 2008 the parties negotiated a
confidential letter of intent relating to the proposed merger, and a final
letter of intent was signed on March 25, 2008. After that time the parties
worked to negotiate the terms of the merger agreement, and on May 8, 2008 a
definitive merger agreement was executed. On July 9, 2008, the parties
entered into an amendment to the merger agreement.
21
Dale W. Bleck has not, and will not receive any payment or anything of
value in consideration for his assistance in facilitating the merger. Mr.
Bleck holds 32,500 shares of CET common stock.
As part of the negotiation of the terms of the merger agreement, BMTS
expressed a desire to have the real estate properties of CET liquidated into
cash as soon as possible in order to provide additional working capital for
the operations of BMTS. As part of these negotiations, Steven H. Davis
offered to purchase certain of the properties that he could either develop or
sell in the near future. After the merger agreement was entered into, CET
sold one of the properties. The merger agreement was then amended to provide
that Mr. Davis will now only purchase two of the properties. The other
properties will be retained by CET until such time as they can be liquidated
on a reasonable basis in the future.
CET's Reasons for the Merger; Recommendation of CET's Board of Directors
In deciding to approve the merger agreement and to recommend approval of
the merger to CET's shareholders, CET's board of directors considered a
number of factors, including the factors listed below. In view of the number
and wide variety of factors considered in connection with its evaluation of
the merger, the board of directors did not attempt to quantify or otherwise
assign relative weight to the specific factors it considered in reaching its
determination, and individual directors may have given different weight to
different information and factors. The board of directors viewed its approval
and recommendation as being based on the totality of the information and
factors presented to and considered by it.
Based on the information available, CET's board of directors determined
that the value to be received by the CET shareholders in the merger with BMTS
is greater than that available to CET if it continued its current operations.
Financial terms of the merger. The CET board of directors believes that
the merger consideration to be paid to the shareholders of BMTS is fair to
the shareholders based upon CET's current financial condition and future
prospects, as well as the current financial condition and the board's
perception of the future prospects of BMTS. In arriving at this conclusion,
the board of directors, together with CET's management and legal and
financial advisors, evaluated the strategic alternatives available to CET,
discussed above. However, CET has not obtained a fairness opinion with
regard to the merger due to the expense related to such an opinion. In
considering the proposed merger, the Board of Directors consulted with the
law firm of Krys Boyle, P.C. on legal matters, and with Dale W. Bleck, the
former Chief Financial Officer of the CET, on financial matters.
In negotiating the level of consideration to be paid to the BMTS
shareholders, the parties considered, among other things, the nature of CET's
real estate assets; the prices at which BMTS has been able to raise capital
in private transactions; and the long term business prospects of BMTS
compared to CET's business prospects. CET also considered the value of the
technology owned by BMTS. CET did not give significant weight to the
comparative amount of assets or revenues of the two companies because BMTS is
still in the process of developing the market for its product and those
amounts do not reflect the prospects for the business of BMTS.
22
In assessing the business prospects of BMTS, CET reviewed the
documentation about the technology owned by BMTS; information about the
acceptance of the technology by regulatory authorities; information about the
target industries; and the business plan of BMTS to market its product.
Terms of the merger agreement. CET's board of directors considered the
terms of the merger agreement, including the nature and scope of the closing
conditions. The board took into account the termination provisions of the
merger agreement.
Strategic Alternatives. CET has been actively soliciting alternative
courses of action since the termination of the merger agreement with Zoi and
four new proposals were made to CET. However, none of these proposals
provided the financial or business framework necessary for CET to seriously
consider a reverse acquisition or merger. The possibility of entering into a
transaction with a real estate development company that could take advantage
of CET's net operating losses and real estate holdings has been presented to
several companies in the past, but CET did not receive any subsequent
response or interest from such companies. Other than the merger, the board
of directors believed that the only strategic alternatives available to CET
were to liquidate or remain a stand-alone public company and seek to grow.
Continuing as an independent public entity. One strategic alternative
considered by CET's board of directors was for CET to remain an independent
entity. For CET to realistically continue to operate as an independent
entity, it would require significant future growth. Due to the current
conditions in the real estate market, CET's board of directors believes that
the prospects for future activities in CET's property development business
makes it difficult to justify the substantial fixed costs necessary to
operate as a separate public company.
The board of directors weighed the foregoing advantages and
opportunities against the challenges inherent in the merger transaction with
BMTS. The board of directors realizes that there can be no assurance about
future results, including results expected or considered in the factors
listed above, such as assumptions regarding long-term value. After taking
these factors into account, the board of directors concluded that the
potential positive factors clearly outweighed the potential risks of not
completing the merger. This explanation of the board of directors' reasons
for the merger and all other information presented in this section is
forward-looking in nature and, therefore, should be read in light of the
factors discussed under the heading "CAUTIONARY STATEMENT REGARDING FORWARD-
LOOKING STATEMENTS." The board of directors also considered the fact that
members of CET's management may have interests in the merger that are
different from those of CET's shareholders generally. See "THE MERGER - CET's
Directors and Officers Have Financial Interests in the Merger" and "-
Indemnification and Insurance" in this proxy statement.
At a meeting held on May 12, 2008, after due consideration and
consultation with its legal and financial advisors, the directors of CET
unanimously determined that the merger agreement and the transactions
contemplated thereby are advisable, fair to and in the best interests of CET
and its shareholders. The CET board of directors unanimously ratified,
confirmed and approved the merger agreement and recommended that CET's
shareholders vote to approve the merger agreement.
23
Rights of Dissenting Shareholders
If the merger transaction with BMTS is consummated, holders of CET
common stock who have properly exercised dissenters' rights in connection
with such merger under Sections 1300-1312 ("Chapter 13") of the California
Corporations Code (the "CCC") will have the right to receive such
consideration as may be determined to be due with respect to Dissenting
Shares (as defined below) pursuant to the laws of the State of California.
The following summary of the provisions of Chapter 13 is not intended to
be a complete statement of such provisions, and CET shareholders are urged to
read the full text of Chapter 13, a copy of which is attached to this proxy
statement as Appendix C.
If the merger is approved by the required vote of the holders of CET
common stock and is not abandoned or terminated, each holder of shares of CET
common stock who votes against the merger and who follows the procedures set
forth in Chapter 13 will be entitled to have his or her shares of CET common
stock purchased by CET for cash at their fair market value. The fair market
value of shares of CET common stock will be determined as of the day before
the first announcement of the terms of the merger, excluding any appreciation
or depreciation resulting as a consequence of the merger, but adjusted for
any stock split, reverse stock split or share dividend that becomes effective
thereafter. The shares of CET common stock with respect to which holders have
perfected their purchase demand in accordance with Chapter 13 and have not
effectively withdrawn or lost such rights are referred to as the "Dissenting
Shares."
Within 10 days after approval of the Merger by CET's shareholders, CET
must mail a notice of such approval (the "Approval Notice") to all
shareholders who have voted against the approval of the Merger and followed
the procedures set forth in Chapter 13, together with a statement of the
price determined by CET to represent the fair market value of the applicable
Dissenting Shares (determined in accordance with the immediately preceding
paragraph), a brief description of the procedures to be followed in order for
the shareholder to pursue his or her dissenters' rights, and a copy of
Sections 1300-1304 of the CCC. The statement of price by CET constitutes an
offer by CET to purchase all Dissenting Shares at the stated amount.
A shareholder of CET electing to exercise dissenters' rights must,
within the time period provided in Section 1301(b) of the CCC, demand in
writing from CET the purchase of his or her shares of CET Common Stock and
payment to the shareholder at their fair market value. A holder who elects to
exercise dissenters' rights should mail or deliver his or her written demand
to CET at 12503 E. Euclid Dr., #30, Centennial, Colorado 80111, Attention:
Secretary. The demand should specify the holder's name and mailing address
and the number of shares of CET Common Stock held of record by such
shareholder and state that such holder is demanding purchase of his or her
shares and payment of their fair market value, and must also contain a
statement as to what the shareholder claims to be the fair market value of
such shares as of the day before the first announcement of the terms of the
proposed Merger. Such statement of the fair market value of the shares of CET
Common Stock constitutes an offer by the shareholder to sell the Dissenting
Shares held by such shareholder at that price.
24
Within the time period provided in Section 1302 of the CCC, the
shareholder must also submit the certificates representing the Dissenting
Shares to CET for endorsement as Dissenting Shares.
If CET and the shareholder agree that the shares are Dissenting Shares
and agree upon the purchase price of the shares, the dissenting shareholder
is entitled to the agreed-upon price with interest thereon at the legal rate
on judgments from the date of such agreement. Payment for the Dissenting
Shares must be made within 30 days after the later of the date of such
agreement or the date on which all statutory and contractual conditions to
the merger are satisfied, and is subject to surrender to CET of the
certificates representing the Dissenting Shares.
If CET denies that the shares are Dissenting Shares or if CET and the
shareholder fail to agree upon the fair market value of the shares of CET
Common Stock, then within the time period provided in Section 1304(a) of the
CCC, any shareholder who has made a valid written purchase demand and who has
not voted in favor of approval and adoption of the Merger Agreement may file
a complaint in the superior court of the proper county requesting a
determination as to whether the shares are Dissenting Shares or as to the
fair market value of such holder's shares of CET Common Stock or both, or may
intervene in any pending action brought by any other CET shareholder. If the
fair market value of the Dissenting Shares is at issue, the court may appoint
one or more impartial appraisers to determine the fair market value of such
Dissenting Shares.
Except as expressly limited by Chapter 13, holders of Dissenting Shares
continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
holder of Dissenting Shares may not withdraw a demand for payment unless CET
consents thereto.
Dissenting Shares lose their status as Dissenting Shares, and dissenting
shareholders cease to be entitled to require CET to purchase their Shares if:
(a) the Merger is abandoned; (b) the shares are transferred prior to their
submission to CET for the required endorsement; (c) the dissenting
shareholder and CET do not agree upon the status of the shares as Dissenting
Shares or do not agree on the purchase price, but neither CET nor the
shareholder files a complaint or intervenes in a pending action within six
months after mailing of the Approval Notice; or (d) with CET's consent, the
holder delivers to CET a written withdrawal of such holder's demand for
purchase of his or her shares.
All officers and directors of CET have agreed not to exercise
dissenters' rights with respect to the merger.
25
Financial Interests of CET's Directors and Officers in the Merger
In connection with the merger, Steven H. Davis, the President, CEO and a
Director of CET, will purchase Community Builders and two of the properties
currently owned by Community Builders for a total of approximately $510,000.
The properties that will be retained by Community Builders are referred to as
Parcel Nos. 3 and 4 in the merger agreement. Parcel No. 3 is vacant land
that is permitted for a 12 unit townhome development located on 0.82 acres of
land at 7335 Lowell Blvd., Westminster, Colorado. Parcel No. 3 has been
appraised by Decker Associates, Inc., a certified general appraiser, at
$420,000 on a fully developed retail basis and $252,000 on a liquidation
basis. Parcel No. 4 is a four-plex rental property located at 7215 Meade
Street, Westminster, Colorado that CET acquired from the City of Westminster.
Parcel No. 4 is subject to a contract that obligates the City of Westminster
to buy back the property for $260,000, and CET has started the process of
having the City repurchase the property for this amount.
The terms of the proposed sale of the two properties to Mr. Davis were
negotiated with BMTS and approved by CET's board of directors. These
properties currently constitute less than a majority of CET's assets. The
price was determined based on the appraised liquidation value of Parcel No.
3, and the price at which the City of Westminster is required to repurchase
the property for Parcel No. 4.
As part of the purchase of Community Builders (and the two
properties which it will retain) by Mr. Davis, BMTS has required that
Community Builders agree to indemnify CET, BMTS and its affiliates (the
"Indemnitees") with Community Builders to do the following:
* Community Builders will agree to maintain its corporate existence for
at least three years (the "Indemnity Period");
* Community Builders will indemnify and hold harmless the Indemnities
from any liability arising from the transfer of ownership of
Community Builders to Mr. Davis;
* For the Indemnity Period, Community Builders will maintain not less
than $250,000 in net assets to cover any warranty or indemnity
claims; and
* Community Builders will be solely responsible for all debts and
obligations associated with the ownership of the retained real
estate.
26
BMTS's Reasons for the Merger
The decision of BMTS's board of directors to approve the merger
agreement was based primarily on factors resulting from the acceptance and
support of the public markets of companies engaged in technology-based waste
remediation and disposal. BMTS's board of directors concluded that the best
means for BMTS to gain access to capital was through the public markets and a
public vehicle, such as CET. As CET as a public vehicle was available under
the terms of the merger and was believed to represent a means to garner some
interest from potential investors, the Board of Directors deemed it in the
best interests of BMTS's shareholders to complete the merger with CET at the
earliest practicable date. The relatively low trading price of CET's common
stock was not considered material in the Board's deliberations; rather, the
high volatility of the public trading market in CET's common stock
underscored the necessity to disregard the public trading price of CET's
common stock in determining what are considered to be the fair post-Merger
equity ratios of the two companies.
BMTS estimates that it will require significant investment capital to
fund all of its requirements over the next twelve months, and a greater
amount if BMTS commits to a more aggressive strategy and/or additional
activities requiring capital. Accordingly, the BMTS board has concluded that
the magnitude of these cash needs, coupled with the current financial market
conditions, require that BMTS have access to the public investment community
in order to satisfy its working capital requirements. This access can be
gained by BMTS either directly or indirectly becoming a reporting company
under the Exchange Act whose securities are publicly traded. A reverse
merger with a company like CET is believed to represent the most expedient
and practical means for BMTS to achieve this status.
In addition, the BMTS board considered:
* the terms and conditions of the merger and the merger agreement, which
the BMTS board and management believes results in a fair price for the
BMTS shares;
* the potential for increased long-term liquidity to BMTS shareholders;
* the business, operations, financial condition, earning and prospects
of BMTS; and
* the expectation that the merger will generally be a tax-deferred
transaction to BMTS and its shareholders (see "Certain Federal Income
Tax Considerations").
The foregoing discussion of the information and factors considered by
BMTS's board is not intended to be exhaustive but is believed to include all
material factors considered by BMTS's board. In view of the variety of
factors considered in connection with its evaluation of the Merger, the BMTS
board did not find it practicable to and did not quantify or otherwise assign
27
relative weight to the specific factors considered in reaching its
determination. In addition, individual members of BMTS's board may have
given different weight to different factors.
In light of the size and diversity of the marketplace and the
competitive positions of both CET and BMTS, BMTS's board has concluded that
the merger represents the best current and long-term strategy for BMTS.
In considering the recommendation of BMTS's board with respect to the
merger agreement, you should also be aware that the directors and officers of
BMTS have interests in the merger that are different from, or are in addition
to, the interests of BMTS's shareholders generally. See the Section
"Interests and Conflicts of Certain Persons in the Merger." BMTS's board
acknowledged and considered these conflicts of interest. The board
determined that these conflicts did not materially affect its decision to
approve and recommend the merger.
Board of Directors and Management of CET and BMTS Following the Merger
At the effective time of the merger:
* BMTS and CET anticipate that the directors of CET and BMTS will be
Donald G. Cox, Gex Richardson and William Sparks until their
successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal; and
* BMTS and CET anticipate that the officers of both companies will be
Donald G. Cox , President and CEO; Jim Scheifley, Chief Financial
Officer, and Gex Richardson, Secretary and General Counsel.
Name Age Position
---- --- --------
Donald G. Cox 50 CEO, President and a
Director
Jim Scheifley 60 Chief Financial Officer
Gex Richardson 44 Secretary and General
Counsel
Biographical information for the persons who are expected to become
directors and executive officers of CET and BMTS at the effective time of the
merger is set forth under the section of the proxy statement entitled
"MANAGEMENT OF CET AND BMTS AFTER THE MERGER."
Operations Following the Merger
After the merger, the operations of the Company will be through its
wholly-owned subsidiary, BMTS. Certain of the properties currently owned by
the Company will be transferred to a newly formed subsidiary of CET and
certain other properties will be held by Community Builders, Inc., which will
be purchased by Steve Davis for approximately $510,000. Following the merger,
BMTS intends to concentrate its efforts on marketing its Demolizer II
products, and will also attempt to liquidate the two real estate parcels to
provide additional working capital.
28
The two real estate parcels that will be transferred to a newly formed
subsidiary are referred to in the merger agreement as Parcel Nos. 1 and 2.
Parcel No. 1 consists of approximately 5.30 acres of vacant land located at
1550 S. Idalia Court, Aurora, Colorado zoned for medium density multi-family
residential housing. The property has been appraised at approximately
$1,026,000 on a retail basis and $615,000 on a liquidation basis. Parcel No.
2 consists of a 50% ownership interest in Arizona Avenues, LLC, which owns a
4.5 acre site in Aurora, Colorado, on which a 54-unit condominium development
has been approved for development.
Public Trading Markets
CET's common stock is currently traded under the symbol "CETR" on the
OTC Bulletin Board ("OTCBB"). It is expected that the stock will continue to
be traded on the OTCBB after the merger, but that the OTCBB will assign a new
symbol to the common stock as a result of the change of name and for the
reverse split.
CET Dividends
CET has never paid any dividends on its common stock, and it is not
expected that this policy will change after the merger.
Regulatory and Other Approvals Required for the Merger
As a condition to the merger, no governmental authority shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order which is in
effect and which has the effect of making the merger illegal or otherwise
prohibiting consummation of the merger. Any waiting period under the HSR Act
applicable to the merger shall have expired or shall have been terminated.
Indemnification and Insurance
CET's bylaws provide that each of its officers, directors and agents
shall be indemnified to the fullest extent permitted under applicable law.
CET maintains officer and director liability insurance in the face
amount of $1 million.
INFORMATION ABOUT CET SERVICES, INC.
General
CET's primary business is currently related to property development,
primarily in urban areas and preferably having an environmental remediation
requirement as an element of the project.
CET has substantially completed a redevelopment project under an
agreement with the City of Westminster, Colorado. The project includes the
purchase of certain property, the demolition of existing structures,
environmental remediation, and construction of 50 new affordable housing
units. Under the development agreement, the City of Westminster provided
approximately $901,000 toward the $1,601,000 purchase price of the property,
paid CET approximately $185,000 for demolition work, and is providing other
29
assistance. CET was required to and has sold at least 10 of the 50 housing
units at a base price of $170,000, or less, to qualified buyers; to make
certain off-site improvements along street frontages; and to provide the
necessary insurance for the project. As of December 31, 2007, CET has sold
all of the units.
The Westminster development is segmented into three sites. Construction
at Site I, consisting of 23 housing units, is complete; and as of December
31, 2006, all units had been sold. In developing this site, CET secured a
$1.67 million construction loan in mid-2003 that was repaid in June 2004. In
late September 2004, CET entered into an agreement with a general contractor
in the amount of approximately $2.75 million for the construction of the
remaining 27 housing units at Site II and III. Shortly thereafter, CET
secured a construction loan in the amount of approximately $2.9 million. As
of December 31, 2007, all units have been sold and the loan was repaid in
full.
In November 2004, CET executed a second development agreement with the
City of Westminster under which the City would provide approximately $410,000
and other assistance to CET for the development of a retail/office building
of approximately 11,200 square feet, as well as twelve townhomes. CET
acquired the property necessary for this project in May 2005, borrowing
$326,000 and receiving $100,000 under the development agreement (see Note E -
Notes Payable to the Consolidated Financial Statements). In October 2005,
upon approval of the development plan, CET received the remaining $310,000
provided for under the development agreement. In April 2007 CET repaid the
borrowings in full. CET has obtained a construction loan ( see Note D -
Construction Loan) to finance the construction of the retail/office building.
CET has a contract to sell the building. CET has deposited $85,000 with the
City of Westminster in lieu of a private improvement bond for this project.
In addition, CET owns a five-acre residential site in Aurora, Colorado,
"the Aurora project", and during 2004, completed a major remediation at the
site, aided by a Brownfields Cleanup Revolving Loan Fund Agreement with City
of Aurora in the amount of $471,495. CET has approval to construct 54
residential townhomes on this site. CET has this property listed for sale
with a local real estate broker.
In January 2005, CET entered into an operating agreement with a newly-
formed entity, Arizona Avenue, LLC, a Colorado limited liability corporation
in which CET is a 50% owner. CET has been engaged by the LLC to manage the
development of a five-acre site in Aurora, Colorado. There have been no
management fees in connection therewith during the period. Through December
31, 2007, CET has invested approximately $297,000 to develop this project.
CET has approval to construct 54 residential townhomes on this site. CET
currently has this property listed for sale with a local real estate broker.
In April 2006, CET entered into a contract to purchase two buildings, an
industrial building and a retail/office building, in Wheat Ridge, Colorado.
In May 2006, CET entered into a contract to sell the industrial building. In
June 2006, CET borrowed $694,000 (of which $451,000 was drawn) from a local
lender (see Note E - Notes Payable to the Consolidated Financial Statements)
and completed the purchase of both buildings and the sale of the industrial
building. CET completed the rehabilitation of the retail/office building and
on April 10, 2007 sold the property and paid the note payable in full.
30
Contact Information
CET maintains its corporate offices at 12503 E. Euclid Dr., #30
Centennial, Colorado 80111. Its telephone number is (720) 875-9115.
Current Property Interests of CET and the Effects of Merger.
CET's principal assets currently consist of four (4) separate parcels of
real property which shall be designated as Parcel Nos. 1, 2, 3 and 4 which
are located in the Denver metropolitan area as follows:
Parcel No. 1: 1550 S. Idalia Court, Aurora, CO
Parcel No. 2: Arizona Ave., LLC
Parcel No. 3: 7335 Lowell Blvd., Westminster, CO
Parcel No. 4: 7215 Meade Street, Westminster, CO
All of the foregoing properties are currently owned of record by Community
Builders, Inc., a wholly-owned subsidiary of CET. Prior to the Effective
Date of the Merger, CET shall form and organize a new subsidiary, CET Sub,
and all ownership of Community Builders, Inc. shall be transferred and
assigned by CET to Steve Davis, or his designee, so as to divest CET of all
right, title and interest in Community Builders. Community Builders shall
execute and deliver at Closing an Indemnity Agreement whereby it will agree
(i) to maintain its corporate existence for a period of three years, (the
"Indemnity Period") (ii) to indemnify, defend and hold harmless CET, CET Sub
and the officers and directors of BMTS from any claims, debts or liabilities
of Community Builders or arising from the transfer of ownership of Community
Builders as provided for herein, save and except for secured obligations
expressly assumed by CET Sub as part of the Merger and (iii) for the duration
of the Indemnity Period, maintain not less than $250,000 in net assets to
cover any warranty or third party claims, should they arise. Without in any
way limiting the generality of the foregoing, Community Builders shall be
solely and separately responsible for all existing and future debts and
obligations incurred in connection with the ownership, maintenance and
disposition of Parcel Nos. 3 and 4, which shall include without limitation
all secured debt constituting liens or encumbrances against those properties,
general contractor hold-backs, general contractor final draws, accrued and
accumulated interest and accrued and accumulated real property taxes.
At the effective date of the merger, the following covenants will apply
with respect to each of the foregoing parcels:
A. Community Builders shall convey to CET Sub all of its interest in
Parcel No. 1 which shall have secured debt of not more than $472,000;
B. Community Builders shall convey to CET Sub all of its interest in
Parcel No. 2;
C. Community Builders shall pay to CET the sum of $250,000 for Parcel
No. 3; and
D. Community Builders shall pay to CET the sum of $260,000 for Parcel
No. 4.
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Further, as of the effective date of the merger, CET shall have cash not less
than $875,000 and shall have no accounts payable or other liabilities except
for the secured debt against Parcel No. 1.
Information Incorporated by Reference
CET is mailing a copy of its Annual Report on Form 10-KSB for the year
ended December 31, 2007 with this prospectus. The Annual Report on Form 10-
KSB is incorporated herein by reference. A copy of the Form 10-KSB for the
year ended December 31, 2007 will be provided without charge to each person
to whom this proxy statement is delivered. See "INCORPORATION OF INFORMATION
BY REFERENCE."
INFORMATION ABOUT BMTS
Corporate History
BMTS was formed in May 2005 as a Colorado corporation to market and
distribute on-site, bio-medical waste treatment technology that had been
developed, patented, and initially marketed by Thermal Waste Technologies,
Inc., ("TWT"). Accordingly, BMTS acquired the intellectual property rights
and existing customer base for the original and patented alternative
infectious waste treatment system, the Demolizer[R]. Through extensive
research and development over the past three years, the Demolizer[R] II
System and consumable sharps and red bag collectors have been upgraded to
incorporate enhanced process controls, safety features, and integrated
quality systems.
Contact Information
BMTS maintains its corporate offices at 9800 Mt. Pyramid Ct., Suite 350,
Englewood, Colorado 80112. Its telephone number is (303) 653-0100. Its
internet website address is www.bmtscorp.com.
Business Overview
BMTS is an environmental technology company that markets and sells
efficient, environmentally safe, and cost effective, infectious waste
treatment systems. BMTS believes that its infectious waste treatment system
technology offers solutions for numerous users in the industrialized world as
well as in the public health and environmental areas in developing world
markets. BMTS is a privately-held company.
BMTS's long-term management objective is to position itself for a
merger, acquisition or Initial Public Offering on a 3-5 year timeframe. BMTS
understands that, due to the size of the global market, a strategic
partnership would enable us to truly expand throughout the world market.
The BMTS Solution
The Demolizer[R] II System is a one-of-a-kind, tabletop device that
converts infectious biomedical waste, including sharps and red/yellow bag
waste, into non-biohazardous material at the point of generation. The
Demolizer[R] II System decontaminates and renders sharps and red bag waste
non-reusable through application of dry heat over a 90-minute cycle. The
technology destroys sharps waste through a slow-melting of plastic syringes,
rendering them non-recognizable, non-biohazardous and non-reusable.
32
The Demolizer[R] II System sterilizes medical waste through a dry heat
cycle. Health care providers replace their present sharps and red bag waste
containers with BMTS' Demolizer[R] collectors, which are used the exact same
way. Once the Demolizer[R] collector is full, instead of placing it in a
storage area for pickup by a third party hauler, the collector is placed in
the Demolizer[R] II System for processing. The operator completes a simple
key entry sequence and the collector is sterilized over a 2-2.5 hour cycle.
After the completed process, the collector is labeled and disposed of as
common trash. The contents of the collector are sterile and the sharps have
been rendered non-recognizable and non-reusable (through the melting of the
plastic syringe components). The System has been designed to be odorless,
noise-free, and safe, with all emissions demonstrated to be bacteria-free.
To date, over 300,000 treatment cycles have been logged on the Demolizer[R]
technology.
Key Elements of the Demolizer[R] Technology
The sterilization efficacy of the Demolizer[R] technology has been
validated through numerous trials including studies at Kansas State
University and Stanford University. The technology meets or exceeds all
published standards for disinfection in the U.S., including recommendations
from the U.S. EPA, the CDC, and various state Departments of Health and the
Environment. In validation studies, the following organisms have been shown
to be inactivated at a minimum level of 6 log10 upon treatment using the
Demolizer[R] technology:
Staphylococcus aureus
Escherchia coli
Mycobacterium bovis
Mycobacterium fortuitum
Mycobacterium phlei
Candida albicans
Bacillus subtilis
Psuedomonas aeruginosa
Giardia
Duck Hepatitus B Virus
The recently upgraded Demolizer[R] II System incorporates smart systems
to ensure that every treatment cycle completes successfully. The upgraded
electronic systems continually monitor critical process parameters and only
allow process certification labels to print and the door to unlock if all the
treatment parameters have been satisfied. Memory devices store process data
on-board for each cycle, as well as more comprehensive data on the five most
recently completed cycles. This allows periodic system performance testing
and system diagnostics.
In the U.S., the Demolizer[R] II System is equipped with a modem that
contacts the Demolizer[R] Quality Systems database monthly to download on-
board memory. We then complete a full parametric quality analysis to make
certain the system is performing within specifications.
The smart system is flexible and adaptable for international use:
* Features support other data management configurations;
* Labels can be printed and LED displayed in any language; and
* Runs with either 110V or 220V standard electrical power.
33
Sales Strategy
BMTS plans to aggressively pursue both commercial and developing world
opportunities. To capture these market opportunities, BMTS is currently
pursuing the following sales strategies:
* Establishing strategic partnerships with several large distributors
in four of the largest market segments, including long term
care/nursing homes, physician networks and clinics, dental and
veterinary industries;
* Targeting large health provider networks to rapidly penetrate the
physician marketplace;
* Leveraging the existing customer base; and
* Establishing a direct strategic sales team to focus on large in-house
accounts and to support the distribution channel.
BMTS's distribution arrangements are covered by written non-exclusive
agreements with the various distributors which provide for varying terms
ranging from one to three years with automatic renewals. However, each of the
agreements is also terminable be either party upon 90 days' notice.
Manufacturing
The Demolizer[R] II System and all components and accessories are
manufactured to BMTS's specifications in accordance with outsourcing
agreements and quality standards. BMTS's currently working with an off-shore
manufacturer in China, Rimwalker Pacific Company, for the production of its
collectors, lid systems and other ancillary products. BMTS has also
established a strategic manufacturing relationship with Technology Driven
Products, Inc. of Loveland, CO ("TDP") for the manufacturing of the
Demolizer[R] II Systems and electronic subsystems at their ISO 9001:2000
approved facility. TDP has a fully equipped production and test area of more
than 15,000 square feet, staffed by technicians representing more than 45
years of assembly and test experience. Over time, we may partner with
additional manufacturers, if warranted, both domestic and overseas to ensure
price competitiveness, high quality standards and overall production
stability. BMTS has no immediate plans to begin manufacturing the Demolizer
II by itself.
Intellectual Property
The original technology was patented in the U.S. and Australia in 1999.
In 2006, BMTS filed provisional patents on the newly designed collectors and
the upgraded system. In 2007, BMTS filed U.S. and international patents,
broadly covering the world on both the collectors and the upgraded system.
BMTS has also secured trademarks for the Demolizer[R] and the Gazel.
BMTS's trademarks and domain names play an important role in expanding
the awareness of its products. While BMTS has obtained or applied for
registration of its trademarks and registered domain names in an effort to
protect them, its efforts may be inadequate to prevent others from claiming
violations of their marks and may be inadequate to protect BMTS's use of
those names as unique. In addition, trademark protection and the uncertainty
surrounding the legal protections of domain names may be unenforceable or
34
limited in other countries, and the global nature of the internet makes it
impossible to control the ultimate destination of our communications. The
regulation of web addresses in the United States and in foreign countries is
subject to change. As a result, BMTS may not be able to acquire or maintain
its web addresses in the future. Furthermore, the relationship between
regulations governing such addresses and the laws protecting trademarks is
unsettled.
In addition, effective patent, trademark, copyright and trade secret
protection may be unavailable, limited or not applied for in certain foreign
countries.
BMTS also seeks to protect its proprietary intellectual property,
including intellectual property that may not be patented or patentable, in
part by confidentiality agreements and, if applicable, inventors' rights
agreements with its subcontractors, vendors, suppliers, consultants,
strategic partners and employees. BMTS cannot provide any assurance that
these agreements will not be breached, that it would have adequate remedies
for any breach or that such persons or institutions would not assert rights
to intellectual property arising out of these relationships.
Some of the additional limitations of intellectual property protection
are:
* No assurance can be given that any patent will be issued or that the
scope of any patent protection will exclude competitors or that any
patent, if issued, will be held valid if subsequently challenged.
* When BMTS applies for registration of trademarks and registered
domain names in an effort to protect them, it cannot be sure of the
nature or extent of the protection afforded, since trademark
registration does not assure any enforceable rights under many
circumstances and there exists significant uncertainty surrounding
legal protections of domain names.
* There can be no assurance that any steps BMTS takes in this regard
will be adequate to deter misappropriation of its proprietary rights
or independent third parties developing functionally equivalent
products. Despite precautions, unauthorized parties may attempt to
engineer, reverse engineer, copy, or obtain and use BMTS's products
or other information.
* Although management of BMTS believes that BMTS's products do not
infringe on the intellectual property rights of others, there can be
no assurance that an infringement claim will not be asserted in the
future. The prosecution or defense of any intellectual property
litigation can be extremely expensive and would place a material
burden upon BMTS's working capital as noted in the BMTS financial
statements and accompanying notes included herein with reference to
BMTS's defense against b-50.com's patent infringement suit that has
been settled subject to final documentation.
35
Competitors
Management of BMTS believes that most low to medium volume biomedical
waste generators in the U.S. use either a local or national biomedical waste
management services company to handle, transport, and dispose of their
medical waste. The cost of this service fluctuates depending upon
regulation, competition, and industry consolidation, leaving the customer
extremely vulnerable to price increases. As a benchmark for a small to
medium size medical office, monthly costs for transport and treatment
services can range from $300 to $1,000 per month based on anecdotal
information, before adding the cost of sharps cans and other consumables,
based on the frequency of pickup and other competitive factors. It has been
shown, through cost analysis and information collected from current
Demolizer[R] customers, that the Demolizer[R] II System delivers significant
monthly cost savings compared to third party treatment and hauling companies.
BMTS believes that none of the commercially available competitive products
meet the needs of low to medium volume generators in a cost effective manner.
Competitive Advantages of BMTS
Based upon marketing research conducted by BMTS, the Demolizer[R] II
System is the only on-site, treatment technology that delivers all of the
following major user benefits:
* Sterilizes and safely disposes of sharps and red bag waste;
* Completely sterilizes medical waste in a 2-2.5-hour cycle, including
the destruction of pathogens, bacteria, spores, and viruses, with the
processed collectors disposed of as common trash;
* Reduces biomedical waste hauling costs up to 100%;
* Meets all EPA, CDC and OSHA standards and is either formally approved
or meets the requirements for medical waste treatment and disposal in
47 U.S. states after comprehensive review by 78 governmental agencies
at the federal, state and local (city/county) level;
* Incorporates a one-of-a-kind, integrated quality control system that
meets or exceeds all U.S. requirements for documentation and
performance monitoring;
* Is easy to use with no special facility requirements; and
* Designed to operate in any country by virtue of its CE rating.
BMTS's technology also provides a number of environmental advantages, as
follows:
* Reduces the amount of medical waste incinerated worldwide, helping to
reduce the effects of global warming;
* Reduces dioxin and other hazardous emissions;
* Prevents dangerous reuse of sharps;
* Prevents accidental "needlesticks" from improper disposal; and
* Eliminates the disposal of bio-hazardous waste in landfills.
* BMTS is developing a green version of the Demolizer[R] technology,
the Demolizer[R] II G, to be launched at the end of 2008 or first
quarter of 2009. This upgraded model will allow for the complete
recycling of the sharps waste load significantly limiting the
amount of waste that is eventually deposited in a landfill.
36
Further, management of BMTS believes that the Demolizer[R] technology is
the only on-site alternative treatment technology that has passed an EPA
microbial survivability test for medical waste incinerator emissions. (All
airflow emitted from the unit is free of bioaerosols). TWT also obtained FDA
510(k) pre-market clearance for commercial distribution of the Demolizer[R]
sharps collectors to clinical and laboratory healthcare settings. BMTS is an
FDA inspected facility and in April 2007, BMTS successfully completed an FDA
audit of its quality systems.
Regulatory Matters
The Demolizer[R] System is either formally approved or meets the
requirements for medical waste treatment and disposal in 47 U.S. states,
involving exhaustive review by 78 government agencies at the federal, state,
and local (county/city) level. Final approval is pending in the remaining
states. The delays are primarily due to impending changes in state rules and
limited personnel resources at the state level. Many of these approvals have
been in place for nearly 8 years.
Regulatory and environmental pressures on medical providers and the
waste industry have increased substantially, particularly in the area of
emissions from incineration operations, leading to the closure of
incineration facilities nationwide. Management of BMTS believes there is a
significant demand for alternative technologies to address the needs of
biohazardous waste generators to meet OSHA regulations, EPA and state laws,
and to manage the spread of infectious diseases such as AIDS and Hepatitis-B.
Employees and Consultants
BMTS currently employs ten persons on a full time basis and one person
on a part-time basis. BMTS also relies on the consulting services of the
following: CreaTek (database developer); Peter Gorder (engineering and design
review); Media Master (marketing and publicity); James Marsden (Chief
Scientific Advisor); and Bemis Manufacturing (research and development). In
addition, Jim Schiefley and Gex Richardson perform their functions as CFO
and General Counsel, respectively, as consultants.
Facilities
BMTS occupies approximately 5,400 square feet of executive offices
located in Englewood Colorado under a lease calling for monthly rental of
$6,500. The current term of the lease expires in December 2008. Upon the
expiration of the lease term, BMTS plans to relocate to larger offices that
include offering some warehousing capacity. Such facilities are widely
available in the region.
RISK FACTORS ASSOCIATED WITH BMTS
Throughout this section titled "RISK FACTORS ASSOCIATED WITH BMTS", the
terms "we", "us" and the "Company" means BMTS.
The business of BMTS involves a high degree of risk. You should
carefully consider each of the following risks and all of the other
information set forth in this proxy statement. The risks and uncertainties
described below are not the only ones facing us. Additional risks and
uncertainties not presently known to us or that we currently believe to be
immaterial may also adversely affect our business. If any of the following
risks and uncertainties develop into actual events, this could have a
material adverse effect on our business, financial condition or results of
operations.
37
Risks Related to Our Business
We have a limited operating history upon which to evaluate our potential for
future success.
We were formed in May 2005. To date, we have generated limited revenues
and do not expect to generate significant revenues until we sell a larger
number of our products. The likelihood of our success must be considered in
light of the risks and uncertainties frequently encountered by companies like
ours in an evolving market, primarily our significant capital requirements.
If we are unsuccessful in addressing these risks and uncertainties, our
business will be materially harmed.
Although the Demolizer[R] II system is fully developed and has received
regulatory approval across the U.S., we may not be able to demonstrate true
market value, and sustain profitability in the future.
As we strive to grow our business, we expect to spend significant funds
for general corporate purposes, including working capital and marketing, and
for research and development. To the extent that our revenues do not increase
as quickly as these costs and expenditures, our results of operations and
liquidity will be materially and adversely affected. If we experience slower
than anticipated revenue growth or if our operating expenses exceed our
expectations, we may never achieve profitability.
Our Demolizer[R] II systems may contain component, manufacturing or design
defects or may not meet performance criteria established by customers, which
could cause us to incur significant repair expenses, harm our customer
relationships and industry reputation, and reduce our revenues and
profitability.
We may experience manufacturing problems with our products. As a result
of component, manufacturing or design defects, we may be required to repair
or replace a substantial number of products, incurring significant expenses
as a result. In addition, any component, manufacturing or design defect
could cause us to lose customers or revenues or damage our customer
relationships and industry reputation.
The Company's existing products may not be able in the future to meet changes
in environmental laws and regulations regarding regulated medical waste.
The future of our business will depend on our ability to respond to any
future changes in the federal, state and local regulatory environment. Since
the Company does not itself generate medical waste and is not itself in
control of, nor does it handle, the medical waste but only sells its
equipment to its customers, it is not itself currently subject to regulations
with respect to the disposal of RMW; however, any change in this regulatory
regime in the future could have a material adverse effect on the Company's
operations.
38
We may not be able to deliver our Demolizer[R] II system's as quickly as
customers may require, which could cause us to lose sales and would harm our
reputation.
We may not be able to deliver our Demolizer[R] II systems to our
customers at the times they require. Manufacturing delays and interruptions
can occur for many reasons, including, but not limited to:
* the failure of a supplier to deliver needed components on a timely
basis or with acceptable quality;
* lack of sufficient capacity;
* equipment failures;
* manufacturing personnel shortages;
* labor disputes;
* transportation disruptions;
* changes in import/export regulations;
* natural disasters;
* acts of terrorism; and
* political instability.
These factors may impact our third party manufacturers, over whom we
exercise no direct control. If we fail to deliver products in a timely
fashion, our reputation may be harmed; existing orders may be jeopardized;
and we may lose potential future sales.
We are dependent on third parties for manufacturing the Demolizer II who may
experience delays in assembly and increased costs to us.
We rely upon third parties for the manufacture of the Demolizer II.
Delays and difficulties in the manufacturing of our products could
substantially harm our product marketing efforts. There are limited sources
of supply for some key Demolizer[R] II system components. Business
disruptions, financial difficulties of the manufacturers or suppliers of
these components, or raw material shortages could increase the cost of our
goods sold or reduce the availability of these components. To date, we have
been able to obtain adequate supplies of product. If sales accelerate, we
may experience a rapid and substantial increase in our need for units. If we
are unable to obtain a sufficient supply of required units, we could
experience significant customer dissatisfaction, which could result in the
loss of orders and customers, and could materially and adversely affect our
business, financial condition and results of operations. Although we plan to
purchase inventories of finished goods, we may still require alternative
sources if we experience delays in obtaining them. If the cost of units
increases, we may not be able to pass on price increases to our customers if
we are to remain competitively priced. This would reduce profit, which in
turn would reduce the value of your investment.
Our failure to obtain additional financing, if needed, would adversely affect
our business results.
We will require additional financing to fund ongoing operations if our
sales and revenue growth are insufficient to meet our operating costs.
Financing for all of our activities to date has been provided by private
sales of our securities. Additional financing may not be available when
needed or may not be available on terms acceptable to us. If additional funds
39
are raised by issuing equity securities, shareholders may incur dilution, and
this dilution may be substantial. If adequate funds are not available, we may
be required to delay, scale back operations or otherwise limit our marketing
and distribution efforts and/or the manufacture or sale of Demolizer[R] II
systems, which may materially and adversely affect our business, results of
operations and financial condition and reduce the value of your investment.
We rely heavily upon independent distributors to market our product. Those
distributors also market other medical and health care products, including
other products that may be competitive with ours. As a result, distributors
over whom we exercise little control can significantly influence the degree
to which consumers buy our products.
We distribute our products through a network of independent distributors
for resale to ultimate end users. Accordingly, we are dependent upon these
distributors to sell our product and to assist us in creating demand for, and
promoting market acceptance of our products. There can be no assurance that
our distributors will devote the resources necessary to provide effective
sales and promotional support to us.
Because our distributors also distribute other products, it is
imperative that we undertake adequate efforts to train and motivate our
distributors to promote our products over others. There can be no assurance
that we will be successful in this effort.
A disruption of our distributors or the termination by any major
distributor could have a material adverse impact on our sales and results of
operations.
While we have formal written distribution agreements with our
distributors; most distribution arrangements can be terminated by the
distributor on 90 days' notice. A down-turn in the performance or loss of a
single distributor can have a material adverse impact on sales and, as a
result, on our business, financial condition, and results of operations.
To the extent we engage in marketing and distribution activities outside the
United States, we will be exposed to risks associated with exchange rate
fluctuations, trade restrictions and political, economic and social
instability.
To the extent we market and distribute the Demolizer[R] II in foreign
markets, we will be subject to various risks associated with conducting
business abroad. A foreign government may require us to obtain export
licenses or may impose trade barriers or tariffs that could limit our ability
to build our international presence. Our operations in some markets also may
be adversely affected by political, economic and social instability in
foreign countries, including terrorism. To the extent that we attempt to
expand our sales efforts in international markets, we may also face
difficulties in staffing and managing foreign operations, longer payment
cycles and problems with collecting accounts receivable and increased risks
of piracy and limits on our ability to enforce our intellectual property
rights. We currently do not have any transactions denominated in foreign
40
currencies. In the future, transactions denominated in foreign currencies
may not be hedged and therefore will be subject to the risk of changes in
exchange rates. If we are unable to adequately address the risks of doing
business abroad and build an international presence, our business, financial
condition and results of operations may be harmed.
There may be claims made against us for personal injury and business losses
which may subject us to litigation and related costs.
We anticipate that the Demolizer[R] II will be utilized in a variety of
industrial and other settings and will be used to handle materials resulting
from the generation of biomedical waste. The equipment will, therefore, be
subject to risks of breakdowns and malfunctions, and it is possible that
claims for personal injury and business losses arising out of these
breakdowns and malfunctions will be made against us. While we have obtained
product liability insurance, our insurance may be insufficient to provide
coverage against all claims or for claims made for amounts substantially in
excess of applicable policy limits. Such an event could have a material
adverse effect on our business, financial condition and results of
operations.
Failure to comply with government regulations will severely limit our sales
opportunities and future revenues.
We and our customers may be required to comply with a number of federal,
state, local and foreign laws and regulations in the areas of safety, health
and environmental controls, including without limitation, the Resource
Conservation and Recovery Act and the Occupational Safety and Health Act of
1970, which may require our prospective working partners or our customers to
obtain permits or approvals to utilize the Demolizer[R] II and related
equipment on job sites. Since we intend to market the Demolizer[R] II
internationally, we will be required to comply with foreign laws and
regulations and, when applicable, obtain permits in other countries. We
cannot be certain that required permits and approvals will be obtained or
that new environmental regulations will not be enacted or that if they are,
we and our customers can meet stricter standards of operation or obtain
additional operating permits or approvals. Furthermore, particularly in the
environmental remediation market, we may be required to conduct performance
and operating studies to assure government agencies that the Demolizer[R] II
and its by-products are not environmental risks. There is no assurance that
these studies will not be more costly or time-consuming than anticipated or
will produce acceptable conclusions. Failure to obtain operating permits, or
otherwise to comply with federal, state, local and foreign regulatory
requirements, could affect our ability to market and sell our Demolizer[R] II
and could substantially reduce the market price of our common stock.
Our operations and financial condition could be adversely affected by our
failure or inability to protect our intellectual property.
Our success and the competitiveness of our products are heavily
dependent upon our proprietary technology and our ability to protect our
current and future technology. We rely on a combination of patents,
copyright and trademark laws, trade secrets, confidentiality procedures and
contractual provisions to protect our proprietary rights. Such means of
protecting our proprietary rights may not be adequate because such laws
41
provide only limited protection. Despite precautions that we take, it may be
possible for unauthorized third parties to duplicate aspects of our
technologies and manufacturing processes or the current or future products or
technologies of our business and manufacturing processes or to obtain and use
information that we regard as proprietary. This could harm our business,
financial condition and results of operations and your investment.
Additionally, our competitors may independently develop similar or
superior technology. Policing unauthorized use of proprietary rights is
difficult, and some international laws do not protect proprietary rights to
the same extent as United States laws. Litigation periodically may be
necessary to enforce our intellectual property rights, to protect our trade
secrets or to determine the validity and scope of the proprietary rights of
others. Litigation is costly and may not be successful. Our failure to
protect our proprietary technology or manufacturing processes could harm our
business, financial condition and results of operations and your investment.
While we have one patent and several patent applications pending, there
is no assurance that any existing patents will not be challenged or patent
applications filed by us in the future will result in the issuance of any
patents. Furthermore, there is no assurance as to the breadth and degree of
protection any issued patents might afford our intellectual property.
Disputes may arise between us and others as to the scope and validity of
these or other patents. Any defense of the patents could prove costly and
time consuming and there can be no assurance that we will be in a position,
or will deem it advisable, to carry on such a defense. Patent applications
in the United States are maintained in secrecy until patents are issued, and
the publication of discoveries in the scientific literature tends to lag
behind actual discoveries. Therefore, we cannot guarantee that we will be
the first creator of future inventions for which we seek patents or the first
to file patent applications for any of our inventions.
Patent applications filed in foreign countries are subject to laws,
rules and procedures which differ from those of the United States. We cannot
be certain that:
* patents will be issued from future applications;
* any future patents will be sufficient in scope or strength to provide
meaningful protection or any commercial advantage to us;
* foreign intellectual property laws will protect our intellectual
property; or
* others will not independently develop similar products, duplicate our
products or design around any patents which may be issued to us.
Generally, we enter into confidentiality and non-disclosure of
intellectual property agreements with our employees, consultants and many of
our vendors and distributors, and generally control access to and
distribution of our proprietary information. Notwithstanding these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our proprietary information without authorization or to develop
similar information independently. Policing unauthorized use of intellectual
property is difficult. The laws of other countries may afford little or no
effective protection of our technology. We cannot assure you that the steps
taken by us will prevent misappropriation of our technology, which may cause
us to lose customers and revenue opportunities. In addition, pursuing
42
persons who might misappropriate our intellectual property could be costly
and divert the attention of our management from the operation of our
business.
Intellectual property infringement claims by third parties could adversely
affect our operations and financial condition.
Other individuals and/or entities may have filed applications for, or
may have been issued, patents and may obtain additional patents and other
proprietary rights to technology used by us or otherwise potentially useful
or necessary to us. The scope and validity of such patents, if any, the
extent to which we may wish or need to acquire the rights to such patents,
and the cost and availability of such rights are presently unknown. We may
infringe upon the intellectual property rights of third parties, including
third party rights in patents that have not yet been issued. If we do
infringe, the holder of the patent may seek to cause us to cease using the
technology subject to the patent, or require us to enter into a license or
other similar agreement and pay for our use of the intellectual property. In
either case, such event may have a material negative impact on our
performance. Also, since we rely upon unpatented proprietary technology,
there is no assurance that others may not acquire or independently develop
the same or similar technology.
We do not believe that any of our technologies or products infringe upon
the proprietary rights of third parties. Nevertheless, third parties may
claim infringement with respect to our current or future technologies or
products or products manufactured by others and incorporating our
technologies. Responding to any such claims, whether or not they are found
to have merit, could be time consuming, result in costly litigation, cause
development delays, require us to enter into royalty or license agreements,
or require us to cease using the technology that is the intellectual property
of a third party. Royalty or license agreements may not be available on
acceptable terms or at all. As a result, infringement claims could have a
material adverse affect on our business, operating results, and financial
condition.
We are dependent on key personnel and our business would be disrupted if we
are unable to retain and expand our management team.
Our success is highly dependent on the continued service of Donald Cox,
our founder, President and CEO, and on the ability to attract and retain,
qualified engineering, technical, manufacturing, sales, marketing and senior
management personnel. The loss of any key employees or principal members of
management could have a material adverse effect on our business and operating
results. Further, if we are unable to hire additional qualified personnel as
needed, we may not be able to adequately manage and implement plans for our
expansion and growth.
43
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS OF BMTS.
Within this Management Discussion and Analysis and Plan of Operations,
the terms "the Company," "we" and "our" refers to BMTS, and not CET.
This discussion contains forward-looking statements, and information
relating to the Company that is based on beliefs of management of the
Company, as well as assumptions made by and information currently available
to management of the Company. When used in this Proxy Statement, the words
"estimate," "project," "believe," "could," "anticipate," "intend," "expect,"
and similar expressions are intended to identify forward-looking statements.
Such statements reflect the current views of the Company with respect to
future events based on currently available information and are subject to
risks and uncertainties that could cause actual results to differ materially
from those contemplated in such forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company does not undertake any
obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
General
We were incorporated in 2005 to acquire the intellectual property and
existing customer base for the original and patented alternative infectious
waste treatment system known as the Demolizer[R]. Since then, we have re-
engineered the product which we now market as the Demolizer[R] II System.
The Demolizer[R] II System is a tabletop device that converts infectious
biomedical waste into non-biohazardous material. The Demolizer[R] II System
also includes components that have been upgraded to incorporate enhanced
process controls, safety features, and integrated quality systems. We earn
revenue by selling or leasing our products to our customers through a
national and regional group of established medical device distributors. We
target medical clinics, nursing homes, dentists, veterinarians, professional
sports teams, colleges, and defense industries, which make up the estimated
1,000,000 low-medium volume infectious waste generators in the U.S.
Additionally, we are in development of a portable product suitable for use by
in home care providers and individuals who require safe and convenient
disposal of their personal biomedical waste.
Critical Accounting Policies & Estimates
The Consolidated Financial Statements and Notes to the Consolidated
Financial Statements contain information that is pertinent to management's
discussion and analysis. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities. The Company believes the following critical
accounting policies involve additional management judgment due to the
sensitivity of the methods, assumptions, and estimates necessary in
determining the related asset and liability amounts.
44
In the preparation of financial statements, the Company makes judgments
regarding the future outcome of contingent events and records loss
contingency amounts that are probable and reasonably estimated based on
available information. The amounts recorded may differ from the actual
amounts that occur when the uncertainty is resolved. The estimates that the
Company makes in accounting for contingencies and the gains and losses that
are recorded upon the ultimate resolution of these uncertainties may have a
significant effect on the liabilities and expenses in the financial
statements.
Principles of Consolidation
The consolidated financial statements include the accounts of Biomedical
Technology Solutions, Inc. and its wholly owned subsidiary, BMTS Leasing LLC.
All significant inter-company accounts and transactions have been eliminated.
Revenue Recognition
Revenues from product sales are recognized at the time the goods are
shipped to the ordering customer. In May 2008 we began sales to stocking
distributors. Revenue from such sales is recorded at the time of shipment
since there are no provisions in the distributor agreements that extend
beyond our normal policy or allow for product returns at the option of the
distributor.
Revenues from leasing products are recognized under the Operating
Method. Under this method, we record each rental receipt as rental revenue.
We depreciate the leased product in the normal manner with depreciation
expense of the period matched against the rental revenue. The amount of
revenue recognized in each accounting period is a level amount (straight-line
basis) representing the time period in which our customer derives benefits
from our product. In addition to the depreciation charge, we expense
maintenance costs and the costs of any other services rendered under the
lease as incurred. BMTS is in the processing of negotiating and selling the
existing leases to a national finance organization, which will accelerate the
income from the leases. The company also plans to eliminate its leasing arm
and work directly with the national finance group when needed.
Intangibles
Indefinite lived intangibles are not amortized but are subject to an
annual impairment test. According to Statement of Financial Accounting
Standards ("SFAS") No. 142, other intangible assets will continue to be
amortized over their useful lives. The original customer list from the IP
purchased from TWT has been assigned a useful life of four years based upon
the type of customer. We have patent intangibles with a useful life of five
years. We have determined that our permits, trademark and licenses have
indefinite lives and thus they are not amortized.
Inventory Valuation
Inventories are valued at cost, which is not in excess of current market
prices and are maintained on the first-in-first-out method.
45
Results of Operations
Year ended December 31, 2007 compared to 2006:
Revenue. Revenues were $326,935 in 2007, up from $172,677 in 2006. The
increase (89%) reflects increased marketing efforts in 2007, including a
shift from direct sales to the use of established medical products
distributors. Through the first quarter of 2008 our distributors did not
stock product. Our distributors began stocking our product during May 2008.
Cost of Revenue. Cost of revenue for 2007 was $154,498, up from $85,878
in the prior year. The increase (80%) is attributed to increased revenue. Our
cost of sales as a percentage of revenue decreased from 50% of revenue to 47%
due to efficiencies attributed to larger production volumes by our supplier.
We expect that this percentage will continue to decrease in the near future
due to decreases related to volume purchases of the materials that comprise
our product.
Operating Expenses. Selling General and Administrative costs were
$1,408,734 in 2007, as compared to $1,136,080 in 2006. The following table
is a summary of certain of these expenses:
Year Ended December 31,
2007 2006
---------- ----------
Selling expense $ 215,529 $ 183,315
General office expense 764,376 798,638
Depreciation and amortization 74,030 48,157
Travel expense 43,333 22,801
Other 311,466 83,169
---------- ----------
$1,408,734 $1,136,080
========== ==========
Selling expenses and travel costs increased due to higher levels of
marketing activity in 2007. The decrease in general office expenses was due
primarily to reduced levels of computer related consulting, lower insurance
and other general costs which was partially offset by an increase in salary
expenses. Amortization expenses increased by approximately $18,000 as a
result of patent cost amortization. Other expenses increased primarily due
to increased stock compensation costs of approximately $216,000. Research and
development costs declined by approximately $109,000 since our principal
product is now out of the development stage.
Non-Operating Income and (Expense) consisted of the following:
Year Ended December 31,
2007 2006
---------- ----------
Non-operating income $ 2,000 $ 245
Interest Income 4,847 15,458
Interest expense (8,375) -
---------- ----------
$ (1,528) $ 15,703
========== ==========
46
Interest expense increased in 2007 from 2006 as a result of the use of
investor notes payable for working capital financing purposes. Interest
income decreased in 2007 as compared to 2006 based on average cash balances
in interest bearing accounts. The timing and amount of proceeds from
investing activities in those periods is responsible for the change.
Net Loss. In 2007, a net loss of $1,331,147 was incurred as compared to
a net loss of $1,235,644 in 2006. The increase in net loss of $95,483, or
7.7%, was due substantially to increases in salaries, general and
administrative expenses.
Three months ended March 31, 2008 compared to 2007:
Revenue. Revenues were $139,654 in 2008, up from $58,387 in 2007. The
increase (139%) reflects increased marketing efforts in 2008, including a
shift from direct sales to the use of established medical products
distributors. Our distributors began stocking our product during May 2008.
Cost of Revenue. Cost of revenue for 2008 was $52,256, up from $30,766
in the prior year. The increase (70%) is attributed to increased revenue.
Our cost of sales as a percentage of revenue decreased from 53% of revenue
for the three months ended March 31, 2007 to 37% for the comparable period of
2008 due to efficiencies attributed to larger production volumes by our
supplier. We expect that this percentage will continue to decrease in the
near future due to decreases related to volume purchases of the materials
that comprise our product.
Operating Expenses. Selling General and Administrative costs were
$399,457 in 2008, as compared to $355,229 in 2007. The following table is a
summary of certain of these expenses:
Three Months Ended March 31,
2008 2007
---------- ----------
Selling expense $ 74,506 $ 56,634
General office expense 261,069 209,267
Depreciation and amortization 17,734 12,054
Travel expense 28,086 39,409
Other 18,061 37,865
---------- ----------
$ 399,457 $ 355,229
========== ==========
Selling expenses increased due to higher levels of marketing activity in
2008 while travel costs decreased due to the use of distributors in lieu of
direct sales. The increase in general office expenses was due primarily to
increased levels of professional fees for legal and accounting services in
connection with the possible merger with CET. Amortization expenses
increased by approximately $5,500 as a result of patent cost amortization.
Other expenses decreased primarily due to decreased stock compensation costs
of approximately $29,000.
47
Net Loss. For the three months ended March 31, 2008, we incurred a net
loss of $333,964, compared to a net loss of $359,007 for the three months
ended March 31, 2007, a decrease in net loss of $25,043, or 7%. The decrease
in net loss was primarily attributable to the increase in revenues and
corresponding decrease in operating expenses as a percentage of revenues.
Liquidity and Capital Resources
The Company's sources of liquidity and capital resources historically
have been proceeds from offerings of equity securities. In the past, this
source has been sufficient to meet its needs and finance the Company's
business. The Company can give no assurance that the historical sources of
liquidity and capital resources will be available for future development and
acquisitions, and it may be required to seek alternative financing sources
not necessarily favorable to the Company.
At December 31, 2007, we had working capital of $128,831, as compared to
working capital of $346,191 at December 31, 2006. The decrease in working
capital is primarily due to increases in accounts and notes payable and
decreased fund raising activities. During 2007, we completed the sale of an
aggregate of 445,000 shares of common stock for gross proceeds of $890,000
and secured an additional $250,000 of note proceeds. During 2006, we raised
an aggregate of $1,350,000 from the sale of common stock at $1 per share.
During the year ended December 31, 2007, we used cash in operating
activities of $891,506 as compared to cash used in operations of $1,446,727
for the same period in 2006. We also used cash for the acquisition of assets
in the amount of $154,551 in 2007 as compared to $159,374 in 2006.
At March 31, 2008, we had a working capital deficit of $(100,574) as
compared to working capital of $128,831 at December 31, 2007. The decrease in
working capital is primarily due to a decrease in inventory and increases in
accounts and notes payable and decreased fund raising activities. During the
quarter ended March 31, 2008, we completed the sale of an aggregate of 50,000
shares of common stock for gross proceeds of $100,000 and secured an
additional $130,000 of note proceeds. During the three months ended March
31, 2007, we raised an aggregate of $400,000 from the sale of common stock at
$1.50 to $2.00 per share.
During the three months ended March 31, 2008, we used cash in operating
activities of $232,909 as compared to cash used in operations of $346,140 for
the same period in 2007. We also used cash for the acquisition of assets in
the amount of $19,065 in 2008 as compared to $45,449 in 2007.
Capital Commitments
The Company headquarters and administrative facilities are located at
9800 Mt. Pyramid Ct., Englewood, Colorado, in approximately 5,400 square feet
of leased office space at a monthly rental of approximately $6,500. The
lease expires December 31, 2008. The Company's corporate and administrative
functions are conducted from these facilities.
48
Contractual Obligations at December 31, 2007
None.
Off-Balance Sheet Transactions
The Company has no off-balance sheet transactions.
Common Stock Dividend Policy
Since the capitalization of the Company in 2005, the Company has not
paid, and does not currently intend to pay in the foreseeable future, cash
dividends on its Common Stock. Future earnings, if any, are expected to be
retained for the development of the business of the Company.
MANAGEMENT OF CET AND BMTS AFTER THE MERGER
The current management of BMTS consists of the persons listed below.
Following completion of the merger, these persons will also serve as all of
the officers and directors of CET in the same capacities that they currently
serve with BMTS.
Directors and Executive Officers
The name, position with the Company, age of each Director and executive
officer of the Company is as follows:
Director/
Officer
Name Age Position Since
---- --- -------- ---------
Donald G. Cox 50 CEO, President and Director 2005
Jim Scheifley 60 Chief Financial Officer 2008
Gex Richardson 44 Secretary, General Counsel 2005
and Director
William Sparks 54 Director 2008
Donald G. Cox has been CEO, President and Director of BMTS since its
inception in 2005. From 2003 to 2004, he served as CEO of Community Mortgage
Group, a mortgage bank. From 2000 to 2002, he was co-founder, President and
CEO of Body, Art and Science, a high-end sport supplement and nutrition
company. From 1998 to 2000, he was CEO of Juices Wild, a smoothy store
franchisor. He also owned and co-developed Pretzelmaker, Inc., an
international retail franchisor, and Fitness Unlimited and Florida Fitness,
two fitness chains in Florida. Mr. Cox attended St. Petersberg Junior College
in 1977.
Jim Scheifley has been CFO since April 2008. From 1992 to the present,
he has owned an operated the accounting firm James E. Scheifely, PC. He
received his BA degree in Accounting from LaSalle College in Philadelphia in
1969, and has been engaged as a licensed CPA since then.
49
Gex Richardson has been General Counsel and a director of BMTS since
inception. He is also Senior Vice President and General Counsel of Glenn
Wright Construction and Development, Inc., based in Florida. Previously, he
was Of Counsel to Akerrman Senterfitt, a Florida based law firm. Mr.
Richardson has a BS degree in finance from the University of Florida (1986)
and a JD degree from the University of Florida (1988).
William Sparks, has been a director since April 2008. He is the founder
of Med Tech Associates, a national manufacturers' representative firm, and
launched MedPro Associates in June 2007. Based in Idaho Springs, Colorado,
Med Tech and Med Pro Associates provide national representation to
manufacturers selling into the health care markets. Mr. Sparks received a BA
in Business Administration from St. Mary's College, Winona, Minnesota, in
1975.
Executive Compensation
The following information relates to all aspects of executive
compensation currently paid by BMTS to its executive officers and directors.
Following completion of the merger, no immediate change in the compensation
and benefits paid to such persons is expected.
The following tables and discussion set forth information with respect
to all plan and non-plan compensation awarded to, earned by or paid to the
Chief Executive Officer ("CEO") of, and the Company's four (4) most highly
compensated executive officers other than the CEO, for all services rendered
in all capacities to the Company and its subsidiaries for each of the
Company's last three (3) completed fiscal years; provided, however, that no
disclosure has been made for any executive officer, other than the CEO, whose
total annual salary and bonus does not exceed $100,000.
SUMMARY COMPENSATION TABLE
Nonqualified
Name and Non Equity Deferred
Principal Salary Stock Option Incentive Plan Compensation All Other
Position Year ($) Bonus Awards Awards Compensation Earnings Compensation
Total
- --------- ---- -------- ----- ------ ------- -------------- ------------ ------------
Donald Cox 2007 $150,000 0 0 200,000 200,000 0 50,000
2006
Set forth below is information on the employment commitments of BMTS
executives, which will be assumed by CET as part of the Merger.
Name Position Salary
---- --------- ------
Donald G. Cox CEO $200,000 per year
Jim Scheifley CFO $150 per hour
Gex Richardson General Counsel None
BMTS has no written employment agreements with its executive officers.
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No director of BMTS receives any compensation for their services as
directors. Following the completion of the Merger, outside directors may be
granted options; however, there is no commitment to do so.
The following table sets forth information concerning unexercised
options, stock that has not vested and equity incentive plan awards for each
named executive officer outstanding as of the end of the most recently
completed fiscal year:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END TABLE
Option Awards Stock Awards
- --------------------------------------------------------- -----------------------------------------
Equity
Incentive
Equity Plan
Incentive Awards;
Plan Market or
Equity Awards; Payout
Incentive Number of Value of
Plan Unearned Unearned
Awards; Number of Market Shares, Shares,
Number of Number of Number of Shares or Value of Units or Units or
Securities Securities Securities Units of Shares Other Other
Underlying Underlying Underlying Option Stock or Units Rights Rights
Unexercised Unexercised Unexercised Option Expir- That That That That
Options - Options - Unearned Exercise ation Have Not Have Not Have Not Have Not
Name Exercisable Unexercisable Options Price Date Vested Vested Vested Vested
- ---- ----------- ------------- ----------- -------- ------ --------- -------- --------- --------
- -
Donald Cox 200,000 0 0 $1.00 10/1/14 0 0 0 0
Gex Richardson 500,000 0 0 $1.00 10/1/13 0 0 0 0
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BMTS
The following table sets forth certain information regarding the
ownership of BMTS common stock as of May 30, 2008 by (i) each BMTS director,
(ii) each of the BMTS executive officers named in the summary compensation
table, (iii) all of such named executive officers and directors as a group,
and (iv) all those known by BMTS to be beneficial owners of more than five
percent of BMTS common stock. Each person listed may be contacted at the
headquarters of BMTS at 9800 Mt. Pyramid Court, Suite 350, Englewood,
Colorado 80112.
BENEFICIAL OWNERSHIP(1)
-------------------------------
NAME AND ADDRESS OF PERCENT OF
BENEFICIAL OWNER NUMBER OF SHARES TOTAL (2)
- ------------------- ---------------- -----------
Donald G. Cox 3,525,000 38.2%
Jon Bricken 2,525,000 28.3%
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Jim Scheifley -0- --
Gex Richardson 925,000 9.7%
William Sparks 110,000 1.2%
Executive Officers and Directors
as a Group (3 persons) 4,560,000 46.9%
_____________________________
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of BMTS common stock
subject to options and warrants currently exercisable within 60 days of May
30, 2008, are deemed outstanding for purposes of computing the percentage of
the person or entity holding such securities but are not deemed outstanding
for purposes of computing the percentage of any other person or entity.
Except as indicated by footnote, and subject to community property laws where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them.
(2) Percentage of ownership is based on 9,032,500 shares of common stock
outstanding as of May 30, 2008.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF BMTS
In 2006, a principal shareholder, Jon Bricken, forgave our promissory
note totalling $150,000. The promissory note was non-interest-bearing, was
due on June 30, 2006 (or upon the successful offering of common stock-
whichever came first) and was unsecured. The debt forgiveness was treated as
contributed capital.
In 2007, a principal shareholder, Bill Dudziak, converted a promissory
note, totalling $150,000, into 100,000 shares of our common stock. No gain
or loss was recorded on the transaction.
Pursuant to an agreement dated September 13, 2006, the Company has the
right (but not the obligation) to re-purchase up to 500,000 of the shares of
common stock then held by Jon Bricken, a principal shareholder, at $1.00 per
share through December 31, 2008 and 300,000 shares of common stock at $2.00
per through December 31, 2009. Through December 31, 2007, the Company has
repurchased 162,500 shares of its common stock from Mr. Bricken for $162,500.
In addition, Mr. Bricken, the principal shareholder, agreed to return
37,500 shares of the Company's common stock to the Company in 2007. All
returned shares have been cancelled and returned to unissued status. There
were no treasury shares outstanding as of December 31, 2007.
52
THE MERGER AGREEMENT
This section of the proxy statement describes the material provisions of
the merger agreement, but does not purport to describe all the provisions of
the merger agreement. The following summary is qualified in its entirety by
reference to the complete text of the merger agreement, which is attached as
Appendix A to this proxy statement and is incorporated into this proxy
statement by reference. We urge you to read the full text of the merger
carefully.
Terms of the Merger
Subject to the terms and conditions of the merger agreement, and in
accordance with Colorado law, upon completion of the merger, Merger Sub will
merge with and into BMTS and BMTS will be the surviving entity. Concurrently,
the separate corporate existence of Merger Sub will terminate.
The merger agreement provides that each share of BMTS common stock
issued and outstanding immediately prior to the effective time of the merger
will be converted into the right to receive the number (referred to as the
"Exchange Ratio") of validly issued, fully paid and non-assessable shares of
CET common stock resulting by dividing 78,176,884 (approximately) by the
number of outstanding shares of BMTS common stock at the effective time of
the merger. Upon completion of the merger, all pre-merger shares of BMTS
common stock will no longer be outstanding and will be converted into shares
of CET. In addition, upon effectiveness of the merger, all options, warrants
and convertible notes to acquire BMTS common stock that are outstanding
immediately prior to the effectiveness of the merger will cease to represent
a right to acquire shares of BMTS common stock and will be assumed by CET and
converted into options, warrants or convertible notes, as applicable, to
acquire a number of shares of CET common stock equal to the number of shares
of BMTS common stock issuable upon exercise or conversion of these BMTS
convertible securities multiplied by the Exchange Ratio. In addition, the per
share exercise or conversion price at which CET common stock can be purchased
after the merger upon exercise or conversion of such assumed and converted
BMTS options, warrants and convertible notes will be equal to the exercise or
conversion prices provided for under the terms of such BMTS convertible
security divided by the Exchange Ratio. The number of CET shares issuable
under each such converted BMTS option, warrant and convertible note will be
rounded down to the nearest whole share.
The actual number of shares of CET to be issued in the merger will be
adjusted at the time of closing to result in the total number of shares
issued to the shareholders of BMTS, together with the total number of shares
issuable upon exercise of BMTS options and warrants, will represent, in the
aggregate, 94% of the total issued and outstanding shares of CET post merger.
53
The following table sets forth information regarding the anticipated
consideration to be issued by CET to the BMTS shareholders and warrant and
option holders in connection with the merger:
Number of Shares of Common Stock (1)
Issued to BMTS shareholders in the merger 26,058,961
Shares underlying BMTS options and warrants
assumed in the Merger 3,326,426
Total 29,385,387
_____________________
(1) The foregoing assumes that CET has an aggregate of 5,626,989 shares
issued and outstanding and BMTS has an aggregate of 10,186,000 shares
issued and outstanding, both on a fully diluted basis, immediately prior
to the merger. In addition, it assumes that a 1-for-3 reverse split is
effected.
Also as a result of the merger, the outstanding shares of Merger Sub
will be converted into shares of BMTS. As a result of conversion, the sole
shareholder of BMTS post merger will be CET.
If CET reincorporates from California to Colorado, the merger
consideration will consist of common stock, par value $0.001 per share, of
CET Services, Inc, a Colorado corporation. The pre-reincorporation entity is
sometimes referred to herein as "CET-California" and the post-reincorporation
entity, and issuer of the merger consideration, is sometimes referred to
herein as "CET-Colorado."
Closing and Effective Time of the Merger
The closing of the merger will take place promptly following the
satisfaction of the conditions described below under "Conditions to the
Completion of the Merger," unless CET and BMTS agree in writing to another
time. The merger is expected to be consummated on or before June 30, 2008.
Reincorporation Merger
As a condition of the merger agreement, prior to the closing CET is
required to change its domicile to the State of Colorado through a
reincorporation merger. CET's shareholders will be asked to approve the
reincorporation merger at the Special Meeting. See "CHANGE OF DOMICILE."
Representations, Warranties, Covenants and Agreements
The merger agreement contains representations and warranties of each of
CET and BMTS relating, among other things, to:
* proper corporate organization and similar corporate matters;
* subsidiaries;
* capital structure of each constituent company;
* the authorization, performance and enforceability of the merger
agreement;
* no conflict; required filings and consents;
54
* licenses and permits;
* compliance with legal requirements;
* taxes;
* financial information and absence of undisclosed liabilities;
* holding of leases and ownership of other properties, including
intellectual property;
* restrictions on business activities;
* contracts;
* title to properties;
* environmental matters;
* absence of certain changes;
* Litigation;
* employee benefit plans; and
* Insurance.
Conditions to the Completion of the Merger
General Conditions
Consummation of the merger agreement and the related transactions is
conditioned on the approval of the merger by the requisite vote under
applicable law by the shareholders of BMTS and CET; a certificate of
amendment to CET's Articles of Incorporation in proper form shall have been
duly approved by CET's Board of Directors and shareholders and been filed
with and accepted for filing by the Secretary of State of the jurisdiction of
incorporation of CET at that time, which certificate of amendment shall (i)
increase the authorized number of shares of CET common stock to allow for the
issuance of CET common stock in the merger and upon exercise of assumed BMTS
options and warrants, and (ii) change the name of CET to "BioMedical
Technology Solutions Holdings, Inc." or such other name upon which CET and
BMTS may agree. In addition, the CET Board of Directors shall have been
authorized by a vote of CET's shareholders to effect a reverse stock split of
CET's outstanding common stock at a future time and on a basis determined by
the CET Board of Directors.
In addition, the consummation of the transactions contemplated by the
merger agreement is conditioned upon normal closing conditions in a
transaction of this nature, including no order, stay, judgment or decree
being issued by any governmental authority preventing, restraining or
prohibiting in whole or in part, the consummation of such transactions; the
delivery by each party to the other party of a certificate to the effect that
the representations and warranties of the delivering party are true and
correct in all material respects as of the closing and all covenants
contained in the merger agreement have been materially complied with by the
delivering party.
BMTS's Conditions to Closing
The obligations of BMTS to consummate the transactions contemplated by
the merger agreement, in addition to the conditions described above, are
conditioned upon each of the following, among other things:
* CET shall have completed the reincorporation merger;
* there shall have been no material adverse effect with respect to CET
since the date of the merger agreement; and
55
* BMTS and its legal counsel and/or auditors shall have had the
opportunity to complete, and shall have completed, a satisfactory due
diligence investigation of CET.
CET's Conditions to Closing
The obligations of CET to consummate the transactions contemplated by
the merger agreement, in addition to the conditions described above, are
conditioned upon each of the following, among other things:
* There shall have been no material adverse effect with respect to BMTS
since the date of the merger agreement;
* CET and its legal counsel and/or auditors shall have had the
opportunity to complete, and shall have completed, a satisfactory due
diligence investigation of BMTS.
Conduct of Business of CET and BMTS Pending the Merger
CET has agreed that, except as otherwise permitted by the merger
agreement, CET shall conduct its business in the ordinary course and
consistent with CET's prior practice. CET has agreed that it will use its
best efforts to: (a) preserve intact the present business organization of
CET; (b) maintain its property and assets in its present state of repair,
order and condition, reasonable wear and tear excepted; (c) preserve and
protect the goodwill and advantageous relationships of CET with its customers
and all other persons having business dealings with CET; (d) preserve and
maintain in force all licenses, permits, registrations, franchises, patents,
trademarks, tradenames, trade secrets, service marks, copyrights, bonds and
other similar rights of CET; and (e) comply with all laws applicable to the
conduct of its business.
Except as provided by the merger agreement, CET has agreed that, without
the prior written consent of BMTS, CET will not enter into any material
transactions as enumerated in the merger agreement.
Except as provided by the merger agreement, BMTS has agreed to use its
best efforts to: (a) preserve intact the present business organization of
BMTS; (b) maintain its property and assets in its present state of repair,
order and condition, reasonable wear and tear excepted; (c) preserve and
protect the goodwill and advantageous relationships of BMTS with its
customers and all other persons having business dealings with BMTS; (d)
preserve and maintain in force all licenses, permits, registrations,
franchises, patents, trademarks, tradenames, trade secrets, service marks,
copyrights, bonds and other similar rights of BMTS; and (e) comply with all
laws applicable to the conduct of its business.
Except as provided by the merger agreement, BMTS has agreed that,
without the prior written consent of CET, BMTS will not enter into any
material transactions as enumerated in the merger agreement.
56
No Solicitation of Other Transactions
CET has agreed that, except in connection with the transactions
contemplated by the merger agreement, CET shall not, nor shall it permit any
of its subsidiaries to, nor shall it authorize or permit any officer,
director or employee of or any investment banker, attorney or other advisor
or representative of, CET or any of its subsidiaries to, (i) solicit,
initiate or encourage the submission of, any takeover proposal, (ii) enter
into any agreement with respect to any takeover proposal or (iii) participate
in any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any takeover proposal.
BMTS has agreed that, except in connection with the transactions
contemplated by the merger agreement, BMTS shall not, nor shall it permit any
of its subsidiaries to, nor shall it authorize or permit any officer,
director or employee of or any investment banker, attorney or other advisor
or representative of, BMTS or any of its subsidiaries to, (i) solicit,
initiate or encourage the submission of, any takeover proposal, (ii) enter
into any agreement with respect to any takeover proposal or (iii) participate
in any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any takeover proposal.
Termination
The merger agreement may be terminated at any time, but not later than
the closing as follows:
* by mutual written consent of CET and BMTS;
* by either CET or BMTS if the conditions, as set forth in the merger
agreement to such terminating party's obligations under the merger
agreement are not fulfilled on or prior to the closing date; provided
that any such termination shall not limit the remedies otherwise
available to such party as a result of misrepresentations of or
breaches by the other party.
* by either CET or BMTS if the other party is in material breach or
default of its respective covenants, agreements or other obligations
hereunder, or if any of its representations and warranties herein are
not true and accurate in all material respects when made or when
otherwise required by the merger agreement to be true and accurate.
* By either CET or BMTS, if for any reason the parties have failed to
close this Agreement on or before August 15, 2008, provided that
neither party is then in default hereunder.
* By either CET or BMTS for any reason upon written notice, provided
that if a party terminates the merger agreement pursuant to this
provision and the other party continues to be willing and able to
proceed with the merger, then the terminating party shall immediately
pay the other party the sum of $250,000 as a break-up fee.
57
As noted above, in the event that either party to the merger agreement
were to terminate the merger agreement for no reason specified in the merger
agreement, and the other party continues to be willing and able to proceed
with the merger, then the terminating party shall immediately pay the other
party the sum of $250,000 as a break-up fee. This could result in a
substantial liability to CET if it were to terminate the merger agreement for
reasons other than those described in the merger agreement. Such reasons
could include a determination by CET that the terms of the merger are no
longer favorable to CET.
Effect of Termination
In the event of proper termination by either CET or BMTS, the merger
agreement will become void and have no effect, except for the confidentiality
obligations set forth in merger agreement, without liability to any party to
this Agreement except for breach of this Agreement.
Fees and Expenses
All fees and expenses incurred in connection with the merger agreement
and the transactions contemplated thereby will be paid by the party incurring
such expenses whether or not the merger is consummated.
Amendments; Waiver; Assignment
The merger agreement may be amended by the parties thereto at any time
by execution of an instrument in writing signed on behalf of each of the
parties.
Either party to the merger agreement may (a) extend the time for the
performance of any of the obligations or other acts of the other party, (b)
waive any inaccuracies in the representations and warranties of the other
party contained herein or in any document delivered by the other party or (c)
waive compliance with any of the agreements or conditions of the other party
contained in the merger agreement. Any such extension or waiver shall be
valid only if set forth in an instrument in writing signed by the party to be
bound thereby. Any waiver of any term or condition shall not be construed as
a waiver of any subsequent breach or a subsequent waiver of the same term or
condition, or a waiver of any other term or condition, of the merger
agreement. The failure of any party to assert any of its rights under the
merger agreement shall not constitute a waiver of any of such rights.
The merger agreement may not be assigned by operation of law or
otherwise without the express written consent of CET and BMTS.
58
ACCOUNTING TREATMENT
The merger is expected be accounted for under the purchase method of
accounting as a reverse acquisition, in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP) for accounting
and financial reporting purposes. Under this method of accounting, CET will
be treated as the "acquired" company for financial reporting purposes. In
accordance with guidance applicable to these circumstances, the merger will
be considered a capital transaction in substance. Accordingly, for accounting
purposes, the merger will be treated as the equivalent of BMTS issuing stock
for the net assets of CET, accompanied by a recapitalization. The price paid
by BMTS for the outstanding CET shares is considered to be the quoted closing
price for CET on the date when the number of shares to be acquired by BMTS is
known. On that date, May 8, 2008, the closing price of CET's common stock
was $0.15 per share. This price was less than the reported book value of CET
as of December 31, 2007 and, accordingly, certain long-term assets of CET
will be written down so that the net assets to be acquired by BMTS equal the
price to be paid. The retained deficit of BMTS will be carried forward after
the merger.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER
This discussion addresses only those CET shareholders that hold their
securities as a capital asset within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code"), and does not address
all the United States federal income tax consequences that may be relevant to
particular holders in light of their individual circumstances or to holders
that are subject to special rules, such as financial institutions; investors
in pass-through entities; tax-exempt organizations; dealers in securities or
currencies; traders in securities that elect to use a mark to market method
of accounting; persons who hold CET common stock as part of a straddle,
hedge, constructive sale or conversion transaction; and persons who are not
citizens or residents of the United States.
Neither CET nor BMTS intends to request any ruling from the Internal
Revenue Service as to the United States federal income tax consequences of
the merger.
It is expected that the merger will be treated as a "reorganization"
within the meaning of Section 368(a) of the Code. As a result, no gain or
loss would be recognized by CET or by the shareholders of CET by virtue of
U.S. federal income taxes.
59
CHANGE OF DOMICILE
(PROPOSAL NO. 2)
The Reincorporation Proposal
General
The Board of Directors has unanimously approved and recommends that the
shareholders approve the reincorporation of CET from the State of California
to the State of Colorado (the "reincorporation merger"). The reincorporation
will be effected pursuant to an Agreement and Plan of Merger, dated as of
July 18, 2008 (the "Reincorporation Merger Agreement"), between CET and CET-
Colorado. The boards of directors of CET and CET-Colorado have unanimously
approved the merger agreement.
Reasons for the Reincorporation
The reincorporation merger is being proposed because the change of CET's
domicile to Colorado is condition to closing the merger with BMTS. BMTS has
made the change of domicile a condition of the merger because it has no
operations in California, and the management of BMTS is familiar with the
requirements of Colorado law.
CET-Colorado
CET-Colorado, a wholly owned subsidiary of CET, was incorporated under
the Colorado Business Corporation Act ("CBCA") on July 17, 2008 exclusively
for the purpose of merging with CET. The address and phone number of CET-
Colorado's principal office are the same as those of CET. Prior to the
reincorporation merger, CET-Colorado will have no material assets or
liabilities and will not have carried on any business.
If the reincorporation merger is completed, the rights of the
shareholders of CET-Colorado will be governed by the CBCA and the articles of
incorporation and bylaws of CET-Colorado (the "Colorado Articles of
Incorporation" and the "Colorado Bylaws," respectively).
The Reincorporation Merger Agreement
The Reincorporation Merger Agreement provides that CET will merge with
and into CET-Colorado, with CET-Colorado being the surviving corporation.
Pursuant to the merger agreement, CET-Colorado will assume all assets and
liabilities of CET, including obligations under our outstanding indebtedness
and contracts. Our existing Board of Directors and officers will become the
Board of Directors and officers of CET-Colorado and our existing subsidiaries
will become the subsidiaries of CET-Colorado.
60
At the effective time of the reincorporation merger, each outstanding
share of CET's common stock will automatically be converted into one share of
CET-Colorado common stock. You will not have to exchange your existing stock
certificates of CET for stock certificates of CET-Colorado. However, after
consummation of the reincorporation merger, any shareholder desiring a new
form of stock certificate may submit the existing stock certificate to CET-
Colorado's transfer agent for cancellation and obtain a new certificate.
Pursuant to the reincorporation merger, CET-Colorado will assume all of
CET's obligations under all of its existing stock incentive plans. Each award
of shares of CET's common stock under such plans will be converted into an
award of shares of CET-Colorado common stock on the same terms and conditions
as in effect immediately prior to the reincorporation, and each outstanding
option to purchase shares of CET common stock under such plans will be
converted into an option to purchase the same number of shares of CET-
Colorado common stock on the same terms and conditions as in effect
immediately prior to the reincorporation. Options and rights granted under
CET's incentive plans in the future will be for shares of CET-Colorado common
stock.
The Reincorporation Merger Agreement has been approved by the Board of
Directors of CET-Colorado and by CET, as the sole shareholder of CET-
Colorado. Approval of the reincorporation merger by CET's shareholders
requires the affirmative vote of the holders of a majority of all common
stock outstanding.
A vote in favor of the reincorporation proposal is also effectively a
vote in favor of the Colorado Articles of Incorporation and the Colorado
Bylaws.
Effective Time
If the reincorporation merger is approved, it is anticipated that the
reincorporation merger will become effective at the time set forth in each of
the Articles of Merger to be filed with the Secretary of State of California
in accordance with the CCC and the Articles of Merger to be filed with the
Secretary of State of Colorado in accordance with the CBCA. However, the
merger agreement may be terminated and abandoned by action of CET's board of
directors at any time prior to the effective time of the reincorporation
merger, whether before or after the approval by CET's shareholders, if the
board of directors determines for any reason, in its sole judgment and
discretion, that the consummation of the reincorporation merger would be
inadvisable or not in the best interests of CET and its shareholders.
Effect of Not Obtaining the Required Vote for Approval
If the reincorporation merger fails to obtain the requisite vote for
approval, the reincorporation merger will not be consummated and CET will
continue to be incorporated in California. In addition, since completion of
the reincorporation merger is a condition to BMTS's obligation to close the
merger with CET, the merger transaction with BMTS will not be completed
unless BMTS waives this closing condition.
61
Comparison of Shareholder Rights
Significant Differences Between the Corporation Laws of California and
Colorado
The most significant differences between the corporate governance
provisions of the charter documents of CET-Colorado and CET, and the reasons
for and certain possible effects of these provisions are described below.
Limitation on Ability to Call Shareholder Meetings
Reincorporation of CET in the state of Colorado would not affect the
ability of shareholders to call meetings. Under both Colorado and California
Law, a special meeting of the shareholders may be called by the board, the
chairman of the board, the president or by the holders of shares entitled to
cast not less than 10% of the votes at such meeting.
Action by Written Consent of Shareholders
Both Colorado Law and California Law permit shareholders, unless
specifically prohibited by the articles of incorporation, to take action
without a meeting by the written consent of the holders of at least the
number of shares necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Action by
written consent may, in some circumstances, permit the taking of shareholder
action more rapidly than would be possible if a meeting of shareholders were
required. Both the California Bylaws and the Colorado Bylaws permit
shareholder action by written consent as permitted under applicable law.
Board of Directors Composition
Under California Law, although a change in the number of directors must
in general be approved by the shareholders, the board of directors may fix
the exact number of directors within a stated range set forth in either the
articles of incorporation or bylaws, if that stated range has been approved
by the shareholders. Any change outside of the established range or a change
in the established range must be approved by the shareholders. Colorado Law
permits the board of directors alone to change the authorized number of
directors by amendment to the bylaws or in the manner provided in the bylaws,
unless the articles of incorporation fixes the number of directors (in which
case a change in the number of directors may be made only by an amendment of
such certificate, which would require a vote of shareholders).
The California Bylaws establish a range of four (4) to seven (7)
directors, currently fixed by resolution of the Board at four (4). The
Colorado Articles of Incorporation set the number of directors from not less
than one or more than ten. The Colorado Bylaws provide that the number of
directors is to be established within that range by a resolution of the board
of directors. Following the reincorporation merger, the approval of the
shareholders will not be required to change the number of directors as would
be the case in California.
Neither the California Articles and Bylaws nor the Colorado Articles and
Bylaws provide for a classified board of directors although both California
Law and Colorado Law permit classified boards with staggered terms.
62
Cumulative Voting
California Law generally provides for cumulative voting. Cumulative
voting may be eliminated by a corporation with outstanding securities listed
on the New York Stock Exchange, the American Stock Exchange, or the Nasdaq
National Market System. However, the California Bylaws currently permit
cumulative voting.
Under Colorado Law, cumulative voting is not available unless it is
provided for in a corporation's articles of incorporation. The Colorado
Articles do not provide for cumulative voting.
Other Differences Between the Corporation Laws of California and
Colorado
In addition to the provisions of California Law and Colorado Law that
are discussed above, other provisions of California Law and Colorado Law
differ in many respects, and consequently it is not practical to summarize
all differences. A summary of certain significant differences that may affect
the rights and interests of shareholders in CET-Colorado is set forth below.
Vote Required for Certain Mergers and Consolidation
Colorado Law relating to mergers and other corporate reorganizations
differs from California Law in a number of respects. Generally, California
Law requires a shareholder vote in more situations than does Colorado Law.
Both California Law and Colorado Law provide for shareholder votes (except as
indicated below and for certain mergers between a parent company and a
subsidiary that is at least 90% owned by the parent company) of both the
acquiring and acquired corporation to approve mergers and of the selling
corporation for the sale of substantially all of its assets. In addition to
the foregoing, subject to the exceptions described below, California Law
requires the affirmative vote of a majority of the outstanding shares of (i)
an acquiring corporation in a share-for-share exchange or a share-exchange
tender offer, (ii) the acquiring and acquired corporations in a sale-of-
assets reorganization, and (iii) any parent corporation whose equity
securities are being issued or transferred in connection with a corporate
reorganization.
Colorado Law does not require a shareholder vote of the surviving
corporation in a merger if (i) the merger agreement does not amend the
existing certificate of incorporation, (ii) each outstanding or treasury
share of the surviving corporation before the merger is unchanged after the
merger, and (iii) the number of shares to be issued by the surviving
corporation in the merger does not exceed 20% of the shares outstanding
immediately prior to the merger. California Law contains an exception to its
voting requirements for reorganizations where any corporation or its
shareholders immediately before the reorganization own (immediately, after
the reorganization) more than five-sixths of the voting power of the
surviving or acquiring corporation (or its parent); provided, however, that
such exception is not available if (a) any amendments to the articles of the
surviving corporation are made that would otherwise require shareholder
approval or (b) if the holders of a disappearing corporation receive shares
of the surviving corporation having different rights, preferences, privileges
or restrictions than the shares surrendered.
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Appraisal Rights in Mergers
Under both California and Colorado Law, a dissenting shareholder of a
corporation participating in certain transactions may, under varying
circumstances, receive payment for the fair value of his or her shares (as
determined by a court), in lieu of the consideration that he or she would
otherwise receive in any such transaction. Under Colorado Law, such appraisal
rights are not available with respect to (i) a sale, lease or exchange of
substantially all the assets of a corporation; (ii) a merger or consolidation
by a corporation, the shares of which are either listed on a national
securities exchange or held by more than 2,000 shareholders), if such
shareholders receive shares of the surviving corporation or shares of any
other corporation that are either listed on a national securities exchange or
held of record by more than 2,000 shareholders; or (iii) shareholders of a
corporation surviving a merger if no vote of the shareholders of the
surviving corporation is required to approve the merger. Under Colorado Law,
no vote of the shareholders of the surviving corporation is required if the
number of shares to be issued in the merger does not exceed 20% of the shares
of the surviving corporation outstanding immediately prior to the merger and
certain other conditions are met. See "Vote Required for Certain Mergers and
Consolidations" above.
In general, California Law affords dissenters' rights (appraisal rights
are referred to as "dissenters' rights" in California) (a) in any
reorganization for which shareholder approval is required and (b) to the
shareholders of a subsidiary corporation in a short-form merger. The
exclusions from dissenters' rights in mergers are somewhat different from
those under Colorado Law. For example, in the case of a corporation whose
shares are listed on a national securities exchange or on a list of over-the-
counter margin stocks issued by the Board of Governors of the Federal Reserve
System, dissenters' rights generally are not available unless the holders of
5% or more of such class claim dissenters' rights. Also, under California
Law, shareholders of a corporation involved in a reorganization are not
entitled to dissenters' rights if the corporation, or its shareholders
immediately before the reorganization, or both, will own immediately after
the reorganization more than five-sixths of the voting power of the surviving
or acquiring corporation or its parent entity (as will be the case in the
proposed reincorporation merger). Appraisal or dissenters' rights are,
therefore, not available to shareholders of CET with respect to the
reincorporation merger.
Dividends
California Law provides that a corporation may not make any distribution
(including dividends, whether in cash or property, and repurchases or
redemptions of its shares for cash or property) unless (i) the corporation's
retained earnings immediately prior to the proposed distribution equal or
exceed the amount of the proposed distribution, or (ii) immediately after
giving effect to such distribution, the corporation's assets (exclusive of
goodwill, capitalized research and development expenses and deferred charges)
would be at least equal to 125% of its liabilities (not including deferred
taxes, deferred income and other deferred credits) and the corporation's
current assets would be at least equal to its current liabilities (or 125% of
its current liabilities if the average pretax and preinterest earnings for
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the preceding two fiscal years were less than the average interest expense
for such years). In addition, California Law provides that a corporation may
not make any such distribution if, as a result, the excess of the
corporation's assets over its liabilities would be less than the liquidation
preference of all shares having a preference on liquidation over the class or
series to which the distribution is made. Such tests are applied to
California corporations on a consolidated basis.
Colorado Law provides that a corporation may, unless otherwise
restricted by its articles of incorporation, make distributions to its
shareholders so long as the corporation would be able to pay its debts as
they become due in the usual course of business. However, distributions may
not be made if, after giving effect to the distribution, the corporation's
total assets would be less than the sum of its total liabilities plus the
amount that would be needed, if the corporation were to be dissolved at the
time of distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. Colorado law defines the redemption or repurchase of shares as
a distribution. The ability of a Colorado corporation to pay dividends on, or
to make repurchases or redemptions of, its shares is dependent on the
financial status of the corporation standing alone and not on a consolidated
basis.
Interested Director Transactions
Under both California Law and Colorado Law, certain contracts or
transactions in which one or more of a corporation's directors has an
interest are not void or voidable because of such interest provided that
certain conditions, such as obtaining the required approval and fulfilling
the requirements of good faith and full disclosure, are met. With certain
exceptions, the conditions are similar under California Law and Colorado Law.
Under California Law and Colorado Law, (a) either the security holders or the
board of directors must approve any such contract or transaction after full
disclosure of the material facts, and in the case of board of directors
approval the contract or transaction must also be "just and reasonable" (in
California) or "fair" (in Colorado) to the corporation, or (b) the contract
or transaction must have been just and reasonable or fair as to the
corporation at the time it was approved. In the latter case, California Law
explicitly places the burden of proof on the interested director. Under
California Law, if shareholder approval is sought, the interested director is
not entitled to vote his or her shares at a shareholder meeting with respect
to any action regarding such contract or transaction. If board of director
approval is sought, the contract or transaction must be approved by a
majority vote of a quorum of the directors, without counting the vote of any
interested directors (except that interested directors may be counted for
purposes of establishing a quorum). Under Colorado Law, if board of director
approval is sought, the contract or transaction must be approved by a
majority of the disinterested directors (even though less than a majority of
a quorum).
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Inspection Rights
California Law provides for an absolute right of inspection of the
shareholder list for any shareholder holding 5% or more of a corporation's
outstanding voting shares or any shareholder holding 1% or more of a
corporation's outstanding voting shares who has filed a Schedule 14A with the
Securities and Exchange Commission. California Law also provides a right of
inspection of the shareholder list to any shareholder for any purpose
reasonably related to such holder's interest as a shareholder.
Under the CBCA, a corporation's stockholders have the right to inspect,
during regular business hours, the corporation's articles of incorporation,
by-laws, records of all meetings of stockholders, records of actions taken by
stockholders without a meeting within the prior three years, all written
communications within the prior three years to all stockholders as a group or
to holders of any class or series of stock as a group, a list of the names
and business addresses of the corporation's current officers and directors,
the most recent corporate report delivered to the Colorado Secretary of
State, and all financial statements prepared for periods ending during the
prior three years, upon written demand given at least five business days
before the date upon which such stockholder wishes to inspect and copy such
records. Pursuant to the CBCA, stockholders also may, upon written demand at
least five days prior to such inspection and during regular business hours,
inspect excerpts from minutes of any directors' meeting or action of
directors taken without a meeting, records of any action taken by
stockholders without a meeting, excerpts of any action taken by a committee
of the directors while such committee was acting in place of the directors,
waivers of notices of any meeting of stockholders, directors, or a committee
of directors, accounting records of the corporation and the records of
stockholders, provided that the stockholder meets the following conditions:
(i) the demand for such inspection is made in good faith for a proper
purpose, (ii) the stockholder has been a stockholder of the corporation for
at least three months immediately proceeding the demand, or holds at least
five percent of all outstanding shares of any class of stock, (iii) the
purpose and the records which the stockholder wishes to inspect are described
with reasonable particularity, and (iv) the records to be inspected are
directly connected with the described purpose.
Removal of Directors
Under California Law, a director or the entire board of directors may be
removed with or without cause by the affirmative vote of the holders of a
majority of shares then entitled to vote; provided, however, that if less
than the entire board of directors is to be removed, no director may be
removed without cause if the shares voted against such removal (or not
consenting in writing to such removal) would be sufficient to elect the
director or directors in an election of the full authorized number of
directors involving cumulative voting by shareholders. Under California Law,
a director may also be removed for cause by the superior court in a suit by
shareholders holding at least ten percent (10%) of the outstanding shares.
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Under the CBCA, stockholders may remove one or more directors with or
without cause by a majority vote of the stockholders entitled to elect such
director(s), unless the articles provide that directors may only be removed
for cause. The Colorado Articles do not require that directors be removed
only for cause. The CBCA permits the removal of a director by stockholders
only at a meeting called for that purpose, upon notice of the meeting which
states that the purpose or one of the purposes thereof is the removal of the
director.
Rights of Dissenting Shareholders
CET's shareholders will not have any right to dissent from the proposed
reincorporation merger and demand payment for their shares. However, CET's
shareholders will have certain rights to dissent and demand payment for their
shares in connection with the proposed merger with BMTS. (See "The Merger -
Rights of Dissenting Shareholders.")
Federal Income Tax Consequences of the Reincorporation Merger
The following discussion addresses the material federal income tax
consequences of the reincorporation merger that are applicable to holders of
shares of CET's common stock. The discussion does not address all federal
income tax consequences that may be relevant to a particular holder of shares
of CET's common stock, or any foreign, state or local tax considerations.
Accordingly, holders of CET's common stock are urged to consult their own tax
advisors as to the specific federal, foreign, state and local tax
consequences to them as a result of the reincorporation merger.
The following discussion is based upon the Internal Revenue Code of
1986, as amended (the "Code"), applicable Treasury Regulations, judicial
authority and administrative rulings and practice, all as of the date hereof.
CET has not and will not request a ruling from the Internal Revenue Service
regarding the tax consequences of the reincorporation merger.
CET believes that the reincorporation merger and the resulting
reincorporation of CET from California to Colorado will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Code. Accordingly,
for federal income tax purposes, (i) no gain or loss will be recognized by
the holders of shares of CET's common stock upon consummation of the
reincorporation merger, (ii) the aggregate tax basis of shares of CET-
Colorado common stock received in the reincorporation merger will be the same
as the aggregate tax basis of shares of CET common stock exchanged in the
reincorporation merger and (iii) the holding period of the shares of CET-
Colorado common stock received in the reincorporation merger will include the
period for which shares of CET common stock were held.
The board of directors recommends a vote FOR the reincorporation in Colorado.
67
AMENDMENT TO ARTICLES OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON AND PREFERRED STOCK
(PROPOSAL NO. 3)
In connection with the merger agreement, the Board of Directors has
adopted a resolution proposing and declaring the advisability of amending
CET's Articles of Incorporation to increase the number of shares of common
stock that CET is authorized to issue from 20,000,000 shares to 100,000,000
shares and the number of shares of preferred stock that CET is authorized to
issue from 5,000,000 to 10,000,000 shares. Since the number of shares to be
issued in the merger with BMTS would exceed the number of shares currently
authorized by CET's Articles of Incorporation, the proposed increase is
necessary to complete the merger. In addition, the proposed increase in the
authorized number of shares of common stock will give CET additional shares
to provide flexibility for the future. In particular, CET may require
addition funding for its operations and therefore may need the increased
number of authorized shares to raise additional equity capital. In addition,
the additional authorized shares may be used in the future for any other
proper corporate purpose approved by the Board, including corporate mergers
or acquisitions, shares reserved under stock option plans, stock dividends or
splits, or other corporate purposes. The terms of any shares of preferred
stock that may be issued in the future would be determined by the Board of
Directors.
Vote Required and Board of Directors' Recommendation.
The approval of the amendment of the Articles of Incorporation to
increase the authorized number of shares of common stock requires the
affirmative vote of a majority of the outstanding shares of common stock.
The Board of Directors recommends a vote FOR the approval of the amendment to
the articles of incorporation to increase the authorized number of shares of
common stock.
APPROVAL OF A REVERSE STOCK SPLIT
(PROPOSAL NO. 4)
The merger agreement with BMTS provides that as a condition to closing
that CET's shareholders shall have approved a proposal to amend CET's
articles of incorporation to effect a reverse stock split. We are asking our
shareholders to approve an amendment to CET's articles of incorporation
("Amendment") providing for a reverse stock split of CET's outstanding common
stock (the "reverse stock split" or "reverse split") within a twelve month
period from the date of the Special Meeting. The ratio for the reverse split
would be determined by the Board of Directors within the range of 1-for-2 to
1-for-10. All of the shares of common stock that are issued and outstanding
on the effective date of the reverse split would be effected by the reverse
split. Following the effective date of the merger, there will be
approximately 93,800,000 shares of CET common stock issued and outstanding,
on a fully diluted basis.
The purpose of the reverse stock split is to increase the per share
trading price of CET's common stock. The Board of Directors believes that if
the reverse stock split results in a substantially proportionate increase in
the trading price of CET's common stock, the reverse stock split may improve
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the perception of CET's common stock as an investment and enable CET's common
stock to appeal to a broader range of investors. CET believes that a number
of institutional investors are unwilling to invest, and in some cases, have
internal policies prohibiting them from investing, in lower priced stocks.
CET also believes that many brokerage firms are reluctant to recommend lower
priced stocks to their clients. Because brokers' commissions on low-priced
stocks generally represent a higher percentage of the stock price than
commissions on higher priced stocks, the current share price of CET's common
stock can result in shareholders paying transaction costs that are a higher
percentage of their total share value than would be the case if CET's common
stock were priced substantially higher. This may limit the willingness of
investors to purchase CET's common stock. By effecting a reverse stock split,
CET believes it may be able to raise the trading price of its common stock to
a level at which CET's common stock could be viewed more favorably by
potential investors. If the reverse stock split results in an increased
trading price and increased investor interest, the Board of Directors
believes that shareholders may benefit from improved trading liquidity of
CET's common stock. While there can be no assurance, we believe that many of
the foregoing potential benefits may be realized with a stock price at or
above $1.00 per share.
We cannot predict whether the proposed reverse stock split would
increase the market price for our common stock or do so for any sustained
time period. The history of similar reverse stock splits for companies in
similar circumstances is varied. Specifically, we cannot assure you that the
market price per share of our common stock after a reverse stock split will
increase proportionately. In addition, if a reverse stock split is
implemented by the Board of Directors, some shareholders may consequently own
less than 100 shares of CET's common stock. A purchase or sale of less than
100 shares (an "odd lot" transaction) may result in incrementally higher
trading costs through certain brokers, particularly "full service" brokers.
Therefore, those shareholders who own less than 100 shares following the
reverse stock split may be required to pay higher transaction costs if they
should then determine to sell their shares of CET's common stock.
Procedure
If the Amendment to effect the reverse stock split is approved by the
shareholders, then the Board of Directors will have the authority, for the
twelve month period following the date of the Special Meeting, to determine
the reverse stock split ratio would be effective as of the date and time that
the Amendment is filed with the Secretary of State of CET's State of
incorporation at the time of the reverse stock split. Each share of the
common stock issued and outstanding immediately prior to effective time of
the reverse stock split (the "Old Shares"), will be, automatically and
without any action on the part of the shareholders, converted into and
reconstituted into a fraction of a share of CET's common stock (the "New
Shares") depending on the ratio selected by the Board of Directors.
Certificates representing Old Shares will be deemed for all corporate
purposes to evidence ownership of New Shares. As soon as practicable after
the effective date, shareholders will be notified that the reverse stock
split has been effected. CET expects that its transfer agent will act as
exchange agent for purposes of implementing the exchange of stock
certificates. Holders of Old Shares will be asked to surrender to the
Exchange Agent certificates representing Old Shares in exchange for
certificates representing New Shares in accordance with the procedures to be
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set forth in a letter of transmittal to be sent by the exchange agent. No new
certificates will be issued to a shareholder until such shareholder has
surrendered such shareholder's outstanding certificate(s) together with the
properly completed and executed letter of transmittal to the exchange agent.
Any Old Shares submitted for transfer, whether pursuant to a sale or other
disposition, or otherwise, will automatically be exchanged for New Shares.
Fractional Shares
No fractional shares will be issued in connection with the reverse stock
split. Shareholders of record who otherwise would be entitled to receive
fractional shares because they hold a number of Old Shares not evenly
divisible by the reverse stock split ratio, will be entitled, upon surrender
to the exchange agent of certificates representing such Old Shares, to a cash
payment in lieu thereof at a price equal to the fraction to which the
shareholder would otherwise be entitled multiplied by the closing price of
the common stock, as reported on the OTCBB or such other trading market on
which CET's common stock trades, on the last trading day prior to the
effective date. The ownership of a fractional interest will not give the
holder thereof any voting, dividend, or other rights except to receive
payment therefor as described herein.
No Dissenters' Rights
Under both the California Corporations Code and the Colorado Business
Corporation Act ("CBCA"), our shareholders are not entitled to dissenter's
rights with respect to the reverse stock split, and we will not independently
provide shareholders with any such right.
Federal Income Tax Consequences of the Reverse Stock Split
The following is a summary of certain material federal income tax
consequences of the reverse stock split and does not purport to be a complete
discussion of all of the possible federal income tax consequences of the
reverse stock split and is included for general information only. This
summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), applicable U.S. Treasury regulations under the Code, administrative
rulings and judicial authority, all as of the date of this proxy statement.
All of the foregoing authorities are subject to change, with or without
retroactive effect, and any change could affect the continuing validity of
this summary. This summary does not address any state, local or foreign
income or other tax consequences. Furthermore, it does not address the tax
consequences that may be applicable to particular shareholders in light of
their individual circumstances or to holders that are subject to special tax
rules, such as banks, insurance companies, regulated investment companies,
personal holding companies, foreign entities, nonresident alien individuals,
broker-dealers, tax-exempt entities, shareholders who acquired their Old
Shares through the exercise of options or otherwise as compensation, and
shareholders who hold their Old Shares as part of a straddle, hedge, or
conversion transaction. In addition, this summary does not address the tax
consequences of the proposed reverse stock split to holders of options or
warrants to acquire our common stock. This summary also assumes that the Old
Shares were and the New Shares will be held as "capital assets," as defined
in the Code (generally, property held for investment).
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Other than the cash payments for fractional shares discussed below, no
gain or loss should be recognized by a shareholder upon such shareholder's
exchange of Old Shares for New Shares pursuant to the reverse stock split.
The aggregate tax basis of the New Shares received in the reverse stock split
(including any fraction of a New Share deemed to have been received) will be
the same as the shareholder's aggregate tax basis in the Old Shares
exchanged. In general, shareholders who receive cash upon redemption of their
fractional share interests in the New Shares as a result of the reverse stock
split will recognize capital gain or loss based on their adjusted basis in
the fractional share interests redeemed. The shareholder's holding period for
the New Shares will include the period during which the shareholder held the
Old Shares surrendered in the reverse stock split.
Vote Required and Board of Directors' Recommendation.
Approval of the proposed Amendment to effect a reverse split and a
change in the authorized number of shares of common stock requires the
affirmative approval of a majority of all CET's outstanding shares of common
stock.
The Board of Directors recommends a vote FOR the approval of an amendment to
CET's articles of incorporation to effect a reverse stock split.
APPROVAL OF NAME CHANGE
(PROPOSAL NO. 5)
In connection with the merger agreement with BMTS, the Board of
Directors has approved, subject to shareholder approval, an amendment to the
Articles of Incorporation to change the name of CET to "BioMedical Technology
Solutions Holdings, Inc.," or some other name which CET and BMTS may agree
upon, effective at the time the merger with BMTS is completed.
An affirmative vote of a majority of the outstanding shares of common
stock will be required to approve the proposed amendment to CET's Articles of
Incorporation.
The Board of Directors recommends a vote FOR the proposed name change
amendment.
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APPROVAL OF 2008 EQUITY INCENTIVE PLAN
(PROPOSAL NO. 6)
General
Shareholders are being asked to approve a new 2008 Equity Incentive Plan
(the "2008 Plan"). CET's board of directors adopted the 2008 Plan on May 30,
2008, subject to shareholder approval. The 2008 Plan will go into effect
only if the merger is consummated.
CET's board of directors has determined that it is in the best interest
of CET and its shareholders to adopt the 2008 Plan. CET's board of directors
believes that:
* to remain competitive with other technology companies with regard to
its long-term incentive plans following the merger, CET must be able
to provide employees with some level of equity compensation and that
an inability to offer equity incentives to new and current employees
would put CET at a competitive disadvantage with respect to attracting
and retaining qualified personnel.
* grants of stock options help create long-term equity participation in
CET and thereby assist it in attracting, retaining, motivating and
rewarding employees, consultants and directors;
* awards of restricted stock can help achieve these objectives with fewer
shares and lower dilution than options; and
* stock options, restricted stock awards, stock bonus awards will be
essential to attracting new employees and others who contribute to CET's
growth and development.
All of these employees and the directors of CET and its subsidiaries, as
well as future employees, consultants and directors of CET and its
subsidiaries, will be eligible to participate in the 2008 Plan. At the
effective time of the merger, there will be approximately 15 persons eligible
to participate in the Plan. No determination has been made with respect to
any actual grants under the Plan.
It is the intention of the persons who have been selected to become the
officers and directors of CET after the merger that the shares issuable under
the Plan will be registered under the Securities Act of 1933, as amended, in
a registration statement on Form S-8 as soon as practicable following the
effective date of the merger.
Summary of the 2008 Plan
The following is a summary of the principal provisions of the 2008 Plan.
This summary is qualified in its entirety by reference to the full text of
the 2008 Plan, which is attached as Appendix B to this proxy statement.
Summary of 2008 Equity Incentive Plan
The 2008 Plan provides a means to make available shares of CET common
stock through the grant of (1) both incentive and nonstatutory stock options,
(2) stock bonuses, (3) rights to purchase restricted stock and (4) stock
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appreciation rights (collectively, "Stock Awards"). Incentive stock options
granted under the 2008 Plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Code. Nonstatutory stock
options granted under the 2008 Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of Stock Awards.
The 2008 Plan provides a means by which selected officers and employees
of and consultants to CET and its affiliates could be given an opportunity to
purchase common stock in CET, to assist in retaining the services of
employees holding key positions, to secure and retain the services of persons
capable of filling such positions and to provide incentives for such persons
to exert maximum efforts for the success of CET.
The 2008 Plan is administered by the Board of Directors of CET. The
Board has the power to construe and interpret the 2008 Plan and, subject to
the provisions of the 2008 Plan, to determine the persons to whom and the
dates on which Stock Awards will be granted; whether a Stock Award will be an
incentive stock option, a nonstatutory stock option, a stock bonus, a right
to purchase restricted stock, a stock appreciation right or a combination of
the foregoing; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; whether a person shall be permitted
to receive stock upon exercise of an independent stock appreciation right;
and the number of shares with respect to which a Stock Award shall be granted
to each such person. The Board of Directors is authorized to delegate
administration of the 2008 Plan to a committee composed of not fewer than two
members of the Board. The Board has delegated administration of the 2008 Plan
to the Compensation Committee of the Board. As used herein with respect to
the 2008 Plan, the "Board" refers to the Compensation Committee as well as to
the Board of Directors itself.
Incentive stock options and stock appreciation rights related to
incentive stock options may be granted under the 2008 Plan only to selected
employees (including officers and directors who are employees) of CET and its
affiliates. Selected employees, non-employee directors and consultants are
eligible to receive Stock Awards other than incentive stock options and such
stock appreciation rights under the 2008 Plan. Non-employee directors are
eligible only for nonstatutory stock options. No incentive stock option may
be granted under the 2008 Plan to any person who, at the time of the grant,
owns (or is deemed to own) stock possessing more than 10% of the total
combined voting power of CET or any affiliate of CET, unless the incentive
stock option exercise price is at least 110%of the fair market value of the
stock subject to the incentive stock option on the date of grant, and the
term of the option does not exceed five years from the date of grant. For
incentive stock options granted under the 2008 Plan, the aggregate fair
market value, determined at the time of grant, of the shares of Common Stock
with respect to which such options are exercisable for the first time by an
optionee during any calendar year (under all such plans of CET and its
affiliates) may not exceed $100,000. Non-employee directors are eligible
only for nonstatutory stock options.
CET has reserved a total of 2,000,000 shares of Common Stock for
issuance under the 2008 Plan, after giving effect to the proposed reverse
split. Because the reverse split could be within a range of 1-for-2 to 1-for-
10, the percentage that 2,000,000 shares will represents as compared to the
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number of shares outstanding after the reverse split will depend on the size
of the reverse split. In the event that no reverse split occurs within
twelve months of the closing of the merger, there will be 2,000,000 shares
reserved under the 2008 Plan. If any Stock Award granted under the 2008 Plan
expires or otherwise terminates without being exercised, the Common Stock not
purchased pursuant to such Stock Awards again becomes available for issuance
under the 2008 Plan.
The following is a description of the permissible terms of options
under the 2008 Plan. Individual option grants may be more restrictive as to
any or all of the permissible terms described below.
Exercise Price; Payment
The exercise price of incentive stock options under the 2008 Plan may
not be less than the fair market value of the Common Stock subject to the
option on the date of the option grant, and in some cases (see "Eligibility"
above), may not be less than 110% of such fair market value. The exercise
price of nonstatutory options under the 2008 Plan may not be less than 85% of
the fair market value of the Common Stock subject to the option on the date
of the option grant. However, if options were granted with exercise prices
below fair market value, deductions for compensation attributable to the
exercise of such options could be limited by Section 162(m). See "Federal
Income Tax Information." In the event of a decline in the value of CET's
Common Stock, The Board has the authority to offer employees the opportunity
to replace outstanding higher priced options, whether incentive or
nonstatutory, with new lower priced options. To date, the Board has not
exercised such authority. To the extent required by Section 162(m), an option
repriced under the 2008 Plan is deemed to be canceled and a new option
granted. Both the options deemed to be canceled and the new options deemed to
be granted will be counted against the 2008 Plan share limitation. The
exercise price of options granted under the 2008 Plan must be paid either:
(a) in cash at the time the option is exercised; or (b) at the discretion of
the Board, (i) by delivery of other Common Stock of CET,(ii) pursuant to a
deferred payment arrangement or (c) in any other form of legal consideration
acceptable to the Board.
Option Exercise
Options granted under the 2008 Plan may become exercisable ("vest") in
cumulative increments as determined by the Board. Shares covered by options
granted in the future under the 2008 Plan may be subject to different vesting
terms. The Board has the power to accelerate the time during which an option
may be exercised. In addition, options granted under the 2008 Plan may permit
exercise prior to vesting, but in such event the optionee may be required to
enter into an early exercise stock purchase agreement that allows CET to
repurchase shares not yet vested at their exercise price should the optionee
leave the employ of CET before vesting. To the extent provided by the terms
of an option, an optionee may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such option by a cash
payment upon exercise, by authorizing CET to withhold a portion of the stock
otherwise issuable to the optionee, by delivering already-owned stock of CET
or by a combination of these means.
74
Term
The maximum term of options under the 2008 Plan is 10 years. Options
under the 2008 Plan terminate three months after termination of the
optionee's employment or relationship as a consultant or director of CET or
any affiliate of CET, unless (a) such termination is due to such person's
permanent and total disability (as defined in the Code), in which case the
option may, but need not, provide that it may be exercised at any time not
exceeding twelve months following such termination; (b) the optionee dies
while employed by or serving as a consultant or director of CET or any
affiliate of CET, or within three months after termination of such
relationship, in which case the option may be exercised (to the extent the
option was exercisable at the time of the optionee's death) within twelve
months of the optionee's death by the person or persons to whom the rights to
such option pass by will or by the laws of descent and distribution; or (c)
the option by its terms specifically provides otherwise. Individual options
by their terms may provide for exercise within a longer period of time
following termination of employment or the consulting relationship. The
option term may also be extended in the event that exercise of the option
within these periods is prohibited for specified reasons.
The following is a description of the permissible terms of stock bonuses
and restricted stock purchase agreements under the 2008 Plan. The terms and
conditions of stock bonus or restricted stock purchase agreements may change
from time to time, and the terms and conditions of separate agreements need
not be identical, but each stock bonus or restricted stock purchase agreement
includes the substance of each of the following provisions as appropriate:
Purchase Price
The purchase price under each restricted stock purchase agreement is
such amount as the Board may determine and designate in such agreement, but
in no event may the purchase price be less than 100% of the stock's fair
market value on the date such award is made. Notwithstanding the foregoing,
the Board may determine that eligible participants in the 2008 Plan may be
awarded stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to CET for its benefit.
Consideration
The purchase price of stock acquired pursuant to a stock purchase
agreement must be paid either: (i) in cash at the time of purchase; (ii) at
the discretion of the Board or the Committee, according to a deferred payment
or other arrangement with the person to whom the stock is sold; or (iii) in
any other form of legal consideration that may be acceptable to the Board in
its discretion. Notwithstanding the foregoing, the Board may award stock
pursuant to a stock bonus agreement in consideration for past services
actually rendered to CET or for its benefit.
Vesting
Shares of stock sold or awarded under the Plan may, but need not, be
subject to a repurchase option in favor of CET in accordance with a vesting
schedule to be determined by the Board.
75
Termination of Employment or Relationship as a Director or Consultant
In the event a participant's continuous status as an employee, director
or consultant terminates, CET may repurchase or otherwise re-acquire any or
all of the shares of stock held by that person which have not vested as of
the date of termination under the terms of the stock bonus or restricted
stock purchase agreement between CET and such person.
Stock Appreciation Rights
The three types of Stock Appreciation Rights that are authorized for
issuance under the 2008 Plan are as follows:
Tandem Stock Appreciation Rights. Tandem stock appreciation rights may
be granted appurtenant to an option, and are generally subject to the same
terms and conditions applicable to the particular option grant to which they
pertain. Tandem stock appreciation rights require the holder to elect
between the exercise of the underlying option for shares of stock and the
surrender, in whole or in part, of such option for an appreciation
distribution. The appreciation distribution payable on the exercised tandem
right is in cash (or, if so provided, in an equivalent number of shares of
stock based on fair market value on the date of the option surrender) in an
amount up to the excess of (i) the fair market value (on the date of the
option surrender) of the number of shares of stock covered by that portion of
the surrendered option in which the optionee is vested over (ii) the
aggregate exercise price payable for such vested shares.
Concurrent Stock Appreciation Rights. Concurrent stock appreciation
rights may be granted appurtenant to an option and may apply to all or any
portion of the shares of stock subject to the underlying option and are
generally subject to the same terms and conditions applicable to the
particular option grant to which they pertain. A concurrent right is
exercised automatically at the same time the underlying option is exercised
with respect to the particular shares of stock to which the concurrent right
pertains. The appreciation distribution payable on an exercised concurrent
right is in cash (or, if so provided, in an equivalent number of shares of
stock based on fair market value on the date of the exercise of the
concurrent right) in an amount equal to such portion as shall be determined
by the Board at the time of the grant of the excess of (i) the aggregate fair
market value (on the date of the exercise of the concurrent right) of the
vested shares of stock purchased under the underlying option which have
concurrent rights appurtenant to them over (ii) the aggregate exercise price
paid for such shares.
Independent Stock Appreciation Rights. Independent stock appreciation
rights may be granted independently of any option and are generally subject
to the same terms and conditions applicable to nonstatutory stock options.
The appreciation distribution payable on an exercised independent right may
not be greater than an amount equal to the excess of (i) the aggregate fair
market value (on the date of the exercise of the independent right) of a
number of shares of Company stock equal to the number of share equivalents in
which the holder is vested under such independent right, and with respect to
which the holder is exercising the independent right on such date, over (ii)
the aggregate fair market value (on the date of the grant of the independent
right) of such number of shares of Company stock. The appreciation
76
distribution payable on the exercised independent right is in cash or, if so
provided, in an equivalent number of shares of stock based on fair market
value on the date of the exercise of the independent right.
If there is any change in the stock subject to the 2008 Plan or subject
to any Stock Award granted under the 2008 Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
2008 Plan and Stock Awards outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to such
plan, and the class, number of shares and price per share of stock subject to
such outstanding options.
The 2008 Plan provides that, in the event of a dissolution or
liquidation of CET, specified type of merger or other corporate
reorganization (a "Change-in-Control"), to the extent permitted by law, any
surviving corporation will be required to either assume Stock Awards
outstanding under the 2008 Plan or substitute similar options for those
outstanding under such plan, or such outstanding options will continue in
full force and effect. In the event that any surviving corporation declines
to assume or continue Stock Awards outstanding under the 2008 Plan, or to
substitute similar Stock Awards, then the time during which such Stock Awards
may be exercised shall be accelerated and the Stock Awards terminated if not
exercised during such time. Individual options may contain more liberal
vesting acceleration provisions. The acceleration of a Stock Award in the
event of a Change-in-Control may be viewed as an anti-takeover provision,
which may have the effect of discouraging a proposal to acquire or otherwise
obtain control of CET.
The Board may suspend or terminate the 2008 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 2008 Plan will terminate on the tenth anniversary of its
adoption. The Board may also amend the 2008 Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of CET within twelve months before or after its adoption by the
Board if the amendment would: (a) modify the requirements as to eligibility
for participation (to the extent such modification requires stockholder
approval in order for the Plan to satisfy Section 422 of the Code, if
applicable, or Rule16b-3 ("Rule 16b-3") of the Securities Exchange Act of
1934, as amended (the "Exchange Act")); (b) increase the number of shares
reserved for issuance upon exercise of options; or (c) change any other
provision of the Plan in any other way if such modification requires
stockholder approval in order to comply with Rule 16b-3 or satisfy the
requirements of Section 422 of the Code. The Board may submit any other
amendment to the 2008 Plan for stockholder approval, including, but not
limited to, amendments intended to satisfy the requirements of Section162(m)
of the Code regarding the exclusion of performance-based compensation from
the limitation on the deductibility of compensation paid to certain
employees.
Under the 2008 Plan, an incentive stock option may not be transferred by
the optionee otherwise than by will or by the laws of descent and
distribution and during the lifetime of the optionee, may be exercised only
by the optionee. A nonstatutory stock option may not be transferred except
77
by will or by the laws of descent and distribution unless otherwise
specified in the option agreement, in which case the nonstatutory stock
option may be transferred upon such terms and conditions as set forth in the
option, including pursuant to a domestic relations order. In any case, the
optionee may designate in writing a third party who may exercise the option
in the event of the optionee's death. In addition, shares subject to
repurchase by CET under an early exercise stock purchase agreement may be
subject to restrictions on transfer that the Board deems appropriate.
Federal Income Tax Considerations.
Incentive Stock Options. Incentive stock options under the 2008 Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code. There generally are no
federal income tax consequences to the optionee or the. Company by reason of
the grant or exercise of an incentive stock option. However, the exercise of
an incentive stock option may increase the optionee's alternative minimum tax
liability, if any. If an optionee holds stock acquired through exercise of
an incentive stock option for at least two years from the date on which the
option is granted and at least one year from the date on which the shares are
transferred to the optionee upon exercise of the option, any gain or loss on
a disposition of such stock will be long-term capital gain or loss.
Generally, if the optionee disposes of the stock before the expiration of
either of these holding periods (a "disqualifying disposition"), at the time
of disposition, the optionee will realize taxable ordinary income equal to
the lesser of (a) the excess of the stock's fair market value on the date of
exercise over the exercise price, or (b) the optionee's actual gain, if any,
on the purchase and sale. The optionee's additional gain, or any loss, upon
the disqualifying disposition will be a capital gain or loss, which will be
long-term or short-term depending on how long the stock was held. Long-term
capital gains currently are generally subject to lower tax rates than short-
term capital gains (which are taxed at the ordinary income rate). The
maximum long-term capital gains rate for federal income tax purposes is
currently 15% while the maximum ordinary income rate is effectively 39.6% at
the present time. Slightly different rules may apply to optionees who acquire
stock subject to certain repurchase options or who are subject to Section
16(b) of the Exchange Act. To the extent the optionee recognizes ordinary
income by reason of a disqualifying disposition, CET will generally be
entitled (subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting
obligation) to a corresponding business expense deduction in the tax year in
which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under
the 2008 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or CET by reason of the
grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, CET is required
to withhold from regular wages or supplemental wage payments an amount based
on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, CET will generally be entitled to
a business expense deduction equal to the taxable ordinary income realized by
78
the optionee. Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the selling price and
the sum of the amount paid for such stock plus any amount recognized as
ordinary income upon exercise of the option. Such gain or loss will be long
or short-term depending on how long the stock was held. Slightly different
rules may apply to optionees who acquire stock subject to certain repurchase
options or who are subject to Section 16(b) of the Exchange Act.
Restricted Stock and Stock Bonuses. Restricted stock and stock bonuses
granted under the 2008 Plan generally have the following federal income tax
consequences:
Upon acquisition of stock under a restricted stock or stock bonus award,
the recipient normally will recognize taxable ordinary income equal to the
excess of the stock's fair market value over the purchase price, if any.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting
restrictions lapse unless the recipient elects to be taxed on receipt of the
stock. Generally, with respect to employees, CET is required to withhold
from regular wages or supplemental wage payments an amount based on the
ordinary income recognized. Subject to the requirement of reasonableness,
Section 162(m) of the Code and the satisfaction of a tax reporting
obligation, CET will generally be entitled to a business expense deduction
equal to the taxable ordinary income realized by the recipient. Upon
disposition of the stock, the recipient will recognize a capital gain or loss
equal to the difference between the selling price and the sum of the amount
paid for such stock, if any, plus any amount recognized as ordinary income
upon acquisition (or vesting) of the stock. Such gain or loss will be long or
short-term depending on how long the stock was held from the date ordinary
income is measured. Slightly different rules may apply to persons who acquire
stock subject to forfeiture.
Stock Appreciation Rights. No taxable income is realized upon the
receipt of a stock appreciation right, but upon exercise of the stock
appreciation right, the fair market value of the shares (or cash in lieu of
shares) received must be treated as compensation taxable as ordinary income
to the recipient in the year of such exercise. Generally, with respect to
employees, CET is required to withhold from the payment made on exercise of
the stock appreciation right or from regular wages or supplemental wage
payments an amount based on the ordinary income recognized. Subject to the
requirement of reasonableness, Section 162(m) of the Code and the
satisfaction of a reporting obligation, CET will be entitled to a business
expense deduction equal to the taxable ordinary income recognized by the
recipient.
Potential Limitation on Company Deductions. As part of the Omnibus
Budget Reconciliation Act of 1993, the U.S. Congress amended the Code to add
Section 162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to awards under the 2008 Plan, when combined with
all other types of compensation received by a covered employee from CET, may
cause this limitation to be exceeded in any particular year. Certain kinds
of compensation, including qualified "performance-based compensation," are
disregarded for purposes of the deduction limitation. In accordance with
79
Treasury regulations issued under Section 162(m), compensation attributable
to stock options will qualify as performance-based compensation, provided
that: (i) the stock award plan contains a per-employee limitation on the
number of shares for which stock options and stock appreciation rights maybe
granted during a specified period; (ii) the per-employee limitation is
approved by the stockholders; (iii) the award is granted by a compensation
committee comprised solely of "outside directors"; and (iv) the exercise
price of the award is no less than the fair market value of the stock on the
date of grant. Compensation attributable to restricted stock will qualify as
performance-based compensation, provided that: (i) the award is granted by a
compensation committee comprised solely of "outside directors"; and (ii) the
purchase price of the award is no less than the fair market value of the
stock on the date of grant. Stock bonuses qualify as performance-based
compensation under the Treasury regulations only if: (i) the award is granted
by a compensation committee comprised solely of "outside directors"; (ii) the
award is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while
the outcome is substantially uncertain; (iii) the compensation committee
certifies in writing prior to the granting (or exercisability) of the award
that the performance goal has been satisfied; and (iv) prior to the granting
(or exercisability) of the award, stockholders have approved the material
terms of the award (including the class of employees eligible for such award,
the business criteria on which the performance goal is based, and the maximum
amount(or formula used to calculate the amount) payable upon attainment of
the performance goal).
Vote Required; Recommendation of the CET Board of Directors.
If a quorum is present, the affirmative vote of the holders of a
majority of the shares of common stock present or represented at the Special
Meeting is required for approval of the 2008 Plan.
The CET board of directors recommends that you vote "FOR" the proposal
to approve the 2008 Equity Incentive Plan.
80
SHAREHOLDER PROPOSAL
(PROPOSAL NO. 7)
Mr. Michael P. Murphy, P.O. Box 145, Syracuse, New York 13211, a
shareholder who beneficially owns 20,000 shares of CET's common stock, has
notified CET of his intention to present the following proposal for
consideration at the Special Meeting. Approval of this proposal would
require the affirmative vote of a majority of the shares present in person or
by proxy at the Special Meeting.
RESOLVED: that shareholders of CET Services, Inc. urge the Compensation
Committee of the Board of Directors (the "Committee") to adopt a policy
requiring mandatory review of all executive compensation, and that until such
time as the company is profitable for six (6) consecutive years, such
compensation shall be limited to no more than $1,000.00 per week with the
same fringe benefits that are offered to all employees. No other perks
including, but not limited to, cash bonuses, autos, memberships, stock,
options or any other extra remuneration shall be given executive personnel.
SUPPORTING STATEMENT
CET Services, Inc. has continuing operations and/or net losses for three
out of its four most recent fiscal years. Additionally on September 20,
2005, CET Services, Inc. received a written notice from the American Stock
Exchange advising that the Company was not in compliance with the AMEX's
listing requirements (contained in Section 1003(s)(i) of the AMEX Company
Guide) because its has a shareholders equity of less than $4,000,000.
Despite the lack of profits and AMEX's notice of non-compliance, CET
Services Inc. board continues to reward leaders that have consistently failed
to meet the shareholders minimum expectations.
Since so many gross corporate abuses have come to light recently
shareholders are taking a closer look at executive compensation practices in
an attempt to avoid rewarding bad management and poor performance.
Hoping to improve the financial transparency and accountability to
shareholders, CET Services, Inc. should reform its compensation practices and
policies.
For these reasons, please vote for this resolution.
The Board of Directors Recommends a Vote Against this Proposal.
OTHER BUSINESS
As of the date of this Proxy Statement, management of the Company was
not aware of any other matter to be presented at the Meeting other than as
set forth herein. However, if any other matters are properly brought before
the Meeting, the shares represented by valid proxies will be voted with
respect to such matters in accordance with the judgment of the persons voting
them. A majority vote of the shares represented at the meeting is necessary
to approve any such matters.
81
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
FOR THE ANNUAL MEETING TO BE HELD IN 2009
Any proposal by a shareholder intended to be presented at the Company's
Annual Meeting of Shareholders to be held in 2009 must be received at the
offices of the Company, at its headquarters at the address disclosed in
future filings with the SEC, a reasonable amount of time prior to the
printing of the proxy statement related to that meeting in order to be
included in the Company's proxy statement and proxy relating to that meeting.
Shareholders intending to bring any business before the Annual Meeting
of Shareholders to be held in 2009 that is not to be included in the
Company's proxy statement and proxy related to that meeting must notify the
Company, in writing, at least 45 days prior to the Annual Meeting of
Shareholders, of the business to be presented. Any such notices received
after said date will be considered untimely under Rule 14a-4(c)(1) under the
Securities Exchange Act of 1934, as amended.
WHERE YOU CAN FIND MORE INFORMATION
CET files reports, proxy statements and other information with the
Securities and Exchange Commission as required by the Securities Exchange Act
of 1934, as amended. You may read and copy reports, proxy statements and
other information filed by Arpeggio with the Securities and Exchange
Commission at the Securities and Exchange Commission public reference room
located at Judiciary Plaza, 100 F Street, N.E., Room 1024, Washington, D.C.
20549. You may obtain information on the operation of the Public Reference
Room by calling the Securities and Exchange Commission at 1-800-732-0330. You
may also obtain copies of the materials described above at prescribed rates
by writing to the Securities and Exchange Commission, Public Reference
Section, 100 F Street, N.E., Washington, D.C. 20549. You may access
information on CET at the Securities and Exchange Commission web site
containing reports, proxy statements and other information at:
http://www.sec.gov.
82
INCORPORATION OF INFORMATION BY REFERENCE
The SEC allows CET to "incorporate by reference" information into this
proxy statement, which means that we can disclose important information to
you by referring you to other documents filed separately with the SEC. The
information incorporated by reference is deemed to be part of this proxy
statement, except for any information superseded by information in this proxy
statement or incorporated by reference subsequent to the date of this proxy
statement. This proxy statement incorporates by reference the documents set
forth below that CET has previously filed with the SEC.
The following filings with the SEC are incorporated by reference into
this proxy statement:
* Annual Report on Form 10-KSB for the year ended December 31, 2007.
* Quarterly Report on Form 10-QSB for the quarter ended March 31, 2008.
* Current Reports on Form 8-K dated April 16, 2008; May 8, 2008;
May 19, 2008 and July 9, 2008.
You may obtain any of the documents we file with the SEC, without
charge, by requesting them in writing or by telephone from us at the
following address:
CET SERVICES, INC.
12503 E. Euclid Dr., #30
Centennial, Colorado 80111
Attention: Corporate Secretary
Telephone: (720) 875-9115
INFORMATION IN THIS PROXY STATEMENT
Information and statements contained in this proxy statement, or any
appendix to this proxy statement incorporated by reference in this proxy
statement, are qualified in all respects by reference to the copy of the
relevant document attached as an appendix to this proxy statement or
incorporated in this proxy statement by reference.
All information contained in this document relating to CET has been
supplied by CET and all such information relating to BMTS has been supplied
by BMTS. Information provided by one does not constitute any representation,
estimate or projection of the other.
Steven H. Davis, President
Centennial, Colorado
July 25, 2008
83
INDEX TO FINANCIAL STATEMENTS
Page
----
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
Report of Independent Registered Public Accounting Firm ............ F-2
Consolidated Balance Sheets at December 31, 2007 and 2006 .......... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 2007 and 2006 ....................................... F-4
Consolidated Statement of Changes in Shareholders' Equity for
the Period from January 1, 2006 through December 31, 2007 ........ F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2007 and 2006 ....................................... F-6
Notes to Consolidated Financial Statements ......................... F-7
Unaudited Consolidated Balance Sheet at March 31, 2008 ............. F-21
Unaudited Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2008 and 2007 ....................... F-22
Unaudited Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2008 and 2007 ....................... F-23
Notes to Unaudited Condensed Consolidated Financial Statements ..... F-24
Unaudited Pro Forma Condensed Combined Financial Data .............. F-28
Unaudited Pro Forma Balance Sheet as at December 31, 2007 .......... F-29
Unaudited Pro Forma Income Statement for the Period Ended
December 31, 2007 ................................................ F-30
Unaudited Pro Forma Balance Sheet as at March 31, 2008 ............. F-31
Unaudited Pro Forma Income Statement for the Three Months
Ended March 31, 2008 ............................................. F-32
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Biomedical Technology Solutions, Inc.
We have audited the accompanying consolidated balance sheets of Biomedical
Technology Solutions, Inc. as of December 31, 2007 and 2006, and the related
consolidated statements of operations, changes in shareholders equity, and
cash flows for the years ended December 31, 2007 and 2006. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over consolidated financial
reporting. Our audit included consideration of internal control over
consolidated financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company's internal control
over consolidated financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Biomedical Technology Solutions, Inc. as of December 31, 2007 and 2006,
and the consolidated results of their operations and their cash flows for the
years ended December 31, 2007 and 2006 in conformity with accounting
principles generally accepted in the United States of America.
/s/ Cordovano and Honeck LLP
Cordovano and Honeck LLP
Englewood, Colorado
April 18, 2008
F-2
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
Consolidated Balance Sheets
December 31,
2007 2006
----------- -----------
Assets
Current assets:
Cash ......................................... $ 52,831 $ 71,388
Trade accounts receivable, net of allowance
for doubtful accounts ....................... 32,186 13,084
Inventory, at cost (Note 4) .................. 330,927 364,423
Prepaid expenses and other ................... 24,210 15,183
----------- -----------
Total current assets ..................... 440,154 464,078
Property and equipment, net of accumulated
depreciation (Note 4) ........................ 88,819 118,851
Others assets:
Intangible assets, net of accumulated
amortization (Note 4) ....................... 287,076 176,523
Other, net ................................... 5,000 5,000
----------- -----------
$ 821,049 $ 764,452
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts and notes payable:
Accounts payable ............................ $ 123,388 $ 83,147
Note payable (Note 4) ....................... 100,000 -
Other current liabilities:
Accrued payroll and other liabilities
(Note 4) .................................. 59,713 13,362
Deferred revenue ........................... 28,222 21,378
----------- -----------
Total current liabilities ................ 311,323 117,887
----------- -----------
Shareholders' equity (Note 7):
Common stock, no par value, authorized
40,000,000 shares, 8,870,000 and 8,475,000
issued and outstanding ...................... 2,877,500 1,950,000
Additional paid-in capital ................... 466,932 200,123
Accumulated deficit .......................... (2,834,706) (1,503,558)
----------- -----------
Total shareholders' equity ............... 509,726 646,565
----------- -----------
$ 821,049 $ 764,452
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
Consolidated Statements of Operations
Years Ended December 31,
--------------------------
2007 2006
----------- -----------
Net sales ..................................... $ 326,935 $ 172,677
Cost of goods sold ............................ 154,498 85,878
----------- -----------
Gross profit ............................. 172,437 86,799
----------- -----------
Operating expenses:
Selling, general and administrative expenses
(Note 5) .................................... 1,408,734 1,136,080
Research and development expenses ............ 93,322 202,066
----------- -----------
Total operating expenses ................. 1,502,056 1,338,146
----------- -----------
Loss before non-operating income and
expense and income taxes ................ (1,329,619) (1,251,347)
Non-operating income and (expense):
Nonoperating income .......................... 2,000 245
Interest income .............................. 4,847 15,458
Interest expense ............................. (8,375) -
----------- -----------
Loss before income taxes ................. (1,331,147) (1,235,644)
Income tax provision (Note 6) ................ - -
----------- -----------
Net loss ................................. $(1,331,147) $(1,235,644)
=========== ===========
Basic and diluted loss per share .............. $ (0.15) $ (0.15)
=========== ===========
Weighted average common shares outstanding 8,818,077 8,012,179
=========== ===========
See accompanying notes to consolidated financial statements.
\
F-4
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
Consolidated Statement of Changes in Shareholders' Equity
Preferred Stock Common Stock
Additional
--------------- ---------------------- Paid-
in Accumulated
Shares Amount Shares Amount
Capital Deficit Total
------ ------ --------- ----------- -------
- --- ------------ ------------
Balance at
January 1, 2006 .......... - - 7,175,000 $ 650,000 $ -
$ (267,915) $ 382,085
Sale of common stock
in private offering
(Note 7) ................. - - 1,350,000 1,350,000 -
- - 1,350,000
Stock redemption (Note 7) . - - (50,000) (50,000) -
- - (50,000)
Debt forgiveness (Note 3) . - - - -
150,000 - 150,000
Stock-based compensation
(Note 7) ................. - - - -
50,123 - 50,123
Net loss .................. - - - - -
(1,235,644) (1,235,644)
------ ------ --------- ----------- -------
- -- ----------- -----------
Balance at
December 31, 2006 ........ - - 8,745,000 1,950,000
200,123 (1,503,559) 646,564
Debt conversion (Note 3) .. - - 100,000 150,000 -
- - 150,000
Sale of common stock
in private offering
(Note 7) ................. - - 445,000 890,000 -
- - 890,000
Stock redemption (Note 7) . - - (112,500) (112,500) -
- - (112,500)
Return of common stock
(Note 7) ................. - - (37,500) - -
- - -
Stock-based compensation
(Note 7) ................. - - - -
266,809 - 266,809
Net loss .................. - - - - -
(1,331,147) (1,331,147)
------ ------ --------- ----------- -------
- -- ----------- -----------
Balance at
December 31, 2007 ........ - - 8,870,000 $ 2,877,500 $
466,932 $(2,834,706) $ 509,726
====== ====== ========= ===========
========= =========== ===========
See accompanying notes to consolidated financial statements.
F-5
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
Consolidated Statements of Cash Flows
Years Ended December 31,
--------------------------
2007 2006
----------- -----------
Cash flows from operating activities:
Net loss ..................................... $(1,331,148) $(1,235,644)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization .............. 74,030 48,157
Stock based compensation expense ........... 266,809 50,123
Changes in operating assets and liabilities:
Increase in accounts receivable ........... (19,101) (13,085)
Increase in prepaid expenses and other
current assets ........................... (9,028) (17,098)
Decrease (increase) in inventories ........ 33,496 (344,423)
Increase in accounts payable .............. 36,460 43,254
Increase in accrued expenses .............. 50,132 9,581
Decrease in other liabilities ............. 6,844 12,408
----------- -----------
Net cash used in operating activities .... (891,506) (1,446,727)
----------- -----------
Cash flows from investing activities:
Increase in intangible assets ................ (149,582) (44,554)
Acquisition of equipment and leasehold
improvements ................................ (4,969) (114,820)
----------- -----------
Net cash used in investing activities .... (154,551) (159,374)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable .................. 250,000 -
Common stock redemption ...................... (112,500) (50,000)
Proceeds from issuance of common stock 890,000 1,350,000
----------- -----------
Net cash provided by financing activities. 1,027,500 1,300,000
----------- -----------
Net change in cash and cash equivalents .. (18,557) (306,101)
Cash and cash equivalents:
Beginning of year ............................ 71,388 377,489
----------- -----------
End of year .................................. $ 52,831 $ 71,388
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes ................................ $ - $ -
=========== ===========
Interest .................................... $ - $ -
=========== ===========
Non-cash financing activities:
Related party debt forgiven .................. $ - $ 150,000
=========== ===========
Debt converter to common stock ............... $ 150,000 $ -
=========== ===========
Return of common stock ....................... $ 37,500 $ -
=========== ===========
See accompanying notes to consolidated financial statements.
F-6
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC., AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Unless the context requires otherwise, "we," "us" or "our" refers to
Biomedical Technology Solutions, Inc. and its subsidiary on a consolidated
basis.
Note 1 - Nature of Business and Risk Management
We market the Demolizer[R] II System. The Demolizer[R] II System is a
tabletop device that converts infectious biomedical waste into non-
biohazardous material. The Demolizer[R] II System also includes components
that have been upgraded to incorporate enhanced process controls, safety
features, and integrated quality systems. We earn revenue by selling or
leasing our products to our customers. BMTS targets medical clinics, nursing
homes, dentists, pharmacies, veterinarians, professional sports teams,
colleges, and defense industries, which make up the estimated 1,000,000 low-
medium volume infectious waste generators in the U.S. Additionally, we are
in development of a portable product suitable for use by in home care
providers and individuals who require safe and convenient disposal of their
personal biomedical waste.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation:
The consolidated financial statements include the accounts of Biomedical
Technology Solutions, Inc. and its wholly owned subsidiary, BMTS Leasing LLC.
All significant intercompany accounts and transactions have been eliminated.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying
notes. For example, we make estimates of the amount of receivables we will
collect, the useful lives of our assets, the number of products that will be
returned under warranty and our income tax liabilities. Such estimates are
based on historical trends and on various other assumptions that are believed
to be reasonable under the circumstances. Actual results could differ from
our estimates.
Fair Value of Financial Instruments:
We value our financial instruments as required by Statement of Financial
Accounting Standard (SFAS) No. 107, "Disclosures about Fair Value of
Financial Instruments". The estimated fair value amounts have been determined
by the Company, using available market information and appropriate valuation
methodologies. The estimates presented herein are not necessarily indicative
of amounts that the Company could realize in a current market exchange.
Our financial instruments primarily consist of cash and cash equivalents,
accounts receivable, prepayments and deposits, short-term note payable, other
payables and accrued liabilities.
F-7
As of the balance sheet date, the estimated fair values of the financial
instruments were not materially different from their carrying values as
presented due to the short term maturities of these instruments and that the
interest rates on the borrowings approximate those that would have been
available for loans of similar remaining maturity and risk profile at
respective year ends.
Environmental Matters:
We do not have environmental liabilities recorded at December 31, 2007 nor
are we aware of any issues that could initiate the need for environmental
remediation.
Cash Equivalents and Short-Term Investments:
We consider all highly liquid investments with a maturity of less than three
months when purchased to be cash equivalents. Short-term investments consist
of certificates of deposit, which mature in less than one year.
Accounts Receivable:
Accounts receivable consist primarily of amounts due to us from our normal
business activities. Accounts receivable balances are determined to be past
due when the amount is overdue based on the contractual terms with the
customer. We maintain an allowance for doubtful accounts to reflect the
expected uncollectibility of accounts receivable based on past collection
history and specific risks identified among uncollected accounts. Accounts
receivable are written off against the allowance for doubtful accounts when
we have determined that the receivable will not be collected and/or when the
account has been referred to a third party collection agency. There was no
bad debt expense for the years ended December 31, 2007 and 2006,
respectively. Past due accounts (more than 90 days) totalled $-0- at
December 31, 2007.
Inventory Valuation:
Inventories are valued at cost, which is not in excess of current market
prices and are maintained on the first-in-first-out method.
Property and Equipment:
Property and equipment are stated at cost. Depreciation and amortization,
which include the depreciation of assets recorded under capital leases, are
computed using the straight-line method over the estimated useful lives of
the assets as follows:
Leasehold improvements ................. 1.5 years
Computer equipment ..................... 3 years
Office equipment ....................... 3 years
Furniture and fixtures ................. 5 years
Molds and tools ........................ 5 years
Expenditure for repairs and maintenance is expensed as incurred. When assets
are retired or sold, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is recognized in the
results of operations.
F-8
Intangibles:
Indefinite lived intangibles are not amortized but are subject to an annual
impairment test. According to Statement of Financial Accounting Standards
("SFAS") No. 142, other intangible assets will continue to be amortized over
their useful lives. We have determined that our customer relationships have a
useful life of four years based upon the type of customer. We have patent
intangibles with a useful life of five years. We have determined that our
permits, trademark and licenses have indefinite lives and accordingly, are
not amortized.
Revenue Recognition:
Revenues from product sales are recognized at the time the goods are shipped
to the ordering customer.
Revenues from leasing products are recognized under the Operating Method.
Under this method, we record each rental receipt as rental revenue. We
depreciate the leased product in the normal manner with depreciation expense
of the period matched against the rental revenue. The amount of revenue
recognized in each accounting period is a level amount (straight-line basis)
representing the time period in which our customer derives benefits from our
product. Revenues from leasing products were immaterial in 2007. We had no
revenues from leasing products in 2006.
In addition to the depreciation charge, we expense maintenance costs and the
costs of any other services rendered under the lease as incurred.
Unearned revenues consisted of extended warranties collected in advance.
Following is a summary of extended warranties for the years ended December
31, 2007 and 2006:
Years Ended December 31,
2007 2006
---------- ----------
Beginning of year balance ................ $ 21,378 $ -
Amount of cash received from customers.... 19,339 20,580
Amount of revenue recognized in earnings.. (12,495) 798
-------- -------
End of year balance ...................... $ 28,222 $21,378
======== =======
Stock-Based Compensation:
In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123R, Share-Based Payment
("SFAS No. 123R"). SFAS No. 123R is a revision of SFAS No. 123, Accounting
for Stock-Based Compensation ("SFAS No. 123"), and supersedes Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
("APB No. 25"), and its related implementation guidance.
F-9
On January 1, 2006, we adopted the provisions of SFAS No. 123R which requires
the measurement and recognition of compensation expense for all stock-based
payment awards made to our employees and directors. Under the fair value
recognition provisions of SFAS No. 123R, stock-based compensation cost is
measured at the grant date based on the value of the award and is recognized
as expense over the vesting period.
Determining the fair value of stock-based awards at the grant date requires
considerable judgment, including estimating the expected future volatility of
our stock price, estimating the expected length of term of granted options
and selecting the appropriate risk-free rate. Our expected volatility is
based upon the historical experience of a selected peer group, as there is no
established trading market for our stock. The expected term of the stock
options is based upon its legal life. The risk-free interest rate assumption
is based upon the average of the U.S. Treasury three and five-year yield
rates. If factors change and we employ different assumptions, stock-based
compensation expense may differ significantly from what we have recorded in
the past.
Selected Operating Expenses:
Research and development costs are charged to earnings as incurred and were
$93,322 and $206,066, respectively in 2007 and 2006. Advertising expenses
are charged to earnings as incurred and were $-0- and $395, respectively, in
2007 and 2006.
Income Taxes:
We maintained a full valuation allowance on our net deferred tax assets as of
December 31 2007 and 2006. The valuation allowance was determined in
accordance with the provisions of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, or SFAS No. 109, which requires an
assessment of both positive and negative evidence when determining whether it
is more likely than not that deferred tax assets are recoverable; such
assessment is required on a jurisdiction by jurisdiction basis. Expected
future losses represented sufficient negative evidence under SFAS No. 109 and
accordingly, a full valuation allowance was recorded against deferred tax
assets. We intend to maintain a full valuation allowance on the deferred tax
assets until sufficient positive evidence exists to support reversal of the
valuation allowance. Deferred income tax liabilities and assets are
determined based on the differences between the financial statement and
income tax basis of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse.
Loss per Common Share:
SFAS 128, Earnings per Share, requires presentation of "basic" and "diluted"
earnings per share on the face of the statements of operations for all
entities with complex capital structures. Basic earnings per share is
computed by dividing net income by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflect the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted during the period. Dilutive
securities having an anti-dilutive effect on diluted earnings per share are
excluded from the calculation. At December 31, 2007, the Company has options
outstanding that could be exercised representing a total of 625,000
additional shares. All have been excluded from the weighted average share
calculation because they would be anti-dilutive.
F-10
Related Parties:
Parties, which can be a corporation or individual, are considered to be
related if the Company has the ability, directly or indirectly, to control
the other party or exercise significant influence over the other party in
making financial and operating decisions. Companies are also considered to be
related if they are subject to common control or common significant
influence.
Segment Reporting:
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about operating
segments on a basis consistent with the Company's internal organization
structure as well as information about geographical areas, business segments
and major customers in the financial statements. The Company operates in one
principal reportable segment in the United States.
New Accounting Standards:
In June 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109"
("FIN 48"). This interpretation clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance
with SFAS No. 109, "Accounting for Income Taxes." This Interpretation
prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. This Interpretation also provides
guidance on derecognition, classification, interest and penalties, accounting
in interim periods, disclosure, and transition. FIN 48 is effective for
fiscal years beginning after December 15, 2006, except for nonpublic and
pass-through entities which will have to comply for periods that begin after
December 15, 2007. We are currently evaluating the impact of the adoption of
FIN 48; however we do not expect that it will have a material impact on our
consolidated financial statements.
In September 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 157, "Fair Value Measurements ("SFAS No. 157")." SFAS No. 157
defines fair value, establishes a framework for measuring fair value and
requires enhanced disclosures about fair value measurements. SFAS No. 157
requires companies to disclose the fair value of their financial instruments
according to a fair value hierarchy as defined in the standard. Additionally,
companies are required to provide enhanced disclosure regarding financial
instruments, including a reconciliation of the beginning and ending balances
separately for each major category of assets and liabilities. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. We are
currently evaluating the impact of the adoption of SFAS No. 157; however we
do not expect that it will have a material impact on our consolidated
financial statements.
F-11
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS No. 159"). SFAS No. 159
permits entities to choose to measure, on an item-by-item basis, specified
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected are
required to be reported in earnings at each reporting date. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007, the provisions
of which are required to be applied prospectively. The Company believes that
SFAS 159 should not have a material impact on the consolidated financial
position or results of operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business
Combinations", or SFAS No. 141R. SFAS No. 141R will change the accounting for
business combinations. Under SFAS No. 141R, an acquiring entity will be
required to recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition-date fair value with limited exceptions. SFAS
No. 141R will change the accounting treatment and disclosure for certain
specific items in a business combination. SFAS No. 141R applies prospectively
to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. Accordingly, any business combinations the Company engages in will
be recorded and disclosed following existing GAAP until January 1, 2009. The
Company expects SFAS No. 141R will have an impact on accounting for business
combinations once adopted but the effect is dependent upon acquisitions at
that time. The Company is still assessing the impact of this pronouncement.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements--An Amendment of ARB No. 51, or SFAS No.
160". SFAS No. 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008. The Company believes that SFAS 160 should not have a
material impact on the consolidated financial position or results of
operations.
Note 3 - Related Party Transactions
In 2006, a principle shareholder forgave our promissory note totalling
$150,000. The promissory note was non-interest-bearing, was due on June 30,
2006 (or upon the successful offering of common stock-whichever came first)
and was unsecured. The debt forgiveness was treated as contributed capital.
In 2007, a shareholder converted a promissory note, totalling $150,000, into
100,000 shares of our common stock. No gain or loss was recorded on the
transaction.
F-12
Note 4 - Balance Sheet Details
Inventory:
Inventory consisted of the following classifications as of December 31, 2007
and 2006:
December 31,
--------------------
2007 2006
-------- --------
Raw materials ..................... $263,663 $280,998
Work-in-process ................... 15,900 15,538
Finished goods .................... 51,364 67,887
-------- --------
$330,927 $364,423
======== ========
Property and equipment:
Listed below are the major classes of property and equipment as of December
31, 2007 and 2006:
December 31,
--------------------
2007 2006
-------- --------
Equipment leased to customers ..... $ 17,871 $ -
Computer equipment ................ 36,039 36,039
Office equipment .................. 20,366 19,745
Furniture and fixtures ............ 9,474 9,474
Molds and tools ................... 66,428 63,368
Computer software ................. 22,434 22,434
Leasehold improvements ............ 5,524 5,524
-------- --------
178,136 156,584
Less: accumulated depreciation .... (89,317) (37,733)
-------- --------
$ 88,819 $118,851
======== ========
Depreciation expense was $44,750 and $36,383, respectively, for the years
ended December 31, 2007 and 2006.
Intangibles:
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". Under SFAS 142, goodwill and other indefinite lived intangibles are
no longer amortized and are subject to an annual impairment test, or to more
frequent testing if circumstances indicate that they may be impaired. In 2007
and 2006 we performed our annual impairment evaluations and determined that
there was no impairment. At December 31, 2007 and 2006, we had $140,797 and
$115,490, respectively, of indefinite lived intangibles that consist of
trademarks and environmental licenses and permits for which we performed an
annual impairment test, and determined there was no impairment. In
accordance with SFAS 142, other intangible assets will continue to be
amortized over their useful lives.
F-13
During the years ended December 31, 2007 and 2006, we recorded legal and
other incidental costs totalling $113,067 and $34,064, respectively, in
connection with our Demolizer II patent with an amortization period of five
years. In 2007, we assigned $25,307 to trademarks with indefinite lives. In
2006, we assigned $15,000 to customer relationships with an amortization
period of four years, $105,000 to licenses and permits with indefinite lives,
and $10,490 to trademarks with indefinite lives.
As of December 31, 2007 and 2006, the carrying values of our major types of
intangible assets are as follows:
December 31, Weighted Avg.
------------------- Amortization
2007 2006 Period (Yrs)
-------- -------- ------------
Limited-life Intangibles
Patent ........................... $177,131 $ 64,064
Customer list .................... 15,000 15,000 4.0
-------- --------
192,131 79,064 5.0
Less: accumulated amortization ... (45,852) (18,031)
-------- --------
146,279 61,033
Indefinite-life Intangibles
Trademark ........................ $ 35,797 $ 10,490 n/a
Licenses and permits ............. 105,000 105,000 n/a
-------- --------
140,797 115,490
-------- --------
$287,076 $176,523
======== ========
Amortization expense was $29,280 and $11,774 for the years ended December 31,
2007 and 2006, respectively.
Accrued Liabilities:
Accrued liabilities consisted of the following accounts as of December 31,
2007 and 2006:
December 31,
-----------------
2007 2006
------- -------
Accrued payroll ................... $59,713 $ 9,581
Accrued interest payable .......... - 3,781
------- -------
$59,713 $13,362
======= =======
F-14
Note Payable:
At December 31, 2007 we were obligated under the terms of a promissory note,
primarily issued for working capital, in the amount of $100,000. The
promissory note is unsecured and carries an interest rate of 12 percent. The
note matures on March 7, 2008. The weighted average interest rate on short-
term obligations outstanding as of December 31, 2007 was 12 percent. The
average dollar amount of the borrowings in 2007 and 2006 was $175,000 and $0,
respectively and interest expense on short-term borrowings was $3,800 and $0
for 2007 and 2006, respectively.
Note 5 - Selling, General and Administrative Expenses
Selling, general and administrative expenses consisted of the following
components as of December 31, 2007 and 2006:
December 31,
-----------------------
2007 2006
---------- ----------
Selling .......................... $ 215,529 $ 183,315
General office ................... 764,376 798,638
Depreciation and amortization .... 74,030 48,157
Travel ........................... 43,333 22,801
Other ............................ 311,466 83,169
---------- ----------
$1,408,734 $1,136,080
========== ==========
Note 6 - Income Taxes
A reconciliation of the income tax provision computed at the federal
statutory rate to the effective tax rate for the years ended December 31, are
as follows:
Years Ended December 31,
-----------------------
2007 2006
---------- ----------
U.S. statutory federal rate, graduated ... 34.00% 34.00%
State income tax rate, net of federal .... 4.63% 4.63%
Depreciation ............................. 1.33% 1.02%
Net operating loss (NOL) for which no
tax benefit is currently available ...... -39.96% -39.65%
------- -------
0.00% 0.00%
======= =======
F-15
The types of temporary differences between the tax basis of assets and their
financial reporting amounts that give rise to a significant portion of the
deferred assets and liabilities are as follows:
December 31,
-----------------------
2007 2006
---------- ----------
Current ........................... $ 793 $ 134
Long-term ......................... - -
----- -----
$ 793 $ 134
===== =====
December 31, 2007 December 31, 2006
------------------- -------------------
Temporary Tax Temporary Tax
Difference Effect Difference Effect
---------- ------ ---------- ------
Deferred Assets:
Depreciation ......... $ 4,041 $ 793 $ 682 $ 134
======= ===== ===== =====
The net change in the valuation allowance as of December 31, 2007 and 2006
was $659 and $(4,838), respectively.
At December 31, 2007 and 2006, the Company had a tax loss of $1,018,422 and
$1,164,836, respectively. As of December 31, 2007 and December 31, 2006 the
Company has fully allowed for these losses in the valuation allowance. The
valuation allowance offset the net deferred tax asset for which there is no
assurance of recovery. The net operating loss carry forward will expire in
2026 and 2027 respectively. Cash payments for income taxes were $-0- and $-0-
for the years ended December 31, 2007 and 2006, respectively.
We are currently evaluating the impact of the adoption of FIN 48; however we
do not expect that it will have a material impact on our consolidated
financial statements.
Note 7 - Shareholders' Equity
Preferred Stock:
We are authorized to issue 10,000,000 shares of no par value preferred stock.
The Company's Articles of Incorporation authorize the Company's Board of
Directors to establish the number of preferred shares to be included in each
series and to fix the designation and relative powers, including voting
powers, preferences, relative participating, optional and other rights,
qualifications, limitations and restrictions of each series. There were no
shares of preferred stock issued or outstanding at December 31, 2007 and
2006.
F-16
Private Common Stock Offerings:
In January 2005, BMTS commenced an offering of shares of its common stock on
a "best efforts" basis at an offering price of $1.00 per share. The Company
closed the offering in October 2006. BMTS sold 1,350,000 shares of common
stock for proceeds of $1,350,000 in 2006.
In February 2007, BMTS commenced an offering of shares of its common stock on
a "best efforts" basis at an offering price of $2.00 per share. The Company
sold 445,000 shares of common stock for proceeds of $890,000 during 2007.
Stock Based Compensation Expense:
Stock-based compensation was related solely to stock options that vested
during 2007 and 2006. During the year ended December 31, 2007 and 2006, we
recognized compensation expense of $266,809 and $50,123, respectively, for
stock options which is reflected in the consolidated statements of
operations. The following table presents details of the total stock-based
compensation expense resulting from stock option awards included in the
consolidated statements of income:
Years Ended December 31,
------------------------
2007 2006
--------- --------
Selling, general and administrative
expense ............................. $ 266,809 $ 50,123
--------- --------
Effect on pre-tax loss ............... 266,809 50,123
Tax effect of stock-based compensation
expense ............................. - -
--------- --------
Effect on net loss ................... $ 266,809 $ 50,123
========= ========
As of December 31, 2007, there was $10,293 of total unrecognized compensation
expense, related to non-vested option awards, which is expected to be
recognized over a period of approximately two years.
Stock Options:
Options granted to officers and employees in 2007 and 2006 vested in from one
to three years. Our stock option policy is as follows: (1) the exercise price
per share of an option granted may not be less than the closing price of a
share of our common stock on the date of grant. (2) The maximum term of an
option granted may not exceed 7 years. (3) An option may be exercised only
when it is vested and, in the case of an option granted to an employee
(including an officer), only while he or she remains an employee and for a
limited period following the termination of his or her employment. (4) New
shares are issued upon exercise of stock options.
F-17
Option activity for the year ended December 31, 2007 is summarized as
follows:
Weighted Weighted
Average Average
Exercise Remaining Aggregate
Number of Price Contractual Intrinsic
Shares Per Share Life Value
--------- --------- ----------- ---------
Outstanding at
January 1, 2006 ..... - $ - N/A
Granted .............. 700,000 $ 1.00 5.85 years
Exercised ............ - - N/A
Cancelled/Expired .... - - N/A
--------- ------ ----------
Outstanding at
December 31, 2006 ... 700,000 $ 1.00 5.85 years $ -
Granted .............. 325,000 $ 1.00 5.85 years -
Exercised ............ - - N/A
Cancelled/Expired .... - - N/A
--------- ------ ----------- ------
Outstanding at
December 31, 2007 ... 1,025,000 $ 1.00 5.85 years $ -
========= ====== =========== ======
Exercisable at
December 31, 2007 650,000 $ 1.00 5.77 years $ -
========= ====== =========== ======
The grant-date fair value of options granted during the years ended December
31, 2007 and 2006 were $104,325 and $222,900, respectively. The total
intrinsic value of options exercised during the years ended December 31, 2007
and 2006 were $-0- and $-0-, respectively.
Outstanding options at December 31, 2007 had a weighted average remaining
contractual life of 5.85 years with an aggregate intrinsic value of $-0-.
Exercisable options at December 31, 2007 had a weighted average remaining
contractual life of 5.77 years with an aggregate intrinsic value of $-0-.
Compensation expense for all stock-based compensation awards granted in 2007
and 2006 was valued using the Black-Scholes option pricing model. The share
prices used in the calculations were determined by our Board of Directors
based on contemporaneous sales of common stock to unrelated third-parties.
The expected term of options granted was estimated by management and is
within the safe-harbor provisions of the SEC. The expected volatility of our
share price is based upon the market prices of a peer group of companies. The
expected dividend yield is zero. The risk-free interest rate is based on the
average of the U.S. Treasury T-Bills and 1-year yield rates.
F-18
Assumptions used in the Black-Scholes model are presented below:
Risk-free interest rate ............... 4.81% to 5.03%
Dividend yield ........................ 0.00%
Volatility factor ..................... 31.00%
Weighted average expected life ........ 4 years
Common Stock Redemptions and Cancellation:
Pursuant to an agreement dated September 13, 2006, the Company has the right
(but not the obligation) to re-purchase up to 500,000 of the shares of common
stock then held by a principal shareholder, at $1.00 per share through
December 31, 2008 and 300,000 shares of common stock at $2.00 per through
December 31, 2009. Through December 31, 2007, the Company has repurchased
162,500 shares of its common stock from the principal shareholder for
$162,500.
In addition, the principal shareholder voluntarily returned 37,500 shares of
the Company's common stock to the Company in 2007. All returned shares have
been cancelled and returned to unissued status. There were no treasury
shares outstanding as of December 31, 2007.
Note 8 - Lease Commitments
We lease office and warehouse space under operating lease agreements, which
expire at various dates over the next year. The leases for most of the
properties contain renewal provisions.
Minimum future rental payments under non-cancelable operating leases that
have initial or remaining terms in excess of one year as of December 31, 2007
for each of the next five years and in the aggregate are as follows:
Year ending December 31,
2008 .................................. $ 85,140
2009 .................................. 20,678
--------
$105,818
========
Rent expense for 2007 and 2006 was $120,485 and $98,664, respectively.
Note 9 - Concentrations and Credit Risk:
Our sales are concentrated in the medical waste disposal industry, which is
highly competitive and rapidly changing. Significant technological changes in
the industry, changes in customer requirements, changes in product costs and
selling prices, or the emergence of competitor products with new features,
capabilities, or technologies could adversely affect our operating results.
F-19
Our revenue is concentrated in the Demolizer[R] II System, consumable sharps
and red bag waste collectors, replacement filter cartridges, and ancillary
small supplies such as carts, labels, wall mounting brackets, etc.
Financial instruments, which potentially subject us to concentrations of
credit risk, consist principally of accounts receivable. Credit risk on
trade receivables is minimized as a result of the large size of our customer
base. No single customer represents greater than 15 percent of total
accounts receivable. We perform ongoing credit evaluation of our customers
and maintain allowances for potential credit losses.
We currently outsource the manufacture of our Demolizer[R] II Systems, an
integral component of our product line, and electronic subsystems to one
company, Technology Driven Products, Inc. (TDPI) of Loveland, CO. We are
dependent on TDPI to assemble and test our products. Failure by TDPI to
satisfy our requirements on a timely basis at competitive prices and in
sufficient quantities could cause us to suffer manufacturing delays, a
possible loss of revenues, or higher than anticipated costs of revenues, any
of which could have a severe adverse affect on our operating results.
The Resource Conservation and Recovery Act of 1976, as amended, requires the
EPA to develop and evaluate environmentally sound methods for management of
solid waste. In addition, the Act requires EPA to establish a "cradle-to-
grave" management system for solid wastes that are identified as hazardous.
Infectious medical waste falls within this category.
OSHA regulations have also been established to limit on-the-job exposure to
blood and potentially infectious materials that could result in transmission
of blood borne pathogens and lead to disease or death. Failure to comply
with OSHA regulations can result in fines of up to $70,000 based on criteria
outlined in the OSHA instructions CPL 2.45B CH-4.
F-20
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
Unaudited Condensed Consolidated Balance Sheet
March 31, 2008
2008
-----------
Assets
Current assets:
Cash $ 30,856
Accounts receivable, net of allowance for doubtful accounts 55,913
Inventory 278,678
Prepaid expenses 18,453
-----------
Total current assets 383,900
Property and equipment, net of accumulated depreciation 93,666
Intangible assets, net of accumulated amortization 284,289
Other, net 5,000
-----------
$ 766,855
===========
Liabilities and shareholders' (deficit)
Current liabilities:
Notes payable $ 230,000
Accounts payable 140,135
Accrued payroll and other liabilities 96,611
Deferred income 17,728
-----------
Total current liabilities 484,474
-----------
Shareholders' (deficit):
Common stock, no par value, 40,000,000 shares
authorized, 8,920,000 shares issued and outstanding 2,977,500
Additional paid in capital 473,551
Accumulated deficit (3,168,670)
-----------
282,381
-----------
$ 766,855
===========
See accompanying notes to unaudited condensed consolidated financial
statements.
F-21
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
Unaudited Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2008 and 2007
2008 2007
---------- ----------
Net sales $ 139,654 $ 58,387
Cost of sales 52,256 30,766
---------- ----------
Gross profit 87,397 27,621
Other costs and expenses:
Selling, general and administrative 399,457 355,229
Research and development expenses 17,102 27,650
---------- ----------
Total operating expenses 416,559 382,878
---------- ----------
Loss before non-operating income and expense
and income taxes (329,162) (355,258)
Other income and (expense):
Other Income 177 845
Interest expense (4,979) (4,594)
---------- ----------
(4,802) (3,749)
---------- ----------
Net loss before income taxes (333,964) (359,007)
Income tax provision - -
---------- ----------
Net loss $ (333,964) $ (359,007)
---------- ----------
Basic and diluted loss per share $ (0.04) $ (0.04)
========== ==========
Weighted average common shares outstanding 8,920,000 8,487,500
========== ==========
See accompanying notes to unaudited condensed consolidated financial
statements.
F-22
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2008 and 2007
2008 2007
---------- ----------
Net cash (used in) operating activities $ (232,909) $ (346,140)
Cash flows from investing activities:
Increase in intangible assets (7,230) (45,449)
Acquisition of property and equipment (11,835) -
---------- ----------
Net cash (used in) investing activities (19,065) (45,449)
---------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock 100,000 400,000
Common stock redemption - (37,500)
Proceeds from notes payable 130,000 -
---------- ----------
Net cash provided by financing activities 230,000 362,500
---------- ----------
Increase (decrease) in cash (21,975) (29,089)
Cash and cash equivalents, beginning of period 52,831 71,388
---------- ----------
Cash and cash equivalents, end of period $ 30,856 $ 42,299
========== ==========
See accompanying notes to unaudited condensed consolidated financial
statements.
F-23
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Unless the context requires otherwise, "we," "us" or "our" refers to
Biomedical Technology Solutions, Inc. and its subsidiary on a consolidated
basis.
Note 1 - Basis of Presentation of Interim Period
The accompanying unaudited financial statements of the Company at March 31,
2008 and 2007 have been prepared in accordance with generally accepted
accounting principles ("GAAP") for interim financial statements, instructions
to Form 10-Q, and Regulation S-X. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with GAAP have been condensed or omitted. These condensed
financial statements should be read in conjunction with the financial
statements and notes thereto included in elsewhere in this Proxy Statement.
In management's opinion, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation to make the
Company's financial statements not misleading have been included. The results
of operations for the periods ended March 31, 2008 and 2007 presented are not
necessarily indicative of the results to be expected for the full year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported revenues
and expenses during the reporting periods. Actual results could differ from
those estimates.
Fair Value
In September 2006, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair
Value Measurement" ("SFAS 157"). This statement defines fair value,
establishes a framework for measuring fair value in GAAP, and expands
disclosure about fair value measurements. This statement is effective for
financial statements for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. Earlier application is encouraged,
provided that the reporting entity has not yet issued financial statements
for that fiscal year, including financial statements for an interim period
within that fiscal year. The Company adopted SFAS 157 on January 1, 2008.
Adoption of this statement did not have a material impact on the financial
statements of the Company.
Recent Pronouncements
The Company has reviewed all recently issued, but not yet effective,
accounting pronouncements and does not believe the future adoption of any
such pronouncements may be expected to cause a material impact on its
financial condition or the results of its operations.
F-24
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS 161"). SFAS 161 requires companies
with derivative instruments to disclose information that should enable
financial-statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are
accounted for under FASB Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities" and how derivative instruments and
related hedged items affect a company's financial position, financial
performance and cash flows. SFAS 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008. The adoption of this statement is not expected to have a material
effect on the Company's future financial position or results of operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business
Combinations" ("SFAS 141R"). SFAS 141R will change the accounting for
business combinations. Under SFAS 141R, an acquiring entity will be required
to recognize all the assets acquired and liabilities assumed in a transaction
at the acquisition-date fair value with limited exceptions. SFAS 141R will
change the accounting treatment and disclosure for certain specific items in
a business combination. SFAS 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after December 15, 2008.
Accordingly, any business combinations we engage in will be recorded and
disclosed following existing GAAP until January 1, 2009. The Company expects
SFAS 141R will have an impact on accounting for business combinations once
adopted but the effect is dependent upon acquisitions at that time. The
Company is still assessing the impact of this pronouncement.
In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in
Consolidated Financial Statements-An Amendment of ARB No. 51" ("SFAS 160").
SFAS 160 establishes new accounting and reporting standards for the non-
controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008. The Company believes that SFAS 160 should not have a
material impact on our financial position or results of operations.
Note 2 - Income Taxes
The Company accounts for income taxes in interim periods as required by
Accounting Principles Board Opinion No. 28, "Interim Financial Reporting" and
as interpreted by FASB Interpretation No. 18, "Accounting for Income Taxes in
Interim Periods." The Company has determined an estimated annual effective
tax rate. The rate will be revised, if necessary, as of the end of each
successive interim period during the Company's fiscal year to the Company's
best current estimate.
Note 3 - Related Party Transactions
In January 2007, a shareholder converted a promissory note, totalling
$150,000, into 100,000 shares of our common stock. No gain or loss was
recorded on the transaction.
F-25
Note 4 - Note Payable
At March 31, 2008 we were obligated under the terms of promissory notes,
primarily issued for working capital, in the amount of $230,000. The
promissory notes are unsecured and carry an interest rate of 12 percent. The
notes mature on from June 1 through June 30, 2008 and are convertible into
common stock of the Company at the option of the holder at a rate equal to
the fair value of the stock when the conversion option is exercised. The
weighted average interest rate on short-term obligations outstanding as of
March 31, 2008 was 12 percent. Interest expense on short-term borrowings was
$4,979 for the three months ended March 31, 2008.
Note 5 - Shareholders' Equity
Private Common Stock Offering:
In February 2007, BMTS commenced an offering of shares of its common stock on
a "best efforts" basis at an offering price of $2.00 per share. The Company
sold 50,000 shares of common stock for proceeds of $100,000 during the three
months ended March 31, 2008. During the three months ended March 31, 2007,
we raised an aggregate of $400,000 from the sale of 225,000 shares of common
stock at $1.50 to $2.00 per share.
Stock Based Compensation Expense:
Stock-based compensation was related solely to stock options that vested
during 2007 and 2008. During the three months ended March 31, 2008 and 2007,
we recognized compensation expense of $6,619 and $35,775, respectively, for
stock options which is reflected in the consolidated statements of
operations. As of March 31, 2008, there was $ 46,049 of total unrecognized
compensation expense, related to non-vested option awards, which is expected
to be recognized over a period of approximately two years.
Stock Options:
Option activity for the ended three months March 31, 2008 is summarized as
follows:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Price Term (in years) Value
--------- -------- --------------- ----------
Outstanding January 1,
2008 1,025,000 $ 1.00 5.85 $ -
Granted 75,000 $ 2.00 6.89 =====
Exercised 0 - -
Cancelled 0 - -
--------- -----
Outstanding March 31,
2008 1,100,000 $ 1.07 6.1 $ -
========= =====
Exercisable March 31,
2008 950,000 $ 1.00 5.6 $ -
========= =====
F-26
Common Stock Redemptions and Cancellation:
Pursuant to an agreement dated September 13, 2006, the Company has the right
(but not the obligation) to re-purchase up to 500,000 of the shares of common
stock then held by a principal shareholder, at $1.00 per share through
December 31, 2008 and 300,000 shares of common stock at $2.00 per through
December 31, 2009. During the quarter ended March 31, 2007 the Company
repurchased 37,500 shares of its common stock from the principal shareholder
for $37,500. The Company did not exercise any of its repurchase option
during the three months ended March 31, 2008. Through March 31, 2008, the
Company has repurchased an aggregate of 200,000 common shares.
F-27
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited pro forma condensed combined statement of
operations of Biomedical Technology Solutions, Inc. (BMTS) gives effect to
the proposed merger of BMTS and CET Services, Inc. (CET) as if such
transaction occurred at the beginning of the periods presented. The
unaudited pro forma condensed combined statement of operations for the year
ended December 31, 2007 is derived from the audited financial statements of
BMTS and CET. The unaudited pro forma condensed combined statement of
operations for the three months ended March 31, 2008 is derived from the
unaudited financial statements of BMTS and CET.
The unaudited pro forma condensed combined balance sheet at March 31,
2008 gives effect to the proposed Merger of BMTS and CET as if such
transaction occurred on March 31, 2008. The unaudited pro forma condensed
combined balance sheet is derived from the historical balance sheet of BMTS
and CET as of March 31, 2008.
The unaudited pro forma condensed combined financial data do not reflect
the effects of any anticipated changes to be made by BMTS in its operations
from the historical operations, are presented for informational purposes
only and should not be construed to be indicating (i) the results of
operations or the financial position of BMTS that actually would have
occurred had the proposed merger been consummated as of the dates
indicated or (ii) the results of operation or the financial position of
BMTS in the future.
The proposed Merger is expected to be accounted for as a reverse merger
and it is the intention of the parties to discontinue the operations of CET
immediately upon closing.
The following pro forma condensed combined financial data and notes
are qualified in their entirety by reference to, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operation," the consolidated financial statements
and notes thereto of BMTS and CET and other historical information included
elsewhere in this filing or incorporated by reference.
F-28
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
Successor to CET Services, Inc.
Unaudited Pro Forma Balance Sheet
As At December 31, 2007
Assets BMTS CET Adjustments
Pro Forma
----------- ----------- ----------- ---
- --------
Current Assets
Cash $ 52,831 $ 229,179 $ 645,821 $
927,831
Accounts Receivable 32,186 83,428 (83,428)
32,186
Inventory 330,927 -
330,927
Real estate inventories - 3,269,230 (2,715,325) 1
553,905
Prepaid Expenses 24,210 17,392 (17,392)
24,210
Fixed assets, net 88,819 -
88,819
Investment in LLC - 297,110 (297,110)
0
Deposits - 88,114 (3,114) 1
85,000
Intangible assets 287,076 -
287,076
Other Assets 5,000 - -
5,000
----------- ----------- ----------- ---
- --------
Total Assets $ 821,049 $ 3,984,453 $(2,470,548) $
2,334,954
=========== =========== ===========
===========
Liabilities and Shareholder's Equity
Current liabilities
Accounts payable and
accrued expenses 123,388 168,136 (168,136) 1
123,388
Retainage payable - 65,895 (65,895) 1
0
Accrued liabilities 59,713 -
59,713
Accrued construction expense - 235,591 (235,591) 1
0
Construction loan - 937,810 (937,810) 1
0
Notes payable-current portion 100,000 -
100,000
Deferred revenue 28,222 -
28,222
Notes payable-long term - 471,495 (471,495) 1
0
----------- ----------- ----------- ---
- --------
Total liabilities 311,323 1,878,927 -
311,323
Shareholder's equity (deficit)
Common stock (Pro-forma
84,621,815 shares issued
and outstanding) 2,877,500 8,331,007 (6,817,102) 1
4,391,405
Additional paid in capital 466,932 107,785 (107,785) 1
466,932
Retained earnings (deficit) (2,834,706) (6,333,266) 6,333,266 1
(2,834,706)
----------- ----------- ----------- ---
- --------
Total shareholder's equity 509,726 2,105,526 (591,621)
2,023,631
----------- ----------- ----------- ---
- --------
Total liabilties and
shareholder's equity $ 821,049 $ 3,984,453 $(2,470,548) $
2,334,954
=========== =========== ===========
===========
F-29
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
Successor to CET Services, Inc.
Unaudited Pro Forma Income Statement
For the Period Ended December 31, 2007
Assets BMTS CET Adjustments
Pro Forma
----------- ----------- ----------- ---
- --------
Revenues $ 326,935 $ 2,102,670 $(2,102,670) $
326,935
Cost of Sales 154,498 2,819,475 (2,819,475)
154,498
----------- ----------- ---
- --------
Gross Margin 172,437 (716,805)
172,437
Operating expenses
0
General and administrative
expenses 1,502,056 704,559 (689,359)
1,517,256
----------- ----------- ---
- --------
Operating income (loss) (1,329,619) (1,421,364)
(1,344,819)
Other income (expense)
Interest Expense (8,375) (9,430) 9,430
(8,375)
Interest Income 4,847 18,341 16,659
39,847
Other income (expense) net 2,000 147,893 (147,893)
2,000
----------- ----------- ---
- --------
Net other income (expense) (1,528) 156,804
33,472
----------- ----------- ---
- --------
Net (loss) $(1,331,147) $(1,264,560)
$(1,311,347)
=========== ===========
===========
Earnings per share - primary
and fully diluted $
(0.02)
===========
F-30
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
Successor to CET Services, Inc.
Unaudited Pro Forma Balance Sheet
As At March 31, 2008
Assets BMTS CET Adjustments
Pro Forma
----------- ----------- ----------- ---
- --------
Current Assets
Cash $ 30,856 $ 55,856 $ 819,144 1 $
905,856
Accounts Receivable 55,913 63,045 (63,045) 1
55,913
Inventory 278,678 -
278,678
Real estate inventories - 3,420,070 (2,866,165) 1
553,905
Prepaid Expenses 18,453 11,897 (11,897)
18,453
Fixed assets, net 93,666 -
93,666
Investment in LLC - 318,963 (318,963)
0
Deposits - 88,114 (3,114)
85,000
Intangible assets 284,289 -
284,289
Other Assets 5,000 -
5,000
----------- ----------- ----------- ---
- --------
Total Assets 766,855 3,957,945 (2,444,040)
2,280,760
=========== =========== ===========
===========
Liabilities and Shareholder's Equity
Current liabilities
Accounts payable 140,135 115,224 (115,224) 1
140,135
Retainage payable - 15,431 (15,431) 1
0
Accrued liabilities 96,611 2,519 (2,519)
96,611
Accrued construction expense - 88,691 (88,691) 1
0
Construction loan - 1,261,333 (1,261,333) 1
0
Notes payable-current portion 230,000 -
230,000
Deferred revenue 17,728 -
17,728
Notes payable-long term - 471,495 (471,495) 1
0
----------- ----------- ----------- ---
- --------
Total liabilities 484,474 1,954,693 -
484,474
----------- ----------- ----------- ---
- --------
Shareholder's equity (deficit)
Common stock (Pro-forma
84,621,815 shares issued
and outstanding) 2,977,500 8,331,007 (6,817,102) 1
4,491,405
Additional paid in capital 473,551 107,785 (107,785) 1
473,551
Retained earnings (deficit) (3,168,670) (6,435,540) 6,435,540 1
(3,168,670)
----------- ----------- ----------- ---
- --------
Total shareholder's equity 282,381 2,003,252 (489,347)
1,796,286
----------- ----------- ----------- ---
- --------
Total liabilties and
shareholder's equity $ 766,855 $ 3,957,945 $(2,444,040) $
2,280,760
=========== =========== ===========
===========
F-31
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
Successor to CET Services, Inc.
Unaudited Pro Forma Income Statement
For the Three Months Ended March 31, 2008
Assets BMTS CET Adjustments
Pro Forma
----------- ----------- ----------- ---
- --------
Revenues $ 139,654 $ 99,025 (99,025) $
139,654
Cost of Sales 52,256 94,762 (94,762)
52,256
----------- ----------- ---
- --------
Gross Margin 87,397 4,263
87,397
Operating expenses
0
General and administrative
expenses 416,559 104,169 (104,169)
416,559
----------- ----------- ---
- --------
Operating income (loss) (329,162) (99,906)
(329,162)
Other income (expense)
Interest Expense (4,979) (1,568) 1,568
(4,979)
Interest Income - 0 9,800
9,800
Other income (expense) net 177 (800) 800
177
----------- ----------- ---
- --------
Net other income (expense) (4,802) (2,368)
4,998
----------- ----------- ---
- --------
Net (loss) $ (333,964) $ (102,274) $
(324,164)
=========== ===========
===========
Earnings per share -
primary and fully diluted $
- -
===========
F-32
(1) On May 8, 2008, BMTS and CET entered into a definitive agreement and
plan of merger (the "Agreement") providing for the merger of CET with and
into BMTS. Under the terms of the Agreement, which was approved by the Board
of Directors of both BMTS and CET, the holder of BMTS Common Stock will
receive 8.64276 shares of CET Common Stock for each of its outstanding
shares. Accordingly, the pro forma condensed combined financial statements
as of March 31, 2008 give effect to the issuance of 78,176,884 CET common
shares and assume the Merger with CET will be accounted for as a
reorganization of BMTS using the existing corporate structure of CET. The
merger is expected to be similar to that of a reverse merger whereby BMTS is
the continuing entity. In accordance with the terms of the merger, BMTS will
receive cash in the amount of $875,000 and two property parcels in Colorado
with a fair value aggregating approximately $553,905. All other assets and
liabilities as of the merger date will remain with a former control person of
CET.
(2) The pro forma condensed combined statements of operations gives effect
to the Merger of BMTS with CET as if the merger occurred at the beginning of
the periods presented. Interest income has been adjusted to reflect
additional cash of $875,000.
(3) The pro forma weighted average shares outstanding for basic earnings
(loss) per share gives effect to the issuance of 5,626,989 shares of BMTS
stock in exchange for the CET assets.
F-33
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
AND
CET SERVICES, INC.
AND
CET ACQUISITION CORP.
DATED AS OF May 8, 2008
A-1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into this 8th day of May, 2008, by and among BIOMEDICAL TECHNOLOGY SOLUTIONS,
INC., a Colorado corporation ("BMTS"); CET SERVICES, INC., a California
corporation ("CET"); and CET ACQUISITION CORP., a Colorado subsidiary of CET
("CETAC"). BMTS, CET and CETAC are hereinafter sometimes individually
referred to as a "party" and collectively as the "parties".
WITNESETH:
WHEREAS, BMTS is engaged in the business of developing, marketing and
distributing infectious waste mitigation systems; and
WHEREAS, CET will be on the Effective Date, as hereinafter defined, the
owner of 100% (the "Shares") of the issued and outstanding Common Stock of
CETAC, $.0001 par value per share, representing all the issued and
outstanding shares of the capital stock of CETAC;
WHEREAS, for federal income tax purposes, the merger of CETAC with and
into BMTS is intended to qualify as a tax-free reorganization pursuant to
Section 368(a)(2)(E) of the Internal Revenue Code of 1986,a as amended (the
"Code"); and
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants under which a merger of CETAC and BMTS will occur.
NOW, THEREFORE, for and in consideration of the premises, the mutual
representations, warranties and covenants herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby covenant and agree as follows:
SECTION 1: GENERAL DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings set forth below:
1.1 Affiliate. "Affiliate" of any Person shall mean any Person
Controlling, Controlled by or under common Control with such Person.
1.2 Agreement. "Agreement" shall include this Agreement and any and
all documents and instruments executed in connection with the Merger (as
hereinafter defined).
1.3 Best Knowledge. "Best Knowledge" shall mean both what a Person
knew as well as what the Person should have known had the Person exercised
reasonable diligence. When used with respect to a Person other than a natural
person, the term "Best Knowledge" shall include matters that are known to the
directors and officers of the Person.
1.4 Control. "Control" and all derivations thereof shall mean the
ability to either (i) vote (or direct the vote of) 50% or more of the voting
interests in any Person or (ii) direct the affairs of another, whether
through voting power, contract or otherwise.
1.5 Exchange Act. "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
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1.6 Fiscal Year. "Fiscal Year" shall mean a twelve-month period beginning
January 1;
1.7 Governmental Authority. "Governmental Authority "shall mean any and
all applicable foreign, federal, state or local governments, governmental
institutions, public authorities and governmental entities of any nature
whatsoever, and any subdivisions or instrumentalities thereof, including, but
not limited to, departments, boards, bureaus, commissions, agencies, courts,
administrations and panels, and any division or instrumentalities thereof,
whether permanent or ad hoc and whether now or hereafter constituted or
existing.
1.8 Governmental Requirement. "Governmental Requirement" shall mean
any and all applicable laws (including, but not limited to, applicable common
law principles), statutes, ordinances, codes, rules regulations,
interpretations, guidelines, directions, orders, judgments, writs,
injunctions, decrees, decisions or similar items or pronouncements,
promulgated, issued, passed or set forth by any Governmental Authority.
1.9 Legal Requirements. "Legal Requirements" means applicable common
law and any applicable statute, ordinance, code or other laws, rule,
regulation, order, technical or other standard, requirement, judgment,
or procedure enacted, adopted, promulgated, applied or followed by any
Governmental Authority, including, without limitation, any order, decree,
award, verdict, findings of fact, conclusions of law, decision or judgment,
whether or not final or appealable, of any court, arbitrator, arbitration
board or administrative agency.
1.10 Net Worth. "Net Worth" shall mean the assets of a Person minus
the liabilities of the Person, as of a given date as determined in accordance
with generally accepted accounting principles, consistently applied with
prior periods.
1.11 Person. "Person" shall mean any natural person, any Governmental
Authority and any entity the separate existence of which is recognized by any
Governmental Authority or Governmental Requirement, including, but not
limited to, corporations, partnerships, joint ventures, joint stock
companies, trusts, estates, companies and associations, whether organized for
profit or otherwise.
1.12 Exhibit. Unless otherwise stated herein, the term "Exhibit" when
used in this Agreement shall refer to the Exhibits to this Agreement. The
Exhibits to this Agreement may be attached to this Agreement or may be set
forth in a separate document denoted as the Exhibits to this Agreement, or
both, and such Exhibits are incorporated herein by reference for all
purposes.
1.13 Unless otherwise stated herein, the term "Disclosure Schedule"
means the Disclosure Schedule attached hereto, dated as of the date hereof,
and forming a part of this Agreement.
1.14 Section. Unless otherwise stated herein, the term "Section" when
used in this Agreement shall refer to the Sections of this Agreement.
1.15 Securities Act. "Securities Act" shall mean the Securities Act of
1933, as amended.
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1.16 Taxes. "Tax" and "Taxes" shall mean any and all income, excise,
franchise or other taxes and all other charges or fees imposed or collected
by any Governmental Authority or pursuant to any Governmental Requirement,
and shall also include any and all penalties, interest, deficiencies,
assessments and other charges with respect thereto.
SECTION 2: THE MERGER
2.1 The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 2.3 herein). CETAC shall be
merged (the "Merger") with and into BMTS upon the terms and conditions set
forth herein as permitted by and in accordance with the Colorado Business
Corporation Act (the "CBCA"). Thereupon, the separate existence of CETAC
shall cease, and BMTS, as the surviving corporation in the Merger (the
"Surviving Corporation"), shall continue to exist under and be governed by
the CBCA, with all its purposes, objects, rights, privileges, immunities,
powers and franchises continuing unaffected and unimpaired by the Merger. The
name of the Surviving Corporation shall be "BioMedical Technology Solutions,
Inc."
2.2 Filing. As soon as practicable following fulfillment or waiver of
the conditions specified in Sections 8.2 and 8.3 hereof, and provided that
this Agreement has not been terminated pursuant to Section 12 hereof, CETAC
and BMTS will cause a short form Agreement and Plan of Merger, in the form
attached hereto as Exhibit 2.2, to be executed, acknowledged and filed with
the Secretary of State of Colorado as provided in applicable provisions of
the CBCA and obtain a copy of the Articles of Merger, certified by the
Secretary of State of the State of Colorado.
2.3 Effective Time of the Merger. The Merger shall become effective
immediately upon the filing of the Articles of Merger with the Secretary of
State of the State of Colorado in accordance with the CBCA.. The date and
time of the completion of such filings is herein sometimes referred to as the
"Effective Time".
2.4 Closing: Closing Date. Subject to the terms and conditions set
forth in the Agreement, the consummation of the transactions referenced above
shall take place (the "Closing") on June 30, 2008, at 10:00 a.m. Mountain
Daylight Savings Time at the offices of Clifford L. Neuman, PC; 1507 Pine
Street, Boulder, CO 80302, or within five business days following the
satisfaction or waiver of all conditions precedent to such Closing, if
earlier, or at such other time, date and place as BMTS and CETAC shall
designate (the "Closing Date").
SECTION 3: APPROVALS AND REGULATORY MATTERS
3.1 CET Board of Directors Approvals. Subject to the provisions
hereof, the Board of Directors of CET shall, by written unanimous consent,
approve the Merger and the transactions provided for or contemplated by this
Agreement; provided, however, that such approvals shall be subject to their
satisfaction that the consummation of the Merger shall be and is exempt from
the registration requirements of the Securities Act, is undertaken without
violation of the anti-fraud provisions of the Securities Act and has been
consummated in conformity with all other applicable Legal Requirements.
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3.2 CET Shareholder Approval. Subject to the provisions hereof, CET
shall, as promptly as practicable and in accordance with its charter
documents and applicable Legal Requirements, call and hold a special meeting
of the Shareholders of CET for the purpose of voting upon the approval of the
Merger and the following ancillary transactions ("Ancillary Transactions")
provided for or contemplated by this Agreement:
a. The Reverse Stock Split (Section 4.4);
b. The increase in authorized capital of CET (Section 4.5);
c. The Equity Incentive Plan (Section 4.4);
d. The Redomestication of CET to the State of Colorado (Section
4.6); and,
e. CET's change of corporate name to "BioMedical Technology
Solutions, Inc." (Section 4.5).
CET shall use its best efforts to obtain from its shareholders
sufficient proxies in favor of the approval of the Merger and the Ancillary
Transactions. Subject to the applicable fiduciary duties of CET's directors,
as determined by such directors in good faith after consultation with and
based upon the advice of legal counsel, CET shall take all other action
necessary or advisable to secure the vote or consent of stockholders required
by the applicable Law to obtain such approvals, including, without
limitation, if required, the inclusion of the recommendation of its Board of
Directors that its shareholders vote in favor of the approval and adoption of
this Agreement and the transactions related hereto.
CET shall exercise reasonable efforts to take all action necessary or
appropriate to prepare a Proxy Statement and other documents necessary to
effect the Merger and the Ancillary Transactions under applicable provisions
of the California Corporation Code ("CCC") and shall file a Proxy Statement
on Schedule 14A with the Securities and Exchange Commission (the
"Commission") and shall cause same to be mailed same to the CET shareholders
of record in conformity with rules and regulations governing the solicitation
of proxies under Section 14 of the Exchange Act and other applicable legal
requirements.
3.3 BMTS Board of Directors Approval. Subject to the provisions
hereof, the Board of Directors of BMTS shall, by written unanimous consent,
approve the Merger and the transactions provided for or contemplated by this
Agreement; provided, however, that such approvals shall be subject to their
satisfaction that the consummation of the Merger shall be and is exempt from
the registration requirements of the Securities Act, is undertaken without
violation of the anti-fraud provisions of the Securities Act and has been
consummated in conformity with all other applicable Legal Requirements.
3.4 BMTS Shareholder Approval. As promptly as practicable after the
date hereof, BMTS shall exercise reasonable efforts to take all action
necessary or appropriate to prepare an Information Statement and other
documents necessary to solicit and obtain the approval of the Merger and the
other transactions provided for or contemplated by this Agreement of all BMTS
shareholders (the "BMTS Shareholders").
3.5 Income Tax Considerations. It is the intention of the parties
hereto that the Merger provided for in this Agreement will qualify for
treatment as a tax-free reorganization under Section 368(a)(2)(E) of the Code
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and the parties will agree to undertake all appropriate actions necessary
both before and after the Effective Date of the Merger to effect such
treatment. Notwithstanding the foregoing, neither CET nor any of its
affiliates shall have any liability whatsoever to BMTS or the BMTS
shareholders for the treatment ultimately accorded the Merger by federal or
state taxing and regulatory authorities; and BMTS shall bear all
responsibility for any tax or other assessment levied, imposed or assessed by
any regulatory or governmental authority on BMTS by virtue of the
consummation of the Merger and the other transactions provided for in this
Agreement. The BMTS shareholders shall bear all responsibility for any tax
or other assessment levied, imposed or assessed by any regulatory or
governmental authority on the BMTS Shareholders by virtue of the consummation
of the Merger or other transactions provided for in this Agreement.
3.6 Compliance with Securities Laws. The Merger provided for in this
Agreement shall be undertaken in reliance upon an exemption from the
registration requirements contained in Section 5 of the Securities Act and
set forth in Section 4(2) of the Securities Act and Regulation D thereunder.
All shares issued to the BMTS shareholders in connection with the Merger
shall be "restricted securities" within the meaning of Rule 144 under the
Securities Act.
3.7 Restrictive Legend. Certificates representing the shares of CET
common stock issued in connection with the Merger shall be "restricted
securities" under the Securities Act and shall bear the following restrictive
legend:
The shares represented by this certificate have not been registered
under the Securities Act of 1933 ("the Act") and are "restricted securities"
as that term is defined in Rule 144 under the Act. The shares may not be
offered for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Act, or pursuant to an exemption
from registration under the Act, the availability of which is to be
established to the satisfaction of the Company.
3.8 Dissenter Rights. At all times, and as applicable, CET and BMTS
shall comply with applicable Legal Requirements including, without
limitation, the payment of cash for dissenting shares related to the Merger.
SECTION 4. ADDITIONAL AGREEMENTS
4.1 BMTS Financial Statements. As promptly as practicable after the
date hereof, BMTS shall use best efforts to cause to be prepared audited
balance sheets, income statements, statements of cash flows and stockholders'
equity as of and for the two year period ended December 31, 2007 (the "BMTS
Financial Statements"). The BMTS Financial Statements (including any related
schedules and/or notes), will show all liabilities, direct or contingent,
required at the time of preparation to be shown in accordance with U.S.
generally accepted accounting principles ("GAAP") and fairly present the
financial position and results of operations of BMTS as of the date thereof
and for the periods indicated in accordance with GAAP, consistently applied
with all prior periods. Except as otherwise disclosed in the Agreement,
including, without limitation, Section 4.1 the Disclosure Schedule hereof,
BMTS will have no material liability or obligation of any nature (whether
liquidated, unliquidated, accrued, absolute, contingent or otherwise, whether
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due or to become due) except those set forth on the BMTS Financial Statements
except liabilities incurred and current liabilities (determined in accordance
with GAAP) incurred since the date of the BMTS Financial Statements in the
ordinary course of business consistent with past practice. The BMTS
Financial Statements shall conform in all respects to the requirements of
Regulation S-X under the Securities Act and shall include, at a minimum,
audited balance sheets as of December 31, 2007 and 2006, audited statements
of operation and statements of cash flow for the two year period ended
December 31, 2007 and audited statements of stockholders' equity at December
31, 2007. The Financial Statements to be prepared under this Section 4.1
shall also include pro forma financial information ("Pro Forma Financial
Information") in accordance with the requirements of Regulation S-X. All
costs and expenses incurred in connection with the preparation of the BMTS
Financial Statements and the Pro Forma Financial Information, including fees
and disbursements of the Auditor, shall be borne exclusively by BMTS.
4.2 Pre-Closing Capitalization. At or prior to Closing, the parties
shall undertake any and all actions necessary to assure that immediately
prior to Closing, the pre-Merger capitalization of each party (giving effect
to the exercise of all outstanding options and warrants and the conversion of
all outstanding convertible securities), on a fully-diluted basis, shall be
the following:
CET: 5,626,989 shares
BMTS: 10,200,000 shares
4.3 2008 Equity Incentive Plan. Subject to and prior to or
concurrently with the Closing, CET shall take, or cause to be taken, all
actions necessary to approve and adopt an Equity Incentive Plan substantially
in the form of Exhibit 4.3 hereto, and to authorize the issuance of not less
than 2.0 million shares of common stock (pre-split) to be issued pursuant to
options and other rights granted under the Plan.
4.4 Reverse Stock Split. Subject to and concurrently with the Closing,
CET shall effect a reverse split of all of its issued and outstanding shares
of common stock as well as all options, warrants, and other outstanding
securities exercisable to purchase or convertible into shares of CET common
stock in a ratio determined and approved by BMTS (the "Reverse Split").
4.5 Increase in Authorized Stock and Name Change. Subject to and at or
prior to the Closing, CET shall take, or cause to be taken, all actions
necessary to further amend and/or restate its Amended and Restated Articles
of Incorporation to (i) increase the number of shares of common stock and
preferred stock it is authorized to issue from 20,000,000 shares to
100,000,000 shares and from 5,000,000 shares to 10,000,000 shares,
respectively, and to effect such other amendments to such Articles of
Incorporation as BMTS deems to be desirable and as permitted by applicable
law and (ii) change the corporate name of CET to "BioMedical Technology
Solutions, Inc." (with BMTS to change its name in a manner to distinguish
the two entities).
4.6 Redomestication. At or prior to the Closing, or as soon as
practicable thereafter, CET shall take, or cause to be taken, all actions
necessary to redomesticate from the State of California to the State of
Colorado.
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4.7 CET Assets and Liabilities.
(a) As of the execution of this Agreement, CET's principal assets
consisted of five (5) separate parcels of real property which shall be
designated as Parcel Nos. 1, 2, 3, 4 and 5 which can be described as follows:
Parcel No. 1: 1550 S. Idalia Court, Aurora, CO
Parcel No. 2: Arizona Ave., LLC
Parcel No. 3: 7335 Lowell Blvd., Westminster, CO
Parcel No. 4: 7215 Meade Street, Westminster, CO
Parcel No. 5: 7305 Lowell Blvd., Westminster, CO
All of the foregoing properties are currently owned of record by
Community Builders, Inc., a wholly-owned subsidiary of CET. Prior to the
Effective Date of the Merger, CET shall form and organize a new subsidiary,
CET Sub, and all ownership of Community Builders, Inc. shall be transferred
and assigned by CET to Steve Davis, or his designee, so as to divest CET of
all right, title and interest in Community Builders. Community Builders
shall execute and deliver at Closing an Indemnity Agreement substantially in
the form of Exhibit 4.7(a) hereto whereby it will agree (i) to maintain its
corporate existence for a period of three years, (the "Indemnity Period")
(ii) to indemnify, defend and hold harmless CET, CET Sub and the officers and
directors of BMTS from any claims, debts or liabilities of Community Builders
or arising from the transfer of ownership of Community Builders as provided
for herein, save and except for secured obligations expressly assumed by CET
Sub as part of the Merger and (iii) for the duration of the Indemnity Period,
maintain not less than $250,000 in net assets to cover any warranty or third
party claims, should they arise. Without in any way limiting the generality
of the foregoing, Community Builders shall be solely and separately
responsible for all existing and future debts and obligations incurred in
connection with the ownership, maintenance and disposition of Parcel Nos. 3,
4 and 5, which shall include without limitation all secured debt constituting
liens or encumbrances against those properties, general contractor hold-
backs, general contractor final draws, accrued and accumulated interest and
accrued and accumulated real property taxes
(b) At the Effective Date of the Merger, the following covenants
shall apply with respect to each of the foregoing parcels:
A. Community Builders shall convey to CET Sub all of its interest
in Parcel No. 1 which shall have secured debt of not more than $472,000;
B. Community Builders shall convey to CET Sub all of its interest
in Parcel No. 2;
C. Community Builders shall pay to CET the sum of $250,000 for
Parcel No. 3;
D. Community Builders shall pay to CET the sum of $260,000 for
Parcel No. 4; and,
E. Community Builders shall pay to CET the sum of $400,000 for
Parcel No. 5.
Further, as of the Effective Date of the Merger, CET shall have cash not less
than $875,000 and shall have no accounts payable or other liabilities except
for the secured debt against Parcel No. 1.
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4.8 Notification of Certain Matters. BMTS shall give prompt notice to
CET and CET shall give prompt notice to BMTS of (i) the occurrence or non-
occurrence of any event which would cause any representation or warranty made
by the respective parties in this Agreement to be materially untrue or
inaccurate when made and (ii) any failure of CET or BMTS, as the case may be,
to materially comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this section shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice
and, provided further, that the failure to give such notice shall not be
treated as a breach of covenant for the purposes of this Agreement unless the
failure to give such notice results in material prejudice to the other party.
4.9 Further Action. Upon the terms and subject to the conditions
hereof, each of the parties hereto shall use all commercially reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and to
otherwise satisfy or cause to be satisfied all conditions precedent to its
obligations under this Agreement.
4.10 Public Announcements. BMTS and CET shall consult with each other
before issuing any press release or other public statement with respect to
the Merger or this Agreement and shall not issue any such press release or
make any such public statement without the prior consent of the other party,
which consent shall not be unreasonably withheld, delayed or conditioned;
provided, however, that a party may, without the prior consent of the other
party, issue such press release or make such public statement as may, upon
the advice of counsel, be required by law if it has used reasonable efforts
to first consult with the other party.
4.11 Cooperation in Securities Filings. BMTS shall provide such
information regarding BMTS, its business, its officers, directors and
affiliates, as is reasonably required by CET for purposes of preparing any
notices, reports and other filings with the SEC. Moreover, following the
Closing, the current officers and directors of BMTS shall provide such
information as the post-closing management of CET shall reasonably request
for the purpose of preparing any notices, reports and other filings by CET
with the SEC, including but not limited to, in connection with the
preparation of any financial statements required to be filed under the
Exchange Act or Securities Act by CET.
4.12 Additional Documents. The parties shall deliver or cause to be
delivered such documents or certificates as may be necessary, in the
reasonable BMTSnion of counsel for either of the parties, to effectuate the
transactions provided for in this Agreement. If at any time the parties or
any of their respective successors or assigns shall determine that any
further conveyance, assignment or other document or any further action is
necessary desirable to further effectuate the transactions set forth herein
or contemplated hereby, the parties and their officers, directors and agents
shall execute and deliver, or cause to be executed and delivered, all such
documents as may be reasonably required to effectuate such transactions.
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SECTION 5: CONVERSION OR CANCELLATION OF SHARES
5.1 Securities to be issued on Effective Date of Merger. On the
Effective Date of the Merger:
(a) all issued and outstanding shares of common stock of BMTS (the
"BMTS Common Stock") shall be converted into 78,176,884 shares of CET Common
Stock (the "CET Common Stock"). The Merger Exchange Ratio at which the BMTS
Common Stock will be converted into the CET Common Stock shall be 8.64276 for
one. The calculation of the Merger Exchange Ratio assumes that there are
5,626,989 shares of CET common stock and stock options and warrants to
purchase shares of CET common stock outstanding and 10,200,000 shares of BMTS
common stock and stock options and warrants to purchase shares of common
stock outstanding as of the Effective Date. Any changes in the number of
issued and outstanding shares, on a fully diluted basis, of CET common stock
or BMTS common stock will change the Merger Exchange Ratio and the number of
shares of CET Common Stock to be issued hereunder in accordance with Section
5.1(b) below.
(b) The parties acknowledge that the Reverse Split will result in
a proportional adjustment of the CET shares outstanding immediately following
the consummation of the Merger; however, it is the intent and agreement of
the parties that upon consummation of the Merger, the pre-Merger CET Common
Stock outstanding will represent 6% and the shares issuable to the BMTS
shareholders and underlying BMTS Warrants and Options will represent 94% of
the post-Merger CET Common Stock outstanding and CET Common Stock underlying
the BMTS Warrants and Options, on a fully-diluted basis. The parties agree
that all numbers will be adjusted proportionately to ensure that the pre-
Merger CET shareholders will own 6% and the BMTS shareholders and Warrant and
Option holders will own 94% of the post-Merger fully-diluted CET Common Stock
outstanding.
(c) At the Effective Time of the Merger, all issued and
outstanding options and warrants exercisable to purchase shares of BMTS
common stock will, by virtue of their terms, become exercisable to purchase
shares of CET common stock on the same terms and conditions except that the
number of shares issuable upon exercise of such option or warrant will be
multiplied by the Merger Exchange Ratio, and the exercise price shall be
reduced proportionately. CET shall assume all liability to maintain in full
force and effect all of such options and warrants in accordance with their
terms and reserve from its authorized but unissued shares of common stock a
sufficient number of shares to issue upon the due and timely exercise of such
options and warrants.
(d) Each share of CET Common Stock, issued under this section
shall be restricted securities pursuant to Rule 144 promulgated under the
Securities Act.
(e) Each share of BMTS Common Stock, if any, held in BMTS's
treasury immediately prior to the Effective Time shall be canceled and
retired and no payment shall be made in respect thereof.
(f) At the Effective Time, all outstanding shares of CETAC shall
be converted into an aggregate of 100 shares of Common Stock of BMTS. Each
share of CETAC Common Stock, if any, held in CETAC's treasury immediately
prior to the Effective Time shall be canceled and retired and no payment
shall be made in respect thereof.
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5.2 Surrender and Payment. Subject to the provisions of Sections 5.5
and 5.6 below, after the Effective Time, each holder of a certificate
representing an issued and outstanding share of BMTS Common Stock shall be
entitled upon surrender of such certificate along with a fully executed
Subscription Agreement in the form of Exhibit 5.3, to CET, to receive the CET
Common Stock as set forth in Section 5.1 above. Until so surrendered, each
certificate which immediately prior to the Effective Time represented an
issued and outstanding share of BMTS Common Stock shall, upon and after the
Effective Time, be deemed for all purposes to represent and evidence only the
right to receive CET Common Stock as set forth in Section 5.1. If any
exchange for shares of BMTS Common Stock is to be made in a name other than
that in which the certificate therefor surrendered for exchange is
registered, it shall be a condition of such payment that the certificate so
surrendered be properly endorsed or otherwise in proper form for transfer and
that the person requesting such payment either pay to CET any transfer or
other similar taxes required by reason of the payment to a person other than
the registered holder of the certificate surrendered or establish to the
satisfaction of CET that such tax has been paid or is not payable.
5.3 Subscription Agreements. Each of the BMTS Shareholders receiving
CET Common Stock pursuant to the terms hereof shall have delivered a fully
executed Subscription Agreement substantially in the form of Exhibit 5.3
5.4 No Further Transfers. On and after the Effective Time, no transfer
of the shares of BMTS Common Stock issued and outstanding immediately prior
to the Effective Time shall be made on the stock transfer books of BMTS.
SECTION 6: CERTAIN EFFECTS OF MERGER
6.1 Effect of Merger. On and after the Effective Time, the separate
existence of CETAC shall cease and CETAC shall be merged with and into BMTS,
which as the Surviving Corporation (herein sometimes so called) shall,
consistently with its Articles of Incorporation succeed to, and without other
transfer, possess all the rights, privileges, immunities, powers and
franchises of public as well as private nature, and be subject to all
restrictions, disabilities and duties of CETAC; and all rights, privileges,
immunities, powers and franchises of CETAC, and all property, real, personal
and mixed, causes of action and every other asset of, and all debts due to
CETAC on whatever account as well as stock subscriptions and all other things
in action or belonging to CETAC shall vest in the Surviving Corporation; and
all property, rights, privileges, immunities, powers and franchises, and all
and every other interest shall be thereafter as effectually the property of
the Surviving Corporation as they were of CETAC, and the title to any real
estate vested by deed or otherwise in CETAC, and the title to any real estate
vested by deed or otherwise in CETAC shall not revert or be in any way
impaired but all rights of creditors and all liens upon any property of CETAC
shall be preserved unimpaired, and all debts, liabilities and duties of CETAC
shall thenceforth attach to the Surviving Corporation, and may be enforced
against it to the same extent as if such debts, liabilities and duties had
been incurred or contracted by it. Any action or proceeding pending by or
against CETAC may be prosecuted to judgment, which shall bind the Surviving
Corporation, or the Surviving Corporation may be proceeded against or
substituted in its place.
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6.2 Further Assurances. If at any time after the Effective Time the
Surviving Corporation shall consider any further deeds, assignments or
assurances in law or any other action necessary, desirable or proper (a) to
vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation the title to any property or rights of CETAC acquired or to be
acquired by reason of, or as a result of, the Merger, or (b) otherwise to
carry out the intents and purposes of this Agreement, CETAC and CET agree
that it and its proper officers and directors shall and will execute and
deliver, or cause to be executed and delivered, all such property, deeds,
assignments and assurances in law and take all other action necessary,
desirable or proper to vest, perfect or confirm title to such property or
right in the Surviving Corporation and otherwise to carry out the purposes of
this Agreement.
SECTION 7: POST-MERGER GOVERNANCE
7.1 Articles of Incorporation and Bylaws. At the Effective Time, the
Articles of Incorporation and By-Laws of BMTS as in effect immediately prior
to the Effective Time, shall be and continue to be the Articles of
Incorporation and By-Laws of BMTS, as the Surviving Corporation, until duly
amended in accordance with applicable law.
7.2 Directors. Officers and Employees.
(a) Directors of CET. Concurrently with the Closing, the Board of
Directors of CET shall, in accordance with the CBCA and the Articles of
Incorporation and By-Laws of CET shall be reconstituted to consist of:
Donald G. Cox
Gex F. Richardson
Bill Sparks
(b) Executive Officers of CET. Concurrently with the Closing, the
Board of Directors of CET shall elect the following persons to serve as
Executive Officers of CET in the capacities set forth below until the next
regular Annual Meeting of the CET Board of Directors (as hereinafter defined)
or until their successors have been duly elected and qualified in accordance
with the CBCA, the Articles of Incorporation and Bylaws of CET, or until they
have resigned:
Donald G. Cox CEO and President
Jim Scheifley Chief Financial Officer
Gex F. Richardson Secretary
Any persons serving as Executive Officers of CET immediately prior to the
Effective Time who will not continue in such capacity immediately after the
Effective Time shall tender their resignations in accordance with applicable
Legal Requirements.
SECTION 8: COVENANTS AND CONDITIONS OF CLOSING
8.1 Covenants Regarding the Closing. The parties hereto hereby
covenant and agree that they shall (i) use all commercially reasonable
efforts to cause all of their respective representations and warranties set
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forth in this Agreement to be true on and as of the Closing Date, (ii) use
all commercially reasonable efforts to cause all of their respective
obligations that are to be fulfilled on or prior to the Closing Date to be so
fulfilled, (iii) use all commercially reasonable efforts to cause all
conditions to the Closing set forth in this Agreement to be satisfied on or
prior to the Closing Date, and (iv) deliver to each other at the Closing the
certificates, updated lists, opinion of counsel, notices, consents,
authorizations, approvals, agreements, transfer documents, receipts and
amendments contemplated by Sections 8, 9 and 11 (with such additions or
exceptions to such items as are necessary to make the statements set forth in
such items accurate, provided that if any such additions or exceptions cause
any of the conditions to the parties' obligations hereunder as set forth in
Sections 8, 9 and 11 below not to be fulfilled, such additions and exceptions
shall in no way limit the rights of the parties to terminate this Agreement
or refuse to consummate the transactions contemplated hereby.) All
indemnifications, guarantees, covenants, agreements, representations and
warranties made by the parties hereunder or pursuant hereto or in connection
with the transactions contemplated hereby shall survive the Closing
regardless of any investigation at any time made by or on behalf of the
parties.
8.2 Conditions to Obligation of CET and CETAC. The obligation of CET
and CETAC to complete the Merger on the Closing date on the terms set forth
in this Agreement is, at the option of CET and CETAC, subject to the
satisfaction or waiver by CET and CETAC of each of the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties made by BMTS in this Agreement shall be
correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made
on the Closing Date.
(b) Compliance with Covenants. All covenants which BMTS is
required to perform or comply with on or before the Closing date shall have
been fully complied with or performed in all material respects.
(c) Corporate Approvals. The Board of Directors and shareholders
of BMTS shall have approved and ratified this Agreement and shall have
authorized the appropriate officers of BMTS to execute same and fully perform
its terms.
(d) Consents and Approvals. To the extent that any material
lease, mortgage, deed of trust, contract or agreement to which BMTS is a
party shall require the consent of any person to the exchange of BMTS's
shares of common stock or any other transaction provided for herein, such
consent shall have been obtained; provided, however, that BMTS shall not
make, as a condition for the obtaining of any such consent, any agreements or
undertakings not approved in writing by CET and CETAC to the extent that such
condition otherwise has an adverse effect on CET and CETAC.
(e) Review and Due Diligence. CET and CETAC, its investment
bankers, legal counsel and/or auditors shall have had the opportunity to
complete, and shall have completed, a satisfactory due diligence
investigation of BMTS together with a satisfactory review of BMTS's corporate
status and the title to BMTS's property.
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(f) No Governmental Actions. No action or proceeding before any
governmental authority shall have been instituted or threatened to restrain
or prohibit the transactions contemplated by this Agreement, and the parties
shall have delivered to each other certificates dated as of the Closing Date
and executed by such parties, stating that to their Best Knowledge, no such
items exist. No governmental authority shall have taken any other action as
a result of which the management of CET or CETAC, in its sole discretion,
reasonably deems it inadvisable to proceed with the transactions contemplated
by this Agreement.
(g) No Material Adverse Change. No material adverse change in the
business, property or assets of any party hereto shall have occurred, and no
loss or damage to any of the assets, whether or not covered by insurance,
with respect to any party hereto has occurred, and the parties hereto shall
have delivered to each other certificates dated as of the Closing Date and
executed by each of the parties to all such effects.
(h) Update of Contracts. The parties hereto shall have delivered
to each other an accurate list, as of the Closing Date, showing (i) all
agreements, contracts and commitments of the type listed in Section 11.14 of
the Disclosure Schedule entered into since the date of this Agreement; and
(ii) all other agreements, contracts and commitments related to the
businesses or the assets of the respective parties entered into since the
date of this Agreement, together with true, complete and accurate copies of
all such documents (the "New Contracts"). Each party shall have had the
opportunity to review and approve the New Contracts of the other, and any of
the parties shall have the right to delay the Closing for up to ten (10) days
if it in its sole discretion deems such delay necessary to enable it to
adequately review the New Contracts.
(i) Approval of Counsel. All actions, proceedings, instruments
and documents required or incidental to carry out this Agreement, including
all schedules and exhibits thereto, and all other related legal matters shall
have been approved by Clifford L. Neuman, P.C., counsel to BMTS, and Krys
Boyle, P.C., counsel to CET and CETAC.
(j) No Adverse Information. The investigations with respect to
the parties, the assets and the respective businesses performed by each
party's respective professional advisors and other representatives shall not
have revealed any information concerning the other parties, their assets or
their business that has not been made known to the discovering party, in
writing prior to the date of this Agreement and that, in the opinion of such
party and its advisors, materially and adversely affects the business or
assets of the other party or the viability of the transaction contemplated by
this Agreement.
(k) Ordinary Course of Business. During the period from the date
of this Agreement until the Closing Date, BMTS shall have carried on its
business in the ordinary and usual course, and shall have delivered to CET
and CETAC a certificate to that effect.
(l) Liens. BMTS shall have delivered to CET a reasonably current
lien and judgment search (both state and county levels in each jurisdiction
where the party is qualified to or is doing business or owns material assets)
confirming the absence of any judicial liens, security interests, tax liens
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and similar such liens affecting any of its business or assets. Each and
every lien or encumbrance of any nature, if any, relating to the assets,
business, or the shares of common stock of BMTS shall have been terminated
and released, and proof thereof delivered to CET.
(m) Other Documents. The parties shall have delivered or caused
to be delivered all other documents, agreements, resolutions, certificates or
declarations as each respective party or its attorneys may have reasonably
requested.
(n) Governmental and Regulatory Approvals. The parties shall have
obtained evidence, in form and substance satisfactory to each of them, that
there have been obtained all consents, approvals and authorizations required
by this Agreement, including, without limitation, the following:
(i) CET and BMTS Board of Directors and CET and BMTS Common
Stockholder approval of all the transactions contemplated pursuant to this
Agreement; and
(ii) All regulatory approvals necessary for BMTS to conduct
business in the ordinary course in each jurisdiction where such approval may
be required and the failure to obtain such approval would cause a material
adverse affect to the financial condition, business or operations of BMTS.
(o) Compliance with Securities Laws. CET shall have undertaken
all actions necessary or advisable to consummate the Merger in conformity
with all Governmental and Legal Requirements including, without limitation,
applicable federal and state securities laws.
(p) Appraisal Rights and/or Dissenters' Rights. At or prior to
Closing, no beneficial or record owner of any outstanding shares of BMTS
Common Stock shall have exercised or shall have given notice to CET or BMTS
of their intent to exercise any rights under applicable state law, if any, to
dissent from the Merger or obtain the payment of the fair market value of
such shares of BMTS Common Stock in lieu of participating in the Merger in
accordance with the terms and subject to the conditions set forth herein.
(q) Financial Advisory Fees. At or prior to Closing, all
obligations or commitments of CET and BMTS to their respective financial
advisors and investment bankers shall have been paid or otherwise satisfied
upon terms satisfactory to the parties, and CET and BMTS shall each have been
delivered and received such written consents, approvals, estoppel
certificates or other instruments or undertakings from its advisors or other
third parties as each may deem reasonable, necessary or advisable.
(r) Compliance with Sections 5 and 17 of the Securities Act. The
Board of Directors of CET shall be satisfied that consummation of the Merger
and the issuance of CET Common Stock to the BMTS securityholders is in
compliance with the provisions of Sections 5 and 17 of the Securities Act.
8.3 Conditions to Obligation of BMTS. The obligations of BMTS to
complete the Merger on the Closing date on the terms set forth in this
Agreement is, at the option of BMTS, subject to the satisfaction or waiver by
BMTS of each of the following conditions:
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(a) Accuracy of Representations and Warranties. The
representations and warranties made by CET and CETAC in this Agreement shall
be correct in all material respects on and as of the Closing date with the
same force and effect as though such representations and warranties had been
made on the Closing date.
(b) Compliance with Covenants. All covenants which CET and CETAC
is required to perform or comply with on or before the Closing date shall
have been fully complied with or performed in all material respects.
(c) Corporate Approvals. The Board of Directors and shareholders
of CET and CETAC shall have approved and ratified this Agreement and shall
have authorized the appropriate officers to execute same and fully perform
its terms.
(d) Consents and Approvals. To the extent that any material
lease, mortgage, deed of trust, contract or agreement to which CET and CETAC
is a party shall require the consent of any person to the exchange of CET and
CETAC's shares of common stock or any other transaction provided for herein,
such consent shall have been obtained; provided, however, that CET and CETAC
shall not make, as a condition for the obtaining of any such consent, any
agreements or undertakings not approved in writing by BMTS to the extent that
such condition otherwise has an effect on BMTS or CET and CETAC.
(e) Review and Due Diligence. BMTS and its legal counsel and/or
auditors shall have had the opportunity to complete, and shall have
completed, a satisfactory due diligence investigation of CET and CETAC,
together with a satisfactory review of CET and CETAC's corporate status, the
marketability of title to CET and CETAC's property, and compliance with all
reporting requirements imposed by or on account of any federal or state
securities laws or regulations.
(f) No Governmental Actions. No action or proceeding before any
governmental authority shall have been instituted or threatened to restrain
or prohibit the transactions contemplated by this Agreement, and the parties
hereto shall have delivered to each other certificates dated as of the
Closing Date and executed by such parties, staling that to their Best
Knowledge, no such items exist. No governmental authority shall have taken
any other action as a result of which the management of any of the parties,
in its sole discretion, reasonably deems it inadvisable to proceed with the
transactions contemplated by this Agreement.
(g) No Material Adverse Change. No material adverse change in the
business, property or assets of any party hereto shall have occurred, and no
loss or damage to any of the assets, whether or not covered by insurance,
with respect to any party hereto has occurred, and the parties shall have
delivered to each other certificates dated as of the Closing Date and
executed by each of the parties to all such effects.
(h) Update of Contracts. The parties shall have delivered to each
other an accurate list, as of the Closing Date, showing (i) all agreements,
contracts and commitments of the type listed in Section 11.14 of the
Disclosure Schedule entered into since the date of this Agreement; and (ii)
all other agreements, contracts and commitments related to the businesses or
the assets of the respective parties entered into since the date of this
Agreement, together with true, complete and accurate copies of all such
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documents (the "New Contracts"). Each party shall have had the opportunity to
review the New Contracts of the other, and any of the parties shall have the
right to delay the Closing for up to ten (10) days if it in its sole
discretion deems such delay necessary to enable it to adequately review the
New Contracts.
(i) Approval of Counsel. All actions, proceedings, instruments
and documents required or incidental to carry out this Agreement, including
all schedules and exhibits thereto, and all other related legal matters shall
have been approved as to substance and form by Clifford L. Neuman, P.C.,
counsel to BMTS, and Krys Boyle, P.C., counsel to CET and CETAC.
(j) No Adverse Information. The investigations with respect to
the parties, the assets and their respective businesses performed by each
party's respective professional advisors and other representatives shall not
have revealed any information concerning the other panes, their assets or
their business that has not been made known to the discovering party, in
writing prior to the date of this Agreement and that, in the opinion of such
party and its advisors, materially and adversely affects the business or
assets of the other party or the viability of the transaction contemplated by
this Agreement.
(k) Ordinary Course of Business. During the period from the date
of this Agreement until the Closing Date, CET shall have carried on its
business in the ordinary and usual course, and shall have delivered to BMTS a
certificate to that effect.
(1) Other Documents. The parties shall have delivered or caused
to be delivered all other documents, agreements, resolutions, certificates or
declarations as each respective party or its attorneys may have reasonably
requested.
(m) Governmental and Regulatory Approvals. The parties shall have
obtained evidence, in form and substance satisfactory to each of them, that
there have been obtained all consents, approvals and authorizations required
by this Agreement, including, without limitation, the following:
(i) CET and BMTS Board of Directors and CET and BMTS Common
Stockholder approval of all the transactions contemplated pursuant to this
Agreement; and
(ii) All regulatory approvals necessary for CET and BMTS to
conduct business in the ordinary course in each jurisdiction where such
approval may be required.
(n) Compliance with Securities Laws. BMTS shall have undertaken
all actions necessary or advisable to consummate the Merger in conformity
with all Governmental and Legal Requirements including, without limitation,
applicable federal and state securities laws.
(o) Appraisal Rights and/or Dissenters' Rights. At or prior to
Closing, no beneficial or record owner of any outstanding shares of BMTS
Common Stock shall have exercised or shall have given notice to CET or BMTS
of their intent to exercise any rights under applicable state law, if any, to
dissent from the Merger or obtain the payment of the fair market value of
such shares of BMTS Common Stock in lieu of participating in the Merger in
accordance with the terms and subject to the conditions set forth herein.
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(p) Financial Advisory Fees. At or prior to Closing, all
obligations or commitments of CET and BMTS to their respective financial
advisors and investment bankers shall have been paid or otherwise satisfied
upon terms satisfactory to the parties, and CET and BMTS shall each have been
delivered and received such written consents, approvals, estoppel
certificates or other instruments or undertakings from its advisors or other
third parties as each may deem reasonable, necessary or advisable.
(q) Compliance with Sections 5 and 17 of the Securities Act. The
Board of Directors of BMTS shall be satisfied that consummation of the Merger
and the issuance of CET Common Stock to the BMTS securityholders is in
compliance with the provisions of Sections 5 and 17 of the Securities Act.
(r) Reverse Stock Split. The reserve stock split shall have been
consummated in accordance with Section 4.4 hereof.
(s) CET Corporate Documents. The CET Amended and Restated
Articles of Incorporation shall have been amended to change the Company's
name to "BioMedical Technology Solutions, Inc" and to increase the authorized
common stock from 20,000,000 shares to 100,000,000 shares and to increase the
authorized preferred stock from 5,000,000 shares to 10,000,000 shares.
(t) CET Equity Incentive Plan. CET Board of Directors and
Shareholders shall have adopted and approved a new 2008 Equity Incentive Plan
in accordance with Section 4.3 hereof.
(u) CET Redomestication. The Board of Directors and Shareholders
of CET shall have ratified and approved the redomestication of CET from the
State of California to the State of Colorado.
(v) CET Financial Condition. CET assets and liabilities shall be
in accordance with the covenants set forth in Section 4.7 hereof.
(w) Idemnity Agreement. Community Builders shall have executed
and delivered an Indemnity Agreement substantially in the form of Exhibit
4.7(a) hereto.
8.4 Specific Items to be Delivered at the Closing. The parties shall
deliver the following items to the appropriate party at the Closing of the
transactions contemplated by this Agreement.
(a) To be delivered by BMTS :
(i) Copy of corporate resolutions authorizing the execution
of this Agreement, and the consummation by BMTS of the transactions
contemplated by this Agreement.
(ii) A certificate of the President of BMTS stating that the
representations and warranties of BMTS set forth in this Agreement are true
and correct. Said certificate shall further verify and affirm that all
consents or waivers, if any, which may be necessary to execute and deliver
this Agreement have been obtained and are in full force and effect.
(iii) A certificate dated the Closing Date, signed by the
Chief Executive Officer and the Chief Financial Officer of BMTS, in form and
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substance reasonably satisfactory to the other party and its legal counsel,
certifying that all conditions precedent set forth in this Agreement to the
obligations of BMTS to close, have been fulfilled, and that no event of
default hereunder and no event which, with the giving of notice or passage of
time, or both, would be an event of default, has occurred as of such date.
(iv) Certificates dated the Closing Date, signed by the
Secretary of BMTS, (i) certifying resolutions duly adopted by the Board of
Directors and Shareholders of BMTS, authorizing the execution of this
Agreement and all of the other transactions to be consummated pursuant
thereto; (ii) certifying the names and incumbency of the officers of BMTS who
are empowered to execute the foregoing documents for and on behalf of such
company; (iii) certifying the authenticity of copies of the Articles of
Incorporation and Bylaws of BMTS; and (iv) certifying the authenticity of a
reasonably current Certificate of Good Standing, from all jurisdictions in
which the company is qualified to conduct business.
(v) Articles of Merger and Certificate of Merger in proper
form to be filed with the Secretary of State of Colorado in such form as may
be required to consummate the Merger as of the Effective Time.
(b) To be delivered by Shareholders of BMTS :
(i) Certificate or certificates representing 100% of the
issued and outstanding common shares of BMTS, which stock certificates shall
be endorsed in favor of CET.
(ii) Fully executed Subscription Agreements substantially in
the form of Exhibit 5.3.
(c) To be delivered by CET and CETAC:
(i) Certificate or certificates representing 78,176,884
shares of CET Common Stock, subject to adjustment provided for herein, which
certificates shall be issued in the names of each Shareholder in the numbers
set forth in Section 5.1 hereof;
(ii) Copy of corporate resolution authorizing the execution
of this Agreement and the consummation by CET and CETAC of the transactions
contemplated by this Agreement, including, but not limited to, the issuance
of CET Common Stock in the amounts and manner set forth in Section 5.1 above;
(iii) A certificate dated the Closing Date, signed by the
Chief Executive Officer and the Chief Financial Officer of CET and CETAC, in
form and substance reasonably satisfactory to the other party and its legal
counsel, certifying that all conditions precedent set forth in this Agreement
to the obligations of CET and CETAC to close, have been fulfilled, and that
no event of default hereunder and no event which, with the giving of notice
or passage of time, or both, would be an event of default, has occurred as of
such date.
(iv) Certificates dated the Closing Date, signed by the
Secretary of CET and CETAC, (i) certifying resolutions duly adopted by the
Board of Directors of CET and CETAC, authorizing the execution of this
Agreement and all of the other transactions to be consummated pursuant
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thereto; (ii) certifying the names and incumbency of the officers of CET and
CETAC who are empowered to execute the foregoing documents for and on behalf
of such company; (iii) certifying the authenticity of copies of the Articles
of Incorporation and Bylaws of CET and CETAC; and (iv) certifying the
authenticity of a reasonably current Certificate of Good Standing, from
all jurisdictions in which CET and CETAC are qualified to conduct business.
(v) Articles of Merger and Certificate of Merger in proper
form to be filed with the Secretary of State of Colorado in such form as may
be required to consummate the Merger as of the Effective Time.
(vi) Indemnity Agreement of Community Builders.
SECTION 9: REPRESENTATIONS AND WARRANTIES OF BMTS
As a material inducement to CET to enter into this Agreement and with
the understanding and expectations that CET will be relying thereon in
consummating the Merger contemplated hereunder, BMTS (hereinafter BMTS shall
be referred to as the "Corporation" unless the context otherwise requires for
the purposes of this Section 9 only) hereby represents and warrants as
follows:
9.1 Organization and Standing. The Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the state
of its incorporation, and has all requisite corporate power and authority to
own its assets and properties and to carry on its business as it is now being
conducted.
9.2 Subsidiaries, Etc. The Corporation does not have any direct or
indirect Ownership Interest in any corporation, partnership, joint venture,
association or other business enterprise.
9.3 Qualification. The Corporation is not qualified to engage in
business as a foreign corporation in any state, and there is no other
jurisdiction wherein the character of the properties presently owned by the
Corporation or the nature of the activities presently conducted by the
Corporation makes necessary the qualification, licensing or domestication of
the Corporation as a foreign corporation.
9.4 Corporate Authority. Except as set forth on Section 9.4 of the
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby nor compliance by
the Corporation with any on the provisions hereof will:
(a) Conflict with or result in a breach of any provision of its
Articles of Incorporation or By-Laws or similar documents of any Subsidiary;
(b) Result in a default (or give rise to any right of termination,
cancellation, or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation to which the Corporation is a party, or by
which any of its properties or assets may be bound except for such default
(or right of termination, cancellation, or acceleration) as to which
requisite waivers or consents shall either have been obtained by the
Corporation prior to the Closing Date or the obtaining of which shall have
been waived by CET; or
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(c) Violate any order, writ, injunction, decree or, to the
Corporation's Best Knowledge, any statute, rule or regulation applicable to
the Corporation or any of its properties or assets. No consent or approval
by any Governmental Authority is required in connection with the execution
and delivery by the Corporation of this Agreement or the consummation by the
Corporation of the transactions contemplated hereby, except for possible
notice under plant closing laws.
9.5 Capitalization of the Corporation. The authorized capital stock of
BMTS consists of 40,000,000 shares of Common Stock, no par value per share,
of which no more than 10,200,000 shares will issued and outstanding as of the
Effective Date, and 10,000,000 shares of preferred, no par value, of which
no shares are issued and outstanding. The names of one hundred percent
(100%) of the record owners of the issued and outstanding Common Stock are
set forth in Section 9.5 of the Disclosure Schedule. All issued and
outstanding shares of BMTS Common Stock have been duly authorized and validly
issued and are fully paid and non-assessable, free and clear of any liens,
encumbrances, claims of any kind and nature except restrictions against
transferability without compliance with applicable federal and state
securities laws. As of the Effective Time of the Merger, BMTS will have
issued and outstanding options and warrants exercisable to purchase, in the
aggregate, not more than 1.6 million shares of common stock. There are no
other outstanding rights, options, warrants, subscriptions, calls,
convertible securities or agreement of any character or nature under which
the Corporation is or may become obligated to issue any shares of its capital
stock of any kind, other than those shares indicated in this Section as
presently outstanding. There are no voting trusts, stockholder agreements,
or other voting arrangements to which the Corporation is a party or, to the
Best Knowledge of the Corporation, to which any of the Corporation's
stockholders is a party or bound.
9.6 Taxes. Except as set forth in Section 9.6 of the Disclosure
Schedule:
(a) The Corporation has filed (or has obtained extensions for
filing) all income, excise, sales, corporate franchise, property, payroll and
other tax returns or reports required to be filed by it, as of the date
hereof by the United States of America, any state or other political
subdivision thereof or any foreign country and has paid all Taxes or
assessments relating to the time periods covered by such returns or reports;
and
(b) The Corporation has paid all tax liabilities imposed or
assessed by any governmental authority for all periods prior to the Closing
Date for which such taxes have become due and payable and has received no
notice from any such governmental authority of any deficiency or delinquency
with respect to such obligation. The Corporation is not currently undergoing
any audit conducted by any taxing authority and has received no notice of
audit covering any prior period for which taxes have been paid or are or will
be due and payable prior to the Closing Date. There are no present disputes
as to taxes of any nature payable by the Corporation.
9.7 No Actions, Proceeding, Etc. There is no action or proceeding
(whether or not purportedly on behalf of the Corporation) pending or to its
Best Knowledge threatened by or against the Corporation which might result in
any material adverse change in the condition, financial or otherwise, of the
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Corporation's business or assets. No order, writ or injunction or decree has
been issued by, or requested of any court or Governmental Agency which does,
nor may result in, any material adverse change in the Corporation's assets or
properties or in the financial condition or the business of the Corporation.
Except for liabilities referred to in attached Section 9.7 of the Disclosure
Schedule, the Corporation is not liable for damages to any employee or former
employee as a result of any violation of any state, federal or foreign laws
directly or indirectly relating to such employee or former employee.
9.8 Post Balance Sheet Changes. Except as set forth on the attached
Section 9.8 of the Disclosure Schedule and as contemplated by this Agreement,
since December 31, 2007, the Corporation has not (a) issued, bought, redeemed
or entered into any agreements, commitments or obligations to sell, buy or
redeem any shares of its capital stock; (b) incurred any obligation or
liability (absolute or contingent), other than current liabilities incurred,
and obligations under contracts entered into, in the ordinary course of
business; (c) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current
liabilities incurred in the ordinary course of business; (d) mortgaged,
pledged or subjected to lien charges, or other encumbrance any of its assets,
other than the lien of current or real property taxes not yet due and
payable; (e) waived any rights of substantial value, whether or not in the
ordinary course of business; (f) suffered any damage, destruction or loss,
whether or not covered by insurance, materially and adversely affecting its
assets or its business; (g) made or suffered any amendment or termination of
any material contract or any agreement which adversely affects its business;
(h) received notice or had knowledge of any labor trouble other than routine
grievance matters, none of which is material; (i) increased the salaries or
other compensation of any of its directors, officers or employees or made any
increase in other benefits to which employees may be entitled, other than
employee salary increases made in the ordinary course of business and
reflected on an exhibit hereto; (j) sold, transferred or otherwise disposed
of any of its assets, other than in the ordinary course of business; (k)
declared or made any distribution or payments to any of its shareholders,
officers or employees, other than wages and salaries made to employees in the
ordinary course of business; (l) revalued any of its assets; or (m) entered
into any transactions not in the ordinary course of business.
9.9 No Breaches. The Corporation is not in violation of, and the
consummation of the transactions contemplated hereby do not and will not
result in any material breach of, any of the terms or conditions of any
mortgage, bond, indenture, agreement, contract, license or other instrument
or obligation to which the Corporation is a party or by which its assets are
bound; nor will the consummation of the transactions contemplated hereby
cause BMTS to violate any applicable statute, regulation, judgment, writ,
injunction or decree of any court, threatened or entered in a proceeding or
action in which the Corporation is, was or may be bound or to which any of
the Corporation's assets are subject.
9.10 Condition of the Corporation's Assets. Except as set forth in
Section 9.10 of the Disclosure Schedule, BMTS's assets are currently in good
and usable condition and there are no defects or other conditions which, in
the aggregate, materially and adversely affect the operation or values of
such assets taken as a whole. Except as disclosed in Section 9.10 of the
Disclosure Schedule, no person other than BMTS (including any officer or
employee of the Corporation) has any proprietary interest in any know-how or
other intangible assets used by the Corporation in the conduct of its
business.
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9.11 Corporate Contracts and Proceedings. This Agreement has been
duly authorized by all necessary corporate action on behalf of BMTS, has been
duly executed and delivered by an authorized officer of BMTS, and is a valid
and binding Agreement on the part of BMTS that is enforceable against BMTS in
accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, fraudulent transfers,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and to judicial limitations on the enforcement of the remedy
of specific performance and other equitable remedies.
9.12 Registered Rights and Proprietary Information.
(a) Section 9.12 of the Disclosure Schedule contains a true and
complete list of all patents, letters patent and patent applications, service
marks, trademark and service mark registrations and applications, copyright,
copyright registrations and applications, grants of licenses and rights to
the Corporation with respect to the foregoing, both domestic and foreign,
claimed by the Corporation or used or proposed to be used by the Corporation
in the conduct of its business (collectively herein, "BMTS Registered
Rights"). Section 9.12 of the Disclosure Schedule also contains a true and
complete list of all and every trade secret, know-how, process, formula,
discovery, development, research, design, technique, customer and supplier
list, contracts, product development plans, product development concepts,
author contracts, marketing and purchasing strategy, invention, and any other
matter required for, incident to, or related to the conduct of its business
(hereafter collectively the "BMTS Proprietary Information"). Except as
described in Section 9.12 of the Disclosure Schedule, the Corporation is not
obligated or under any liability whatever to make any payments by way of
royalties, fees or otherwise to any owner or licensor of, or other claimant
to, any BMTS Registered Right or BMTS Proprietary Information with respect to
the use thereof in the conduct of its business or otherwise.
(b) Except as described in Section 9.12 of the Disclosure
Schedule, to the Corporation's Best Knowledge, the Corporation owns and has
the unrestricted right to use the BMTS Registered Rights and BMTS Proprietary
Information required for or incident to the design, development, manufacture,
operation, sale and use of all products and services sold or rendered or
proposed to be sold or rendered by the Corporation or relating to the conduct
or proposed conduct of its business free and clear of any right, title,
interest, equity or claim of others. As soon as practicable following the
execution of this Agreement, and except as described in Section 9.12 of the
Disclosure Schedule, the Corporation agrees to take all necessary steps
(including without limitation entering into appropriate confidentiality,
assignment of rights and non-competition agreements with all officers,
directors, employees and consultants of the Corporation and others with
access to or knowledge of the BMTS Proprietary Information) to safeguard and
maintain the secrecy and confidentiality of, and its proprietary rights in,
the BMTS Proprietary Information and all related documentation and
intellectual property rights therein necessary for the conduct or proposed
conduct of its business.
(c) Except as described in Section 9.12 of the Disclosure
Schedule, the Corporation has not sold, transferred, assigned, licensed or
subjected to any right, lien, encumbrance or claim of others, any BMTS
Proprietary Information, including without limitation any BMTS Registered
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Right, or any interest therein, related to or required for the design,
development, manufacture, operation, sale or use of any product or service
currently under development or manufactured, or proposed to be developed,
sold or manufactured, by it. Section 9.12 of the Disclosure Schedule
contains a true and complete list and description of all licenses of BMTS
Proprietary Information granted to the Corporation by others or to others by
the Corporation. Except as described in Section 9.12 of the Disclosure
Schedule hereto, there are no claims or demands of any person pertaining to,
or any proceedings that are pending or threatened, which challenge the rights
of the Corporation in respect of any BMTS Proprietary Information used in the
conduct of its business.
(d) Except as described in Section 9.12 of the Disclosure
Schedule, the Corporation owns and on the Closing Date shall own, has and
shall have, holds and shall hold, exclusively all right, title and interest
in the BMTS Registered Rights, free and clear of all liens, encumbrances,
restrictions, claims and equities of any kind whatsoever, has and shall have
the exclusive right to use, sell, license or dispose of, and has and shall
have the exclusive right to bring action for the infringement of the BMTS
Registered Rights and the BMTS Proprietary Information. To the Best
Knowledge of Corporation, the marketing, promotion, distribution or sale by
the Corporation of any products or interests subject to the BMTS Registered
Rights or making use of BMTS Proprietary Information shall not constitute an
infringement of any patent, copyright, trademark, service mark or
misappropriation or violation of any other party's proprietary rights or a
violation of any license or agreement by the Corporation. Except as described
in Section 9.12 of the Disclosure Schedule, to the knowledge of the
Corporation after due inquiry no facts or circumstances exist that could
result in the invalidation of any of the BMTS Registered Rights.
9.13 No Liens or Encumbrances. The Corporation has good and marketable
title to all of the property and assets, tangible and intangible, employed in
the operations of its business, free of any material mortgages, security
interests, pledges, easements or encumbrances of any kind whatsoever.
9.14 Legal Proceedings and Compliance with Law. Except as set forth in
Section 9.14 of the Disclosure Schedule, BMTS has not received notice of any
legal, administrative, arbitration or other proceeding or governmental
investigation pending or threatened (including those relating to the health,
safety, employment of labor, or protection of the environment) pertaining to
BMTS which might result in the aggregate in money damages payable by BMTS in
excess of insurance coverage or which might result in a permanent injunction
against BMTS. Except as set forth in Section 9.14 of the Disclosure
Schedule, BMTS has substantially complied with, and is not in default in any
respect under any applicable laws, ordinances, requirements, regulations, or
orders applicable to the business of BMTS, the violation of which might
materially and adversely affect it. Except as set forth in Section 9.14 of
the Disclosure Schedule, BMTS is not a party to any agreement or instrument,
nor is it subject to any charter or other corporate restriction or any
judgment, order, writ, injunction, decree, rule, regulation, code or
ordinance which materially and adversely affects, or might reasonably be
expected materially and adversely to affect the business, operations,
prospects, property, assets or condition, financial or otherwise, of BMTS.
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9.15 Representations and Warranties. The representations and
warranties contained in this Agreement shall be true on and as of the Closing
Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date. Such representations
and warranties shall survive the Closing Date and shall remain operative in
full force and effect for the period of eighteen months from the date of
Closing regardless of any investigation at any time made by or on behalf of
CET and shall not be deemed merged in any document or instruction so executed
and/or delivered by BMTS or Shareholders.
9.16 Absence of Questionable Payments. To the Best Knowledge of BMTS,
neither BMTS, nor any director, officer, agent, employee or other person
acting on any its behalf has (i) used any corporate or other funds for
unlawful contributions, payments, gifts or entertainment, or made any
unlawful expenditures relating to political activity to government officials
or others or established or maintained any unlawful or unrecorded funds in
violation of Section 30A of the Exchange Act or any other applicable foreign,
federal or state law; or (ii) accepted or received any unlawful
contributions, payments, expenditures or gifts.
SECTION 10: COVENANTS OF BMTS
10.1 Preservation of Business. Until Closing, BMTS shall use its best
efforts to cause BMTS to:
(a) Preserve intact the present business organization of BMTS;
(b) Maintain its property and assets in its present state of
repair, order and condition, reasonable wear and tear excepted;
(c) Preserve and protect the goodwill and advantageous
relationships of BMTS with its customers and all other persons having
business dealings with BMTS;
(d) Preserve and maintain in force all licenses, permits,
registrations, franchises, patents, trademarks, tradenames, trade secrets,
service marks, copyrights, bonds and other similar rights of BMTS; and
(e) Comply with all laws applicable to the conduct of its business
10.2 Ordinary Course. Until Closing, BMTS shall conduct its business
only in the usual, regular and ordinary course, in substantially the same
manner as previously, and shall not make any substantial change to its
methods of management or operation in respect of such business or property.
Without limiting the foregoing, BMTS shall not, with respect to BMTS:
(a) Sell, mortgage, pledge or encumber or agree to sell, mortgage,
pledge or encumber, any of its property or assets, other than in the ordinary
course of business;
(b) Incur any obligation (contingent or otherwise) or purchase,
acquire, transfer, or convey, any material assets or property or enter into
any contract or commitment, except in the ordinary course of business.
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10.3 Negative Covenants. Until Closing, except as contemplated by this
Agreement or as disclosed in the Disclosure Schedule to this Agreement, from
the date hereof until the Closing Date, unless and until CET otherwise
consents in writing, BMTS will not (a) change or alter the physical contents
or character of the inventories of its business, so as to materially affect
the nature of the Corporation's business or materially and adversely change
the total dollar valuation of such inventories, other than in the ordinary
course of business; (b) incur any obligations or liabilities (absolute or
contingent) other than current liabilities incurred and obligations under
contracts entered into in the ordinary course of business; (c) mortgage,
pledge or voluntarily subject to lien, charge or other encumbrance any
assets, tangible or intangible, other than the lien of current property taxes
not due and payable; (d) sell, assign or transfer any of its assets or cancel
any debts or claims, other than in the ordinary course of business; (e) waive
any right of any substantial value; (f) declare or make any payment or
distribution to Shareholders or issue, purchase or redeem any shares of its
capital stock or other equity securities or issue or sell any rights to
acquire the same or effect any stock split, recapitalization, combination, or
reclassification of its capital stock, or reorganization; (g) grant any
increase in the salary or other compensation of any of its directors,
officers, or employees or make any increase in any benefits to which such
employees might be entitled or enter into any employment agreement or
consulting agreement; (h) institute any bonus, benefit, profit sharing, stock
option, pension, retirement plan or similar arrangement, or make any changes
in any such plans or arrangements presently existing; (i) enter into any
transactions or series of transactions other than in the ordinary course of
business; (j) amend or propose to amend its Articles of Incorporation or By-
Laws; (j) make any change in accounting methods, principles or practices; (k)
authorize capital expenditures or make any acquisition of, or investment in,
assets or stock of any other Person; (l) enter into or amend any material
contract or agreement other than in the ordinary course of business; (m) make
any tax election or settle or compromise any material federal, state, local
or foreign income tax liability; (n) permit any material insurance policy to
be canceled or terminated, except in the ordinary course of business; (o)
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person or make any loans or advances;
(p) maintain its real and personal properties in as good a state of operating
condition and repair as they are on the date of this Agreement, except for
ordinary wear and tear or insured casualty in amounts less than $5,000; (q)
terminate or modify any material leases, contracts, licenses, and permits or
other authorizations or agreements affecting its business or its real and/or
personal property, or the operation thereof, or enter into any additional
lease or contract requiring expenditure by it of any amount affecting such
properties or the operation thereof; or (r) discharge, satisfy or pay any
liens, encumbrances, obligations or liabilities relating to it, whether
absolute or contingent (including litigation claims), other than liabilities
shown in Section 4.1 of the Disclosure Schedule and liabilities incurred
after the date thereof in the ordinary course of business, and no such
discharge, satisfaction or payment shall be effected other than in accordance
with the ordinary payment terms relating to the liability discharged,
satisfied or paid.
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10.4 Additional Covenants.
(a) BMTS will promptly pay and discharge, or cause to be paid and
discharged, when due and payable, all lawful taxes, assessments, and
governmental charges or levies imposed upon the income, profits, property or
business of BMTS or any subsidiary; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if BMTS
shall have set aside on its books adequate reserves therefor; and provided,
further, that BMTS will pay all such taxes, assessments, charges or levies
forthwith upon the commencement of proceedings to foreclose any lien that may
have attached as security therefor. BMTS will promptly pay or cause to be
paid when due, or in conformance with customary trade terms, all other
indebtedness incident to the operations of BMTS;
(b) BMTS will keep its properties and those of its subsidiaries in
good repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and BMTS will at all times
comply with the provisions of all material leases to which any of them is a
party or under which any of them occupies property so as to prevent any loss
or forfeiture thereof or thereunder;
(c) BMTS will keep its assets that are of an insurable character
insured by financially sound and reputable insurers against loss or damage by
fire, extended coverage and explosion insurance in amounts customary for
companies in similar businesses similarly situated; and immediately following
the Closing, BMTS will maintain, with financially sound and reputable
insurers, insurance against other hazards, risks and liabilities to persons
and property to the extent and in the manner customary for companies in
similar businesses similarly situated;
(d) BMTS will keep true records and books of account in which
full, true and correct entries will be made of all dealings or transactions
in relation to its business and affairs in accordance with its past practices
consistently applied;
(e) BMTS will comply with the requirements of all applicable laws,
rules, regulations and orders of any governmental authority, a breach of
which could have a material adverse effect on its business or credit;
(f) BMTS shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses and other rights to use
patents, processes, licenses, trademarks, trade names or copyrights owned or
possessed by it or any subsidiary and deemed by BMTS to be necessary to the
conduct of its business;
(g) BMTS will, consistent with its practices in the ordinary
course of business, endeavor to retain its business relationships with its
customers and suppliers that it believes to be advantageous; and
(h) BMTS shall deliver to CET copies of its statements of
operation and financial condition and similar statements as and when prepared
(if at all) in the ordinary course of its business.
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10.5 Access to Books and Records, Premises, Etc. From the date of this
Agreement through the Closing Date, BMTS will grant CET and its authorized
representatives reasonable access during normal business hours to its books
and records, premises, products, employees and customers and other parties
with whom it has contractual relations during reasonable business hours and
in a manner not to disrupt or interfere with BMTS's business relationships
for purposes of enabling CET to fully investigate the business of BMTS.
10.6 Compensation. Except as contemplated by this Agreement, BMTS
shall not enter into or agree to enter into any employment contract or
agreement for consulting, professional, or other services which will
adversely and materially affect the operation of BMTS prior to the Closing
Date, except for any extensions of said contracts or agreements on
substantially the same terms and conditions as were previously in effect.
10.7 No Solicitation.
(a) Except in connection with the transactions contemplated by
this Agreement, BMTS shall not, nor shall it permit any of its subsidiaries
to, nor shall it authorize or permit any officer, director or employee of or
any investment banker, attorney or other advisor or representative of, BMTS
or any of its subsidiaries to, (i) solicit, initiate or encourage the
submission of, any takeover proposal, (ii) enter into any agreement with
respect to any takeover proposal or (iii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
takeover proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by any
executive officer of BMTS or any of its subsidiaries or any investment
banker, attorney or other advisor or representatives of BMTS or any of its
subsidiaries or otherwise, shall be deemed to be a breach of this Section by
BMTS. For purposes of this Agreement, "takeover proposal" means any proposal
for a merger, consolidation or reorganization or other business combination
involving BMTS or any of its subsidiaries or any proposal or offer to acquire
in any manner, directly or indirectly, an equity interest in, any voting
securities of, or options, rights, warrants or other interests convertible or
exercisable for or into such voting securities, or a substantial or material
portion of the assets or business of BMTS or any of its subsidiaries, other
than the transactions contemplated by this Agreement.
(b) Except upon a material breach of this Agreement by CET or
CETAC or following termination hereof and except for action permitted or
contemplated by this Agreement, including a party's right to terminate this
Agreement under certain circumstances, neither the Board of Directors of BMTS
nor any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to CET, the approval or
recommendation by such Board of Directors of any such committee of this
Agreement or the Exchange or (ii) approve or recommend, or propose to approve
or recommend, any takeover proposal.
(c) BMTS promptly shall advise CET orally and in writing of any
takeover proposal or any inquiry with respect to or which could lead to any
takeover proposal and the identity of the person making any such takeover
proposal or inquiry. BMTS will keep CET fully informed of the status and
details of any such takeover proposal or inquiry.
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(d) The provisions of this Section 10.7 shall not be construed to
prevent any investment banker, attorney or other advisor or representative of
BMTS to engage in discussions with third parties in the ordinary course of
business with respect to transactions not involving the parties to this
Agreement.
SECTION 11: REPRESENTATIONS AND WARRANTIES OF CET AND CETAC
As a material inducement to BMTS to enter into this Agreement and with
the understanding and expectation that BMTS will be relying thereon in
consummating the Merger contemplated hereunder, CET and CETAC (which
hereafter may collectively be referred to in Sections 11 and 12 only as the
"Corporation") represent and warrant as follows:
11.1 Organization and Standing. CET and CETAC are corporations duly
organized, validly existing and in good standing under the laws of the States
of California and Colorado, respectively, and have all requisite corporate
power and authority to own their assets and properties and to carry on their
businesses as they are now being conducted.
11.2 Subsidiaries, etc. CETAC is a subsidiary of and is wholly owned
by CET. Other than its ownership interest in CETAC, CET has no direct or
indirect ownership interest in any corporation, partnership, joint venture,
association or other business enterprise. CETAC does not have any direct or
indirect ownership interest in any corporation, partnership, joint venture,
association or other business enterprise, and, at the Effective Time, will
have no assets and no liabilities.
11.3 Qualification. CET, and CETAC are not qualified to engage in
business as foreign corporations in any state, and there is no other
jurisdiction wherein the character of the properties presently owned by CET
and CETAC or the nature of the activities presently conducted by CET and
CETAC make necessary the qualification, licensing or domestication of CET or
CETAC as foreign corporations.
11.4 Corporate Authority. Except as set forth in Section 11.4 of the
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby nor compliance by
CET and CETAC with any on the provisions hereof will:
(a) Conflict with or result in a breach of any provision of its
Articles of Incorporation or By-Laws or similar documents of any Subsidiary;
(b) Result in a default (or give rise to any right of termination,
cancellation, or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation to which the Corporation is a party, or by
which any of its properties or assets may be bound except for such default
(or right of termination, cancellation, or acceleration) as to which
requisite waivers or consents shall either have been obtained by the
Corporation prior to the Closing Date or the obtaining of which shall have
been waived by BMTS; or
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(c) Violate any order, writ, injunction, decree or, to the
Corporation's Best Knowledge, any statute, rule or regulation applicable to
the Corporation or any of its properties or assets. No consent or approval
by any Governmental Authority is required in connection with the execution
and delivery by the Corporation of this Agreement or the consummation by the
Corporation of the transactions contemplated hereby, except for possible
notice under plant closing laws.
11.5 SEC Documents; Financial Statements. The Common Stock of CET is
registered pursuant to Section 12(g) of the Exchange Act. BMTS has had the
opportunity to obtain on BMTS's behalf true and complete copies of the SEC
Documents (except for exhibits and incorporated documents). CET has not
provided to BMTS any information which, according to applicable law, rule or
regulation, should have been disclosed publicly by CET but which has not been
so disclosed, other than with respect to the transactions contemplated by
this Agreement.
As of their respective dates, all of CET's reports, statements and other
filings with the Commission (the "SEC Documents") complied in all material
respects with the requirements of the Act or the Exchange Act as the case may
be and the rules and regulations of the Commission promulgated thereunder and
other federal, state and local laws, rules and regulations applicable to such
SEC Documents, and none of the SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of CET included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the Commission or other applicable rules and
regulations with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii)
in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of CET as of the
dates thereof and the results of operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
11.6 Capitalization of the Corporation. The authorized capital stock
of CET consists entirely of 20,000,000 shares of Common Stock, no par value,
and 5,000,000 shares of Preferred Stock, no par value. As of the Closing
Date, there will be no more than 5,626,989 shares of Common Stock and no
shares of Preferred Stock issued and outstanding. All outstanding shares of
CET's capital stock have been validly issued, are fully paid and non-
assessable, and are not subject to pre-emptive rights. The issuance of the
shares of CET Common Stock to be issued to the BMTS Shareholders on the
Closing Date in accordance with Section 5.1 hereof have been duly approved by
the Directors of CET and will, upon their issuance, have been validly issued
and will be fully paid and non-assessable, free of any liens, encumbrances
and claims of any kind and nature except restrictions against transferability
without compliance with applicable federal and state securities laws. Except
as described in CET's SEC Documents, there are no equity securities of CET
authorized, issued or outstanding, and except as set forth in Section 11.6 of
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the Disclosure Schedule, there are no authorized, issued or outstanding
subscriptions, options, warrants, contracts, calls, commitments or other
purchase rights of any nature or character relating to any of CET's capital
stock, equity securities, debt or other securities convertible into stock or
equity securities of CET. As of the date of this Agreement, there are no
outstanding contractual obligations of CET to repurchase, redeem or otherwise
acquire any shares of capital stock of CET. There are no voting trusts,
stockholder agreements or other voting arrangements to which the Corporation
is a party or, to the Best Knowledge of CET, to which any of the CET Common
Stockholders is a party or bound.
11.7 No Actions, Proceedings, Etc. Except as listed in Section 11.7 of
the Disclosure Schedule, there is no action or proceeding (whether or not
purportedly on behalf of the Corporation) pending or to its knowledge
threatened by or against the Corporation, which might result in any material
adverse change in the condition, financial or otherwise, of the Corporation's
business or assets. No order, writ or injunction or decree has been issued
by, or requested of any court or Governmental Agency which does nor may
result in any material adverse change in the Corporation's assets or
properties or in the financial condition or the business of the Corporation.
The Corporation is not liable for damages to any employee or former employee
as a result of any violation of any state, federal or foreign laws directly
or indirectly relating to such employee or former employee.
11.8 Taxes. Except as set forth in Section 11.8 of the Disclosure
Schedule:
(a) The Corporation has filed (or has obtained extensions for
filing) all income, excise, sales, corporate franchise, property, payroll and
other tax returns or reports required to be filed by it, as of the date
hereof by the United States of America, any state or other political
subdivision thereof or any foreign country and has paid all Taxes or
assessments relating to the time periods covered by such returns or reports;
and
(b) The Corporation has paid all tax liabilities imposed or
assessed by any governmental authority for all periods prior to the Closing
Date for which such taxes have become due and payable and has received no
notice from any such governmental authority of any deficiency or delinquency
with respect to such obligation. The Corporation is not currently undergoing
any audit conducted by any taxing authority and has received no notice of
audit covering any prior period for which taxes have been paid or are or will
be due and payable prior to the Closing Date. There are no present disputes
as to taxes of any nature payable by the Corporation.
11.9 Post Balance Sheet Changes. Except as set forth in Section 11.9
of the Disclosure Schedule and as contemplated by this Agreement, since the
date of the latest financial statements, the Corporation has not (a) issued,
bought, redeemed or entered into any agreements, commitments or obligations
to sell, buy or redeem any shares of its capital stock, including but not
limited to any options or warrants to purchase any securities of the
Corporation or any securities convertible into capital stock of the
Corporation; (b) incurred any obligation or liability (absolute or
contingent), other than current liabilities incurred, and obligations under
contracts entered into, in the ordinary course of business; (c) discharged or
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satisfied any lien or encumbrance or paid any obligation or liability
(absolute or contingent), other than current liabilities incurred in the
ordinary course of business; (d) mortgaged, pledged or subjected to lien
charges, or other encumbrance any of its assets, other than the lien of
current or real property taxes not yet due and payable; (e) waived any rights
of substantial value, whether or not in the ordinary course of business; (f)
suffered any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting its assets or its business; (g)
made or suffered any amendment or termination of any material contract or any
agreement which adversely affects its business; (h) received notice or had
knowledge of any labor trouble other than routine grievance matters, none of
which is material; (i) increased the salaries or other compensation of any of
its directors, officers or employees or made any increase in other benefits
to which employees may be entitled, other than employee salary increases made
in the ordinary course of business and reflected in the Disclosure Schedule ;
(j) sold, transferred or otherwise disposed of any of its assets, other than
in the ordinary course of business; (k) declared or made any distribution or
payments to any of its shareholders, officers or employees, other than wages
and salaries made to employees in the ordinary course of business; (l)
revalued any of its assets; or (m) entered into any transactions not in the
ordinary course of business.
11.10 No Breaches. Except as set forth in Section 11.10 of the
Disclosure Schedule, the Corporation is not in violation of, and the
consummation of the transactions contemplated hereby do not and will not
result in any material breach of, any of the terms or conditions of any
mortgage, bond, indenture, agreement, contract, license or other instrument
or obligation to which the Corporation is a party or by which its assets are
bound; nor will the consummation of the transactions contemplated hereby
cause CET or any Subsidiary to violate any statute, regulation, judgment,
writ, injunction or decree of any court, threatened or entered in a
proceeding or action in which the Corporation is, was or may be bound or to
which any of the Corporation's assets are subject.
11.11 Corporate Acts and Proceedings. This Agreement has been duly
authorized by all necessary corporate action on behalf of CET, has been duly
executed and delivered by authorized officers of CET, and is a valid and
binding Agreement on the part of CET that is enforceable against CET in
accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, fraudulent transfers,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and to judicial limitations on the enforcement of the remedy
of specific performance and other equitable remedies. All corporate action
necessary to issue and deliver to the BMTS Shareholders the CET Common Stock
(each as described in Sections 5.1 and 5.3).
11.12 No Liens or Encumbrances. Except as set forth in Section 11.12
of the Disclosure Schedule, the Corporation has good and marketable title to
all of the property and assets, tangible and intangible, employed in the
operations of its business, free of any material mortgages, security
interests, pledges, easements or encumbrances of any kind whatsoever and
except for such property and assets as may be leased by Corporation.
11.13 Employee Matters. Section 11.13 of the Disclosure Schedule
contains a true, complete and accurate list of all employees of the
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Corporation and the remuneration of each (including wages, salaries and
fringe benefits). Each employee listed in Section 11.13 of the Disclosure
Schedule shall terminate his/her employment relationship with the Corporation
prior to the Closing Date, except as may be required by this Agreement, and
CET shall provide to BMTS a release, in such form as is reasonably acceptable
to BMTS, executed by each such employee releasing CET from all claims and
liabilities related to the termination of his or her employment, his or her
employment agreement, and ownership of any shares or other securities of CET.
Except as specifically described in Section 11.13 of the Disclosure Schedule,
CET has no employee benefit plans (including, but not limited to, pension
plans and health or welfare plans), arrangements or understandings, whether
formal or informal. The Corporation does not now and has never contributed
to a "multi-employer plan" as defined in Section 400(a)(3) of the ERISA. The
Corporation has complied with all applicable provisions of ERISA and all
rules and regulations promulgated thereunder, and neither the Corporation nor
any trustee, administrator, fiduciary, agent or employee thereof has at any
time been involved in a transaction that would constitute a "prohibited
transaction" within the meaning of Section 406 of ERISA as to any covered
plan of the Corporation. The Corporation is not a party to any collective
bargaining or other union agreement. The Corporation has not, within the
past five (5) years had, or been threatened with, any union activities, work
stoppages or other labor trouble with respect to its employees which had a
material adverse effect on the Corporation, its business or assets. Except
as set forth in Section 11.13 of the Disclosure Schedule, the Corporation has
not made any commitment or agreements to increase the wages or modify the
conditions or terms of employment of any of the employees of the Corporation
used in connection with its business, and between the date of this Agreement
and the Closing Date, the Corporation will not make any agreement to increase
the wages or modify the conditions or terms of employment of any of the
employees of the Corporation used in the conduct of its business, without the
prior written consent of all parties hereto.
11.14 Contract Schedules. Section 11.14 of the Disclosure Schedule is
an accurate list of the following:
(a) All contracts, leases, agreements, covenants, licenses,
instruments or commitments of CET pertaining to the business of CET calling
for the payment of Five Thousand Dollars ($5,000) or more or which is
otherwise material to the business of CET, including, without limitation, the
following:
(i) Licenses and contracts held in the ordinary course of
business;
(ii) Executory contracts for the purchase, sale or lease of
any assets;
(iii) Management or consulting contracts;
(iv) Patent, trademark and copyright applications,
registrations or licenses, and know-how, intellectual property and trade
secret agreements or other licenses;
(v) Note agreements, loan agreements, indentures and the
like, other than those entered into and executed in the ordinary course of
business;
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(vi) All sales, agency, distributorship or franchise
agreements; and
(vii) Any other contracts not in the ordinary course of
business.
(b) All labor contracts, employment agreements and collective
bargaining agreements to which CET is a party.
(c) All instruments evidencing any liens or security interest
securing any indebtedness of CET covering any asset of CET.
(d) All profit sharing, pension, stock option, severance pay,
retirement, bonus, deferred compensation, group life and health insurance or
other employee benefit plans, agreements, arrangements or commitments of any
nature whatsoever, whether or not legally binding, and all agreements with
any present or former officer, director or shareholder of the Corporation.
(e) Any and all documents, instruments and other writings not
listed in any other schedule hereto which is material to the business
operations of CET.
Except as set forth in Section 11.14 of the Disclosure Schedule, all of
such contracts, agreements, leases, licenses, plans, arrangements and
commitments and all other such items set forth above are valid, binding and
in full force and effect in accordance with their terms and conditions,
except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, fraudulent transfer, reorganization or other similar
laws affecting the enforcement of contracts generally, and there is no
existing material default thereunder or breach thereof by the Corporation, or
to CET's knowledge by any party to such contracts, or any conditions which,
with the passage of time or the giving of notice or both, might constitute
such a default by the Corporation or by any other party to the contracts.
11.15 Legal Proceedings and Compliance with Law. Except as set forth in
Section 11.15 of the Disclosure Schedule, CET has not received notice of any
legal, administrative, arbitration or other proceeding or governmental
investigation pending or threatened (including those relating to the health,
safety, employment of labor, or protection of the environment) pertaining to
CET which might result in the aggregate in money damages payable by CET in
excess of insurance coverage or which might result in a permanent injunction
against CET. Except as set forth in such Exhibit 11.15, CET has
substantially complied with, and is not in default in any respect under any
laws, ordinances, requirements, regulations, or orders applicable to the
business of CET, the violation of which might materially and adversely affect
it. Except as set forth in such Exhibit 11.15, CET is not a party to any
agreement or instrument, nor is it subject to any charter or other corporate
restriction or any judgment, order, writ, injunction, decree, rule,
regulation, code or ordinance which materially and adversely affects, or
might reasonably be expected materially and adversely to affect the business,
operations, prospects, property, assets or condition, financial or otherwise,
of CET.
11.16 Insurance. CET maintains in full force and effect insurance
coverage on its assets and business in such amounts and against such risks
and losses as set forth in Section 11.16 of the Disclosure Schedule.
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11.17 Environmental. Except as disclosed in Section 11.17 of the
Disclosure Schedule, CET or its subsidiaries have never owned or operated any
real property except for leased office space:
(a) To the Best Knowledge of CET, no real property (or the
subsurface soil and the ground water thereunder) now or previously leased by
CET (the "Leased Premises") either contains any Hazardous Substance (as
hereinafter defined) or has underneath it any underground fuel or liquid
storage tanks;
(b) To the Best Knowledge of CET, there has been no generation,
transportation, storage, treatment or disposal of any Hazardous Substance on
or beneath the Leased Premises, now or in the past;
(c) CET is not aware of any pending or threatened litigation or
proceedings before any court or administrative agency in which any person
alleges, or threatens to allege, the presence, release, threat of release,
placement on or in the Leased Premises, or the generation, transportation,
storage, treatment or disposal at the Leased Premises, of any Hazardous
Substance;
(d) CET has not received any written notice and has no knowledge
that any Governmental Authority or any employee or agent thereof has
determined or alleged, or is investigating the possibility, that there is or
has been any presence, release, threat of release, placement on or in the
Leased Premises, or any generation, transportation, storage, treatment or
disposal at the Leased Premises, of any Hazardous Substance;
(e) To the Best Knowledge of CET, there have been no
communications or agreements with any Governmental Authority or agency
(federal, state, or local) or any private person or entity (including,
without limitation, any prior owner of the Leased Premises and any present or
former occupant or tenant of the Leased Premises) relating in any way to the
presence, release, threat of release, placement on or in the Leased Premises,
or any generation, transportation, storage, treatment or disposal at the
Leased Premises, of any Hazardous Substance. CET further agrees and
covenants that CET will not store or deposit on, otherwise release or bring
onto or beneath, the Leased Premises any Hazardous Substance prior to the
Closing Date; and
(f) There is no litigation, proceeding, citizen's suit or
governmental or other investigation pending, or, to CET's Best Knowledge,
threatened, against CET, and CET knows of no facts or circumstances which
might give rise to any future litigation, proceeding, citizen's suit or
governmental or other investigation, which relate to CET's compliance with
environmental laws, regulations, rules, guidelines and ordinances.
For purposes of this Section 11.17, "Hazardous Substance" shall mean and
include (i) a hazardous substance as defined in 42 U.S.C. Section 9601(14),
the Regulations at 40 C.F.R. Part 302, (2) any substance regulated under the
Emergency Planning and Community Right to Know Act (including without
limitation any extremely hazardous substances listed at 40 C.F.R. Part 355
and any toxic chemical listed at 40 C.F.R. Part 372), (iii) hazardous wastes
and hazardous substances as specified under any state or local Governmental
Requirement governing water pollution, groundwater protection, air pollution,
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solid wastes, hazardous wastes, spills and other releases of toxic or
hazardous substances, transportation of hazardous substances, materials and
wastes and occupational or employee health and safety, and (iv) any other
material, gas or substance known or suspected to be toxic or hazardous
(including, without limitation, any radioactive substance, methane gas,
volatile hydrocarbon, industrial solvent, and asbestos) or which could cause
a material detriment to, or materially impair the beneficial use of, the
Leased Premises, or constitute a material health, safety or environmental
risk to any person exposed thereto or in contact therewith. For purposes of
this Section 11.17, "Hazardous Substance" shall not mean and shall not
include the following, to the extent used normally and required for everyday
uses or normal housekeeping or maintenance: (a) fuel oil and natural gas for
heating, (b) lubricating, cleaning, coolant and other compounds customarily
used in building maintenance, (c) materials routinely used in the day-to-day
operations of an office, such as toner, (d) consumer products, (e) material
reasonably necessary and customarily used in construction and repair of an
office project, and (f) fertilizers, pesticides and herbicides commonly used
for routine office landscaping.
11.18 Disclosure of Information. CET represents and warrants that all
statements, data and other written information provided by it to any party
hereto as well as their respective consultants and representatives have been
accurate copies or true originals. CET represents and warrants that, to its
Best Knowledge, (i) there exists no material information concerning CET which
has been requested but not been disclosed to or made available to the other
parties and their representatives or consultants and which would be material
to a decision to consummate the transactions provided for in this Agreement
and (ii) in the aggregate, such information does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made in them, in light of the circumstances
under which they are made, not misleading.
11.19 Representations and Warranties. The representations and
warranties contained in this Agreement shall be true on and as of the Closing
Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date. Such representations
and warranties shall survive the Closing Date and shall remain operative in
full force and effect for a period of eighteen months from the date of
Closing regardless of any investigation at any time made by or on behalf of
BMTS and shall not be deemed merged in any document or instruction so
executed and/or delivered by CET.
11.20 Absence of Questionable Payments. To the Best Knowledge of the
Corporation, neither the Corporation, nor any director, officer, agent,
employee or other person acting on any its behalf has (i) used any corporate
or other funds for unlawful contributions, payments, gifts or entertainment,
or made any unlawful expenditures relating to political activity to
government officials or others or established or maintained any unlawful or
unrecorded funds in violation of Section 30A of the Exchange Act or any other
applicable foreign, federal or state law; or (ii) accepted or received any
unlawful contributions, payments, expenditures or gifts.
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SECTION 12: COVENANTS OF CET AND CETAC
12.1 Preservation of Business. Until Closing, except as provided for
in this Agreement, CET shall use its best efforts to:
(a) Preserve intact the present business organization of CET;
(b) Maintain its property and assets in its present state of
repair, order and condition, reasonable wear and tear excepted;
(c) Preserve and protect the goodwill and advantageous
relationships of the Corporation with its customers and all other persons
having business dealings with the Corporation;
(d) Preserve and maintain in force all licenses, permits,
registrations, franchises, patents, trademarks, tradenames, trade secrets,
service marks, copyrights, bonds and other similar rights of the Corporation;
and
(e) Comply with all laws applicable to the conduct of its
business.
12.2 Ordinary Course. Until Closing, except as provided for in this
Agreement, the Corporation shall not, without the prior written consent of
BMTS:
(a) Sell, mortgage, pledge or encumber or agree to sell, mortgage,
pledge or encumber, any of the property or assets of CET or the Subsidiaries;
and
(b) Incur any obligation (contingent or otherwise) or purchase,
acquire, transfer, or convey, any material assets or property or enter into
any contract or commitment.
12.3 Negative Covenants. Until Closing, except as contemplated by this
Agreement or as disclosed in Disclosure Schedule to this Agreement, from the
date hereof until the Closing Date, unless and until BMTS otherwise consents
in writing, the Corporation will not (a) incur any obligations or liabilities
(absolute or contingent) other than current liabilities incurred and
obligations under contracts entered into in the ordinary course of business;
(b) mortgage, pledge or voluntarily subject to lien, charge or other
encumbrance any assets, tangible or intangible, other than the lien of
current property taxes not due and payable; (c) sell, assign or transfer any
of its assets or cancel any debts or claims, other than in the ordinary
course of business; (d) waive any right of any substantial value; (e) declare
or make any payment or distribution to Shareholders or issue, purchase or
redeem any shares of its capital stock or other equity securities or issue or
sell any rights to acquire the same or effect any stock split,
recapitalization, combination, or reclassification of its capital stock, or
reorganization; (f) grant any increase in the salary or other compensation of
any of its directors, officers, or employees or make any increase in any
benefits to which such employees might be entitled or enter into any
employment agreement or consulting agreement; (g) institute any bonus,
benefit, profit sharing, stock option, pension, retirement plan or similar
arrangement, or make any changes in any such plans or arrangements presently
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existing; (h) enter into any transactions or series of transactions other
than in the ordinary course of business; (i) amend or propose to amend its
Articles of Incorporation or By-Laws; (j) make any change in accounting
methods, principles or practices; (k) authorize capital expenditures or make
any acquisition of, or investment in, assets or stock of any other Person;
(l) enter into or amend any material contract or agreement other than in the
ordinary course of business; (m) make any tax election or settle or
compromise any material federal, state, local or foreign income tax
liability; (n) permit any material insurance policy to be canceled or
terminated, except in the ordinary course of business; (o) assume,
guarantee or endorse, or otherwise as an accommodation become responsible
for, the obligations of any person or make any loans or advances; (p)
maintain its real and personal properties in as good a state of operating
condition and repair as they are on the date of this Agreement, except for
ordinary wear and tear or insured casualty in amounts less than $5,000; (q)
terminate or modify any material leases, contracts, licenses, and permits or
other authorizations or agreements affecting its business or its real and/or
personal property, or the operation thereof, or enter into any additional
lease or contract requiring expenditure by it of any amount affecting such
properties or the operation thereof; or (r) discharge, satisfy or pay any
liens, encumbrances, obligations or liabilities relating to it, whether
absolute or contingent (including litigation claims), other than liabilities
shown on CET's Financial Statements and liabilities incurred after the date
thereof in the ordinary course of business, and no such discharge,
satisfaction or payment shall be effected other than in accordance with the
ordinary payment terms relating to the liability discharged, satisfied or
paid.
12.4 Additional Covenants.
(a) CET will promptly pay and discharge, or cause to be paid and
discharged, when due and payable, all lawful taxes, assessments, and
governmental charges or levies imposed upon the income, profits, property or
business of CET or any subsidiary; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if CET
shall have set aside on its books adequate reserves therefor and deposited at
Closing into an escrow account an amount to cover any such tax, assessment,
charge or levy; and provided, further, that CET will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings
to foreclose any lien that may have attached as security therefor. The
Corportion will promptly pay or cause to be paid when due, or in conformance
with customary trade terms, all other indebtedness incident to the operations
of the Corporation;
(b) CET will keep its properties and those of its subsidiaries in
good repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and CET will at all times
comply with the provisions of all material leases to which any of them is a
party or under which any of them occupies property so as to prevent any loss
or forfeiture thereof or thereunder;
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(c) CET will keep its assets that are of an insurable character
insured by financially sound and reputable insurers against loss or damage by
fire, extended coverage and explosion insurance in amounts customary for
companies in similar businesses similarly situated; and CET will maintain,
with financially sound and reputable insurers, insurance against other
hazards, risks and liabilities to persons and property to the extent and in
the manner customary for companies in similar businesses similarly situated;
(d) CET will keep true records and books of account in which full,
true and correct entries will be made of all dealings or transactions in
relation to its business and affairs in accordance with its past practices
consistently applied;
(e) CET will comply with the requirements of all applicable laws,
rules, regulations and orders of any governmental authority, a breach of
which could have a material adverse effect on its business or credit;
(f) CET shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses and other rights to use
patents, processes, licenses, trademarks, trade names or copyrights owned or
possessed by it or any subsidiary and deemed by CET to be necessary to the
conduct of its business;
(g) CET will, consistent with its practices in the ordinary course
of business, endeavor to retain its business relationships with its customers
and suppliers that it believes to be advantageous; and
(h) CET shall deliver to BMTS copies of its statements of
operation and financial condition and similar statements as and when prepared
(if at all) in the ordinary course of its business.
12.5 Access to Books and Records, Premises, Etc. From the date of this
Agreement through the Closing Date, CET will grant BMTS and its authorized
representatives reasonable access during normal business hours to its and the
Subsidiaries' books and records, premises, products, employees and customers
and other parties with whom it has contractual relations during reasonable
business hours for purposes of enabling BMTS to fully investigate the
business of CET and the Subsidiaries. CET will also deliver copies of the
monthly statements of operations and financial condition for the period
subsequent to the latest financial statements to BMTS within a reasonable
time of such statements becoming available.
12.6 Compensation. Except as contemplated by this Agreement, CET shall
not enter into or agree to enter into any employment contract or agreement
for consulting, professional, or other services which will adversely and
materially affect the operation of CET prior to the Closing Date.
12.7 No Solicitation.
(a) Except in connection with the transactions contemplated by
this Agreement, CET shall not, nor shall it permit any of its subsidiaries
to, nor shall it authorize or permit any officer, director or employee of or
any investment banker, attorney or other advisor or representative of, CET or
any of its subsidiaries to, (i) solicit, initiate or encourage the submission
of, any takeover proposal, (ii) enter into any agreement with respect to any
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takeover proposal or (iii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take
any other action to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any takeover
proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by any
executive officer of CET or any of its subsidiaries or any investment banker,
attorney or other advisor or representatives of CET or any of its
subsidiaries or otherwise, shall be deemed to be a breach of this Section by
CET. For purposes of this Agreement, "takeover proposal" means any proposal
for a merger, consolidation or reorganization or other business combination
involving CET or any of its subsidiaries or any proposal or offer to acquire
in any manner, directly or indirectly, an equity interest in, any voting
securities of, or options, rights, warrants or other interests convertible or
exercisable for or into such voting securities, or a substantial or material
portion of the assets or business of CET or any of its subsidiaries, other
than the transactions contemplated by this Agreement.
(b) Except upon a material breach of this Agreement by BMTS or
following termination hereof and except for action permitted or contemplated
by this Agreement, including a party's right to terminate this Agreement
under certain circumstances, neither the Board of Directors of CET nor any
committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to BMTS, the approval or recommendation by such
Board of Directors of any such committee of this Agreement or the Exchange or
(ii) approve or recommend, or propose to approve or recommend, any takeover
proposal.
(c) CET promptly shall advise BMTS orally and in writing of any
takeover proposal or any inquiry with respect to or which could lead to any
takeover proposal and the identity of the person making any such takeover
proposal or inquiry. CET will keep BMTS fully informed of the status and
details of any such takeover proposal or inquiry.
(d) The provisions of this Section 12.7 shall not be construed to
prevent any investment banker, attorney or other advisor or representative of
CET to engage in discussions with third parties in the ordinary course of
business with respect to transactions not involving the parties to this
Agreement.
12.8 Delivery of Additional Filings; Additional Access. Following the
execution of this Agreement and until the Closing Date, CET shall provide
BMTS with copies of any and all reports, filings, notices or other
information which CET may prepare and file with or receive from the
Commission or any other regulatory authority, (and shall give BMTS an
opportunity to review and comment on any such filings) as well as copies of
any pleadings, notices or other filings made in connection with any pending
litigation, arbitration, investigation or proceeding in which CET or any
Subsidiary is party or otherwise involved.
SECTION 13: TERMINATION
13.1 Termination. This Agreement may be terminated and abandoned
solely as follows:
(a) At any time until the Closing Date by the mutual agreement of
the Board of Directors of BMTS, CET and CETAC.
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(b) Failure of Conditions. This Agreement may be terminated by
either party hereto, if the conditions, as set forth in this Agreement to
such terminating party's obligations under this Agreement are not fulfilled
on or prior to the Closing Date; provided that any such termination shall not
limit the remedies otherwise available to such party as a result of
misrepresentations of or breaches by the other party.
(c) Material Breach. This Agreement may be terminated by either
party if the other party is in material breach or default of its respective
covenants, agreements or other obligations hereunder, or if any of its
representations and warranties herein are not true and accurate in all
material respects when made or when otherwise required by this Agreement to
be true and accurate.
(d) By either CET, CETAC or BMTS, if for any reason the parties
have failed to close this Agreement on or before June 30, 2008, provided that
neither CET, CETAC nor BMTS is then in default hereunder.
(e) By either CET or BMTS for any reason upon written notice,
provided that if a party terminates this Agreement pursuant to this Section
13.1(e) and the other party continues to be willing and able to proceed with
the Merger, then the terminating party shall immediately pay the other party
the sum of $250,000 as a break-up fee. In the event of any termination
pursuant to this Section 13.1 (other than pursuant to subparagraph 13.1(a)),
written notice setting forth the reasons therefor shall forthwith be given by
BMTS, if it is the terminating party, to CET and CETAC, or by CET or CETAC,
if either of them is the terminating party, to BMTS.
13.2 Effect of Termination. If terminated as provided for in this
Section, this Agreement shall forthwith become wholly void and of no effect,
except for the confidentiality obligations set forth in Section 15 hereof,
without liability to any party to this Agreement except for breach of this
Agreement.
SECTION 14: INDEMNIFICATION
14.1 Indemnification Covenants of CET. Subject to the limitations set
forth in this Section 14, CET shall defend, indemnify, save and keep harmless
the BMTS and its affiliates, directors, officers, agents, attorneys,
accountants, or representatives and their respective successors and permitted
assigns (the "BMTS Indemnitees"), against and from all liability, demands,
claims, actions or causes of action, assessments, losses, fines, penalties,
costs, damages and expenses, including reasonable attorneys' fees
(collectively, the "Damages") sustained or incurred by any of the BMTS
Indemnitees as a result of or arising out of or relating to:
(a) Any inaccuracy in a representation or breach of a warranty
made by the CET or CETAC and in this Agreement or in any document or
instrument delivered to BMTS in connection with this Agreement; or
(b) The failure of the CET or CETAC to comply with, or the breach
by CET or CETAC of, any of the covenants contained in this Agreement or in
any document or instrument delivered to BMTS in connection with this
Agreement, to be performed by CET or CETAC; or
(c) Any CET or CETAC liability except to the extent that any such
liability is expressly assumed by BMTS pursuant to this Agreement.
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14.2 Indemnification Covenants of BMTS. Subject to the limitations set
forth in this Section 14, BMTS shall defend, indemnify, save and keep
harmless CET and its affiliates, managers, officers, members, agents,
attorneys, accountants or representatives and their respective successors and
permitted assigns (the "CET Indemnitees"), against and from all Damages
sustained or incurred by any of the CET Indemnitees as a result of or arising
out of or relating to:
(a) Any inaccuracy in a representation or breach of a warranty
made by BMTS in this Agreement or in any document or instrument delivered to
the CET in connection with this Agreement; or
(b) The failure of BMTS to comply with, or the breach by BMTS of,
any of the covenants contained in this Agreement or in any document or
instrument delivered to CET in connection with this Agreement, to be
performed by BMTS.
14.3 Limitations on Claims and Liability.
Notwithstanding any provision of this Agreement to the contrary, no
party shall have liability to indemnify the other and neither party may
assert a claim for indemnification for damages suffered by it until and
unless the party's claims for damages for which the other party is entitled
to indemnification equal or exceed, in the aggregate, the sum of $10,000 (the
"Damages Threshold"). Upon a party's cumulative claims for indemnification
equaling the Damages Threshold, a party may assert claims for indemnification
pursuant to Section 14.4 below for the full amount of such party's damages
for which it is entitled to indemnification hereunder.
14.4 Method of Asserting Claims. For purposes of this Section 14.4,
the following terms shall be defined as follows:
(a) "Claims" shall mean all claims asserted pursuant to this
Section 14, whether or not arising as a result of a Third Party Claim.
(b) "Indemnified Person" shall mean any BMTS Indemnitee, any CET
Indemnitee or any CET/BMTS Indemnitees, as the context requires.
(c) "Indemnifying Person" shall mean any person obligated to
indemnify an Indemnified Person pursuant to this Section 14, as the context
requires.
(d) "Third Party Claims" shall mean any Claim asserted by any
person not a party to this Agreement (including without limitation any
Governmental Authority), asserting that an Indemnified Person is liable for
monetary or other obligations which may constitute or result in Damages for
which such Indemnified Person may be entitled to indemnification pursuant to
this Section 14.
(e) All Claims shall be made in writing and shall set forth with
reasonable specificity the facts and circumstances of the Claim, as well as
the basis upon which indemnification pursuant to this Section 14 is sought.
Notwithstanding the foregoing, no delay or failure by any Indemnified Person
to provide notification of any Claim shall preclude any Indemnified Person
from recovering for Damages pursuant to this Section 14, except to the extent
that such delay or failure materially compromises the rights of any
Indemnifying Person under this Section 14.
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(f) Within ten (10) days after receipt by an Indemnifying Person
of any notification of a Claim, the Indemnifying Person may, upon written
notice thereof to the Indemnified Person, assume (at the Indemnifying
Person's expense) control of the defense of such action, suit or proceeding
with counsel reasonably satisfactory to the Indemnified Person, provided the
Indemnifying Person acknowledges in writing to the Indemnified Person that
any Damages that may be assessed against the Indemnified Person in connection
with such action, suit or proceeding constitute Damages for which the
Indemnified Person shall be entitled to indemnification pursuant to this
Section 14. If the Indemnifying Person does not so assume control of such
defense, the Indemnified Person shall control such defense, but in so doing
shall not waive or limit its right to recover under this Section 14 for any
Damages that may be assessed against the Indemnified Person in connection
with such action, suit or proceeding. The party not controlling such defense
may participate therein at its own expense; provided that if the Indemnifying
Person assumes control of such defense, and the Indemnified Person has been
advised in writing by outside legal counsel that under the applicable
standards of professional conduct, the Indemnifying Person and the
Indemnified Person may not be represented by the same counsel with respect to
such action, suit or proceeding, the reasonable fees and expenses of one law
firm for the Indemnified Person shall be paid by the Indemnifying Person.
The party controlling such defense shall keep the other party advised of the
status of such action, suit or proceeding and the defense thereof and shall
consider in good faith recommendations made by the other party with respect
thereto. The Indemnified Person shall not agree to any settlement of such
action, suit or proceeding without the prior written consent of the
Indemnifying Person, which (with respect to an action, suit or proceeding as
to which the Indemnifying Person has not elected to assume control of the
defense) shall not be unreasonably withheld, conditioned or delayed. The
Indemnifying Person shall not agree to any settlement of such action, suit or
proceeding without the prior written consent of the Indemnified Person, which
shall not be unreasonably withheld, conditioned or delayed so long as the
settlement includes a complete release of the Indemnified Person from all
liability and does not contain or contemplate any payment by, or injunctive
or other equitable relief binding upon, the Indemnified Person.
SECTION 15: NONDISCLOSURE OF CONFIDENTIAL INFORMATION
15.1 Nondisclosure of Confidential Information. Each of the parties
hereto recognizes and acknowledges that it has and will have access to
certain nonpublic information of the others which shall be deemed the
confidential information of the other party (including, but not limited to,
business plans, costs, trade secrets, licenses, research projects, profits,
markets, sales, customer lists, strategies, plans for future development,
financial information and any other information of a similar nature) that
after the consummation of the transactions contemplated hereby will be
valuable, special and unique property of the Companies. Information received
by the other party or its representatives shall not be deemed Confidential
Information and afforded the protections of this Section 15.1 if, on the
Closing Date, such information has been (i) developed by the receiving party
independently of the disclosing party, (ii) rightfully obtained without
restriction by the receiving party from a third party, provided that the
third party had full legal authority to possess and disclose such
information, (iii) publicly available other than through the fault or
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negligence of the receiving party, (iv) released without restriction by the
disclosing party to anyone, including the United States government, (v)
properly and lawfully known to the receiving party at the time of its
disclosure, as evidenced by written documentation conclusively established to
have been in the possession of the receiving party on the date of such
disclosure, or (vi) in the opinion of counsel to the party, required to be
disclosed under applicable Federal or state securities laws, or the rules of
any national securities exchange, Nasdaq, or any over the counter market upon
which the securities of the party are then traded. Each of the parties
hereto agrees that it shall not disclose, and that it shall use its best
efforts to prevent disclosure by any other Person of, any such confidential
information to any Person for any purpose or reason whatsoever, except to
authorized representatives of the Companies who agree to be bound by this
confidentiality agreement. Notwithstanding, a party may use and disclose any
such confidential information to the extent that a party may become compelled
by Legal Requirements to disclose any such information; provided, however,
that such party shall use all reasonable efforts and shall have afforded the
other party the opportunity to obtain an appropriate protective order or
other satisfactory assurance of confidential treatment for any such
information compelled to be disclosed. In the event of termination of this
Agreement, each party shall use all reasonable efforts to cause to be
delivered to the other parties, and to retain no copies of, any documents,
work papers and other materials obtained by such party or on such party's
behalf during the conduct of the matters provided for in this Agreement,
whether so obtained before or after the execution hereof. Each of the
parties recognizes and agrees that violation of any of the agreements
contained in this Section 15.1 will cause irreparable damage or injury to the
parties, the exact amount of which may be impossible to ascertain, and that,
for such reason, among others, the parties shall be entitled to an
injunction, without the necessity of posting bond therefor, restraining any
further violation of such agreements. Such rights to any injunction shall be
in addition to, and not in limitation of, any other rights and remedies the
parties may have against each other. The provisions of this Section 15.1
shall survive any termination of this Agreement.
15.2 No Publicity. Until the Closing or the termination of this
Agreement in accordance with its terms, neither CET nor BMTS shall, directly
or indirectly, issue any press release, or make any public statement,
concerning the transactions contemplated by this Agreement without the prior
written consent of CET (in the case of such a release or statement by BMTS)
or of BMTS (in the case of such a release or statement by CET). This Section
15.2 shall not, however, preclude any party from making any disclosure
required by applicable law, and in the event any party, or any officer,
director, employee, agent or representative of a party, believes that any
press release, public statement or other disclosure is so required, such
party will notify and consult with the other parties with respect thereto as
promptly as is practicable under the circumstances.
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SECTION 16: EXPENSES
Each of the parties will pay all costs and expenses of its performance
and compliance with this Agreement and the transactions contemplated hereby.
In no event will any party to this Agreement be liable to any other party for
incidental damages, lost profits, income tax consequences, lost savings or
any other consequential damages, even if such party has been advised of the
possibility of such damages, or for punitive damages, resulting from the
breach of any obligation under this Agreement. The provisions of this
Section 16 shall survive any termination hereof.
SECTION 17: MISCELLANEOUS
17.1 Attorney's Fees. In any action at law or in equity or in any
arbitration proceeding, for declaratory relief or to enforce any of the
provisions or rights or obligations under this Agreement, the unsuccessful
party to such proceeding, shall pay the successful party or parties all
statutorily recoverable costs, expenses and reasonable attorneys' fees
incurred by the successful party or parties including without limitation
costs, expenses, and fees on any appeals and the enforcement of any award,
judgment or settlement obtained, such costs, expenses and attorneys' fees
shall be included as part of the judgment. The successful party shall be
that party who obtained substantially the relief or remedy sought, whether by
judgment, compromise, settlement or otherwise.
17.2 No Brokers. CET represents and warrants to BMTS and BMTS
represents and warrants to CET, that, except as set forth on Section 17.2 of
the Disclosure Schedule, neither it nor any party acting on its behalf has
incurred any liability, either express or implied, to any "broker," "finder,"
financial advisor, employee or similar person in respect of any of the
transactions contemplated hereby. CET agrees to indemnify BMTS against, and
hold it harmless from, and BMTS agrees to indemnify CET against, and hold it
harmless from, any liability, cost or expense (including, but not limited to,
fees and disbursements of counsel) resulting from any agreement, arrangement
or understanding made by such party with any third party, including employees
of BMTS, for brokerage, finders' or financial advisory fees or other
commissions in connection with this Agreement or the transactions
contemplated hereby. The provisions of this Section 17.2 shall survive any
termination of this Agreement.
17.3 Survival and Incorporation of Representations. The
representations, warranties, covenants and agreements made herein or in any
certificates or documents executed in connection herewith shall survive the
execution and delivery thereof for a period of eighteen months from the
Closing, and all statements contained in any certificate or other document
delivered by any party hereunder or in connection herewith shall be deemed to
constitute representations and warranties made by that party to this
Agreement.
17.4 Incorporation by Reference. All Exhibits and the Disclosure
Schedule to this Agreement and all documents delivered pursuant to or
referred to in this Agreement are herein incorporated by reference and made a
part hereof.
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17.5 Parties in Interest. Nothing in this Agreement, whether express
or implied, is intended to, or shall, confer any rights or remedies under, or
by reason of, this Agreement, on any person other than the parties hereto and
their respective and proper successors and assigns and indemnitees. Nothing
in this Agreement shall act to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement.
17.6 Amendments and Waivers. This Agreement may not be amended, nor
may compliance with any term, covenant, agreement, condition or provision set
forth herein be waived (either generally or in a particular instance and
either retroactively or prospectively) unless such amendment or waiver is
agreed to in writing by all parties hereto.
17.7 Waiver. No waiver of any breach of any one of the agreements,
terms, conditions, or covenants of this Agreement by the parties shall be
deemed to imply or constitute a waiver of any other agreement, term,
condition, or covenant of this Agreement. The failure of any party to insist
on strict performance of any agreement, term, condition, or covenant, herein
set forth, shall not constitute or be construed as a waiver of the rights of
either or the other thereafter to enforce any other default of such
agreement, term, condition, or covenant; neither shall such failure to insist
upon strict performance be deemed sufficient grounds to enable either party
hereto to forego or subvert or otherwise disregard any other agreement, term,
condition, or covenants of this Agreement.
17.8 Governing Law - Construction. This Agreement, and the rights and
obligations of the respective parties, shall be governed by and construed in
accordance with the laws of the State of Colorado. Notwithstanding the
preceding sentence, it is acknowledged that each party hereto is being
represented by, or has waived the right to be represented by, independent
counsel. Accordingly, the parties expressly agree that no provision of this
Agreement shall be construed against any party on the ground that the party
or its counsel drafted the provision. Nor may any provision of this
Agreement be construed against any party on the grounds that party caused the
provision to be present.
17.9 Representations and Warranties. The representations and
warranties contained in Sections 9 and 11 of this Agreement shall survive the
Closing Date and shall remain operative in full force and effect for eighteen
months from the date of Closing regardless of any investigation at any time
made by or on behalf of either CET or BMTS and shall not be deemed merged in
any document or instrument so executed or delivered by either CET or BMTS.
17.10 Notices. Any notice, communication, offer, acceptance, request,
consent, reply, or advice (herein severally and collectively, for
convenience, called "Notice"), in this Agreement provided or permitted to be
given, served, made, or accepted by any party or person to any other party or
parties, person or persons, hereunder must be in writing, addressed to the
party to be notified at the address set forth below, or such other address as
to which one party notifies the other in writing pursuant to the terms of
this Section 17.10, and must be served by (i) telefax or other similar
electronic method, or (i) depositing the same in the United States mail,
certified, return receipt requested and postage paid to the party or parties,
person or persons to be notified or entitled to receive same, or (iii)
delivering the same in person to such party.
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Notice shall be deemed to have been given immediately when sent by
telefax and confirmed received or other electronic method and seventy-two
hours after being deposited in the United States mail, or when personally
delivered in the manner herein above described. Notice provided in any
manner not specified above shall be effective only if and when received by
the party or parties, person or persons to be, or provided to be notified.
All notices, requests, demands and other communications required or
permitted under this Agreement shall be addressed as set forth below:
If CET, to: CET SERVICES, INC.
12503 E. Euclid Drive Number 30
Centennial, CO 80111
Fax: 720-875-9114
With copy to: Krys Boyle, P.C.
ATTN: James P. Beck, Esq.
600 Seventeenth Street
Suite 2700 South Tower
Denver, CO 80202
Fax: 303-893-2882
If BMTS or
BMTS Shareholders to: BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
9800 Mt. Pyramid Court # 350
Englewood, CO 80112
Fax (303) 653-0120
With copy to: Clifford L. Neuman, P.C.
Attn: Clifford L. Neuman, Esq.
1507 Pine Street
Boulder, CO 80302
Fax: (303) 449-1045
Any party receiving a facsimile transmission shall be entitled to rely
upon a facsimile transmission to the same extent as if it were an original.
Any party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this Section 17.10 for the giving of notice.
17.11 Fax/Counterparts. This Agreement may be executed by telex,
telecopy or other facsimile transmission, and such facsimile transmission
shall be valid and binding to the same extent as if it were an original.
Further, this Agreement may be signed in one or more counterparts, all of
which when taken together shall constitute the same documents. For all
evidentiary purposes, any one complete counter set of this Agreement shall be
considered an original.
17.12 Captions. The caption and heading of various sections and
paragraphs of this Agreement are for convenience only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
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17.13 Severability. Wherever there is any conflict between any
provision of this Agreement and any Governmental Requirement or judicial
precedent, the latter shall prevail, but in such event the provisions of this
Agreement thus affected shall be curtailed and limited only to the extent
necessary to bring it within the requirement of the law. In the event that
any part, section, paragraph or clause of this Agreement shall be held by a
court of proper jurisdiction to be invalid or unenforceable, the entire
Agreement shall not fail on account thereof, but the balance of the Agreement
shall continue in full force and effect unless such construction would
clearly be contrary to the intention of the parties or would result in
unconscionable injustice.
17.14 Good Faith Cooperation and Additional Documents. The parties
shall use their best good faith efforts to fulfill all of the conditions set
forth in this Agreement over which it has control or influence. Each party
covenants and agrees to cooperate in good faith and to enter into and deliver
such other documents and papers as the other party reasonably shall require
in order to consummate the transactions contemplated hereby, provided in each
instance, any such document is in form and substance approved by the parties
and their respective legal counsel.
17.15 Specific Performance. The obligations of the parties under
Sections 2 and 3 are unique. If either party should default in its
obligations under said Section, the parties each acknowledge that it would be
extremely difficult and impracticable to measure the resulting damages;
accordingly, the non-defaulting party, in addition to any other available
rights and remedies, may sue in equity for injunction (mandatory or
prohibitive) or specific performance (all without the need to post a bond or
undertaking of any nature), and the parties each expressly waive the defense
that a remedy at law in damages is adequate.
17.16 Assignment. Neither party may directly or indirectly assign or
delegate, by operation of law or otherwise, all or any portion of
its/their/his rights, obligations or liabilities under this Agreement without
the prior written consent of all other parties, which consent may be withheld
in their respective sole and absolute discretion. Any purported assignment
or delegation without such consent shall be null and void.
For purposes of this Section, the term "Agreement" shall include this
Agreement and the Exhibits, the Disclosure Schedule and other documents
attached hereto or described in this Section 17.16. This Agreement, and
other documents delivered pursuant to this Agreement, contain all of the
terms and conditions agreed upon by the parties relating to the subject
matter of this Agreement and supersede all prior and contemporaneous
agreements, letters of intent, representations, warranties, disclosures,
negotiations, correspondence, undertakings and communications of the parties,
oral or written, respecting that subject matter, including but not limited to
the Original Agreement and Plan of Reorganization and the Amendment
Agreements entered into by the parties.
17.17 Time. Time is of the essence of this Agreement and each of its
provisions.
SIGNATURE PAGE TO FOLLOW
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IN WITNESS WHEREOF, the parties have signed this Agreement and Plan of
Merger the date and year first above written.
CET ACQUISITION CORP.
a Colorado corporation
/s/ Steven H. Davis
Steven H. Davis
CET SERVICES, INC.
a California corporation
/s/ Steven H. Davis
Steven H. Davis, President & CEO
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
A Colorado corporation
/s/ Donald G. Cox 5/8/08
Donald G. Cox, President & CEO
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AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 8, 2008
THIS AMENDMENT NO. 1 to Agreement and Plan of Merger is made and entered
into this 9th day of July, 2008, by and among BIOMEDICAL TECHNOLOGY
SOLUTIONS, INC., a Colorado corporation ("BMTS"); CET SERVICES, INC., a
California corporation ("CET"); and CET ACQUISITION CORP., a Colorado
subsidiary of CET ("CETAC"). BMTS, CET and CETAC are hereinafter sometimes
individually referred to as a "party" and collectively as the "parties".
WITNESETH:
WHEREAS, the parties executed and delivered a certain Agreement and Plan
of Merger dated as of May 8, 2008 (the "Agreement"); and
WHEREAS, the parties desire to modify and amend certain provisions of
the Agreement in the particulars herein below set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained the parties agree as follows:
1. Section 2.4 of the Agreement is hereby amended in its entirety to
provide the following:
"2.4 Closing: Closing Date. Subject to the terms and conditions
set forth in the Agreement, the consummation of the transactions
referenced above shall take place (the "Closing") on August 15, 2008, at
10:00 a.m. Mountain Daylight Savings Time at the offices of Clifford L.
Neuman, PC; 1507 Pine Street, Boulder, CO 80302, or within five
business days following the satisfaction or waiver of all conditions
precedent to such Closing, if earlier, or at such other time, date and
place as BMTS and CETAC shall designate (the "Closing Date")".
2. Section 4.3 of the Agreement is hereby amended to provide, inter
alia, that the number of shares of common stock to be authorized for issuance
under the 2008 Equity Incentive Plan shall be 2.0 million shares after giving
effect to the reverse split.
3. Section 4.5 of the Agreement is hereby amended to provide, inter
alia, that CET will change its name to "BioMedical Technology Solutions
Holdings, Inc."
4. Section 4.7 of the Agreement is hereby amended to provide, inter
alia, that Parcel 5 has been sold by Community Builders; that the proceeds of
such sale shall be included in the $875,000 in cash of CET at the Effective
Date of the merger; and to delete the requirement that Community Builders pay
$400,000 to CET for Parcel No. 5 on the Effective Date.
5. Section 13.1(d) is hereby amended in its entirety to read as
follows:
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"13.1 (d) By either CET, CETAC or BMTS, if for any reason the
parties have failed to close this Agreement on or before August 15,
2008, provided that neither CET, CETAC nor BMTS is then in default
hereunder."
3. This Amendment may not be construed to amend the Agreement in any
way except as expressly set forth herein. The execution and delivery of this
Amendment does not constitute and this Amendment may not be construed to
constitute a waiver by any party of:
a. Any breach of the Agreement by any party, whether or not such
breach is now existing or currently known or unknown to the non-breaching
party or parties; or
b. Any right or remedy arising from or available to a party by reason
of a breach of the Agreement by any other party or parties.
4. The parties hereby confirm that the Agreement, as amended by this
Amendment, is in full force and effect. In the event of any conflict or
inconsistency between the provisions of this Amendment and the provisions of
the Agreement, the provisions of this Amendment shall control.
5. Unless otherwise defined herein, all capitalized terms shall have
the meanings set forth in the Agreement.
IN WITNESS WHEREOF, the parties have signed the Agreement the date and
year first above written.
CET ACQUISITION CORP.
a Colorado corporation
By: /s/ Steven H. Davis
Steven H. Davis, President
CET SERVICES, INC.
a California corporation
By: /s/ Steven H. Davis
Steven H. Davis, President & CEO
BIOMEDICAL TECHNOLOGY SOLUTIONS, INC.
a Colorado corporation
By: /s/ Donald G. Cox
Donald G. Cox, President & CEO
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APPENDIX B
CET SERVICES, INC.
2008 EQUITY INCENTIVE PLAN
INTRODUCTION
On May 30, 2008, the Board of Directors adopted this 2008 Equity
Incentive Plan (the "Plan") which Plan was approved by the Stockholders on
_______________, 2008.
1. PURPOSES
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates
may be given an opportunity to benefit from increases in value of the common
stock of the Company ("Common Stock") through the granting of (i) Incentive
Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv)
rights to purchase restricted stock, and (v) stock appreciation rights, all
as defined below.
(b) The Company, by means of the Plan, seeks to retain the services
of persons who are now Employees, Directors or Consultants, to secure and
retain the services of new Employees, Directors and Consultants, and to
provide incentives for such persons to exert maximum efforts for the success
of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c), be either (i) Options granted pursuant to Section 6 or 7
hereof, including Incentive Stock Options and Nonstatutory Stock Options, or
(ii) stock bonuses or rights to purchase restricted stock granted pursuant to
Section 8 hereof, or (iii) stock appreciation rights granted pursuant to
Section 9 hereof. All Options shall be separately designated Incentive Stock
Options or Nonstatutory Stock Options at the time of grant, and a separate
certificate or certificates will be issued for shares purchased on exercise
of each type of Option.
2. DEFINITIONS
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMPANY" means CET SERVICES, INC.
(f) "CONCURRENT STOCK APPRECIATION RIGHT" OR "CONCURRENT RIGHT"
means a right granted pursuant to subsection 9(b)(2) of the Plan.
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(g) "CONSULTANT" means any person, including an advisor, engaged by
the Company or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who
are not compensated by the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted
or terminated. The Board, in its sole discretion, may determine whether
Continuous Status as an Employee, Director or Consultant shall be considered
interrupted in the case of: (i) any leave of absence approved by the Board,
including sick leave, military leave, or any other personal leave; or (ii)
transfers between locations of the Company or between the Company, Affiliates
or their successors.
(i) "DIRECTOR" means a member of the Board.
(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as
a Director nor payment of a director's fee by the Company shall be sufficient
to constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock of the Company determined as follows:
(1) If the Common Stock is listed on any established stock
exchange, or traded on the OTC Electronic Bulletin Board, the Nasdaq National
Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in Common Stock) on
the last market trading day prior to the day of determination, as reported in
the Wall Street Journal or such other source as the Board deems reliable;
(2) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(n) "INDEPENDENT STOCK APPRECIATION RIGHT" means a right granted
pursuant to subsection 9(b)(3) of the Plan.
(o) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does
not receive compensation (directly or indirectly) from the Company or its
parent or subsidiary for services rendered as a consultant or in any capacity
other than as a Director (except for an amount as to which disclosure would
not be required under Item 404(a) of Regulation S-K promulgated pursuant to
the Securities Act of 1933 ("Regulation S-K"), does not possess an interest
in any other transaction as to which disclosure would be required under Item
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404(a) of Regulation S-K, and is not engaged in a business relationship as
to which disclosure would be required under Item 404(b) of Regulation S-K; or
(ii) is otherwise considered a "non-employee director" for purposes of Rule
16b-3.
(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of
the Plan.
(t) "OPTIONEE" means a person to whom an Option is granted pursuant
to the Plan.
(u) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(v) "PLAN" means this BioMedical Technology Solutions, Inc. 2008
Equity Incentive Plan.
(w) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised
with respect to the Plan.
(x) "STOCK APPRECIATION RIGHT" means any of the various types of
rights which may be granted under Section 9 of the Plan.
(y) "STOCK AWARD" means any right granted under the Plan, including
any Option, any stock bonus, and any right to purchase restricted stock.
(z) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of
an individual Stock Award grant. Each Stock Award Agreement shall be subject
to the terms and conditions of the Plan.
(aa) "TANDEM STOCK APPRECIATION RIGHT" OR "TANDEM RIGHT" means a
right granted pursuant to subsection 9(b)(1) of the Plan.
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3. ADMINISTRATION
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection
3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each
Stock Award shall be granted; whether a Stock Award will be an Incentive
Stock Option, a Nonstatutory Stock Option, a stock bonus, a right to purchase
restricted stock, a Stock Appreciation Right, or a combination of the
foregoing; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; whether a person shall be permitted
to receive stock upon exercise of an Independent Stock Appreciation Right;
and the number of shares with respect to which a Stock Award shall be granted
to each such person.
(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section
15.
(4) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of
the Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee
or committees ("Committee") of one or more members of the Board. In the
discretion of the Board, a Committee may consist solely of two or more
Outside Directors, in accordance with Code Section 162(m), or solely of two
or more Non-Employee Directors, in accordance with Rule 16b-3. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the Board (and references in this Plan to the Board shall
thereafter be to the Committee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and
revest in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN
(a) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate 2,000,000 shares of Common Stock (after
giving effect to any stock split or reverse stock split that may be
implemented within twelve months of the completing of a merger transaction
with BioMedical Technologies Systems, Inc.). If any Stock Award shall for
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any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full (or vested in the case of Restricted Stock),
the stock not acquired under such Stock Award shall revert to and again
become available for issuance under the Plan. Shares subject to Stock
Appreciation Rights exercised in accordance with Section 9 of the Plan shall
not be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY
(a) Incentive Stock Options and Stock Appreciation Rights
appurtenant thereto may be granted only to Employees. Stock Awards other
than Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates unless the exercise price of such
Option is at least one hundred ten percent (110%) of the Fair Market Value of
such stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
6. OPTION PROVISIONS
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise)
the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall
be not less than one hundred percent (100%) of the Fair Market Value of the
stock subject to the Option on the date the Option is granted. The exercise
price of each Nonstatutory Stock Option shall be any price set by the Board
or Committee.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii)
at the discretion of the Board or the Committee, at the time of the grant of
the Option, (A) by delivery to the Company of other Common Stock of the
Company, (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
Common Stock of the Company) with the person to whom the Option is granted or
to whom the Option is transferred pursuant to subsection 6(d), or (C) in any
other form of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable at
least annually and shall be charged at the minimum rate of interest necessary
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to avoid the treatment as interest, under any applicable provisions of the
Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option may
be transferred to the extent provided in the Option Agreement; provided that
if the Option Agreement does not expressly permit the transfer of a
Nonstatutory Stock Option, the Nonstatutory Stock Option shall not be
transferable except by will, by the laws of descent and distribution or
pursuant to a domestic relations order satisfying the requirements of Rule
16b 3, and shall be exercisable during the lifetime of the person to whom the
Option is granted only by such person or any transferee pursuant to a
domestic relations order. Notwithstanding the foregoing, the person to whom
the Option is granted may, by delivering written notice to the Company, in a
form satisfactory to the Company, designate a third party who, in the event
of the death of the Optionee, shall thereafter be entitled to exercise the
Option.
(e) VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may,
but need not, be equal). The Option Agreement may provide that from time to
time during each of such installment periods, the Option may become
exercisable ("vest") with respect to some or all of the shares allotted to
that period, and may be exercised with respect to some or all of the shares
allotted to such period and/or any prior period as to which the Option became
vested but was not fully exercised. The Option may be subject to such other
terms and conditions on the time or times when it may be exercised (which may
be based on performance or other criteria) as the Board may deem appropriate.
The provisions of this subsection 6(e) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be
exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that
the Optionee was entitled to exercise it at the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months after the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionee does
not exercise his or her Option within the time specified in the Option
Agreement, the Option shall terminate, and the shares covered by such Option
shall revert to and again become available for issuance under the Plan.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of
(i) the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of
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the term of the Option as set forth in the Option Agreement. If, at the date
of termination, the Optionee is not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the
Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a three-month period (or 12 month period in the case of
totally disabled Optionees) after the termination of, the Optionee's
Continuous Status as an Employee, Director or Consultant, the Option shall be
fully vested and may be exercised by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant
to subsection 6(d), but only within the period ending on the earlier of (i)
the date twelve (12) months following the date of death (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of
the term of such Option as set forth in the Option Agreement. If, at the
time of death, the Optionee was not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan. If, after
death, the Option is not exercised within the time specified herein, the
Option shall terminate, and the shares covered by such Option shall revert to
and again become available for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee,
Director or Consultant to exercise the Option as to any part or all of the
shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased may be subject to a repurchase right in favor of
the Company or to any other restriction the Board determines to be
appropriate.
(j) RE LOAD OPTIONS. Without in any way limiting the authority of
the Board or Committee to make or not to make grants of Options hereunder,
the Board or Committee shall have the authority (but not an obligation) to
include as part of any Option Agreement a provision entitling the Optionee to
a further Option (a "Re Load Option") in the event the Optionee exercises the
Option evidenced by the Option agreement, in whole or in part, by
surrendering other shares of Common Stock in accordance with this Plan and
the terms and conditions of the Option Agreement. Any such Re-Load Option
(i) shall be for a number of shares equal to the number of shares surrendered
as part or all of the exercise price of such Option; (ii) shall have an
expiration date which is the same as the expiration date of the Option the
exercise of which gave rise to such Re-Load Option; and (iii) shall have an
exercise price which is equal to one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option. Notwithstanding the foregoing, a Re-Load
Option which is an Incentive Stock Option and which is granted to a 10%
stockholder (as described in subsection 5(b)), shall have an exercise price
which is equal to one hundred ten percent (110%) of the Fair Market Value of
the stock subject to the Re-Load Option on the date of exercise of the
original Option and shall have a term which is no longer than five (5) years.
B-7
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board or Committee may designate at the time of the
grant of the original Option; PROVIDED, HOWEVER, that the designation of any
Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollars ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 13(d) of the Plan and in
Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load
Option. Any such Re-Load Option shall be subject to the availability of
sufficient shares under subsection 4(a) and shall be subject to such other
terms and conditions as the Board or Committee may determine which are not
inconsistent with the express provisions of the Plan regarding the terms of
Options.
7. OPTION GRANTS FOR NON EMPLOYEE DIRECTORS
Unless otherwise explicitly provided by the Board, Non-Employee
Directors shall not be eligible for any Stock Awards under the Plan other
than the nonstatutory stock options provided under this Section 7 on the
following terms and conditions:
(a) INITIAL GRANT FOR NON-EMPLOYEE DIRECTORS. Each person who is a
Non-Employee Director shall be granted an option to purchase a number of
shares of Common Stock determined by a majority of non-participating
Directors on the terms and conditions set forth herein.
(b) ANNUAL GRANT. Following each annual meeting of the Company's
stockholders occurring after the effectiveness of the initial public offering
of the Common Stock, (i) each person who continuously has been a Non-Employee
Director for a full year since the last annual meeting of the Company's
stockholders automatically shall be granted an option to purchase a number of
shares of Common Stock determined by a majority of non-participating
Directors (determined without giving effect to any stock split that may be
made in anticipation of the Company's initial public offering of the Common
Stock) on the terms and conditions set forth herein, and (ii) each other
person who is then a Non-Employee Director automatically shall be granted an
option to purchase, on the terms and conditions set forth herein, the number
of shares of common stock of the Company (rounded up to the nearest whole
share) determined by multiplying the number of shares determined by the Board
(determined without giving effect to any stock split that may be made in
anticipation of the Company's initial public offering of the Common Stock)
by a fraction, the numerator of which is the number of days the person
continuously has been a Non-Employee Director as of the date of such grant
and the denominator of which is 365.
(c) TERM. The term of each Non-Employee Director's option commences
on the date it is granted and, unless sooner terminated as set forth herein,
expires on the date ("Expiration Date") ten (10) years from the date of
grant. If the Non-Employee Director's Continuous Status as an Employee,
Director or Consultant terminates, the option shall terminate on the earlier
of the Expiration Date or the date three (3) months following the date of
termination of such Continuous Status (twelve (12) months if such termination
is due to death or disability). In any and all circumstances, a Non-Employee
Director's option may be exercised following termination of his or her
Continuous Status as an Employee, Director or Consultant only as to that
number of shares as to which it was exercisable on the date of termination of
such status under the provisions of subsection 7(g).
B-8
(d) PRICE. The exercise price of each Non-Employee Director's option
shall be one hundred percent (100%) of the fair market value of the stock
subject to such option on the date such option is granted.
(e) CONSIDERATION. Payment of the exercise price of each option is
due in full in cash upon any exercise when the number of shares being
purchased upon such exercise is less than 1,000 shares. However, when the
number of shares being purchased upon an exercise is 1,000 or more shares,
the Non-Employee Director may elect to make payment of the exercise price
under one of the following alternatives:
(1) Payment of the exercise price per share in cash or by
check at the time of exercise; or
(2) Provided that at the time of the exercise the Company's
common stock is publicly traded and quoted regularly in the Wall Street
Journal, payment by delivery of shares of common stock of the Company already
owned by the optionee, held for the period required to avoid a charge to the
Company's reported earnings, and owned free and clear of any liens, claims,
encumbrances or security interest, which common stock shall be valued at its
fair market value on the date preceding the date of exercise; or
(3) Payment by a combination of the methods of payment
specified in Paragraphs (1) and (2) above.
Notwithstanding the foregoing, a Non-Employee Director's
option may be exercised pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company prior to the issuance of shares of the Company's
common stock.
(f) TRANSFERABILITY. A Non-Employee Director's option shall not be
transferable except by will or by the laws of descent and distribution, or
pursuant to a domestic relations order satisfying the requirements of Rule
16b-3 and shall be exercisable during the lifetime of the Non-Employee
Director only by such person (or by his guardian or legal representative) or
transferee pursuant to such an order. Notwithstanding the foregoing, a Non-
Employee Director may, by delivering written notice to the Company in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Non-Employee Director, shall thereafter be entitled to exercise
the option.
(g) VESTING. A Non-Employee Director's initial grant under Section
7(a) may, but need not become exercisable in installments over a period of
years at a rate determined by the Board; provided that the optionee has,
during the entire period prior to such vesting date, continuously served as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate, whereupon such option shall become fully exercisable in accordance
with its terms with respect to that portion of the shares represented by that
installment. A Non-Employee Director's annual grant under Section 7(b) shall
be fully vested at all times.
8. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the
B-9
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the
terms and conditions of separate agreements need not be identical, but each
stock bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than one hundred percent (100%) of the stock's Fair Market
Value on the date such award is made. Notwithstanding the foregoing, the
Board or the Committee may determine that eligible participants in the Plan
may be awarded stock pursuant to a stock bonus agreement in consideration for
past services actually rendered to the Company for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted
stock purchase agreement shall be transferable except by will or the laws of
descent and distribution or, if the agreement so provides, pursuant to a
domestic relations order satisfying the requirements of Rule 16b-3, so long
as stock awarded under such agreement remains subject to the terms of the
agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to
a stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to
a deferred payment or other arrangement with the person to whom the stock is
sold; or (iii) in any other form of legal consideration that may be
acceptable to the Board or the Committee in its discretion. Notwithstanding
the foregoing, the Board or the Committee to which administration of the Plan
has been delegated may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may,
but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
(e) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have
not vested as of the date of termination under the terms of the stock bonus
or restricted stock purchase agreement between the Company and such person.
9. STOCK APPRECIATION RIGHTS
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under
the Plan to Employees, Directors and Consultants. To exercise any
outstanding Stock Appreciation Right, the holder must provide written notice
of exercise to the Company in compliance with the provisions of the Stock
Award Agreement evidencing such right. Except as provided in subsection
5(c), no limitation shall exist on the aggregate amount of cash payments the
Company may make under the Plan in connection with the exercise of a Stock
Appreciation Right.
B-10
(b) Three types of Stock Appreciation Rights shall be authorized
for issuance under the Plan:
(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock
Appreciation Rights will be granted appurtenant to an Option, and shall,
except as specifically set forth in this Section 9, be subject to the same
terms and conditions applicable to the particular Option grant to which it
pertains. Tandem Stock Appreciation Rights will require the holder to elect
between the exercise of the underlying Option for shares of stock and the
surrender, in whole or in part, of such Option for an appreciation
distribution. The appreciation distribution payable on the exercised Tandem
Right shall be in cash (or, if so provided, in an equivalent number of shares
of stock based on Fair Market Value on the date of the Option surrender) in
an amount up to the excess of (A) the Fair Market Value (on the date of the
Option surrender) of the number of shares of stock covered by that portion of
the surrendered Option in which the Optionee is vested over (B) the aggregate
exercise price payable for such vested shares.
(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights
will be granted appurtenant to an Option and may apply to all or any portion
of the shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 9, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock
to which the Concurrent Right pertains. The appreciation distribution
payable on an exercised Concurrent Right shall be in cash (or, if so
provided, in an equivalent number of shares of stock based on Fair Market
Value on the date of the exercise of the Concurrent Right) in an amount equal
to such portion as shall be determined by the Board or the Committee at the
time of the grant of the excess of (A) the aggregate Fair Market Value (on
the date of the exercise of the Concurrent Right) of the vested shares of
stock purchased under the underlying Option which have Concurrent Rights
appurtenant to them over (B) the aggregate exercise price paid for such
shares.
(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights
will be granted independently of any Option and shall, except as specifically
set forth in this Section 9, be subject to the same terms and conditions
applicable to Nonstatutory Stock Options as set forth in Section 6. They
shall be denominated in share equivalents. The appreciation distribution
payable on the exercised Independent Right shall be not greater than an
amount equal to the excess of (A) the aggregate Fair Market Value (on the
date of the exercise of the Independent Right) of a number of shares of
Company stock equal to the number of share equivalents in which the holder is
vested under such Independent Right, and with respect to which the holder is
exercising the Independent Right on such date, over (B) the aggregate Fair
Market Value (on the date of the grant of the Independent Right) of such
number of shares of Company stock. The appreciation distribution payable on
the exercised Independent Right shall be in cash or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date
of the exercise of the Independent Right.
B-11
10. CANCELLATION AND RE-GRANT OF OPTIONS
(a) The Board or the Committee shall have the authority to effect,
at any time and from time to time, (i) the repricing of any outstanding
Options and/or any Stock Appreciation Rights under the Plan and/or (ii) with
the consent of any adversely affected holders of Options and/or Stock
Appreciation Rights, the cancellation of any outstanding Options and/or any
Stock Appreciation Rights under the Plan and the grant in substitution
therefor of new Options and/or Stock Appreciation Rights under the Plan
covering the same or different numbers of shares of stock, but having an
exercise price per share not less than: one hundred percent (100%) of the
Fair Market Value for a Nonstatutory Stock Option, one hundred percent (100%)
of the Fair Market Value in the case of an Incentive Stock Option or, in the
case of an Incentive Stock Option held by a 10% stockholder (as described in
subsection 5(b)), not less than one hundred ten percent (110%) of the Fair
Market Value per share of stock on the new grant date. Notwithstanding the
foregoing, the Board or the Committee may grant an Option and/or Stock
Appreciation Right with an exercise price lower than that set forth above if
such Option and/or Stock Appreciation Right is granted as part of a
transaction to which Section 424(a) of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right canceled
under this Section 10 shall continue to be counted against the maximum award
of Options and Stock Appreciation Rights permitted to be granted pursuant to
the Plan. The repricing of an Option and/or Stock Appreciation Right
hereunder resulting in a reduction of the exercise price, shall be deemed to
be a cancellation of the original Option and/or Stock Appreciation Right and
the grant of a substitute Option and/or Stock Appreciation Right; in the
event of such repricing, both the original and the substituted Options and
Stock Appreciation Rights shall be counted against the maximum awards of
Options and Stock Appreciation Rights permitted to be granted pursuant to the
Plan, to the extent required by Section 162(m) of the Code.
11. COVENANTS OF THE COMPANY
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required
to issue and sell shares under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities
Act of 1933, as amended (the "Securities Act") either the Plan, any Stock
Award or any stock issued or issuable pursuant to any such Stock Award. If,
after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell
stock upon exercise of such Stock Awards unless and until such authority is
obtained.
12. USE OF PROCEEDS FROM STOCK
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
B-12
13. MISCELLANEOUS
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or
any part thereof will vest, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which
it will vest.
(b) Neither an Employee, Director nor a Consultant nor any person to
whom a Stock Award is transferred in accordance with the Plan shall be deemed
to be the holder of, or to have any of the rights of a holder with respect
to, any shares subject to such Stock Award unless and until such person has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or
any Affiliate, or to continue serving as a Consultant and Director, or shall
affect the right of the Company or any Affiliate to terminate the employment
of any Employee with or without notice and with or without cause, or the
right to terminate the relationship of any Consultant pursuant to the terms
of such Consultant's agreement with the Company or Affiliate or service as a
Director pursuant to the Company's By-Laws.
(d) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options
are exercisable for the first time by any Optionee during any calendar year
under all plans of the Company and its Affiliates exceeds one hundred
thousand dollars ($100,000), the Options or portions thereof which exceed
such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred in accordance
with the Plan, as a condition of exercising or acquiring stock under any
Stock Award, (1) to give written assurances satisfactory to the Company as to
such person's knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together with
the purchaser representative, the merits and risks of exercising the Stock
Award; and (2) to give written assurances satisfactory to the Company stating
that such person is acquiring the stock subject to the Stock Award for such
person's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (i)
the issuance of the shares upon the exercise or acquisition of stock under
the Stock Award has been registered under a then currently effective
registration statement under the Securities Act, or (ii) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company,
place legends on stock certificates issued under the Plan as such counsel
deems necessary or appropriate in order to comply with applicable securities
laws, including, but not limited to, legends restricting the transfer of the
stock.
B-13
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
stock under a Stock Award by any of the following means or by a combination
of such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold shares from the shares of the Common Stock otherwise issuable to the
participant as a result of the exercise or acquisition of stock under the
Stock Award; or (3) delivering to the Company owned and unencumbered shares
of the Common Stock of the Company.
14. ADJUSTMENTS UPON CHANGES IN STOCK
(a) If any change is made in the stock subject to the Plan, or
subject to any Stock Award, without the receipt of consideration by the
Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares,
change in corporate structure or other transaction not involving the receipt
of consideration by the Company), the Plan will be appropriately adjusted in
the class(es) and maximum number of shares subject to the Plan and the
maximum number of shares subject to award to any person during any calendar
year, and the outstanding Stock Awards will be appropriately adjusted in the
class(es) and number of shares and price per share of stock subject to such
outstanding Stock Awards. Such adjustments shall be made by the Board or the
Committee, the determination of which shall be final, binding and conclusive.
(The conversion of any convertible securities of the Company shall not be
treated as a "transaction not involving the receipt of consideration by the
Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; or (3) a reverse
merger in which the Company is the surviving corporation but the shares of
the Common Stock outstanding immediately preceding the merger are converted
by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then to the extent permitted by applicable
law: (i) any surviving corporation or an Affiliate of such surviving
corporation shall assume any Stock Awards outstanding under the Plan or shall
substitute similar Stock Awards for those outstanding under the Plan, or (ii)
such Stock Awards shall continue in full force and effect. In the event any
surviving corporation and its Affiliates refuse to assume or continue such
Stock Awards, or to substitute similar options for those outstanding under
the Plan, then, with respect to Stock Awards held by persons then performing
services as Employees, Directors or Consultants, the time during which such
Stock Awards may be exercised shall be accelerated and the Stock Awards
terminated if not exercised prior to such event.
15. AMENDMENT OF THE PLAN AND STOCK AWARDS
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 14 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder is necessary for the
Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or
any securities exchange listing requirements.
B-14
(b) The Board may in its sole discretion submit any other amendment
to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m)
of the Code and the regulations thereunder regarding the exclusion of
performance based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to
be provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan
and/or Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the
terms of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
16. TERMINATION OR SUSPENSION OF THE PLAN
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while
the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was
granted.
17. EFFECTIVE DATE OF PLAN
This Plan shall become effective on the date of closing of the Agreement
and Plan of Merger between the Company and BioMedical Technology Systems,
Inc., but no Stock Awards granted under the Plan shall be exercised unless
and until the Plan has been approved by the stockholders of the Company,
which approval shall be within twelve (12) months before or after the date
the Plan is adopted by the Board.
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APPENDIX C
CALIFORNIA CORPORATIONS CODE SECTIONS 1300-1313
1300. (a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b)
or subdivision (e) or (f) of Section 1201, each shareholder of the
corporation entitled to vote on the transaction and each shareholder of a
subsidiary corporation in a short-form merger may, by complying with this
chapter, require the corporation in which the shareholder holds shares to
purchase for cash at their fair market value the shares owned by the
shareholder which are dissenting shares as defined in subdivision (b). The
fair market value shall be determined as of the day before the first
announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the National Market System of the NASDAQ Stock
Market, and the notice of meeting of shareholders to act upon the
reorganization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares
with respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A)
or (B) if demands for payment are filed with respect to 5 percent or more of
the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B)
of paragraph (1) (without regard to the provisos in that paragraph), were
voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with Section
1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
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1301. (a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation
to purchase their shares for cash, that corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of that approval,
accompanied by a copy of Sections 1300, 1302, 1303, and 1304 and this
section, a statement of the price determined by the corporation to represent
the fair market value of the dissenting shares, and a brief description of
the procedure to be followed if the shareholder desires to exercise the
shareholder's right under those sections. The statement of price constitutes
an offer by the corporation to purchase at the price stated any dissenting
shares as defined in subdivision (b) of Section 1300, unless they lose their
status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase shares shall make written demand upon the
corporation for the purchase of those shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any
purpose unless it is received by the corporation or any transfer agent
thereof (1) in the case of shares described in clause(A) or (B) of paragraph
(1) of subdivision (b) of Section 1300 (without regard to the provisos in
that paragraph), not later than the date of the shareholders' meeting to vote
upon the reorganization, or (2) in any other case within 30 days after the
date on which the notice of the approval by the outstanding shares pursuant
to subdivision (a) or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what that shareholder claims to be
the fair market value of those shares as of the day before the announcement
of the proposed reorganization or short-form merger. The statement of fair
market value constitutes an offer by the shareholder to sell the shares at
that price.
1302. Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the
corporation at its principal office or at the office of any transfer agent
thereof, (a) if the shares are certificated securities, the shareholder's
certificates representing any shares which the shareholder demands that the
corporation purchase, to be stamped or endorsed with a statement that the
shares are dissenting shares or to be exchanged for certificates of
appropriate denomination so stamped or endorsed or (b) if the shares are
uncertificated securities, written notice of the number of shares which the
shareholder demands that the corporation purchase. Upon subsequent transfers
of the dissenting shares on the books of the corporation, the new
certificates, initial transaction statement, and other written statements
issued therefor shall bear a like statement, together with the name of the
original dissenting holder of the shares.
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1303. (a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the
legal rate on judgments from the date of the agreement. Any agreements
fixing the fair market value of any dissenting shares as between the
corporation and the holders thereof shall be filed with the secretary of the
corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the
amount thereof has been agreed or within 30 days after any statutory or
contractual conditions to the reorganization are satisfied, whichever is
later, and in the case of certificated securities, subject to surrender of
the certificates therefor, unless provided otherwise by agreement.
1304. (a) If the corporation denies that the shares are dissenting shares,
or the corporation and the shareholder fail to agree upon the fair market
value of the shares, then the shareholder demanding purchase of such shares
as dissenting shares or any interested corporation, within six months after
the date on which notice of the approval by the outstanding shares (Section
152) or notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court
of the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both
or may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting
shares is in issue, the court shall determine, or shall appoint one or more
impartial appraisers to determine, the fair market value of the shares.
1305. (a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the
time fixed by the court, the appraisers, or a majority of them, shall make
and file a report in the office of the clerk of the court. Thereupon, on the
motion of any party, the report shall be submitted to the court and
considered on such evidence as the court considers relevant. If the court
finds the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such
further time as may be allowed by the court or the report is not confirmed by
the court, the court shall determine the fair market value of the dissenting
shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has
intervened, is entitled to require the corporation to purchase, with interest
thereon at the legal rate from the date on which judgment was entered.
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(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the
judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and
interest at the legal rate on judgments from the date of compliance with
Sections 1300, 1301 and 1302 if the value awarded by the court for the shares
is more than 125 percent of the price offered by the corporation under
subdivision (a) of Section 1301).
1306. To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall
become creditors of the corporation for the amount thereof together with
interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt
to be payable when permissible under the provisions of Chapter 5.
1307. Cash dividends declared and paid by the corporation upon the
dissenting shares after the date of approval of the reorganization by the
outstanding shares (Section 152) and prior to payment for the shares by the
corporation shall be credited against the total amount to be paid by the
corporation therefor.
1308. Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their
shares, until the fair market value of their shares is agreed upon or
determined. A dissenting shareholder may not withdraw a demand for payment
unless the corporation consents thereto.
1309. Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled
to require the corporation to purchase their shares upon the happening of any
of the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable attorneys'
fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into shares
of another class in accordance with the articles.
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(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i)
of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310. If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any
proceedings under Sections 1304 and 1305 shall be suspended until final
determination of such litigation.
1311. This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
1312. (a) No shareholder of a corporation who has a right under this chapter
to demand payment of cash for the shares held by the shareholder shall have
any right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted
in favor thereof; but any holder of shares of a class whose terms and
provisions specifically set forth the amount to be paid in respect to them in
the event of a reorganization or short-form merger is entitled to payment in
accordance with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash
for such shareholder's shares pursuant to this chapter; but if the
shareholder institutes any action to attack the validity of the
reorganization or short-form merger or to have the reorganization or short-
form merger set aside or rescinded, the shareholder shall not thereafter have
any right to demand payment of cash for the shareholder's shares pursuant to
this chapter. The court in any action attacking the validity of the
reorganization or short-form merger or to have the reorganization or short-
form merger set aside or rescinded shall not restrain or enjoin the
consummation of the transaction except upon 10 days' prior notice to the
corporation and upon a determination by the court that clearly no other
remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
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reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable
as to the shareholders of any party so controlled.
1313. A conversion pursuant to Chapter 11.5 (commencing with Section 1150)
shall be deemed to constitute a reorganization for purposes of applying the
provisions of this chapter, in accordance with and to the extent provided in
Section 1159.
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P R O X Y
CET SERVICES, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Steven H. Davis with the power to
appoint his substitute, and hereby authorizes him to represent and to vote as
designated below, all the shares of common stock of CET Services, Inc. held
of record by the undersigned on July 7, 2008 at the Special Meeting of
Shareholders to be held on August 12, 2008 or any adjournment thereof.
1. The approval of an Agreement and Plan of Merger pursuant to which a
wholly-owned subsidiary of the Company would be merged with and into
BioMedical Technology Solutions Holdings, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. The approval of a change of the Company's state of domicile from
California to Colorado.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. The approval of a proposal to amend the Company's articles of
incorporation to increase the number of authorized shares of common and
preferred stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. The approval of a reverse stock split.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. The approval the change of the Company's name to "BioMedical
Technology Solutions Holdings, Inc."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. The approval of the Company's 2008 Equity Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. Shareholder Proposal:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The transaction of such other business as may properly come before the
meeting or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CET SERVICES,
INC. PLEASE SIGN AND RETURN THIS PROXY IN THE ENCLOSED PRE-ADDRESSED
ENVELOPE. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON
IF YOU ATTEND THE MEETING.
(To be signed on the other side)
CET SERVICES, INC.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 THROUGH 6, and AGAINST PROPOSAL 7.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN ACCORDANCE
WITH THE SHAREHOLDER'S SPECIFICATIONS ABOVE. THIS PROXY CONFERS DISCRETIONARY
AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE TIME OF THE
MAILING OF THE NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS TO THE
UNDERSIGNED.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Shareholders and Proxy Statement.
Dated: _______________, 2008 ______________________________________
Signature(s) of Shareholder(s)
______________________________________
Signature(s) of Shareholder(s)
Signature(s) should agree with the name(s) stenciled hereon. Executors,
administrators, trustees, guardians, and attorneys should indicate when
signing. Attorneys should submit powers of attorney.