Exhibit 10.5
--------------------------------------------------------------------------------
CONVERTIBLE DEMAND NOTE AND WARRANT
PURCHASE AGREEMENT
between
MEDICAL STERILIZATION, INC.
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
Dated as of January 30, 1989
--------------------------------------------------------------------------------
-2-
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS
Section 1.01 The Notes........................................ 6
Section 1.02 The Warrants..................................... 6
Section 1.03 Purchase and Sale of Notes 1 and Warrants........ 6
(a) The Closing................................ 6
(b) Allocation of Purchase Price............... 7
Section 1.04 Payments and Endorsements........................ 7
Section 1.05 Demand for Payment............................... 7
Section 1.06 Payment on Non-Business Days..................... 7
Section 1.07 Registration, etc................................ 7
Section 1.08 Transfer and Exchange of Notes................... 8
Section 1.09 Replacement of Notes............................. 8
Section 1.10 Conversion of Notes.............................. 9
(a) Mandatory Conversion....................... 9
(b) Optional Conversion........................ 10
(c) Conversion Value........................... 11
(d) No Deletion or Impairment.................. 11
(e) Cash in Lieu of Fractional Shares.......... 11
(f) Notice of Record Date...................... 11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 2.01 Organization, Qualifications and Corporate Power.. 12
Section 2.02 Authorization of Agreements, Etc.................. 13
Section 2.03 Validity.......................................... 14
Section 2.04 Authorized Capital Stock.......................... 14
Section 2.05 Financial Statements.............................. 15
Section 2.06 Events Subsequent to the Date of the Balance Sheet 16
Section 2.07 Litigation; Compliance with Law................... 16
Section 2.08 Proprietary Information of Third Parties.......... 17
Section 2.09 Title to Properties............................... 17
Section 2.10 Leasehold Interests............................... 18
Section 2.11 Insurance......................................... 18
Section 2.12 Taxes............................................. 18
Section 2.13 Other Agreements.................................. 18
Section 2.14 Patents, Trademarks, Etc.......................... 21
-3-
Page
Section 2.15 Loans and Advances................................ 21
Section 2.16 Assumptions, Guarantees, Etc. of Indebtedness of
Other Persons..................................... 21
Section 2.17 Significant Customers and Suppliers............... 21
Section 2.18 Governmental Approvals............................ 22
Section 2.19 Disclosure........................................ 22
Section 2.20 Offering of the Notes, the Warrants, the Common
Conversion Shares, the Preferred Conversion Shares
and the Preferred Shares.......................... 23
Section 2.21 Brokers........................................... 23
Section 2.22 Officers.......................................... 23
Section 2.23 Transactions with Affiliates...................... 23
Section 2.24 Employees......................................... 24
Section 2.25 U.S. Real Property Holding Corporation............ 24
Section 2.26 Authorization of Stockholders' Meeting............ 24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS............... 24
ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS................ 25
ARTICLE V COVENANTS OF THE COMPANY....................................... 32
Section 5.01 Financial Statements, Reports, Etc................ 32
Section 5.02 Right of First Refusal............................ 33
Section 5.03 Reserve for Preferred Shares, Common Conversion
Shares and Preferred Conversion Shares............ 34
Section 5.04 Corporate Existence............................... 35
Section 5.05 Properties, Business, Insurance................... 35
Section 5.06 Inspection, Consultation and Advice............... 35
Section 5.07 Restrictive Agreements Prohibited................. 35
Section 5.08 Transactions with Affiliates...................... 35
Section 5.09 Expenses of Directors............................. 36
Section 5.10 Use of Proceeds................................... 36
Section 5.11 Board of Directors Meetings....................... 36
Section 5.12 Compensation...................................... 36
Section 5.13 By-laws........................................... 36
Section 5.14 Performance of Contracts.......................... 37
Section 5.15 Vesting of Reserved Employee Shares............... 37
Section 5.16 Employee Nondisclosure and Developments Agreements 37
Section 5.17 Mergers, Sale of Assets, Etc. of Subsidiaries..... 37
Section 5.18 Maintenance of Ownership of Subsidiaries.......... 37
Section 5.19 Distributions by Subsidiaries..................... 38
-4-
Page
Section 5.20 Compliance with Laws.............................. 38
Section 5.21 Keeping of Record and Books of Account............ 38
Section 5.22 Change in Nature of Business...................... 38
Section 5.23 U.S. Real Property Interest Statement............. 38
Section 5.24 Punctual Payment.................................. 38
Section 5.25 Authorization of Preferred Stock.................. 38
Section 5.26 Restrictions...................................... 39
ARTICLE VI EVENTS OF DEFAULT.............................................. 39
Section 6.01 Events of Default................................. 39
Section 6.02 Annulment of Defaults............................. 41
ARTICLE VII MISCELLANEOUS.................................................. 41
Section 7.01 Expenses.......................................... 41
Section 7.02 Survival of Agreements............................ 41
Section 7.03 Brokerage......................................... 42
Section 7.04 Parties in Interest............................... 42
Section 7.05 Notices........................................... 42
Section 7.06 Governing Law..................................... 42
Section 7.07 Entire Agreement.................................. 43
Section 7.08 Counterparts...................................... 43
Section 7.09 Amendments........................................ 43
Section 7.10 Severability...................................... 43
Section 7.11 Titles and Subtitles.............................. 43
Section 7.12 Certain Defined Terms............................. 43
Section 7.13 Accounting Terms.................................. 44
-5-
INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Subsidiaries
SCHEDULE IV Security Holders
SCHEDULE V(A)
and (B) Agreements
INDEX TO EXHIBITS
EXHIBIT A Form of Convertible Demand Notes
EXHIBIT B Form of Common Stock Purchase Warrants
EXHIBIT C Charter
EXHIBIT D Charter Amendment
EXHIBIT E Form of Registration Rights Agreement
EXHIBIT F Form of Stock Restriction Agreement
EXHIBIT G Form of Employment Agreement
-6-
CONVERTIBLE DEMAND NOTE AND WARRANT PURCHASE AGREEMENT dated as of
January 30, 1989 between Medical Sterilization, Inc., a New York corporation
(the "Company"), and the several purchasers named in the attached Schedule I
(individually a "Purchaser" and collectively the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers its
Convertible Demand Notes, due 1994, and its Common Stock Purchase Warrants; and
WHEREAS, the Purchasers, severally, wish to purchase the Notes and
Warrants on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS
SECTION 1.01 The Notes. The Company has authorized the issuance and
sale to the Purchasers of the Company's Convertible Demand Notes, due 1994, in
the original principal amount of $1,000,000. The Convertible Subordinated Notes
shall be substantially in the form set forth in Exhibit A hereto and are herein
referred to individually as a "Note" and collectively as the "Notes", which
terms shall also include any notes delivered in exchange or replacement
therefor.
SECTION 1.02 The Warrants. The Company has also authorized the issuance
and sale to the Purchasers of the Company's Common Stock Purchase Warrants for
the purchase (subject to adjustment as provided therein) of 285,715 shares of
the Company's Common Stock, $.01 par value (the "Common Stock"). The Common
Stock Purchase Warrants shall be substantially in the form set forth in Exhibit
B hereto and are herein referred to individually as a "Warrant" and collectively
as the "Warrants", which terms shall also include any warrants delivered in
exchange or replacement therefor.
SECTION 1.03 Purchase and Sale of Notes and Warrants.
(a) The Closing. The Company agrees to issue and sell to each
Purchaser, and, subject to and in reliance upon the representations, warranties,
terms and conditions of this Agreement, each Purchaser agrees to purchase, the
principal amount of the Notes and Warrants for the purchase of the number of
shares of Common Stock set forth opposite the name of such Purchaser under the
headings "Principal Amount of Notes" and "Warrant Shares", respectively, on
Schedule I, at the aggregate purchase price set forth opposite the name of such
Purchaser under the heading "Aggregate Purchase Price" on Schedule I. Such
purchase and sale shall take place at a closing (the "Closing") to be held at
the offices of Xxxxx, Xxxxxxx & Xxxxxxxxx, Exchange Place, 00 Xxxxx Xxxxxx,
-0-
Xxxxxx, Xxxxxxxxxxxxx, on January 30, 1989 at 10:00 a.m., or at such other
location date and time as may be agreed upon by the Purchasers and the Company
(such date and time being called the "Closing Date"). At the Closing the Company
shall issue and deliver to each Purchaser Notes, payable to the order of such
Purchase, in the principal amount set forth opposite the name of such Purchaser
under the heading "Principal Amount of Notes" on Schedule I and Warrants,
registered in the name of such Purchaser, to purchase (subject to adjustment as
provided therein) the number of shares of the Company's Common Stock set forth
opposite the name of such Purchaser under the heading "Warrant Shares" on
Schedule I. As payment in full for the Notes and Warrants being purchased by it
under this Agreement, and against delivery of the Notes and Warrants as
aforesaid, on the Closing Date each Purchaser shall deliver to the Company a
check payable to the Company, in the amount set forth opposite the name of such
Purchaser under the heading "Aggregate Purchase Price" on Schedule I, or shall
transfer such sum to the account of the Company by wire transfer.
(b) Allocation of Purchase Price. The Company and the Purchasers,
having adverse interests and as a result of arm's length bargaining, agree that
(i) neither the Purchasers nor any of their respective partners have rendered or
have agreed to render any services to the Company in connection with this
Agreement or the issuance of the notes and Warrants; (ii) the Warrants are not
being issued as compensation; and (iii) for the purpose, and within the meaning,
of Proposed Treasury Regulation Section 1.1273-2(d)(2)(iv), the aggregate issue
price at which the Notes would be issued if they were issued apart from the
Warrants is $990,000.
The Company and the Purchaser recognize that this Agreement determines
the original issue discount to be taken into account by the Company and the
Purchaser for Federal income tax purposes on the Notes, and they agree to adhere
to this Agreement for such purposes.
SECTION 1.04 Payments and Endorsements. Payments of principal and
interest on the Notes shall be made directly by check duly mailed or delivered
to each Purchaser at its address set forth on Schedule I, without any
presentment or notation of payment, except that prior to any transfer of any
Note, the holder of record shall endorse on such Note a record of the date to
which interest has been paid and all payments made on account of principal of
such Note.
SECTION 1.05 Demand for Payment. The principal of and interest on the
Notes shall be payable on demand made by a holder thereof. Any demand for
payment shall be made by written notice to the Company, which notice shall set
forth the date and time for such redemption, which shall not be less than five
(5) days after the date such notice was delivered to the Company. No demand for
payment may be made by any holder of the Notes prior to June 30, 1989 except in
the event that (i) at a duly held meeting of the stockholders of the Company
(the "Stockholders' Meeting") convened for the purposes of amending the
Company's Certificate of Incorporation, as amended through the date hereof (the
"Charter") as set forth in Exhibit C hereto, to provide for the creation of a
-8-
series of Preferred Stock (the "Preferred Stock") substantially on the terms set
forth in Exhibit D hereto (the "Charter Amendment"), such stockholders shall
fail to approve the Charter Amendment or (ii) Xxxxxxx X. Xxxx, or such other
person as shall be nominated for election to the Board of Directors by the
holders of the Notes and the Warrants shall not have been so elected or shall
have been removed from the Board of Directors.
SECTION 1.06 Payment on Non-Business Days. Whenever any payment to be
made shall be due on a Saturday, Sunday or a public holiday under the laws of
the State of New York, such payment may be made on the next succeeding business
day, and such extension of time shall in such case be included in the
computation of payment of interest due.
SECTION 1.07 Registration, etc. The Company shall maintain at its
principal office a register of the Notes and shall record therein the names and
addresses of the registered holders of the Notes, the address to which notices
are to be sent and the address to which payments are to be made as designated by
the registered holder if other than the address of the holder, and the
particulars of all transfers, exchanges and replacements of Notes. No transfer
of a Note shall be valid unless made on such register for the registered holder
or his executors or administrators or his or their duly appointed attorney, upon
surrender therefor for exchange as hereinafter provided, accompanied by an
instrument in writing, in form and execution reasonably satisfactory to the
Company. Each Note issued hereunder, whether originally or upon transfer,
exchange or replacement of a Note or Notes, shall be registered on the date of
execution thereof by the Company or shall be dated the date to which interest
has been paid on such Notes or Note. The registered holder of a Note shall be
that Person in whose name the Note has been so registered by the Company. A
registered holder shall be deemed the owner of a Note for all purposes of this
Agreement and, subject to the provisions hereof, shall be entitled to the
principal and interest evidenced by such Note free from all equities or rights
of setoff or counterclaim between the Company and the transferor of such
registered holder or any previous registered holder of such Note.
SECTION 1.08 Transfer and Exchange of Notes. The registered holder of
any Note or Notes may, prior to maturity thereof, surrender such Note or Notes
at the principal office of the Company for transfer or exchange. Within a
reasonable time after notice to the Company from a registered holder of its
intention to make such exchange and without expense (other than transfer taxes,
if any) to such registered holder, the Company shall issue in exchange therefor
another Note or Notes, in such denominations as requested by the registered
holder, for the same aggregate principal amount as the unpaid principal amount
of the Note or Notes so surrendered and having the same maturity and rate of
interest, containing the same provisions and subject to the same terms and
conditions as the Note or Notes so surrendered. Each new Note shall be made
payable to such Person or Persons, or registered assigns, as the registered
holder of such surrendered Note or Notes may designate, and such transfer or
exchange shall be made in such a manner that no gain or loss of principal or
interest shall result therefrom.
-9-
SECTION 1.09 Replacement of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Note and, if requested in the case of any such loss, theft or destruction, upon
delivery of an indemnity bond or other agreement or security reasonably
satisfactory to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of such Note, the Company will issue a new Note, of
like tenor and amount and dated the date to which interest has been paid, in
lieu of such lost, stolen, destroyed or mutilated Note; provided, however, if
any Note of which any Purchaser, its nominee, or any of its partners is the
registered holder is lost, stolen or destroyed, the affidavit of an executive
officer or general partner of the registered holder setting forth the
circumstances with respect to such loss, theft or destruction shall be accepted
as satisfactory evidence thereof, and no indemnification bond or other security
shall be required as a condition to the execution and delivery by the Company of
a new Note in replacement of such lost, stolen or destroyed note other than the
registered holder's written agreement to indemnify the Company such certificates
evidencing shares of Preferred Stock.
SECTION 1.10 Conversion of Notes.
(a) Mandatory Conversion. All outstanding Notes shall automatically be
converted into the number of shares of Preferred Stock into which such Notes are
convertible upon application of the then effective Preferred Stock Conversion
Value immediately upon the filing by the Company of the Charter Amendment with
the Secretary of State of the State of New York and the creation of the
Preferred Stock. The date of such event shall referred to as the "Mandatory
Conversion Date".
Upon the occurrence of an automatic conversion specified above, the
outstanding Notes shall cease to represent any obligation of the Company and
shall be converted automatically without any further action by the holders of
such Notes and whether or not the Notes are surrendered to the Company provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of Preferred Stock issuable upon such conversion or to
make any interest payment unless the Notes being converted are either delivered
to the Company, or the holder notifies the Company that such Note has been lost,
stolen or destroyed and executes an agreement satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith;
provided, however, if any Note of which any Purchaser, its nominee, or any of
its partners is the registered holder is lost, stolen or destroyed, the
affidavit of an executive officer or general partner of the registered holder
setting forth the circumstances with respect to such loss, theft or destruction
shall be accepted as satisfactory evidence thereof, and no indemnification bond
or other security shall be required as a condition to the execution and delivery
by the Company of such certificates evidencing shares of Preferred Stock.
Upon the occurrence of an automatic conversion specified above, the
holders of the Notes shall surrender the Notes at the office of the Company.
Thereupon, there shall be issued and delivered to such holder, a certificate or
certificates for the number of shares of Preferred Stock into which the Notes
surrendered were convertible on the date
-10-
on which such automatic conversion occurred, cash in the amount of all accrued
and unpaid interest on such Note up to and including the Mandatory Conversion
Date, cash, as provided subsection 1.10(e), in respect of any fraction of a
share of Preferred Stock issuable upon such conversion and any other securities
or property to which the holder becomes entitled upon conversion pursuant to
this Section 1.10. Such conversion shall be deemed to have been effected
immediately after the filing of the Charter Amendment with the Secretary of
State of the State of New York and the creation of the Preferred Stock on the
Mandatory Conversion Date, and at such time the rights of the holder as holder
of a Note shall cease and the Person or Persons in whose name names any
certificate or certificates for shares of Preferred Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Preferred Stock represented thereby.
(b) Optional Conversion. In the event that the Charter Amendment has
not been filed with the Secretary of State of the State of New York and the
Preferred Stock has not been created on or prior to June 30, 1989, any holder of
the outstanding Notes after that date shall have the right, at its election, to
require the Company to convert any portion of the principal of and interest on
the Notes held by such holder into shares of Common Stock upon application of
the then effective Common Stock Conversion Value, by delivering written notice
to the Company, which notice shall set forth the date and time for such optional
conversion which shall be not less than five (5) days after the date such notice
was delivered to the Company (the "Optional Conversion Date"). Within five (5)
days of receipt of a notice of conversion, the Company shall send written notice
to all other holders of the Notes setting forth the identities of the converting
holders, the number of shares of Common Stock to be issued, and the Optional
Conversion Date.
Upon the consummation of an optional conversion specified above, the
Notes so converted shall cease to represent any obligation of the Company and
shall be converted automatically without any further action by the holders of
such Notes and whether or not the Notes are surrendered to the Company;
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion or to make
any interest payment unless the Notes being converted are either delivered to
the Company, or the holder notifies the Company that such Note has been lost,
stolen or destroyed and executes an agreement satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith;
provided, however, if any Note of which any Purchaser, its nominee, or any of
its partners is the registered holder is lost, stolen or destroyed, the
affidavit of an executive officer or general partner of the registered holder
setting forth the circumstances with respect to such loss, theft or destruction
shall be accepted as satisfactory evidence thereof, and no indemnification bond
or other security shall be required as a condition to the execution and delivery
by the Company of such certificates evidencing shares of Common Stock.
Upon the consummation of an optional conversion specified above, the
holder of the Notes so converted shall surrender the Notes at the office of the
Company.
-11-
Thereupon, there shall be issued and delivered to such holder, a certificate or
certificates for the number of shares of Common Stock into which the Notes
surrendered were convertible on the Optional Conversion Date, cash in the amount
of all accrued and unpaid interest on such Note up to and including the Optional
Conversion Date in the case that the holder of a Note does not elect to convert
such accrued and unpaid interest into shares of Common Stock, cash, as provided
in subsection 1.10(e), in respect of any fraction of a share of Common Stock
issuable upon such conversion and any other securities or property to which the
holder becomes entitled upon conversion pursuant to this Section 1.10. Such
conversion shall be deemed to have been effected immediately upon the Optional
Conversion Date, and at such time the rights of the holder as holder of a Note
shall cease and the Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
(c) Conversion Value. The price at which any Note may be converted into
Preferred Stock (the "Preferred Stock Conversion Value") pursuant to subsection
1.10(a) shall, subject to adjustment as hereinafter provided, be three dollars
and fifty cents ($3.50) in principal amount of the Note for each share of
Preferred Stock. The price at which any Note may be converted into Common Stock
(the "Common Stock Conversion Value") pursuant to subsection 1.10(b) shall,
subject to adjustment as hereinafter provided, be one dollar ($1.00) in
principal amount of the Note or in accrued and unpaid interest thereon for each
share of Common Stock.
(d) No Dilution or Impairment. The Company will not, by amendment of
its Charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Notes, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of shares of Preferred
Stock or Common Stock issuable upon conversion of the Notes against dilution or
other impairment. Without limiting the generality of the foregoing, the Company
(i) will not increase the par value of any shares of capital stock receivable on
the conversion of the Notes above the amount payable therefor on such
conversion, (ii) will take all action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
non-assessable shares of stock on the conversion of any Note from time to time
outstanding, and (iii) will not transfer all or substantially all of its
properties and assets to any other Person, or consolidate with or merge into any
other Person or permit any such Person to consolidate with or merge into the
Company (if the Company is not the surviving person), unless such other Person
shall expressly assume in writing and will be bound by all the terms of the
Notes.
(e) Cash in Lieu of Fractional Shares. No fractional shares of
Preferred Stock or Common Stock or script representing fractional shares shall
be issued upon the conversion of a Note. Instead of any fractional shares of
Preferred Stock or Common
-12-
Stock that would otherwise be issuable upon conversion of a Note, the Company
shall pay to the holder of the Note that was converted a cash adjustment in
respect of such fractional shares in an amount equal to the same fraction of the
market price per share of the Preferred Stock or Common Stock (as determined in
a reasonable manner prescribed by the Board of Directors) as the close of
business on the Mandatory Conversion Date or Optional Conversion Date, as the
case may be. The determination as to whether or not any fractional shares are
issuable shall be based upon the total Notes being converted at any one time by
and holder thereof, not upon each Note being converted.
(f) Notice of Record Date. In the event of:
(i) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(ii) any capital reorganization of the Company, and
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the company, or any transfer of all or substantially
all of the assets of the Company to any other corporation, or any other entity
or person, or
(iii) any voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then and in each such event the Company shall mail or cause to be mailed to each
holder of a Note a notice specifying (i) the date on which any such record is to
be taken for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective and (iii) the time, if any, that is to be fixed, as to when the
holders of record of capital stock of the Company shall be entitled to exchange
their shares of capital stock of the Company for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up. Such
notice shall be mailed at least seven (7) days prior to the date specified in
such notice on which such action is to be taken.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as
set froth in the Disclosure Schedule attached as Schedule II (which Disclosure
Schedule makes explicit reference to the particular representation or warranty
as to which exception is
-13-
taken, which in each case shall constitute the sole representation and warranty
as to which such exception shall apply):
SECTION 2.01 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of New York and is duly
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification. The Company has the corporate power
and authority to own and hold its properties and to carry on its business as not
conducted and as proposed to be conducted, to execute, deliver and perform the
terms of this Agreement, the Notes, the Warrants, the Registration Rights
Agreement with the Purchasers in the form attached as Exhibit E (the
"Registration Rights Agreement") and the Stock Restriction Agreement with the
Purchasers and Xxxxxxx X. Xxxxxxxxxxx, in the form attached as Exhibit F (the
"Stock Restriction Agreement"), to issue, sell and deliver the Notes and the
Warrants, to issue and deliver the shares of Common Stock issuable upon exercise
of the Warrants and conversion of the Notes pursuant to Section 1.10(b) hereof
(collectively the "Common Conversion Shares") and, upon approval of the Charter
Amendment at the Stockholders' Meeting and filing of the Charter Amendment with
the Secretary of State of the State of New York, to issue and deliver the shares
of Common Stock issuable upon conversion of the Preferred Stock (the "Preferred
Conversion Shares") and to issue and deliver the shares of Preferred Stock
issuable upon conversion of the Notes pursuant to Section 1.10(a) hereof (the
"Preferred Shares").
(b) The Company has no subsidiaries. Except as set forth on the
attached Schedule III, the Company does not (i) own of record or beneficially,
directly or indirectly, (A) any shares of capital stock or securities
convertible into capital stock of any other corporation or (B) any participating
interest in any partnership, joint venture or other non-corporate business
enterprise or (ii) control, directly or indirectly, any other entity.
SECTION 2.02 Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this Agreement, the
Notes, the Warrants, the Registration Rights Agreement and the Stock Restriction
Agreement, the performance by the Company of its obligations hereunder and
thereunder, the issuance, sale and delivery of the Notes and Warrants and the
issuance and delivery of the Common Conversion Shares upon exercise of the
Warrants and conversion of the Notes have been and, upon approval of the Charter
Amendment at the Stockholders' Meeting and the filing of the Charter Amendment
with the Secretary of State of the State of New York, the issuance and delivery
of the Preferred Conversion Shares upon conversion of the Preferred Shares and
the Preferred Shares upon conversion of the Notes will be, duly authorized by
all requisite corporate action and will not violate any provision of law, any
order of any court or other agency of government, the Charter, the Charter as
proposed to
-14-
be amended by the Charter Amendment, or the By-laws of the Company, as amended,
or any provision of any indenture, agreement or other instrument to which the
Company or any of its properties or assets is bound, or conflict with, result in
a breach of or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge, restriction, claim or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company. No
provision of the Stock Restriction Agreement violates, conflicts with, results
in a breach of or constitutes (with due notice or lapse of time or both) a
default under any indenture, agreement or other instrument to which the Company
is bound or, to the best of the Company's knowledge, any other indenture,
agreement or instrument (regardless, in each such case, of whether any such
violation, conflict, breach or default relates to the Company or to another
party to any such indenture, agreement or other instrument).
(b) The Notes and the Warrants have been duly authorized and, when
issued in accordance with this Agreement, will be validly issued, with no
personal liability attaching to the ownership thereof and will be free an clear
of all liens, charges, restrictions, claims and encumbrances imposed by or
through the Company except as set forth in the Registration Rights Agreement.
The Common Conversion Shares shave been duly reserved for issuance upon the
exercise of the Warrants and the conversion of the Preferred Conversion Shares
and the Notes, and, when so issued, will be duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock with no personal liability
attaching to the ownership thereof except for any liability that may be imposed
by applicable state statutes upon stockholders for wages or similar claims and
will be free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company except as set forth in the
Registration Rights Agreement. Upon the approval of the Charter Amendment with
the Secretary of State of the State of New York, the Preferred Shares will be
duly reserved for issuance upon the conversion of the Notes and the Preferred
Conversion Shares will be duly reserved for issuance upon the conversion of the
Preferred Shares, and, when so issued, will be duly authorized, validly issued,
fully paid and nonassessable shares of Preferred Stock, with no person liability
attaching to the ownership thereof except for any liability that may be imposed
by applicable state statutes upon stockholders for wages or similar claims and
will be free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company except as set forth in the
Registration Rights Agreement. Neither the issuance, sale or delivery of the
Notes or the Warrants nor the issuance or delivery of the Common Conversion
Shares, the Preferred Conversion Shares or the Preferred Shares is subject to
any preemptive right of stockholders of the Company or to any right of first
refusal or other right in favor of any person.
SECTION 2.03 Validity. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms. The Notes, the
Warrants, the Registration Rights Agreement and the Stock Restriction Agreement,
when executed and delivered in
-15-
accordance with this Agreement, will constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.
SECTION 2.04 Authorized Capital Stock. The authorized capital stock of
the Company consists of 5,000,000 shares of Common Stock, 1,000 shares of Class
A Convertible Non-cumulative Preferred Stock, $.01 par value (the "Class A
Stock") and 1,000 shares of Class B Convertible Non-cumulative Preferred Stock,
$.01 par value (the "Class B Stock"). Immediately prior to the Closing,
2,788,829 shares of Common Stock, no shares of Class A Stock and no shares of
Class B Stock will be validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof
except for any liability that may be imposed by applicable state statutes upon
stockholders for wages or similar claims. The stockholders of record holding
more than five (5%) percent of the outstanding Common Stock and holders of
subscriptions, warrants, options, convertible securities, and other rights
(contingent or other) to purchase or otherwise acquire equity securities of the
Company, and the number of shares of Common Stock, and the number of such
subscriptions, warrants, options, convertible securities, and other such rights
held by each, are as set forth in the attached Schedule IV. The designations,
powers, preferences, rights, qualifications, limitations and restrictions in
respect of the Common Stock, the Class A Stock and the Class B Stock are as set
forth in the Charter, a copy of which is attached as Exhibit C, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable in accordance with all
applicable laws. Upon the filing of the Charter Amendment with the Secretary of
State of the State of New York, the designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of the Preferred Stock
will be as set forth in the Charter Amendment, a copy of which is attached as
Exhibit D, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions will be valid, binding and
enforceable and in accordance with all applicable laws. Except as set forth in
the attached Schedule IV, (i) no person owns of record or is known to the
Company to own beneficially five (5%) percent or more of the outstanding Common
Stock, (ii) no subscription, warrant, option, convertible security, or other
right (contingent or other) to purchase or otherwise acquire equity securities
of the Company is authorized or outstanding and (iii) there is no commitment by
the Company to issue shares, subscriptions, warrants, options, convertible
securities, or other such rights or to distribute to holders of any of its
equity securities any evidence of indebtedness or asset. Except as provided for
the in the Charter or as set forth in the attached Schedule IV, the Company has
no obligation (contingent or other) to purchase, redeem or otherwise acquire any
of its equity securities or any interest therein or to pay and dividend or make
any other distribution in respect thereof. Except for the Stock Restriction
Agreement, to the best of the Company's knowledge there are no voting trusts or
agreements, stockholders' agreement, pledge agreements, buy-sell agreements,
rights of first refusal, preemptive rights or proxies relating to any securities
of the Company or any of its subsidiaries (whether or not the Company or any of
its subsidiaries is a party thereto). All of the outstanding securities of the
Company were issued in compliance with all applicable Federal and State
securities laws.
-16-
SECTION 2.05 Financial Statements. The Company has furnished to the
Purchasers the audited balance sheet of the Company as of December 31, 1987 and
the related statements of income, stockholders' equity and changes in financial
position of the Company for the year ended December 31, 1987 and the unaudited
balance sheet of the Company as of September 30, 1988 (the "Balance Sheet") and
the related statements of income, stockholders' equity and changes in financial
position of the Company for the nine (9) months ended September 30, 1988. All
such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied and fairly present the
financial position of the Company as of December 31, 1987 and September 30,
1988, respectively, and the results of its operations and changes in financial
position for the year ended December 31, 1987 and the nine (9) months ended
September 30, 1988, respectively. Since the date of the Balance Sheet, (i) there
has been no change in the assets, liabilities or financial condition of the
Company from that reflected in the Balance Sheet except for changes in the
ordinary course of business which in the aggregate have not been materially
adverse and (ii) none of the business, prospects, financial condition,
operations, property or affairs of the Company has been materially adversely
affected by any occurrence or development, individually or in the aggregate,
whether or not insured against.
SECTION 2.06 Events Subsequent to the Date of the Balance Sheet. Since
the date of the Balance Sheet, the Company has not (i) issued any stock, bond or
other corporate security, (ii) borrowed any amount or incurred or become subject
to any liability (absolute, accrued or contingent), except current liabilities
incurred and liabilities under contracts entered into in the ordinary course of
business, (iii) discharged or satisfied any lien or encumbrance or incurred or
paid any obligation or liability (absolute, accrued or contingent) other than
current liabilities shown on the Balance Sheet and current liabilities incurred
since the date of the Balance Sheet in the ordinary course of business, (iv)
declared or made any payment or distribution to stockholders or purchased or
redeemed any share of its capital stock or other security, (v) mortgaged,
pledged or subjected to lien any of its assets, tangible or intangible, other
than liens of current real property taxes not yet due and payable, (vi) sold,
assigned or transferred any of its tangible assets except in the ordinary course
of business, or cancelled any debt or claim, (vii) sold, assigned, transferred
or granted any exclusive license with respect to any patent, trademark, trade
name, service xxxx, copyright, trade secret or other intangible asset, (viii)
suffered any loss of property or waived any right of substantial value whether
or not in the ordinary course of business, (ix) made any change in officer
compensation except in the ordinary course of business and consistent with past
practice, (x) made any material change in the manner of business or operations
of the Company, (xi) entered into any transaction except in the ordinary course
of business or as otherwise contemplated hereby or (xii) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
SECTION 2.07 Litigation; Compliance with Law. There is no (i) action,
suit, claim, proceeding or investigation pending or, to the best of the
Company's knowledge,
-17-
threatened against or affecting the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration
proceeding relating to the Company pending under collective bargaining
agreements or otherwise or (iii) governmental inquiry pending or, to the best of
the Company's knowledge, threatened against or affecting the Company (including
without limitation any inquiry as to the qualification of the Company to hold or
receive any license or permit), and there is no basis for any of the foregoing.
The Company has not received any opinion or memorandum or legal advice from
legal counsel to the effect that it is exposed, from a legal standpoint, to any
liability or disadvantage which may be material to its business, prospects,
financial condition, operations, property or affairs. The Company is not in
default with respect to any order, writ, injunction or decree known to or served
upon the Company of any court or of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. There is no action or suit by the Company pending or
threatened against others. The Company has complied with all laws, rules,
regulations and orders applicable to its business, operations, properties,
assets, products and services, and the Company has all necessary permits,
licenses and other authorizations required to conduct is business as conducted
and as proposed to be conducted. There is no existing law, rule, regulation or
order, and the Company after due inquiry is not aware of any proposed law, rule,
regulation or order, whether Federal or state, which would prohibit or restrict
the Company from, or otherwise materially adversely affect the Company in,
conducting its business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business.
SECTION 2.08 Proprietary Information of Third Parties. To the best of
the Company's knowledge, no third party has claimed or has reason to claim that
any person employed by or affiliated with the Company has (a) violated or may be
violating any of the terms or conditions of his employment, non-competition or
non-disclosure agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (c) interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested information from
the Company which suggests that such a claim might be contemplated. To the best
of the Company's knowledge, no person employed by or affiliated with the Company
has employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer, and to the best of the
Company's knowledge, no person employed by or affiliated with the Company has
violated any confidential relationship which such person may have had with any
third party, in connection with the development, manufacture or sale of any
product or proposed product or the development or sale of any service or
proposed service of the Company, and the Company has no reason to believe there
will be any such employment or violation. To the best of the Company's
knowledge, none of the execution or delivery of this Agreement, or the carrying
on of the business of the Company as officers, employees or agents by any
officer, director or key employee of the Company, or the conduct or proposed
conduct of
-18-
the business of the Company, will conflict with or result in a breach of the
terms, conditions or provisions of or constitute a default under any contract,
covenant or instrument under which any such person is obligated.
SECTION 2.09 Title to Properties. The Company has good and marketable
title to its properties and assets reflected on the Balance Sheet or acquired by
it since the date of the Balance Sheet (other than properties and assets
disposed of in the ordinary course of business since the date of the Balance
Sheet), and all such properties and assets are free and clear of mortgages,
pledges, security interests, liens, charges, claims, restrictions and other
encumbrances, except for liens for or current taxes not yet due and payable and
minor imperfections of title, if any, not material in nature or amount and not
materially detracting from the value or impairing the use of the property
subject thereto or impairing the operations or proposed operations of the
Company.
SECTION 2.10. Leasehold Interests. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or personal,
is a valid and subsisting agreement without any default of the Company
thereunder and, to the best of the Company's knowledge, without any default
thereunder of any other party thereto. No event has occurred and is continuing
which, with due notice or lapse of time or both, would constitute a default or
event of default by the Company under any such lease or agreement or, to the
best of the Company's knowledge, by any other party thereto. The Company's
possession of such property has not been disturbed and, to the best of the
Company's knowledge, no claim has been asserted against the Company adverse to
its rights in such leasehold interests.
SECTION 2.11. Insurance. The Company holds valid policies covering all
of the insurance required to be maintained by it under Section 5.05.
SECTION 2.12 Taxes. The Company has filed all tax returns, Federal,
state, county and local, required to be filed by it, and the Company has paid
all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable, including
without limitation all taxes which the Company is obligated to withhold from
amounts owing to employees, creditors and third parties. All such taxes with
respect to which the Company has become obligated pursuant to elections made by
the Company in accordance with generally accepted practice have been paid and
adequate reserves have been established for all taxes accrued but not yet
payable. The Federal income tax returns of the Company have never been audited
by the Internal Revenue Service. No deficiency assessment with respect to or
proposed adjustment of the Company's Federal, state, county or local taxes is
pending or, to the best of the Company's knowledge, threatened. There is no tax
lien, whether imposed by any Federal, state, county or local taxing authority,
outstanding against the assets, properties or business of the Company. Neither
the Company nor any of its stockholders has ever filed (a) an election pursuant
to Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"),
that the Company be taxed as an S corporation or (b) consent pursuant to Section
341(f) of the Code, relating to collapsible
-19-
corporations. The Company's net operating losses for Federal income tax
purposes, as set forth in the financial statements referred to in Section 2.05,
are not subject to any limitations imposed by Section 382 of the Code and the
full amount of such net operating losses are available to offset the taxable
income of the Company for the current fiscal year and, to the extent not so
used, succeeding fiscal years. Consummation of the transactions contemplated by
this Agreement or by any other agreement, understanding or commitment
(contingent or otherwise) to which the Company is a party or by which it is
otherwise bound will not have the effect of limiting the Company's ability to
use such net operating losses in full to offset such taxable income.
SECTION 2.13 Other Agreements. Except as set forth in the attached
Schedule V(A), the Company is not a party to or otherwise bound by any written
or oral contract or instrument or other restriction which individually or in the
aggregate could materially adversely affect the business, prospects, financial
condition, operations, property or affairs of the Company. Except as set forth
in the attached Schedule V(B), the Company is not a party to or otherwise bound
by any written or oral:
(a) distributor, dealer, manufacturer's representative or
sales agency contract or agreement which is not terminable on less than
ninety (90) days' notice without cost or other liability to the Company
(except for contracts which, in the aggregate, are not material to the
business of the Company);
(b) sales contract which entitles any customer to a rebate or
right of set-off, to return any product to the Company after acceptance
thereof or to delay the acceptance thereof, or which varies in any
material respect from the Company's standard form contracts;
(c) contract with any labor union (and, to the knowledge of
the Company, no organizational effort is being made with respect to any
of its employees);
(d) contract or other commitment with any supplier containing
any provision permitting any party other than the Company to
renegotiate the price or other terms, or containing any pay-back or
other similar provision, upon the occurrence of a failure by the
Company to meet its obligations under the contract when due or the
occurrence of any other event;
(e) contract for the future purchase of fixed assets or for
the future purchase of materials, supplies or equipment in excess of
its normal operating requirements;
(f) contract for the employment of any officer, employee or
other person (whether of a legally binding nature or in the nature of
informal understandings) on a full-time or consulting basis which is
not terminable on
-20-
notice without cost or other liability to the Company, except normal
severance arrangements and accrued vacation pay;
(g) bonus, pension, profit-sharing, retirement,
hospitalization, insurance, stock purchase, stock option or other plan,
contract or understanding pursuant to which benefits are provided to
any employee of the Company (other than group insurance plans
applicable to employees generally);
(h) agreement or indenture relating to the borrowing of money
or to the mortgaging or pledging of, or otherwise placing a lien or
security interest on, any asset of the Company;
(i) guaranty of any obligation for borrowed money or
otherwise;
(j) voting trust or agreement, stockholders' agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive rights
agreement r elating to any securities of the Company;
(k) agreement, or group of related agreements with the same
party or any group of affiliated parties, under which the Company has
advanced or agreed to advance money or has agreed to lease any property
as lessee or lessor;
(l) agreement or obligation (contingent or otherwise) to
issue, sell or otherwise distribute or to repurchase or otherwise
acquire or retire any share of its capital stock or any of its other
equity securities;
(m) assignment, license or other agreement with respect to any
form of intangible property;
(n) agreement under which it has granted any person any
registration rights, other than the Registration Rights Agreement;
(o) agreement under which it has limited or restricted its
right to compete with any person in any respect.
(p) other contract or group of related contracts with the same
party involving more than $20,000 or continuing over a period of more
than six months from the date or dates thereof (including renewals or
extensions optional with another party), which contract or group of
contracts is not terminable by the Company without penalty upon notice
of thirty (30) days or less, but excluding any contract or group of
contracts with a customer of the Company for the sale, lease or rental
of the Company's products or services if such contract or group of
contracts was entered into by the Company in the ordinary course of
business; or
-21-
(q) other contract, instrument, commitment, plan or
arrangement, a copy of which would be required to be filed with the
Securities and Exchange Commission (the "Commission") as an exhibit to
a registration statement on From S-1 if the Company were registering
securities under the Securities Act of 1933, as amended (the
"Securities Act").
The Company, and to the best of the Company's knowledge, each other party
thereto have in all material respects performed all the obligations required to
be performed by them to date, have received no notice of default and are not in
default (with due notice or lapse of time or both) under any lease, agreement or
contract now in effect to which the Company is a party or by which it or its
property may be bound. The Company has no present expectation or intention of
not fully performing all its obligations under each such lease, contract or
other agreement, and the Company has no knowledge of any breach or anticipated
breach by the other party to any contract or commitment to which the Company is
a party. The Company is in full compliance with all of the terms and provisions
of its Charter and By-laws, as amended.
SECTION 2.14 Patents, Trademarks, Etc. Set forth in Schedule II is a
list and brief description of all patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service xxxx applications,
trade names and copyrights, and all applications for such which are in the
process of being prepared, owned by or registered in the name of the Company, or
of which the Company is a licensor or licensee or in which the Company has any
right, and in each case a brief description of the nature of such right. The
Company owns or possesses adequate licenses or other rights to use all patents,
patent applications, trademarks, trademark applications, service marks, service
xxxx applications, trade names, copyrights, manufacturing processes, formulae,
trade secrets and know how (collectively, "Intellectual Property") necessary or
desirable to the conduct of its business as conducted and as proposed to be
conducted, and no claim is pending or, to the best of the Company's knowledge,
threatened to the effect that the operations of the Company infringe upon or
conflict with the asserted rights of any other person under any Intellectual
Property, and there is no basis for any such claim (whether or not pending or
threatened). No claim is pending or threatened to the effect that any such
Intellectual Property owned or licensed by the Company, or which the Company
otherwise has the right to use, is invalid or unenforceable by the Company, and
there is no basis for any such claim (whether or not pending or threatened). To
the best of the Company's knowledge, all technical information developed by and
belonging to the Company which has not been patented has been kept confidential.
The Company has not granted or assigned to any other person or entity any right
to manufacture, have manufactured, assemble or sell the products or proposed
products or to provide the services or proposed services of the Company.
SECTION 2.15 Loans and Advances. The company does not have any
outstanding loans or advances to any person and is not obligated to make any
such loans or advances, except, in each case, for advances to employees of the
Company in respect
-22-
of reimbursable business expenses anticipated to be incurred by them in
connection with their performance of services for the Company.
SECTION 2.16 Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons. The Company has not assumed, guaranteed, endorsed or otherwise become
directly or contingently liable on any indebtedness of any other person
(including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to or
otherwise invest in the debtor, or otherwise to assure the creditor against
loss), except for guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business.
SECTION 2.17 Significant Customers and Suppliers. No customer or
supplier which was significant to the Company during the period covered by the
financial statements referred to in Section 2.05 or which has been significant
to the Company thereafter, has terminated, materially reduced or threatened to
terminate or materially reduce its purchases from or provision of products or
services to the Company, as the case may be.
SECTION 2.18 Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article III, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the Registration Rights Agreement or the Stock Restriction
Agreement, the issuance, sale and delivery of the Notes or the Warrants or, upon
conversion or exercise thereof, the issuance and delivery of the Common
Conversion Shares, the Preferred Conversion Shares or the Preferred Shares,
other than (i) in the case of the Preferred Conversion Shares and the Preferred
Shares, the filing of the Charter Amendment with the Secretary of the State of
New York, (ii) filings pursuant to state securities laws (all of which filings
have been made by the Company) in connection with the sale of the Notes and the
Warrants and (iii) with respect to the Registration Rights Agreement, the
registration of the shares covered thereby with the Commission and filings
pursuant to state securities laws.
SECTION 2.19 Disclosure. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, nor the Business Plan of the Company for 1989 (the
"Business Plan"), contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein not
misleading. None of the statements, documents, certificates or other items
prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
There is no fact which the Company has not disclosed to the Purchasers and their
counsel in writing and of which the Company is aware which materially and
adversely affects or could materially and adversely affect the business,
prospects, financial condition, operations, property or affairs of the Company
or any of its subsidiaries. The financial projections and other estimates
contained in the Business Plan were prepared by the
-23-
Company based on the Company's experience in the industry and on assumptions of
fact and opinion as to future events which the Company, at the date of the
issuance of the Business Plan, believed to be reasonable, but which the Company
cannot and does not assure or guarantee the attainment of in any manner. As of
the date hereof no facts have come to the attention of the Company which would,
in its opinion, require the Company to revise or amplify the assumptions
underlying such projections and other estimates or the conclusions derived
therefrom. The Company has previously furnished to the Purchasers true and
complete copies of its annual reports on Form 10-K for its fiscal years ended
December 31, 1985, 1986 and 1987 (the "10-Ks") and of its quarterly reports on
Form 10-Q for its fiscal quarters ended March 30, June 30 and September 30, in
each of such fiscal years and for the fiscal year ended December 31, 1988 (the
"10-Qs") as filed with the Securities and Exchange Commission (the "SEC").
Neither the 10-Ks, the 10-Qs, nor any other documents filed by the Company with
the SEC, as of the dates they were respectively filed, 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. Each of the 10-Ks
and 10-Qs complied with all applicable rules of the SEC.
SECTION 2.20 Offering of the Notes, the Warrants, the Common Conversion
Shares, the Preferred Conversion Shares and the Preferred Shares. Neither the
Company nor any person authorized or employed by the Company as agent, broker,
dealer or otherwise in connection with the offering or sale of the Notes, the
Warrants, the Common Conversion Shares, the Preferred Conversion Shares or the
Preferred Shares or any security of the Company similar to the Notes, the
Warrants, the Common Conversion Shares, the Preferred Conversion Shares or the
Preferred Shares has offered the Notes, the Warrants, the Common Conversion
Shares, the Preferred Conversion Shares or the Preferred Shares or any such
similar security for sale to, or solicited any offer to buy the Notes, the
Warrants, the Common Conversion Shares, the Preferred Conversion Shares or the
Preferred Shares or any such similar security from, or otherwise approached or
negotiated with respect thereto with, any person or persons, and neither the
Company nor any person acting on its behalf has taken or will take any other
action (including, without limitation, any offer, issuance or sale of any
security of the Company under circumstances which might require the integration
of such security with the Notes, the Warrants, the Common Conversion Shares, the
Preferred Conversion Shares or the Preferred Shares under the Securities Act or
the rules and regulations of the Commission thereunder), in either case so as to
subject the offering, issuance or sale of the Notes, the Warrants, the Common
Conversion Shares, the Preferred Conversion Shares or the Preferred Shares to
the registration provisions of the Securities Act.
SECTION 2.21 Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.22 Officers. Set forth in Schedule II is a list of the names
of the officers of the Company, together with the title or job classification of
each such person
-24-
and the total compensation anticipated to be paid to each such person by the
Company and its subsidiaries in 1989. None of such persons has an employment
agreement or understanding, whether oral or written, with the Company or any of
its subsidiaries, which is not terminable on notice by the Company or such
subsidiary without cost or other liability to the Company or such subsidiary.
SECTION 2.23 Transactions With Affiliates. No director, officer,
employee or holder of five (5%) percent or more of the outstanding Common Stock
of the Company, or member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or any member of
the family of any such person, has a substantial interest or is an officer,
director, trustee, partner or holder of more than 5% of the outstanding capital
stock thereof, is a party to any transaction with the Company, including any
contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental of real or personal property from or otherwise
requiring payments to any such person or firm.
SECTION 2.24 Employees. Each of the officers of the Company, each key
employee and each other employee now employed by the Company who has access to
confidential information of the Company has executed an Employment Agreement
substantially in the form of Exhibit G (collectively, the "Employment
Agreements"), and such agreements are in full force and effect. No officer or
key employee of the Company has advised the Company (orally or in writing) that
he intends to terminate employment with the Company. The Company has complied in
all material respects with all applicable laws relating to the employment of
labor, including provisions relating to wages, hours, equal opportunity,
collective bargaining and the payment of Social Security and other taxes, and
with the Employee Retirement Income Security Act of 1974, as amended.
SECTION 2.25 U.S. Real Property Holding Corporation. The Company is not
now and has never been a "United States real property holding corporation", as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service.
SECTION 2.26 Authorization of Stockholders' Meeting. The Board of
Directors of the Company has done all such things and taken all such action as
is necessary under the laws of the State of New York, the Charter, the By-laws
of the Company, and any agreement, indenture or instrument to which the Company
is a party or by which it is bound, to approve the Charter Amendment, to
recommend and submit the Charter Amendment to the stockholders for their
approval at the Stockholders' Meeting and to call the Stockholders' Meeting for
the purpose of approving the Charter Amendment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
-25-
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of Rule
501 under the Securities Act and was not organized for the specific
purpose of acquiring the Notes and the Warrants;
(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its
investment in the Company and it is able financially to bear the risks
thereof;
(c) it has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's
management;
(d) the Notes and the Warrants being purchased by it are being
acquired for its own account for the purpose of investment and not with
a view to or for sale in connection with any distribution thereof; and
(e) it understands that (i) the Notes, the Warrants, the
Common Conversion Shares, the Preferred Conversion Shares and the
Preferred Shares have not been registered under the Securities Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof or
Rule 505 or 506 promulgated under the Securities Act, (ii) the Notes
and the Warrants and, upon conversion or exercise thereof, the Common
Conversion Shares the Preferred Conversion Shares and the Preferred
Shares must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration, (iii) the Notes, the Warrants, the Common Conversion
Shares, the Preferred Conversion Shares and the Preferred Shares will
bear a legend to such effect and (iv) the Company will make a notation
on its transfer books to such effect.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the Notes and
Warrants being purchased by it on the Closing Date is, at its option, subject to
the satisfaction, on or before the Closing Date, of the following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall have received
from Xxxxxxx, Xxxxx & Xxxxx, counsel for the Company, an opinion dated the
Closing Date, in form and scope satisfactory to the Purchasers and their
counsel, to the effect that:
-26-
(i) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of its respective
jurisdiction of incorporation. The Company has no subsidiaries. The
Company is duly licensed or qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the
properties owned or leased by it requires such licensing or
qualification. The Company has the corporate power and authority to own
and hold its properties and to carry on its business as currently
conducted and as proposed to be conducted. The Company has the
corporate power and authority to execute, deliver and perform this
Agreement, the Registration Rights Agreement and the Stock Restriction
Agreement, to issue, sell and deliver the Notes and the Warrants, to
issue and deliver the Common Conversion Shares upon exercise of the
Warrants and conversion of the Notes and, upon the approval of the
Charter Amendment at the Stockholders' Meeting and the filing of the
Charter Amendment with the Secretary of the State of New York, to issue
and deliver the Preferred Conversion Shares upon conversion of the
Preferred Shares and to issue and deliver the Preferred Shares upon
conversion of the Notes.
(ii) This Agreement, the Notes, the Warrants, the Registration
Rights Agreement and the Stock Restriction Agreement have been duly
authorized, executed and delivered by the Company and constitute the
legal, valid and binding obligations of the Company, enforceable in
accordance with their respective terms (subject, as to enforcement of
remedies, to the discretion of courts in awarding equitable relief, and
to applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting the rights of creditors generally), except that
such counsel need not express any opinion as to the validity or
enforceability of the indemnification and contribution provisions of
the Registration Rights Agreement.
(iii) The execution and delivery by the Company of this
Agreement, the Notes, the Warrants, the Registration Rights Agreement
and the Stock Restriction Agreement, the performance by the Company of
its obligations hereunder and thereunder, the issuance, sale and
delivery of the Notes and the Warrants, the issuance and delivery of
the Common Conversion Shares upon exercise of the Warrants and
conversion of the Notes, and, upon approval of the Charter Amendment at
the Stockholders' Meeting and the filing of the Charter Amendment with
the Secretary of State of the State of New York, the issuance and
delivery of the Preferred Conversion Shares upon conversion of the
Preferred Shares and the issuance and delivery of the Preferred Shares
upon conversion of the Notes, will not violate any provision of law,
the Charter, the Charter as proposed to be amended by the Charter
Amendment, or By-laws, as amended, of the Company, any order of any
court or other agency of government or any indenture, agreement or
other instrument known to such counsel to which the Company or any of
its properties or assets is bound, or conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default
under
-27-
any such indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties of
assets of the Company. In rendering the foregoing opinion, such counsel
may assume full disclosure to the Purchasers of all material facts and,
with respect to performance by the Company of its obligations under the
Registration Rights Agreement, may assume compliance by the Company at
such time with the registration requirements of the Securities Act and
with applicable state securities laws and may disclaim any opinion as
to the validity or enforceability of the indemnification and
contribution provisions of the Registration Rights Agreement.
(iv) The authorized capital stock to the Company consists of
5,000,000 shares of Common Stock, 1,000 shares of Class A Stock and
1,000 shares of Class B Stock. Immediately prior to the Closing,
2,788,829 shares of Common Stock no shares of Class A Stock and no
shares of Class B Stock will be validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership
thereof except for any liability that may be imposed by applicable
state statutes upon stockholders for wages or similar claims.
Immediately prior to the Closing, the stockholders of record holding
more than five (5%) percent of the outstanding Common Stock and holders
of record of subscriptions, warrants, options, convertible securities,
and other rights (contingent or other) to purchase or otherwise acquire
equity securities of the Company, and the number of shares of Common
Stock and the number of such subscriptions, warrants, options,
convertible securities, and other such rights held by each, will be as
set forth in Schedule IV. The designations, powers, preferences,
rights, qualifications, limitations and restrictions in respect of the
Common Stock, the Class A Stock and the Class B Stock are as set forth
in the Charter, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws (subject, as to
enforcement, to the discretion of courts in awarding equitable relief
and to applicable bankruptcy, reorganization, insolvency, moratorium
and similar laws affecting the rights of creditors generally). Upon the
filing of the Charter Amendment with the Secretary of State of the
State of New York, the designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of the
Preferred Stock will be as set forth in the Charter Amendment, and all
such designations, powers, preferences, rights, qualifications,
limitations and restrictions will be valid, binding, enforceable and in
accordance with all applicable laws (subject, as to enforcement, to the
discretion of courts in awarding equitable relief and to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws
affecting the rights of creditors generally). Except as set forth in
Schedule IV, to the knowledge of such counsel, immediately prior to the
Closing no subscription, warrant, option, convertible security, or
other right (contingent or other) to purchase or acquire equity
securities of the Company will be authorized or outstanding and there
will be no commitment by the Company to issue shares, subscriptions,
warrants, options,
-28-
convertible securities, or other such rights or to distribute to
holders of any of its equity securities any evidence of indebtedness or
asset. Except as set forth in Schedule IV or as provided for in the
Charter, to the knowledge of such counsel the Company has no obligation
(contingent or other) to purchase, redeem or otherwise acquire any of
its equity securities or any interest therein or to pay any dividend or
make any other distribution in respect thereof.
(v) The Notes, the Warrants, and the Common Conversion Shares
have been and, upon the approval of the Charter Amendment at the
Stockholders' Meeting and the filing of the Charter Amendment with the
Secretary of State of the State of New York, the Preferred Conversion
Shares and the Preferred Shares will be, duly authorized, The issuance,
sale and delivery of the Notes and the Warrants and the issuance and
delivery of Common Conversion Shares upon exercise of the Warrants and
conversion of the Notes, have been and, upon the approval of the
Charter Amendment at the Stockholders' Meeting and the filing of the
Charter Amendment with the Secretary of State of the State of New York,
the issuance of the Preferred Shares upon conversion of the Notes and
the issuance of the Preferred Conversion Shares upon conversion of the
Preferred Shares will be, duly authorized by all required corporate
action; the Notes and the Warrants have been validly issued with no
personal liability attaching to the ownership thereof and, to the
knowledge of such counsel, are free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company
except as set forth in the Registration Rights Agreement; and the
Common Conversion Shares have been and, upon the approval of the
Charter Amendment at the Stockholders' Meeting and the filing of the
Charter Amendment with the Secretary of State of the State of New York,
the Preferred Conversion Shares and the Preferred Shares will be, duly
reserved for issuance upon exercise of the Warrants or conversion of
the Preferred Shares or the Notes, as the case may be and, when so
issued, will be validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof except for any
liability that may be imposed by applicable state statutes upon
stockholders for wages or similar claims and, to the knowledge of such
counsel, will be free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company except as set
forth in the Registration Rights Agreement. Neither the issuance, sale
or delivery of the Notes or the Warrants nor the issuance or deliver of
the Conversion Shares, the Preferred Conversion Shares or the Preferred
Shares is subject to any preemptive right of stockholders of the
Company arising under law or the Charter Amendment or By-laws of the
Company, each as amended, or, to the knowledge of such counsel, to any
contractual right of first refusal or other right in favor of any
person.
(vi) Except as described in Schedule II, to the knowledge of
such counsel there is no (A) action, suit, claim, proceeding or
investigation pending or threatened against or affecting the Company,
at law or in equity, or before or by and Federal, state, municipal or
other governmental department, commission,
-29-
board, bureau, agency or instrumentality, domestic or foreign, (B)
arbitration proceeding relating to the Company pending under collective
bargaining agreements or (C) governmental inquiry pending or threatened
against or affecting the Company (including, without limitation, any
inquiry as to the qualification of the Company to hold or receive any
license or permit). To the knowledge of such counsel, the Company is
not in default with respect to any order, writ, injunction or decree
known to such counsel of any court or of any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
(vii) To the knowledge of such counsel, no third party has
claimed that any person employed by or affiliated with the Company has
violated or may be violating any of the terms or conditions of his
employment, non-competition or non-disclosure agreement with such third
party, or disclosed or may be disclosing or utilized or may be
utilizing any trade secret or proprietary information or documentation
of such third party or interfered or may be interfering in the
employment relationship between such third party and any of its present
or former employees.
(viii) Assuming the accuracy of the representations and
warranties of the Purchasers set forth in Article III, no registration
or filing with, and no consent or approval of, or other action by any
Federal, state or other governmental agency or instrumentality is or
will be necessary for the valid execution, delivery and performance by
the Company of this Agreement, the Notes, the Warrants, the
Registration Rights Agreement and the Stock Restriction Agreement, the
issuance, sale and delivery of the Notes or the Warrants or, upon
conversion or exercise thereof, the issuance and delivery of the Common
Conversion Shares, the Preferred Conversion Shares or the Preferred
Shares, other than (i) in the case of the Preferred Conversion Shares
and the Preferred Shares, the filing of the Charter Amendment with the
Secretary of State of New York and (ii) filings pursuant to state
securities laws (all of which filings have been made by the Company).
In rendering the foregoing opinion with respect to performance by the
Company of its obligations under the Registration Rights Agreement,
such counsel may assume compliance by the Company at such time with the
registration requirements of the Securities Act and with applicable
state securities laws and may disclaim any opinion as to the validity
or enforceability of the indemnification and contribution provisions of
the Registration Rights Agreement.
(ix) Assuming the accuracy of the representations and
warranties of the Purchasers set forth in Article III, the issuance,
sale and delivery of the Notes and the Warrants to be sold to the
Purchasers on the Closing Date, under the circumstances contemplated by
this Agreement, are exempt from the registration requirements of the
Securities Act, and the issuance and delivery of the Common Conversion
Shares, the Preferred Conversion Shares and the Preferred Shares
-30-
upon exercise of the Warrants and conversion of the Preferred Shares
and the Notes, as the case may be, as contemplated hereby, will be
exempt from such requirements.
(x) All of the outstanding shares of Common Stock have been
issued in compliance with the registration requirements of the
Securities Act and all applicable state securities laws.
(b) Representations and Warranties to be True and Correct. The
representations and warranties contained in Article II shall be true, complete
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
President and Treasurer of the Company shall have certified to such effect to
the Purchasers in writing.
(c) Performance. The Company shall have performed and complied with all
agreements contained herein required to be performed or complied with by it
prior to or at the Closing Date, and the President and Treasurer of the Company
shall have certified to the Purchasers in writing to such effect and to the
further effect that all of the conditions set forth in this Article IV have been
satisfied.
(d) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchasers and their counsel, and the Purchasers and
their counsel shall have received all such counterpart originals or certified or
other copies of such documents as they reasonably may request.
(e) Purchase by Other Purchasers. Each Purchaser shall have purchased
and paid for the Notes and Warrants being purchased by it on the Closing Date,
and the aggregate purchase price paid by all of the Purchasers for the Notes and
Warrants being purchased by them on the Closing Date shall be at least
$1,000,000.
(f) Supporting Documents. The Purchasers and their counsel shall have
received copies of the following documents:
(i) a certificate of the Secretary or an Assistant Secretary
of the Company dated the Closing Date and certifying: (A) that attached
thereto is a true and complete copy of the Charter and By-laws of the
Company as in effect on the date of such certification; (B) as to the
due incorporation and good standing of the Company and listing all
documents of the Company on file with the Secretary of State of the
State of New York; (C) that attached thereto is a true and complete
copy of all resolutions adopted by the Board of Directors or the
stockholders of the Company approving the Charter Amendment, calling
the Stockholders' Meeting and authorizing the execution, delivery and
performance of this Agreement, the Notes, the Warrants, the
Registration Rights Agreement and the
-00-
Xxxxx Xxxxxxxxxxx Agreement, the issuance, sale and delivery of the
Notes and Warrants and the reservation, issuance and delivery of the
Common Conversion Shares, Preferred Conversion Shares and the Preferred
Shares, and that all such resolutions are in full force and effect and
are all the resolutions adopted in connection with the transactions
contemplated by this Agreement, the Notes, the Warrants, contemplated
by this Agreement, the Notes, the Warrants, the Registration Rights
Agreement and the Stock Restriction Agreement; (D) that the Charter has
not been amended since the date of the last amendment referred to in
the certificate delivered pursuant to clause (B) above; (E) to the
incumbency and specimen signature of each officer of the Company
executing this Agreement, the Notes, the Warrants, the Registration
Rights Agreement or any of the Stock Restriction Agreement and any
certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency
and signature of the officer signing the certificate referred to in
this clause (i); (F) that the Company shall deliver to the Purchasers,
as soon as practicable after the Closing, the Charter, certified as of
a recent date by the Secretary of State of the State of New York and a
certificate of said Secretary dated as of a recent date as to the due
incorporation and good standing of the Company, the payment of all
excise taxes by the Company and listing all documents of the Company on
file with said Secretary;
(ii) a certificate of the Treasurer of the Company dated the
Closing Date and certifying as to the payment of all excise taxes by
the Company; and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of the Company
as the Purchasers or their counsel reasonably may request.
(g) Registration Rights Agreement. The Company shall have executed and
delivered the Registration Rights Agreement.
(h) Election of Directors. The number of directors constituting the
entire Board of Directors shall have been fixed at six (6) and the following
persons shall have been elected as the directors and shall each hold such
position as of the Closing Date: Xxxxxx Xxxxx, Xxxx X. Xxxxxx, Xxxxxxx X.
Xxxxxxxxxxx, Yoshiyuki Naqashima and Xxxxxx X. Xxxxxxx as the directors elected
solely by the holders of the Common Stock and Xxxxxxx X. Xxxx as the director
nominated by the holders of the Notes and the Warrants.
(i) Stock Restriction Agreement. The Stock Restriction Agreement shall
have been executed and delivered by the Company and Xxxxxxx X. Xxxxxxxxxxx.
(j) Employment Agreements. Copies of the Employment Nondisclosure and
Developments Agreements shall have been delivered to counsel for the Purchasers.
-32-
(k) Preemptive Rights. All stockholders of the Company having any
preemptive, first refusal or other rights with respect to the issuance of the
Notes, the Warrants, the Conversion Shares, the Preferred Conversion Shares or
the Preferred Shares shall have irrevocably waived the same in writing.
(l) Waivers and Consents. The Company shall have obtained, in form and
substance satisfactory to the Purchasers, any and all waivers and consents
required under any agreement, indenture or instrument to which the Company is a
party or by which it is bound and shall have delivered copies of any such
waivers and consents to the Purchasers and their counsel, including, without
limitation, (i) the Loan Agreement dated as of July 7, 1985 between the Company
and Xxxxxx Xxxx & Company, Inc., as amended, (ii) the Term Loan Agreement dated
as of June 30, 1986 between the Company and The Bank of New York, as amended and
(iii) the Agreement dated as of May 11, 1983 between the Company and American
Sterilizer Company.
(m) Fees of Purchasers' Counsel. The Company shall have paid in
accordance with Section 7.01 the fees and disbursements of Purchasers' counsel
invoiced at the Closing.
All such documents shall be satisfactory in form and substance to the Purchasers
and their counsel.
ARTICLE V
COVENANTS OF THE COMPANY
Except as set forth in Section 5.26, the Company covenants and agrees
with each of the Purchasers that so long as any of the Notes, the Warrants, the
Preferred Shares or the Common Conversion Shares issued upon conversion of the
Notes are outstanding:
SECTION 5.01 Financial Statements, Reports, Etc. The Company shall
furnish to each Purchaser:
(a) as soon as possible and in any event within five (5) days
after the occurrence of each Event of Default or each event which, with
the giving of notice or lapse of time or both, would constitute an
Event of Default, the statement of the Chief Financial Officer of the
Company setting forth details of such Event of Default or event and the
action which the Company proposes to take with respect thereto;
(b) within ninety (90) days after the end of each fiscal year
of the Company a balance sheet of the Company as of the end of such
fiscal year and the related statements of income, stockholders' equity
and changes in financial position for the fiscal year then ended,
prepared in accordance with generally accepted accounting principals
and certified by a firm of independent public
-33-
accounts of recognized national standing selected by the Board of
Directors of the Company;
(c) within forty-five (45) days after the end of each fiscal
quarter in each fiscal year (other than the last fiscal quarter in each
fiscal year) a balance sheet of the Company and the related statements
of income, stockholders' equity and changes in financial position,
unaudited but prepared in accordance with generally accepted accounting
principals and certified by the Chief Financial Officer of the Company,
such balance sheet to be as of the end of such fiscal quarter and such
statements of income, stockholders' equity and changes in financial
position to be for such fiscal quarter and for the period from the
beginning of the fiscal year to the end of such fiscal quarter, in each
case with comparative statements for the corresponding period in the
prior fiscal year;
(d) at the time of delivery of each annual financial statement
pursuant to Section 5.01(b), a certificate executed by the Chief
Financial Officer of the Company stating that such officer has caused
this Agreement, the Notes and the Warrants, and, upon the issuance
thereof, the Common Conversion Shares, the Preferred Conversion Shares
and the Preferred Shares, to be reviewed and has no knowledge of any
default by the Company in the performance or observance of any of the
provisions of this Agreement, the Notes or the Warrants or, upon the
issuance thereof, the Common Conversion Shares, the Preferred
Conversion Shares or the Preferred Shares or, if such officer has such
knowledge, specifying such default and the nature thereof; and
(e) promptly, from time to time, such other information
regarding the business, prospects, financial condition, operations,
property or affairs of the Company and its subsidiaries as such
Purchaser reasonably may request.
SECTION 5.02 Right of First Refusal. The Company shall, prior to any
issuance by the Company of any of its securities (other than debt securities
with no equity feature), offer to each Purchaser by written notice the right,
for a period of thirty (30) days, to purchase all of such securities for cash at
an amount equal to the price or other consideration for which such securities
are to be issued; provided, however, that the first refusal rights of the
Purchasers pursuant to this Section 5.02 shall not apply to securities issued
(A) upon conversion of any of the notes or the Preferred Conversion Shares or
exercise of any of the Warrants, (B) as a stock dividend or upon any subdivision
of shares of Common Stock, provided that the securities issued pursuant to such
stock dividend or subdivision are limited to additional shares of Common Stock,
(C) pursuant to subscriptions, warrants, options, convertible securities, or
other rights which are listed in Schedule IV as being outstanding on the Closing
Date, (D) solely in consideration for the acquisition (whether by merger or
otherwise) by the Company or any of its subsidiaries of all or substantially all
of the stock or assets of any other entity, (E) pursuant to a firm commitment
underwritten public offering, (F) pursuant to the exercise of options to
purchase Common Stock granted to employees of the Company, not to exceed in the
-34-
aggregate 500,000 shares (appropriately adjusted to reflect stock splits, stock
dividends, combinations of shares and the like with respect to the Common Stock)
less the number of shares (as so adjusted) issued pursuant to options
outstanding on the date of this Agreement and listed in Schedule IV pursuant to
clause (C) above (the shares exempted by this clause (F) being hereinafter
referred to as the "Reserved Employee Shares"), and (G) upon the exercise of any
right which was not itself in violation of the terms of this Section 5.02. The
Company's written notice to the Purchasers shall describe the securities
proposed to be issued by the Company and specify the number, price and payment
terms. Each Purchaser may accept the Company's offer as to the full number of
securities offered to it or any lesser number, by written notice thereof given
by it to the Company prior to the expiration of the aforesaid thirty (30) day
period, in which event the Company shall promptly sell and such Purchaser shall
buy, upon the terms specified, the number of securities agreed to be purchased
by such Purchaser. Notwithstanding the foregoing, if the Purchasers agree, in
the aggregate, to purchaser more than the full number of securities offered by
the Company, then each Purchaser accepting the Company's offer shall first be
allocated the lesser of (i) the number of securities which such Purchaser agreed
to purchase and (ii) the number of securities as is equal to the full number of
securities offered by the Company multiplied by a fraction, the numerator of
which shall be the number of shares of Common Stock held by such Purchaser as of
the date of the Company's notice of offer (treating such Purchaser, for the
purpose of such calculation, as the holder of the number of shares of Common
Stock which would be issuable to such Purchaser upon conversion, exercise or
exchange of all securities (including but not limited to the Preferred Shares)
held by such Purchaser on the date such offer is made, that are convertible,
exercisable or exchangeable into or for (whether directly or indirectly) shares
of Common Stock) and the denominator of which shall be the aggregate number of
shares of Common Stock (calculated as aforesaid) held on such date by all
Purchasers who accepted the Company's offer, and the balance of the securities
(if any) offered by the Company shall be allocated among the Purchasers
accepting the Company's offer in proportion to their relative equity ownership
interests in the Company (calculated as aforesaid), provided that no Purchaser
shall be allocated more than the number of securities which such Purchaser
agreed to purchase and provided further that in cases covered by this sentence
all Purchasers shall be allocated among them the full number of securities
offered by the Company. The Company shall be free at any time prior to ninety
(90) days after the date of its notice of offer to the Purchasers, to offer and
sell to any third party or parties the number of such securities not agree by
the Purchasers to be purchased by them, at a price and on payment terms no less
favorable to the Company than those specified in such notice of offer to the
Purchasers. However, if such third party sale or sales are not consummated
within such ninety (90) day period, the Company shall not sell such securities
as shall not have been purchased within such period without again complying with
this Section 5.02.
SECTION 5.03 Reserve for Preferred shares, Common Conversion Shares and
Preferred Conversion Shares. The Company shall at all time reserve and keep
available out of its authorized but unissued shares of Common Stock and, upon
the approval of the Charter Amendment at the Stockholders' Meeting and the
filing of the Charter
-35-
Amendment with the Secretary of State of the State of New York, out of its
authorized but unissued shares of Preferred Stock, for the purpose of effecting
the exercise of the Warrants and the conversion of the Preferred Shares and the
Notes, and otherwise complying with the terms of this Agreement, such number of
its duly authorized shares of Common Stock and Preferred Stock as shall be
sufficient to effect the exercise of the Warrants and the Conversion of the
Preferred Shares and Notes, from time to time outstanding or otherwise to comply
with the terms of this Agreement. If at any time the number of authorized but
unissued shares of Common Stock and/or Preferred Stock shall not be sufficient
to effect the exercise of the Warrants and the conversion of the Preferred
Shares and the Notes, or otherwise to comply with the terms of this Agreement,
the Company will forthwith take such corporate action as may be necessary to
increase its authorize but unissued shares of Common Stock and/or Preferred
Stock to such number of shares as shall be sufficient for such purposes. The
Company will obtain any authorization, consent, approval or other action by or
make any filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock and Preferred Stock upon the exercise of the Warrants and the
conversion of the Preferred Shares and the Notes.
SECTION 5.04 Corporate Existence. The Company shall maintain and cause
any subsidiary which it may create to maintain their respective corporate
existence, rights and franchises in full force and effect.
SECTION 5.05 Properties, Business, Insurance. The Company shall
maintain and cause any subsidiary which it may create to maintain as to their
respective properties and business, with financially sound and reputable
insurers, insurance against such casualties and contingencies and of such types
and in such amounts as is customary for companies similarly situated, which
insurance shall be deemed by the Company to be sufficient. The Company shall
also maintain in effect a "key person" life insurance policy, payable to the
Company, on the life of Xxxxxxx X. Xxxxxxxxxxx (so long as he remains an
employee of the Company), in the amount of $1,000,000. The Company shall not
cause or permit any assignment or change in beneficiary and shall not borrow
against any such policy. If requested by Purchasers holding at least a majority
of the outstanding Notes and Warrants, the Company will add one designee of such
Purchasers as a notice party for each such policy and shall request that the
issuer of each policy provide such designee with ten (10) days' notice before
such policy is terminated (for failure to pay premiums or otherwise) or assigned
or before any change is made in the beneficiary thereof.
SECTION 5.06 Inspection, Consultation and Advice. The Company shall
permit and cause any subsidiary which it may create to permit each Purchaser and
such persons as it may designate, at such Purchaser's expense, to visit and
inspect any of the properties of the Company and any such subsidiary, examine
their books and take copies and extracts therefrom, discuss the affairs,
finances and accounts of the Company and any such subsidiary with their
officers, employees and public accountants (and the Company hereby authorizes
said accountants to discuss with such Purchaser and such designees
-36-
such affairs, finances and accounts), and consult with and advise the management
of the Company and any such subsidiary as to their affairs, finances and
accounts, all at reasonable times and upon reasonable notice.
SECTION 5.07 Restrictive Agreements Prohibited. Neither the Company nor
any subsidiary which it may create shall become a party to any agreement which
by its terms restricts the Company's performance of this Agreement, the
Registration Rights Agreement, the Stock Restriction Agreement or the Charter.
SECTION 5.08 Transaction with Affiliates. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any subsidiary which it may create shall
enter into any transaction with any director, officer, employee or holder of
more than 5% of the outstanding capital stock of any class or series of capital
stock of the Company or any subsidiary which it may create, member of the family
of any such person, or any corporation, partnership, trust or other entity in
which any such person, or member of the family of any such person, is a
director, officer, trustee, partner or holder of more than 5% of the outstanding
capital stock thereof, except for transactions on customary terms related to
such person's employment.
SECTION 5.09 Expenses of Directors. The Company shall promptly
reimburse in full, each director of the Company who is not an employee of the
Company and who was nominated by the holders of the Notes and the Warrants, or,
upon the approval of the Charter Amendment at the Stockholders' Meeting, the
filing of the Charter Amendment with the Secretary of State of the State of New
York and the creation of the Preferred Stock, elected by the holders of the
Preferred Shares, for all of his reasonable out-of-pocket expenses incurred in
attending each meeting of the Board of Directors of the Company or any Committee
thereof.
SECTION 5.10 Use of Proceeds. The Company shall use the proceeds from
the sale of the Notes and the Warrants solely (i) for the repayment of $260,000
in principal amount of debt to Xxxxxx Xxxx & Company, Inc., ("Xxxx") pursuant to
the Supply Agreement dated as of July 7, 1985 between the Company and Xxxx, (ii)
for the repayment of $300,000 of principal amount of debt to Medical Investment
Associates and Xxxxxx Xxxxxxxxx and (iii) for working capital.
SECTION 5.11 Board of Directors Meetings. The Company shall use its
best efforts to ensure that meetings of its Board of Directors are held at least
four times each year and at least once each quarter. The Company shall permit
each Purchaser who holds of record or beneficially at least twenty-five (25%)
percent of the Common Conversion Shares and Preferred Conversion Shares issued
or issuable upon exercise of the Warrant or conversion of the Notes or the
Preferred Shares or its designee to have one representative attend each meeting
of the Board of Directors of the Company and each meeting of any committee
thereof and to participate in all discussions during each such meeting. The
Company shall send to each such Purchaser and designee the notice of the
-37-
time and place of such meeting in the same manner and at the same time as it
shall send such notice to its directors or committee members, as the case may
be. The Company shall also provide to each such Purchaser and designee copies of
all notices, reports, minutes and consents at the time and in the manner as they
are provided to the Board of Directors or committee, except for information
reasonably designated as classified information by the Board of Directors.
SECTION 5.12 Compensation. The Company shall not pay to its management
compensation in excess of that compensation customarily paid to management in
companies of similar size, of similar maturity, and in similar businesses.
SECTION 5.13 By-laws. The Company shall at all times cause its By-laws
to provide that unless otherwise required by the laws of the State of New York,
(i) any two directors and (ii) the director nominated by the holders of the
Notes and the Warrants, or, upon the approval of the Charter Amendment at the
Stockholders' Meeting, the filing of the Charter Amendment with the Secretary of
State of the State of New York and the creation of the Preferred Stock, elected
by the holders of the Preferred Shares, shall have the right to call a meeting
of the Board of Directors or stockholders. The Company shall at all times
maintain provisions in its By-laws and/or Charter indemnifying all directors
against liability and absolving all directors from liability to the Company and
its stockholders to the maximum extent permitted under the laws of the State of
New York.
SECTION 5.14 Performance of Contracts. The Company shall not amend,
modify, terminate, waive or otherwise alter, in whole or in part, any of the
Employment Agreement without the consent of that member of the Company's Board
of Directors nominated by the holders of the Notes and the Warrants or, upon the
approval of the Charter Amendment at the Stockholders' Meeting, the filing of
the Charter Amendment with the Secretary of State of the State of New York and
the creation of the Preferred Stock, elected by the holders of the Preferred
Shares.
SECTION 5.15 Vesting of Reserved Employee Shares. The Company shall not
grant to any of its employees options to purchase Reserved Employee Shares which
will become exercisable at a rate in excess of 20% per annum from the date of
such grant without the unanimous written consent of that member of the Company's
Board of Directors nominated by the holders of the Notes and the Warrants or,
upon the approval of the Charter Amendment at the Stockholders' Meeting, the
filing of the Charter Amendment with the Secretary of State of the State of New
York and the creation of the Preferred Stock, elected by the holders of the
Preferred Shares.
SECTION 5.16 Employment Agreements. The Company shall use its best
efforts to obtain, and shall cause its subsidiaries to use their best efforts to
obtain, an Employment Agreement in substantially the form of Exhibit G from all
future officers, key employees and other employees who will have access to
confidential information of the Company or any of its subsidiaries, upon their
employment by the Company or any of its subsidiaries.
-38-
SECTION 5.17 Mergers, Sale of Assets, Etc. of Subsidiaries. The Company
shall not permit any subsidiary which it may create to consolidate or merge into
or with or sell or transfer all or substantially all its assets, except that any
such subsidiary may (i) consolidate or merge into or with or sell or transfer
assets to any other such subsidiary, or (ii) merge into or sell or transfer
assets to the Company.
SECTION 5.18 Maintenance of Ownership of Subsidiaries. The Company
shall not sell or otherwise transfer any shares of capital stock of any
subsidiary which it may create, except to the Company or another such
subsidiary, or permit any such subsidiary to issue, sell or otherwise transfer
any shares of its capital stock or the capital stock of any such subsidiary,
except to the Company or another such subsidiary.
SECTION 5.19 Distributions by Subsidiaries. The Company shall not
permit any subsidiary which it may create to purchase or set aside any sums for
the purchase of, or pay any dividend or make any distribution on, any shares of
its stock, except for dividends or other distributions payable to the Company or
another such subsidiary.
SECTION 5.20 Compliance with Laws. The Company shall comply, and cause
any subsidiary which it may create to comply, with all applicable laws, rules,
regulations and orders, noncompliance with which could materially adversely
affect its business or condition, financial or otherwise.
SECTION 5.21 Keeping of Records and Books of Account. The Company shall
keep, and cause any subsidiary which it may create to keep, adequate records and
books of account in which complete entries will be made in accordance with
generally accepted accounting principles consistently applied, reflecting all
financial transactions of the Company and such subsidiary, and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
SECTION 5.22 Change in Nature of Business. The Company shall not make,
or permit any subsidiary which it may create to make, any material change in the
nature of its business as set forth in the Business Plan.
SECTION 5.23 U.S. Real Property Interest Statement. Upon a written
request by any Purchaser, the Company shall provide such Purchaser with a
written statement informing the Purchaser whether such Purchaser's interest in
the Company constitutes a U.S. real property interest. The Company's
determination shall comply with the requirements of Treasury Regulation section
1.897-2(h)(1) or any successor regulation, and the Company shall provide timely
notice to the Internal Revenue Service, in accordance with and to the extent
required by Treasury Regulation Section 1.897-2(h)(2) or any successor
regulation, that such statement has been made. The Company's written statement
to any Purchaser shall be delivered to such Purchaser within ten (10) days of
such Purchaser's written request therefor. The Company's obligation to furnish a
written
-39-
statement pursuant to this Section 5.24 shall continue notwithstanding the fact
that a class of the Company's stock may be regularly traded on an established
securities market.
SECTION 5.24 Punctual Payment. The Company shall pay the principal of
and interest on each of the Notes at the times and place and in the manner
provided in the Notes and herein.
SECTION 5.25 Authorization of Preferred Stock. The Company will use its
best efforts to cause, on or before June 30, 1989, the adoption at the
Stockholder Meeting of the Charter Amendment, including the authorization of the
Preferred Stock, such efforts to include soliciting the proxies of the Company's
stockholders to approve such authorization and filing.
SECTION 5.26 Restrictions. At any time when the Notes or the Common
Conversion Shares issued upon conversion of the Notes are outstanding, except
where the vote or written consent of the holders of a greater number of shares
of the Corporation is required by law or by the Charter, and in addition to any
other vote required by law or the Charter, without the approval of the holders
of at least two-thirds of the Common Conversion Shares issued or issuable upon
conversion of the Notes.
(a) Create or authorize the creation of any additional class or series
of shares of stock, except for the Preferred Stock, or increase the authorized
amount of the Preferred Stock to an amount in excess of that set forth in the
Charter Amendment or increase the authorized amount of any additional class or
series of shares of stock or create or authorize any obligation or security
convertible into shares of Preferred Stock or into shares of any other class or
series of stock, except for the Preferred Stock, whether any such creation,
authorization or increase shall be by means of amendment to the Charter or by
merger, consolidation or otherwise;
(b) Consent to any liquidation, dissolution or winding up of the
Company or consolidate or merge into or with any other entity or entities or
sell or transfer all or substantially all its assets;
(c) Amend, alter or repeal the Charter or By-laws of the Company in a
manner which adversely affects the rights of the holders of the Note, the
Warrants, the Common Conversion Shares or the Preferred Conversion Shares;
(d) Purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any shares of stock, except for dividends
or other distributions payable on the Common Stock solely in the form of
additional shares of Common Stock and except for the purchase of shares of
Common stock from former employees of the Company who acquired such shares
directly from the Company, if each such purchase is made pursuant to contractual
rights held by the Company relating to the termination of employment of such
former employee and the purchase price does not exceed the original issue price
paid by such former employee to the Company for such shares; or
-40-
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01 Events of Default. If any of the following events ("Events
of Default") shall occur and be continuing:
(a) The Company shall fail to pay any installment of principal of any
of the Notes when due; or
(b) The Company shall default in the performance of any covenant
contained herein for ten (10) days; or
(c) Any representation or warranty made by the Company in this
Agreement or by the Company (or any officers of the Company) in any certificate,
instrument or written statement contemplated by or made or delivered pursuant to
or in connection with this Agreement, shall prove to have been incorrect when
made in any material respect; or
(d) The Company shall fail to perform or observe any other term,
covenant or agreement contained in this Agreement, the Notes or the Warrants on
its part to be performed or observed and any such failure remains unremedied for
ten (10) business days after written notice thereof shall have been given to the
Company by any registered holder of the Notes; or
(e) The Company shall fail to pay any Indebtedness for borrowed money
(other than as evidenced by the Notes) owing by the Company or any interest or
premium thereon, when due (or, if permitted by the terms of the relevant
document, within any applicable grace period), whether such Indebtedness shall
become due by scheduled maturity, by required prepayment, by acceleration, by
demand or otherwise, or shall fail to perform any term, covenant or agreement on
its part to be performed under any agreement or instrument (other than this
Agreement or the Notes) evidencing or securing or relating to any Indebtedness
owing by the Company when required to be performed (or, if permitted by the
terms of the relevant document, within any applicable grace period), if the
effect of such failure to pay or perform is to accelerate, or to permit the
holder or holders of such Indebtedness, or the trustee or trustees under any
such agreement or instrument to accelerate, the maturity of such Indebtedness,
unless such failure to pay or perform shall be waived by the holder or holders
of such Indebtedness or such trustee or trustees; or
(f) The Company shall be involved in financial difficulties as
evidenced (i) by its admitting in writing its inability to pay its debts
generally as they become due; (ii) by its commencement of a voluntary case under
title 11 of the United States Code as from time to time in effect, or by its
authorizing, by appropriate proceedings of its Board of Directors or governing
body, the commencement of such a voluntary case; (iii) by its
-41-
filing an answer or other pleading admitting or failing to deny the material
allegations of a petition filed against it commencing an involuntary case under
said Title 11, or seeking, consenting to or acquiescing in the relief therein
provided, or by its failing to controvert timely the material allegations of any
such petition; (iv) by the entry of an order for relief in any involuntary case
commenced under said Title 11, and such order shall not be released or vacated
within twenty (20) days after its entry; (v) by its seeking relief as a debtor
under any applicable law, other than said Title 11, of any jurisdiction relating
to the liquidation or reorganization of debtors or to the modification or
alternation of the rights of creditors, or by its consenting to or acquiescing
in such relief; (vi) by the entry of an order by a court of competent
jurisdiction (a) finding it to be bankrupt or insolvent, (b) ordering or
approving its liquidation, reorganization or any modification or alteration of
the rights of its creditors, or (c) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its property, and
such order shall not be released or vacated within twenty (20) days after its
entry or (vii) by its making an assignment for the benefit of, or entering into
a composition with, its creditors, or appointing or consenting to the
appointment of a receiver or other custodian for all or a substantial part of
its property; or
(g) Any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against a substantial part of the property of
the Company and such judgment, writ, or similar process shall not be released,
vacated or fully bonded within sixty (60) days after its issue or levy;
then, and in any such event, the Purchaser or any other holder of the Notes may,
by notice to the Company, declare the entire unpaid principal amount of the
Notes, all interest accrued and unpaid thereon and all other amounts payable
under this Agreement to be forthwith due and payable, whereupon the Notes, all
such accrued interest and all such amounts shall become and be forthwith due and
payable (unless there shall have occurred an Event of Default under subsection
6.01(g) in which case all such amounts shall automatically become due and
payable), without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Company.
SECTION 6.02 Annulment of Defaults. Section 6.01 is subject to the
condition that, if at any time after the principal of any of the Notes shall
have become due and payable, and before any judgment or decree for the payment
of the monies so due, or any thereof, shall have been entered, all arrears of
interest upon all the Notes and all other sums payable under the Notes and under
this Agreement (except the principal of the Notes which by such declaration
shall have become payable) shall have been duly paid, and every other default
and Event of Default shall have been made good or cured, then and in every such
case the holders of seventy-five percent (75%) or more in principal amount of
all Notes then outstanding may, by written instrument filed with the Company,
rescind an annual such declaration and its consequences; but no such rescission
or annulment shall extend to or affect any subsequent default or Event of
Default or impair any right consequent thereon.
-42-
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company shall pay
the fees and disbursements of the Purchasers' special counsel, Xxxxx, Xxxxxxx &
Xxxxxxxxx, in connection with such transactions and the subsequent amendment or
enforcement thereof.
SECTION 7.02 Survival of Agreements. All covenants, agreements,
representations and warranties made herein or in the Registration Rights
Agreement, the Notes, the Warrants, the Stock Restriction Agreement, or any
certificate or instrument delivered to the Purchasers pursuant to or in
connection with this Agreement, the Notes, the Warrants, the Registration Rights
Agreement or the Stock Restriction Agreement, shall survive the execution and
delivery of this Agreement, the Notes, the Warrants, the Registration Rights
Agreement and the Stock Restriction Agreement, the issuance, sale and delivery
of the Notes and Warrants, and the issuance and delivery of the Common
Conversion Shares, the Preferred Conversion Shares and the Preferred Shares and
all statements contained in any certificate or other instrument delivered by the
Company hereunder or thereunder or in connection herewith or therewith shall be
deemed to constitute representations and warranties made by the Company.
SECTION 7.03 Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understanding made or
claimed to have been made by such party with any third party.
SECTION 7.04 Parties in Interest. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting the
generality of the foregoing, all representations, covenants and agreements
benefiting the Purchasers shall inure to the benefit of any and all subsequent
holders from time to time of the Notes, the Warrants, the Common Conversion
Shares, the Preferred Conversion Shares or the Preferred Shares.
SECTION 7.05 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person or
mailed by certified or registered mail, return receipt requested, or telexed in
the case of non-U.S. residents, addressed as follows:
-43-
(a) if to the Company, at 000 Xxxxxxxxx Xxxxxxxxx, Xxxxxxx,
Xxx Xxxx 00000, Attention: President, with a copy to Xxxxxx Xxxxx,
Esq., Xxxxxxx, Xxxxx & Xxxxx, 0000 Xxxxxxxx Xxxxxx, Xxxxxx Xxxx, Xxx
Xxxx 00000; and
(b) if to any Purchaser, at the address of such Purchaser set
forth in Schedule I, with a copy to Xxxxx X. X'Xxxx, Esq., Xxxxx,
Xxxxxxx & Xxxxxxxxx, Exchange Place, 00 Xxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 7.06 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7.07 Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto are
hereby incorporated herein by reference.
SECTION 7.08 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 7.09 Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the holders of at least two-thirds of the outstanding Common
Conversion Shares (i) issued or issuable upon exercise of the Warrants and
conversion of the Preferred Shares in the event the Preferred Shares have been
issued to the Purchasers or (ii) issued or issuable upon exercise of the
Warrants and conversion of the Notes, in the event the Preferred Shares have not
been issued to the Purchasers.
SECTION 7.10 Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 7.11 Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 7.12 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "Indebtedness" means all obligations, contingent and otherwise,
which should, in accordance with generally accepted accounting principles
consistently applied,
-44-
be classified upon the obligor's balance sheet as liabilities, but in any event
including, without limitation, liabilities secured by any mortgage on property
owned or acquired subject to such mortgage, whether or not the liability secured
thereby shall have been assumed, and also including, without limitation, (i) all
guaranties, endorsements and other contingent obligations, in respect of
Indebtedness of others, whether or not the same are or should be so reflected in
said balance sheet, except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business and (ii) the present value of any lease payments due under leases
required to be capitalized in accordance with applicable Statements of Financial
Accounting Standards, determined in accordance with applicable Statements of
Financial Accounting Standards.
(b) "Person" shall mean an individual, corporation, trust, partnership,
joint venture, unincorporated organization, government agency or agency or
political subdivision thereof, or entity.
(c) "Subsidiary" shall mean, as to the Company, any corporation of
which more than 50% of the outstanding stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned by the Company, or
by one or more of its subsidiaries, or by the Company and one or more of its
subsidiaries.
SECTION 7.13 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in preparation of the
financial statements delivered pursuant to Section 2.05 hereof, and all
financial data submitted pursuant to this Agreement and all financial tests to
be calculated in accordance with this Agreement shall be prepared and calculated
in accordance with such principles.
**REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.**
-45-
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
MEDICAL STERILIZATION, INC.
By:____________________
[Corporate Seal] Title:_________________
Attest:
______________________
Secretary
PURCHASERS:
OXFORD VENTURE FUND III,
LIMITED PARTNERSHIP
By: Oxford Partners III,
Limited Partnership
General Partner
By: _______________________
General Partner
OXFORD VENTURE FUND III
ADJUNCT, LIMITED PARTNERSHIP
By: Oxford Partners III A,
Limited Partnership
General Partner
By: _______________________
General Partner
-46-
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
MEDICAL STERILIZATION, INC.
By:________________________
[Corporate Seal] Title:_____________________
Attest:
______________________
Secretary
PURCHASERS:
OXFORD VENTURE FUND III,
LIMITED PARTNERSHIP
By: Oxford Partners III,
Limited Partnership
General Partner
By:________________________
General Partner
OXFORD VENTURE FUND III
ADJUNCT, LIMITED PARTNERSHIP
By: Oxford Partners III A,
Limited Partnership
General Partner
By:_________________________
General Partner
393LMM5962/1.198377-1
-47-
SCHEDULE I
Purchasers
Principal Aggregate
Name and Amount Warrant Purchase
Address of Purchaser of Notes Shares Price
-------------------- -------- ------ -----
Oxford Venture Fund III, $800,000 228,572 $800,000
Limited Partnership
000 Xxxx Xxxxxx
Xxxxxxxx, XX 00000
Oxford Venture Fund III 200,000 57,143 200,000
Adjunct, Limited Partnership
000 Xxxx Xxxxxx
Xxxxxxxx, XX 00000
---------- ------- ----------
$1,000,000 285,715 $1,000,000
-48-
SCHEDULE II
Disclosure Schedule
Section 2.05. The loss for the nine months ended September 30, 1988 was
$164,370. The estimated loss for the year will be approximately $400,000.
Section 2.06. Since September 30, 1988, the Company has redeemed the
outstanding shares of Class A and Class B stock; has issued notes for $550,000
held by Xxxxxxx Xxxxxxxxxx ($400,00), Xxxxxxxxx X. Xxxxxxxxxx ($100,000) and
Xxxxxxx Xxxxxx ($50,000), maturing December 31, 1989 to replace notes which
matured December 31, 1988; has authorized the issuance of warrants to purchase
545,715 shares of common stock at $3.50 per share; has agreed to pay Xxxx
$260,000 on an account payable and to pay Medical Investment Associates $250,000
and Xxxxxx Xxxxxxxxx $50,000 in repayment of loans which were due December 31,
1988 and were extended by oral agreement to January 31, 1989; has negotiated
with Bank of New York for a new loan agreement, with Norstar Bank for a line of
credit and a term loan agreement, and with an investing client of Xxxxxxx Xxxxxx
for a loan of $200,000. The Norstar Bank loans would require payment of Bank of
New York's loan and transfer of collateral from that bank to Norstar.
Section 2.07. The only outstanding matters in litigation are:
(1) XxXxxxxx Associates, Inc. vs. General Sterilization
Services, Inc. (now the Company) and X.X. Xxxxx, Inc. commenced in 1982 in The
Supreme Court of the State of New York, County of Nassau. The Company and X.X.
Xxxxx Co., Inc. were named as defendants in an action which commenced August 17,
1983 by an investment advisor alleging failure to pay for services rendered,
breach of agreement and a conspiracy to deprive plaintiff of monies and Company
stock, and claiming damages in the amount of $112,500. The Company has agreed to
indemnify X.X. Xxxxx & Co., Inc. for damages suffered by reason of this action.
Special counsel to the Company is of the opinion that the likelihood of an
unfavorable outcome in this litigation is remote.
(2) Shamrock Technologies, Inc. vs. Medical Sterilization, Inc.
and Xxxxxx X. Xxxxxxxxx, commenced in 1988 in the United States District Court,
Eastern District of New York, Civil Action No. 88-1681. The Company and Xxxxxx
X. Xxxxxxxxx, its Vice-President, were named as defendants in an action which
commenced on June 3, 1988 by a Company alleging patent infringement and breach
of an Employment Agreement and a Trade Secret Agreement. The Complainant is
seeking damages and a permanent injunction from processing by methods which
allegedly infringed the patent and violated trade secrets. Special patent
counsel to the Company is of the opinion that the compliant is without merit.
Section 2.08. See Section 2.07 (2) above.
-49-
Section 2.09. The loan owed to the Bank of New York is collateralized
by the Company's accounts receivable, surgical instruments and containers. The
loans owed to Xxxx are collateralized by steam and gas sterilizers and
ultrasonic and tunnel washers and second lien on the collateral given to the
Bank of New York.
Section 2.14. The Company has no patents, patent rights, etc.
Section 2.14. The Company has already disclosed the Shamrock
litigation.
Section 2.15. Employee loans may be granted for medical or other
emergency on approval of the President and Vice-President in an amount not
exceeding $500.
Section 2.17. The Company is in default under its Supply Agreement with
Xxxx, a significant supplier, which will be cured on January 31, 1989.
Section 2.19. In the Company's Business Plan for 1989, there is a
reference to "A Business Opportunity." In the Profit & Loss for 1989 the Company
shows revenues and expenses relating to "Soft-Pack." There are no agreements
executed regarding this product and service, although the parties orally agreed
to proceed. The failure to proceed at this time would use the revenues and
expenses to be delayed.
Section 2.20. The Company has discussed the issuance of notes to two
other parties including the client of Xxxxxxx Xxxxxx. No agreement has been
rescheduled with either.
Section 2.22. The officers of the Company and their salaries for 1989
are:
Name Position Salary
---- -------- ------
Xxxxxxx X. Xxxxxxxxxxx Chairman of Board & President 95,000
Xxxxxx X. Xxxxxxxxx Vice-President, Operations 82,000
Xxxxxx X. XxXxxx, Xx. Vice-President, Marketing 75,000
Xxxxxxx X. Xxxxxxx Vice-President, Quality Assurance 75,000
& Regulatory Affairs
Xxxx X. Xxxxxx, Xx. Treasurer 70,000
Xxxxxx Xxxxx Secretary ______
Section 2.23. Xx. Xxxxxxxxx, Senior Vice-President of the Company, is
an officer of Precision Micron Powders, Inc., a distributor of products of the
Company pursuant to an agreement which has been delivered to counsel for the
Purchasers. AMSCO, a holder of more than 5% of the Company's stock, is a vendor
of the Company.
Xxxxxx Xxxxx, Secretary and Director of the Company, is a partner of
Xxxxxxx, Xxxxx & Xxxxx, counsel for the Company.
-50-
SCHEDULE III
Subsidiaries
The Company does not have subsidiaries as that term is defined in
Section 7.12 of the Agreement. It does have 100 shares (50%) of the outstanding
stock of Medical Sterilization Realty, Inc. ("Realty"). The remaining 100 shares
are held as follows: 50 shares by medical Investment Associates, 10 shares by
Xxxxxx Xxxxxxxxx, 20 shares by Xxxxxxx Xxxxxxxxxx and 20 shares by Xxxxxxxxx X.
Xxxxxxxxxx.
The Company's 100 shares have been pledged to the above persons to
secure the repayment of their loans to the Company in the aggregate amount of
$500,000 and the performance of an agreement to exercise the option under the
Company's Lease under certain conditions. The Company expects to pay off the
loans held by Medical Investment Associates and Xxxxxx Xxxxxxxxx on or about
January 31, 1989 and Mr. and Xxx. Xxxxxxxxxx will continue to hold the
collateral.
Realty has one asset - the lease of the Company with Barlich Realty
Inc. and, in particular, the option to purchase the demised premises between
August 1, 1989 and February 1, 1990 for the price of $4,400,000 or between
August 1, 1994 and February 1, 1995 for the price of $4,900,000. Realty entered
into a sublease with the Company.
Copies of the Lease, the Loan Agreement dated December 23, 1986, the
Assignment of Lease, the Pledge Agreement, the Sublease, and the exclusive
agency letter agreement have been supplied to counsel for the Purchasers.
-51-
SCHEDULE IV
Security Holders
Number of Shares
Name Beneficially Owned Percent of Class
---- ------------------ ----------------
Xxxxxxx X. Xxxxxxxxxxx 257,900 9.2%
American Sterilizer Company 263,356 9.4%
Xx. Xxxxxxx X. Xxxxxxxxxx, Xx. 300,000 10.8%
Sumitomo Heavy Industries, Ltd. 271,429 9.7%
Option Holders
Name Number of Shares
------ -------------------
Xxxx X. Xxxxx 5,000
Xxxx X. Xxxxxx 5,000
Xxxxxx X. Xxxxxxxx 5,000
Xxxxxx X. XxXxxx, Xx. 50,000
Marimargret Xxxxxxxx 5,000
Xxxxxxx X. Xxxxxxx 50,000
H. Xxxxxx Catchcart 5,000
Xxxxx X. Xxxxx 1,000
Xxxxxx Xxxxx 2,500
Xxxxxxx X. Xxxxxxxxxxx 25,000
Xxxxxx X. Xxxxxxxxx 25,000
Xxxxxx Xxxxxx 2,000
Xxxxxxx Xxxxxxxx 10,000
Xxxxx Xxxxxxxxx 5,000
Xxxxxxx Xxxxx 3,000
Xxxxx X. Xxxxxxxxxxx 3,000
Xxxxxx X. Xxxxxx 10,000
Xxxx X. Xxxxxx, Xx. 10,000
-52-
Warrant Holders
Name Number of Shares
------ -------------------
X. X. Xxxxx 63,884
Xxxxxx Xxxxxxxxx 6,992
Xxxxxxx Xxxxxxxxx 48,214
Xxxxx Xxxxxxxx 723
Xxxxxxx Xxxxxxx 723
Preston Bank 5,744
Xxxxxx X. Bank 1,343
Xxxxxxxx X. Bank 1,343
Xxx Xxxx 7,716
Gay Xxxx 1,343
Xxxxxx Xxxx 1,343
Xxxxx Xxxx 1,343
Xxxxxx Xxxx 1,343
Xxxxxx Xxxx, Cust. for 1,343
Xxxxxx X. Xxxx
Xxxxxx Xxx 6,789
Xxxxxx X. & Xxxxxx Xxxx 6,789
Xxxxxx Xxxxxxxxx 3,357
Xxxxxx Xxxxx 6,789
Xxxxxxx X. Xxxxxxxxxxx 33,570
Xxxxxx Xxxxxxxxx 13,562
Xxxxxxx Xxxxx 13,562
Xxxxx Xxxxx 2,712
Xxxxxx Xxxxxx 1,356
Xxxxxxx Xxxxxxxxx* 26,106
Xxxxxxx Xxxxx* 26,106
*Transferred to Xxxxxxx
Xxxxxxxxx on 7/6/87
Xxxxxx Xxxx 17,359
Xxxxxx Xxxxx 17,359
Xxx Xxxxx 15,189
Bodan Turynsky 136
Xxxxx Xxxxxx 1,763
Xxxxxx Xxxxx 407
Xxxxxx Xxxxx, Xx. 3,598
Xxxxxx Xxxxxx 3,591
Xxxxxxxx Xxxxxx 1,498
Xxxx Xxxxxx 1,498
Xxxxx Xxxxxx 686
Xxxxxxxx X. Xxxx 6,535
-53-
Name Number of Shares
------ -------------------
Xxxxxx Xxxxxxxx 4,901
Xxxxxx X. Xxxxxxxx 3,268
Xxxxxxxx X. Xxxxxxxxxx 1,634
Xxxxx Xxxxxxx 1,634
Xxxxxx Xxxxxxx 1,307
Xxxxxx Xxxx 1,307
Xxxxx Xxxxxx 654
Xxxxxxx Notas 327
Xxxxxx Xxxxxxxx 327
Xxxxxxx Xxxxxx 163
Medical Investment 8,414
Associates
Xxxxxxxxx X. Xxxxxxxxxx 3,365
Xxxxxxx Xxxxxxxxxx 3,365
Xxxxxx Xxxxxxxxx 1,683
Xxx Xxxxxx 5,610
Xxx Xxxxxx 5,610
Xxxxxxx X. Xxxxxxx 5,610
Xxxxxxx Xxxxxxxxxx 15,000
Ben Shumes 25,000
Xxxxxxx X. Xxxxxx 13,333
Xxxx X. Xxxxxxx 15,000
Xxxxxxx X. Xxxxxx 6,667
Xxxxxxx X. Xxxxxxxxxx, Xx. 80,000
Medical Investment 25,000
Associates
Xxxxxx Xxxxxxxxx 5,000
Xxx Xxxxxx, Trustee 9,999
Xxxxxxx Xxxxxxxxxx 10,000
Xxxxxxxxx X. Xxxxxxxxxx 10,000
Xxx Xxxxxx, Trustee 6,665
Xxxxxxx X. Xxxxxxxxxx, 25,000
Trustee
Xxxxxxxx X. Xxxxxx 5,000
Xxx Xxxxxx, Trustee 10,000
Xxx Xxxxxx 10,000
Xxxx X. Xxxxxxx 4,000
Xxxxxx X. Xxxxxxxxx 13,000
------
592,233
In addition on January 25, 1989 the Board of Directors authorized the
issuance of the following warrants:
-00-
Xxxxxxx X. Xxxxxxxxxx XXX Xxxxxxxx Xxxxx 20,000
Xxxxxxx X. Xxxxxxxxxx ITF Xxxxxxx Xxxxx 20,000
Xxxxxxxx X. Xxxxxx 20,000
Xxx Xxxxxx 40,000
Xxxxxxx X. Xxxxxx 10,000
Xxxxxxx X. Xxxxxxxxxxx 90,000
Xxxxxx Xxxxx 20,000
Oxford ** 285,715
Client of Xxxxxx ** 40,000
------
545,715
1,137,948
**Subject to consummation of sale of Notes
The Number of shares set forth above have been adjusted by reason of
anti-dilution provisions in the warrants.
In addition, by agreement dated May 11, 1983 with American Sterilizer
Company ("Amsco"), Amsco has the right to acquire additional shares. This right
has been waived.
In addition, by agreement with Xxxxxx Xxxx & Company, Inc. ("Xxxx"), in
the event the Company issues additional shares, or securities convertible into
common stock, Xxxx has the option to purchase such number of shares or
quantities that will maintain the proportion of ownership which the number of
shares Xxxx can obtain under said agreement has to the number of shares the
Company has outstanding prior to such issuance.
-55-
SCHEDULE V(A) and (B)
SCHEDULE V(A)
NONE
SCHEDULE V(B)
Section 2.13. (a) & (p) The Company, Precision Micron Powders, Inc. and
Xxxxxx X. Xxxxxxxxx entered into an agreement on July 25, 1988 regarding the
processing of teflon powders.
Section 2.13. (g) The Company has a 1983 Stock Option Plan, which was
amended in 1986 authorizing issuance of Incentive Stock Options and
Non-Qualified Stock Options in an aggregate amount of 250,000 shares. The
Company proposed to increase the authorized shares to 500,000. Of this amount,
options to purchase 221,500 shares have been granted.
Section 2.13. (g) The Company has also a bonus plan with Xxxxxx Xxxxxx,
Industrial Sales Manager, Xxxxxx XxXxxx, Marketing Director of the hospital
business and Xxxxxx Xxxxxx, supervisor of contract services.
Section 2.13. (h) The Company has already set forth agreements relating
to outstanding loans from Medical Investment Associates, Xxxxxx Xxxxxxxxx,
Xxxxxxx Xxxxxxxxxx, Xxxxxxxxx X. Xxxxxxxxxx, Xxxxxxx Xxxxxx and the Bank of New
York. In addition, the Company entered into a Loan Agreement and a Supply
Agreement with Xxxxxx Xxxx & Co. In 1988 the Company obtained a loan of $500,000
from Xx. Xxxxxxx X. Xxxxxxxxxx, Xx. The Company also has combined loans of
$450,000 from Xx. Xxxxxxxxxxx and $100,000 from Xxxxxx Xxxxx.
Section 2.13. (j) As previously disclosed, Xxxx and Amsco had rights to
purchase stock. Amsco has waived its right permanently. Xxxx has waived it right
in connection with this transaction.
Section 2.13. (n) The existing warrants have certain registration
rights and the agreement with Sumitomo has registration rights.
Section 2.13. The Company is in default in payment of certain loans and
obligations as set forth on Schedule II, Section 2.06 and Section 2.17.
393LMM5962/1.198377-1
