SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act
April 19, 2006
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Date of Report
(Date of earliest event reported)
Reflect Scientific, Inc.
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(Exact name of registrant as specified in its charter)
UTAH 000-31377 87-0642556
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(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
970 Terra Bella Avenue
Mountain View, California 94043
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(Address of Principal Executive Offices)
(650) 960-0300
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(Registrant's Telephone Number)
N/A
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(Former Name or Former Address if changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the Registrant under any of
the following provisions (see general instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14-a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
(a) Effective as of April 19, 2006, the Registrant ("Reflect," the
"Company," "we," "our," "us" and words of similar import) entered into an
Agreement and Plan of Merger (the "Merger Agreement" and the "Merger") among
Reflect; Cryomastor Acquisition Corporation, a California corporation and
wholly-owned subsidiary of Reflect ("Merger Subsidiary"); Cryomastor, Inc., a
California company ("Cryomastor"); J F Dain & E L Dain CO - T Tee Dain Family
Revocable Trust U/A Dated 12/17/2001 (the "Dain Trust") and Nicholas J.
Henneman ("Henneman")(collectively, the "Cryomastor Shareholders"); and John
F. Dain, individually ("Dain"). Pursuant to the Merger Agreement, the Merger
Subsidiary will merge with and into Cryomastor with Cryomastor being the
surviving corporation and becoming a wholly-owned subsidiary of Reflect.
Under the Merger Agreement, Reflect will
1. Issue 3,000,000 shares of its common stock that are "restricted
securities" as defined in Rule 144, with no registration rights to have these
securities included in a registration statement filed with the United States
Securities and Exchange Commission (51% or 1,530,000 shares to the Dain Trust
and 49% or 1,470,000 shares to Henneman);
2. Pay $700,000 to the Cryomastor Shareholders, pro rata, in
accordance with their respective interests in Cryomastor (51% or $357,000 to
the Dain Trust and 49% or $343,000 to Henneman);
3. Advance $300,000 to be utilized for the operations of Cryomastor
and to support the design, development and production of up to ten (10)
production Cryomastor Systems units;
4. Pay the $300,000 debt of Cryomastor to Dain for the assignment of
U. S. Patent No. 6,804,976 B1, covering certain technology referred to herein
as the "Cryomastor Systems," within ninety (90) days of the Closing;
5. Execute and deliver Employment Agreements pursuant to which Dain,
Henneman and Elizabeth L. Dain ("Ms. Dain") will become employees of
Cryomastor; and
6. Pay to the Cryomastor Shareholders 2.5% of the of the gross annual
revenue earned by the Company or Cryomastor or any affiliated entity, in
connection with the license, sale or other distribution of the Cryomastor
Systems technology (the "Cryomastor Revenue"). The foregoing payment shall
not be due or payable or accrue unless and until the aggregate Cryomastor
Revenue for a fiscal year is projected to exceed, or actually exceeds, three
million dollars ($3,000,000). The foregoing payment shall be paid in
"restricted" shares of the Company's common stock, without registration
rights, valued at the greater of (I) "Market Value" at the time of the accrual
of the payment; or (ii) $1.80 per share. "Market Value" shall mean the
average of the bid and asked prices of the Company's common stock on the OTC
Bulletin Board or any other nationally recognized medium on which it is
publicly traded on the date or dates when such percentage payments are due and
payable. The maximum aggregate amount of shares issuable hereunder shall be
two million (2,000,000) shares. Payments shall be paid on a quarterly basis
(within thirty [30] days of the end of each quarter) based on projected
Cryomastor Revenue (payments based on actual Cryomastor Revenue shall be paid
in one lump sum within thirty [30] days of the end of the fiscal period in
which they were earned). Portions of the payments so paid shall be adjusted to
reconcile the actual Cryomastor Revenue within thirty (30) days of the end of
the fiscal year in which they were paid.
Further, Cryomastor's name will be changed to "Cryometrix, Inc."; and
the directors and executive officers of Cryomastor will resign, and the
directors and executive officers of Reflect, shall be designated as the
directors and executive officers of Cryomastor.
As a part of the execution and delivery of the Merger Agreement, Reflect
shall have commenced the offer and sale of a minimum of $1,000,000 from the
sale of 1,000,000 shares (the "Minimum Offering"), or a maximum of $1,500,000
from the sale of 1,500,000 shares (the "Maximum Offering") of its "restricted"
common stock at a price of $1.00 per share to "accredited investors" as
outlined in its Confidential Private Placement Offering Memorandum dated April
18, 2006, through the "best efforts" of Alpine Securities Corporation, a
registered broker/dealer, or such other broker/dealers as Reflect shall engage
for such offering. This is a condition precedent to the closing of the
Merger; no assurance can be given that the Company will be successful in
raising these funds or that there will be a closing of the Merger.
The closing of the Merger Agreement is subject to the completion of the
Minimum Offering on or before June 30, 2006. If the Minimum Offering is
timely completed, there will be a closing of the Merger Agreement; unless
there is a closing of the Merger Agreement, all funds will be returned to
investors without any deduction therefrom or interest thereon, regardless of
the achievement of the Minimum Offering.
The Company's Board of Directors unanimously approved the Merger and
related agreements. During the course of its deliberations regarding the
Merger, the Board of Directors of the Company considered a number of factors
relevant to the Merger, such as Cryomastor's business history, financial
condition and intellectual property, the terms of the Merger, and historical
information concerning Cryomastor's business, financial performance and
condition, operations, technology, management and competitive position; and
also considered a number of the Company's key needs, including, but not
limited to:
* the Company's desire to expand its services offerings, either through
internal development or by licensing or acquiring complimentary or new
technologies; and
* the Company's desire to attract and retain talented technical personnel
to compliment these new developments or technologies.
The Company's Board of Directors also assessed the value of the Merger
to the Company's shareholders in light of various factors and potential
benefits of the Merger, including:
* the current intrinsic value of the combined companies;
* strategic and financial advantages to the combined businesses that may
result from the Merger, such as potential improvements in their ability
to access financial markets and acquisition purposes;
* potential for future appreciation of the Company's common stock;
* potential risks associated with the Merger; and
* the long-term interests of the Company and its shareholders;
* information concerning the business prospects and potential operations
and financial condition of the Company and Cryomastor, both individually
and on a combined basis;
* the terms of the Merger Agreement, including that the Merger will likely
qualify as a tax free reorganization to the Company for federal income
tax purposes;
* projected relative ownership interests of the Company's shareholders and
Cryomastor shareholders in the Company immediately following the Merger;
* the likelihood that the Merger would be consummated; and
* The Company's desire to find an attractive candidate for a
reorganization or merger that would be beneficial to it and its
shareholders and provide products that current clients and customers
would be interested in purchasing, as well as others.
If there is a closing of the Merger, including Reflect's currently
outstanding shares, the issuance of 3,000,000 shares pursuant to the Merger
Agreement and 1,000,000 shares to the investors in the Minimum Offering, there
are or will be on issuance, approximately 30,180,002 post-Merger Agreement
outstanding shares of Reflect common stock.
A copy of the Merger Agreement, including all material exhibits and
related instruments, accompanies this Current Report, which, by this
reference, is incorporated herein; the foregoing summary is modified in its
entirety by such reference. See Item 9.01, Exhibit 2.1.
As a part of the closing of the Merger, Reflect and Dain, Henneman and
Ms. Dain will execute Employment Agreements (the "Employment Agreements").
The Employment Agreements will cover Dain, Henneman and Ms. Dain, in the
following positions: John F. Dain Technical Director; Nicholas J. Henneman
Director of Manufacturing; and Elizabeth L. Dain, Manager, Sales and
Marketing. The term of employment of each will be thirty-six months (36),
with Dain and Henneman each to be paid $175,000 annually, in bi-weekly
installments, and Ms. Dain to be paid $125,000, in bi-weekly installments.
Each will devote their respective work efforts to the performance of the
Employment Agreements; each will receive four (4) weeks vacation per year; and
medical benefits for a period of twelve (12) months, after which, if the
operations prove profitable, a co-pay plan will be adopted that will partially
offset the employer's costs. There are non-competition provisions; provided,
however, the All Temp Engineering business currently operated by the parties
is not considered a competing business, so long as All Temp Engineering does
not provide any products that compete with the products encompassed by U. S.
Patent No. 6,804,974. The Company may terminate the Employment Agreements at
any time without notice if an employee commits any material act of dishonesty,
wrongfully discloses confidential information, is guilty of gross carelessness
or misconduct, or unjustifiably neglects his or her duties under the
Employment Agreements, or acts in any way that has a direct, substantial, and
adverse effect on the Company's or Cryomastor's reputation. Further, the
Company may terminate the Employment Agreements without cause after the first
year of the term, if the business fails to attain its specific business goals,
objectives or milestones as specified in it Business Plan and the Company's
Board of Directors has determined that it should discontinue operations;
otherwise, the Company may terminate any employee without cause after the
first year of the term if the Company or Cryomastor pays severance in the
amount of six (6) months salary. Copies of the Employment Agreements
accompany this Current Report, which, by this reference, are incorporated
herein; the foregoing summary is modified in its entirety by such reference.
See Item 9.01, Exhibit 6.10 to Exhibit 2.1.
Item 9.01 Financial Statements and Exhibits.
(c)(I) Registrant's Exhibits:
Attached:
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2.1 Agreement and Plan of Merger
Exhibit 5.4(b) Written Consent of Cryomastor and
the Cryomastor Shareholders
Exhibit 5.4(c) Investment Letters
Exhibit 6.4(b) Consent of Directors of Reflect and
Consent of Directors and Sole
Stockholder of Merger Subsidiary
Exhibit 6.10 Employment Agreements
Exhibit 6.11 Interim Financing Documents
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this Current Report to be signed on its
behalf by the undersigned hereunto duly authorized.
REFLECT SCIENTIFIC, INC.
Date: 4/25/2006 /s/Kim Boyce
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Kim Boyce
President and Director