PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made this ____ day of
December, 1999, by and among Derma Sciences, Inc., a Pennsylvania corporation
with offices located at 000 Xxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxx, Xxx Xxxxxx
("Xxxxx Sciences" or "the Company"), and Xxxxx Partners III, L.P., a Delaware
limited partnership with offices at 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000,
Xxxxx Partners International III, L.P., a Delaware limited partnership with
offices at 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Xxxxx Employee Fund III,
L.P., a Delaware limited partnership with offices at 000 Xxxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000, and Med-Tec Investors, LLC, a New Jersey limited liability
company with offices at 000 Xxxxxxxxx Xxxx, Xxxxxxxxx, Xxx Xxxxxx 00000 (these
latter individually, "Purchaser" and collectively, "Purchasers").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the Company and each of the Purchasers agree as follows:
1. Designation and Authorization of Sale of the Bonds and Units.
Subject to the terms and conditions of this Agreement, the Company has
authorized the sale of up to $750,000 aggregate principal amount of the
Company's Convertible Bonds due December 31, 2000 (the "Bonds"). The Bonds shall
provide, and shall be in the form, described below:
1.1. Provisions and Form. The Bonds shall bear interest, shall be
convertible into Units (defined below) and shall otherwise be substantially in
the form as set forth in the Form of Convertible Bond attached hereto as Exhibit
1.
1.2. Security. The Bonds shall be secured as to principal and interest
in the manner and with the collateral set forth in the Security Agreement
attached hereto as Exhibit 2.
1.3. Conversion Option. The Bonds may be converted, at the option of
the holders thereof ("Bondholders"), into units ("Units") each consisting of one
share of Series D Convertible Preferred Stock, par value $.01 per share,
("Series D Preferred Stock") and one warrant ("Warrant") to purchase one share
of common stock, par value $.01 per share ("Common Stock"). The periods during
which conversion may be effected, the conversion price ("Unit Purchase Price")
and other provisions governing conversion are set forth in sections 1, 2 and 3
of the Terms and Conditions of the Bonds of the Form of Convertible Bond
(Exhibit 1). The preferences and rights of the Series D Preferred Stock are set
forth in the Form of Preferred Stock Certificate and Form of Certificate of
Preferences and Rights of Series D Convertible Preferred Stock attached hereto
as Exhibits 3 and 4, respectively. The exercise price and other provisions
governing the Warrants are set forth in sections 1(d) and 2 of the Terms and
Conditions of the Bonds (Exhibit 1) and in the Form of Warrant Agreement
attached hereto as Exhibit 5.
1.4. Registration Rights. The common stock issuable upon conversion of
the Series D Preferred Stock and exercise of the Warrants ("Underlying Common
Stock") will be registered by the Company for public sale. Terms and conditions
governing registration of the Underlying Common Stock are set forth in the
Registration Rights Agreement attached hereto as Exhibit 6.
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1.5 Other Purchasers. The company may enter into purchase agreements in
the same form as the Agreement with certain other investors ("Other Purchasers")
relative to the sale up to $250,000 aggregate principal amount of the Bonds.
2. Agreement to Sell and Purchase the Bonds. At the Closing (as defined
in Section 3), the Company will sell and deliver to each Purchaser, and each
Purchaser will buy from the Company and accept delivery of, the Bonds upon the
terms and conditions hereinafter set forth:
2.1. Principal Amount of the Bonds. The aggregate principal amounts of
the Bonds to be purchased by each Purchaser are as follows:
Purchaser Principal Amount
Xxxxx Partners III, L.P. $411,104.00
Xxxxx Partners International III, L.P. $37,212.00
Xxxxx Employee Fund III, L.P. $1,684.00
Med-Tec Investors, LLC $50,000.00
2.2. Documents. This Agreement and the agreements executed by the
Company, its subsidiaries, the Purchasers and the Other Purchasers relative to
the Bonds are hereinafter sometimes collectively referred to as the "Documents."
The term Documents shall mean this Agreement, the Form of Convertible Bond, the
Security Agreement, the Form of Preferred Stock Certificate, the Form of
Certificate of Preferences and Rights of Series D Convertible Preferred Stock,
the Form of Warrant Agreement and the Registration Rights Agreement together
with any schedules or exhibits thereto.
3. Delivery of the Bonds at the Closing. The completion of the purchase
and sale of the Bonds (the "Closing") shall occur at a place and time (the
"Closing Date") to be determined by the Company and of which the Purchasers will
be notified by facsimile transmission or otherwise; provided, however, that the
closing shall not occur later than December 31, 1999. At the Closing, the
Company shall deliver to each Purchaser (i) one or more Bond certificates
registered in the name of the Purchaser, or in such nominee name(s) as
designated by the Purchaser, representing the principal amount set forth in
Section 2 above. The Company's obligation to complete the purchase and sale of
the Bonds and deliver such Bond certificate(s) to the Purchaser at the Closing
shall be subject to receipt of Federal Reserve (same-day) funds in the full
amount of the purchase price for the Bonds being purchased hereunder by such
Purchaser. Each Purchaser's obligation to accept delivery of such Bond
certificate(s) and to pay for the Bonds shall be subject to the condition that
the Company shall have (a) entered into a Registration Rights Agreement in the
form of Exhibit 6 hereto (the "Registration Rights Agreement") and (b) the
accuracy in all material respects of the representations and warranties made by
the Company herein and the fulfillment in all material respects of those
undertakings of the Company to be fulfilled prior to Closing. No Purchaser's
obligations hereunder are conditioned on the purchase by any Purchaser or Other
Purchaser of the Bonds that it has agreed to purchase from the Company. The
parties agree that there may be more than one Closing; provided, that all
Closings for the sale of Bonds of the series offered hereby must be held within
fifteen days of the first Closing for such series.
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4. Representations, Warranties and Covenants of the Company. The
Company hereby represents and warrants to, and covenants with, each Purchaser as
follows:
4.1. Organization and Qualification. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to conduct its business as currently
conducted and to own its assets wherever located. Each of the Company and its
subsidiaries is qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the operations of the Company and its subsidiaries,
taken as a whole.
4.2. Capitalization. As of the date hereof, the capitalization of the
Company consists of: (a) 30,000,000 shares of Common Stock of which 1,325,938
shares are outstanding, (b) 1,750,000 shares of Series A Convertible Preferred
Stock of which 272,500 shares are outstanding, (c) 3,333,340 shares of Series B
Convertible Preferred Stock of which 666,668 are outstanding, (d) 6,666,660
shares of undesignated preferred stock of which none are outstanding, and (e)
$875,000 aggregate principal amount of convertible bonds due August 15, 2000.
4.3. Due Execution, Delivery and Performance of the Agreement. The
Company has full power and authority to enter into this Agreement and each of
the Documents. This Agreement has been, and each Document and the Bonds will be,
duly authorized, executed and delivered by the Company. The Company's execution,
delivery and performance of this Agreement, the Bonds and each Document will not
violate (i) any law, rule or regulation applicable to the Company or any of its
subsidiaries or (ii) the Certificate of Incorporation or Bylaws of the Company
or any of its subsidiaries or (iii) any provision of any indenture, mortgage,
agreement, contract or other instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
any of their properties or assets is bound as of the date hereof, or result in a
breach of or constitute (upon notice or lapse of time or both) a default under
any such indenture, mortgage, agreement, contract or other instrument or result
in the creation or imposition of any lien, security interest, mortgage, pledge,
charge or other encumbrance upon any properties or assets of the Company or any
of its subsidiaries, except, in the case of such clause (iii), where such
violation, breach or default would not have a material adverse effect on the
business, properties, prospects, condition (financial or otherwise), net worth
or results of operations of the Company and its subsidiaries taken as a whole (a
"Material Adverse Effect"). Upon their execution and delivery (assuming the
valid execution thereof by the respective parties thereto other than the
Company), this Agreement, the Documents and the Bonds will constitute valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
4.4. Issuance, Sale and Delivery of the Bonds, Series D Preferred Stock
and Common Stock. When executed and delivered by the Company, the Bonds, Series
D Preferred Stock and Common Stock will constitute valid and legally binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as enforceability may be limited by
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applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' and contracting parties rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding at equity or at law).
Upon issuance, the Series D Preferred Stock, Warrants and Underlying Common
Stock will be duly authorized and validly issued and, upon payment therefor,
will be non-assessable.
4.5. Litigation. There is no action, suit or proceeding before or by
any court or governmental agency or body, domestic or foreign, now pending, or,
to the knowledge of the Company, threatened against or affecting the Company or
any of its subsidiaries which might result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries, taken as a whole, or
which might materially and adversely affect their property or assets or which
might materially and adversely affect the consummation of this Agreement and the
other Documents. All pending legal or governmental proceedings to which the
Company or any of its subsidiaries is a party or of which any of their property
or assets is the subject, including ordinary routine litigation incidental to
the business, are, considered in the aggregate, not material to the business of
the Company and its subsidiaries.
4.6. Exchange Act Reports; No Material Misstatement or Omission. The
Company has timely filed all periodic reports required to be filed under the
Securities Exchange Act of 1934 ("Exchange Act Reports"). As of their respective
dates, the Company's Exchange Act Reports do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
4.7. No Material Change. Save as disclosed in the Company's Exchange
Act Reports, the Company has not incurred any material liabilities or
obligations, direct or contingent, nor has the Company or any of its
subsidiaries purchased any of their outstanding capital stock, nor paid or
declared any dividends or other distributions on their capital stock; and there
has been no change in the capital stock or, consolidated long-term debt or, any
increase in the consolidated short-term borrowings (other than in the ordinary
course of business) of the Company or any material adverse change to the
business, properties, assets, net worth, condition (financial or other), results
of operations or prospects of the Company and its subsidiaries, taken as a
whole.
4.8. Legal Opinion. Prior to closing, Xxxxxx & Xxxxxx, counsel to the
Company, will deliver its legal opinion to the Company in the form of Appendix
II hereto and stating that each of the Purchasers may rely thereon as though
such opinion were addressed directly to such Purchaser.
4.9. Issuance of Units. The Company shall, within seven (7) business
days of the Conversion Notification Date (as defined in the Form of Convertible
Bond), issue to each converting Purchaser a certificate or certificates
representing the number of securities comprising the Units to which such
Purchaser is entitled which certificates shall be legended as provided in the
Form of Convertible Bond. The Company shall issue its Common Stock upon exercise
of the Warrants in accordance with the terms of the Warrant Agreement which
shall be legended as provided therein. After the Registration Statement (as
defined in the Registration Rights
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Agreement) is declared effective by the Securities and Exchange Commission, if
any holder of Underlying Common Stock shall deliver to the Company 's transfer
agent (i) the certificate representing such Underlying Common Stock and (ii) a
letter of representations to the effect of Sections 5(b) and (c) herein, then
the Company's transfer agent shall within 3 business days after receipt of the
foregoing issue new Underlying Common Stock in exchange for the aforementioned
legended Underlying Common Stock which new Underlying Common Stock shall be
legended as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SHARES MAY BE SOLD PURSUANT TO THE REGISTRATION STATEMENT
PROVIDED THAT THE HOLDER COMPLIES WITH THE PROSPECTUS DELIVERY
REQUIREMENTS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
THE SALE IS IN COMPLIANCE WITH THE PLAN OF DISTRIBUTION SET
FORTH IN THE PROSPECTUS.
4.10. Certificate. The Company shall deliver a certificate of the
Company executed by the Chairman of the Board or President and the chief
financial or accounting officer of the Company, to be dated the Closing Date, in
form and substance satisfactory to the Purchasers to the effect that the
representations and warranties of the Company set forth in this Section 4 are
true and correct as of the date of this Agreement and as of the Closing Date and
the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied on or prior to such Closing
Date.
5. Representations, Warranties and Covenants of the Purchaser. (a) Each
Purchaser represents and warrants to, and covenants with, the Company that: (i)
the Purchaser is know-ledgeable, sophisticated and experienced in making, and is
qualified to make, decisions with respect to investments presenting an
investment decision like that involved in the purchase of the Bonds, including
investments in securities issued by the Company, and has requested, received,
reviewed and considered all information it deems relevant in making an informed
decision to purchase the Bonds; (ii) the Purchaser is acquiring the Bonds set
forth in Section 2 above in the ordinary course of its business and for its own
account for investment (as defined for purposes of the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvement Act of 1976 and the regulations thereunder) only and with
no present intention of distributing any of such Bonds, Units, Series D
Preferred Stock, Warrants or Underlying Common Stock or any arrangement or
understanding with any other persons regarding the distribution or purchase of
such Bonds, Units, Series D Preferred Stock, Warrants or Underlying Common
Stock; (iii) the Purchaser will not, directly or indirectly, offer, sell,
pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase
or otherwise acquire or take a pledge of) any of the Bonds, Units, Series D
Preferred Stock, Warrants or Underlying Common Stock except in compliance with
the Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations promulgated thereunder and the Exchange Act, and the rules and
regulations promulgated thereunder, and the terms and conditions of this
Agreement; (iv) the Purchaser has, in connection with its decision to purchase
the principal amount of Bonds set forth in Section 2 above, relied solely upon
the representations and warranties of the Company contained in writing herein,
and has not relied upon any other statements, representations,
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warranties, covenants or assurances of the Company, (v) the Purchaser is an
"accredited investor" within the meaning of Rule 501 of Regulation D promulgated
under the Securities Act ("Regulation D"); and (vi) the Purchaser understands
that the Bonds and the Series D Preferred Stock and, except as provided in
Section 4.9 hereof, the Warrants and the Underlying Common Stock will contain a
legend to the following effect (provided that certificates for the Bonds,
Warrants and Series D Preferred Stock shall omit the last sentence thereof):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF EITHER AN
EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. THESE
SECURITIES ARE SUBJECT TO CERTAIN REGISTRATION RIGHTS AS SET
FORTH IN A REGISTRATION RIGHTS AGREEMENT A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY.
(b) Each Purchaser hereby covenants with the Company that it will not
directly or indirectly make any offer, sale, pledge, transfer or other
disposition of the Bonds, the Units, the Series D Preferred Stock, the Warrants
or the Underlying Common Stock other than in accordance with all applicable
federal and state securities laws and the terms and conditions of this
Agreement, including, but not limited to, the other representations, warranties
and covenants of the Purchaser in this Section 5.
(c) Each Purchaser hereby covenants with the Company not to make any
public sale of the Underlying Common Stock without effectively causing any
applicable prospectus delivery requirement under the Securities Act to be
satisfied, and the Purchaser acknowledges and agrees that the Underlying Common
Stock is not transferable on the books of the Company unless the certificate
submitted to the transfer agent evidencing the Underlying Common Stock is
accompanied by a separate officer's certificate: (i) in the form of Appendix I
hereto, (ii) executed by an officer of, or other authorized person designated
by, the Purchaser, and (iii) to the effect that (A) the Underlying Common Stock
has been sold in accordance with a Registration Statement and (B) the
requirement of delivering a current prospectus has been satisfied or does not
apply.
(d) Each Purchaser further represents and warrants to, and covenants
with, the Company that (i) the Purchaser has full right, power, authority and
capacity to enter into this Agreement and to consummate the transactions
contemplated hereby and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement, and (ii) upon the
execution and delivery of this Agreement, this Agreement shall constitute a
valid and binding obligation of the Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' and
contracting parties' rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
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(e) Each Purchaser acknowledges that it has had such access to
financial and other information concerning the Company, the Bonds, the Units,
the Series D Preferred Stock and the Warrants as it deemed necessary in
connection with its decision to purchase same, including an opportunity to ask
questions and request information from the Company and its management, and all
such questions have been answered and all information requested has been
provided to the satisfaction of the Purchaser.
(f) If a Purchaser proposes to sell, pledge, assign or otherwise
transfer or convey, directly or indirectly, any of the Bonds, the Units, Series
D Preferred Stock, the Warrants or the Underlying Common Stock prior to the date
that the Registration Statement becomes effective, then the Purchaser shall
provide the Company, prior to the sale of any such Bonds, Units, Series D
Preferred Stock, the Warrants or the Underlying Common Stock, with a legal
opinion in form and substance satisfactory to the Company that such sale,
pledge, assignment, transfer or conveyance is exempt from the registration
requirements under the Securities Act and any applicable state securities and
blue sky laws.
6. Survival of Representations, Warranties and Agreements.
Notwithstanding any representation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Purchasers in writing herein and in the closing certificates delivered
pursuant hereto shall survive the execution of this Agreement, the delivery to
the Purchasers of the Bonds being purchased and the payment therefor.
7. Purchasers' Expenses. The Company shall, within 30 days after the
Closing, reimburse to each Purchaser such Purchaser's reasonable expenses
(including counsel fees) incident to purchase of the Bonds, negotiation of the
terms thereof and review of the Bond instruments and related documents.
8. Broker's Fee. Each of the parties hereto hereby represents that, on
the basis of any actions and agreements by it, there are no brokers or finders
entitled to compensation in connection with the sale of the Bonds, the Units,
the Series D Preferred Stock and the Warrants to the Purchasers.
9. Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be by telecopier with the original being
forwarded by a nationally recognized overnight express courier, shall be deemed
given when receipt is acknowledged by transmit confirmation report and shall be
addressed as set forth at the head of this Agreement or to such other address as
may hereafter be furnished in writing.
10. Changes. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and each Purchaser.
11. Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement.
12. Severability. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining
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provisions contained herein shall not in any way be affected or impaired
thereby.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania (without reference
to its rules as to conflicts of law) and the federal law of the United States of
America.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties. Facsimile signatures are considered to be
originals and shall have the same effect.
15. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
[Signatures on next page]
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IN WITNESS WHEREOF, the Purchasers and the Company have caused this
Agreement to be executed by their duly authorized representatives as of the day
and year first above written.
PURCHASERS:
XXXXX PARTNERS III, L.P.
By: Claudius, L.L.C.
Its General Partner
By: ______________________
Xxxxx X. Xxxxxx
Senior Managing Member
XXXXX PARTNERS INTERNATIONAL III, L.P.
By: Claudius, L.L.C.
Its General Partner
By: ______________________
Xxxxx X. Xxxxxx
Senior Managing Member
XXXXX EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc.
Its General Partner
By: ______________________
Xxxxx X. Xxxxxx
President
MED-TEC INVESTORS, LLC
By: ______________________
COMPANY:
DERMA SCIENCES, INC.
By: ______________________
Xxxxxxx X. Xxxxx, CPA, MST.
Vice President and Chief Financial Officer
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APPPENDIX I
PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE
The below named institution, by the undersigned duly authorized, hereby
certifies that:
1. It is the purchaser of the shares evidenced by the attached
certificate;
2. It sold such shares on _______________________ in accordance with
the registration statement dated _______________________ and numbered
_______________________; and
3. The requirement of delivering a current prospectus and current
annual and quarterly reports of the Company has been complied with in connection
with such sale.
Name of Institution:
_____________________________________________
Name of Individual representing Institution:
_____________________________________________
Title of Individual representing Institution:
_____________________________________________
Signature:
_____________________________________________
APPENDIX II
[XXXXXX & XXXXXX LETTERHEAD]
December , 1999
Board of Directors
Derma Sciences, Inc.
000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Re: Offer and Sale of Convertible Bonds
Members of the Board:
We are counsel to Derma Sciences, Inc. (the "Company") in connection with the
offer and sale of those certain convertible bonds due December 31, 2000 in the
aggregate principal amount of $750,000 (the "Bonds"). We have examined the
originals, or certified, conformed or reproduction copies, of all records,
agreements, instruments and documents relative to the Bonds as we have deemed
relevant or necessary as the basis for the opinion hereinafter expressed. Our
examination included review of the purchase agreement, convertible bonds,
security agreement, form of preferred stock certificate, form of certificate of
preferences and rights of Series D Convertible Preferred Stock, form of warrant
agreement, registration rights agreement, consents of preferred stockholders and
certificate of compliance ("Document(s)"). In all such examinations, we have
assumed the genuineness of all signatures on original or certified copies and
the conformity to original or certified copies of all copies submitted to us as
conformed or reproduction copies. As to various questions of fact relevant to
our opinion, we have relied upon, and assumed the accuracy of, certificates and
oral or written statements and other information of or from public officials,
officers or representatives of the Company and others.
Based upon the foregoing, we are of opinion as follows:
1. The Company and its subsidiaries are corporations duly organized,
validly existing and in good standing under the laws of their jurisdictions of
incorporation and have all requisite corporate power and authority to conduct
their business as currently conducted.
2. As of the date hereof, the authorized capital stock of the Company
consists of: (a) 30,000,000 shares of Common Stock of which 1,325,938 shares are
outstanding, (b) 1,750,000 shares of Series A Convertible Preferred Stock of
which 272,500 shares are outstanding, (c)
Board of Directors
December , 1999
Page 2
3,333,340 shares of Series B Convertible Preferred Stock of which 666,668 shares
are outstanding, (d) 6,666,660 shares of undesignated preferred stock of which
none are outstanding and (e) $875 aggregate principal amount of convertible
bonds due August 15, 2000.
3. Each of the Documents, upon their execution and delivery (assuming
the valid execution thereof by the respective parties thereto other than the
Company), will constitute valid and binding obligations of the Company,
enforceable in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
Upon payment therefor, the Bonds, together with all securities into which the
Bonds may be converted, will be validly issued and nonassessable.
4. The Company has full corporate power and authority to enter into
each Document. Each Document has been duly authorized, executed and delivered by
the Company. The Company's execution, delivery and performance under each
Document will not violate (i) any statute, rule or regulation applicable to the
Company or its subsidiaries, (ii) to the best of our knowledge, any order,
judgment, ruling or decree of any court or any governmental, regulatory or
administrative body applicable to the Company or any of its subsidiaries, (iii)
the Articles of Incorporation or Bylaws of the Company, or (iv) to our
knowledge, any provision of any indenture, mortgage, agreement, contract or
other instrument to which the Company or any of its subsidiaries is bound or
constitute (upon notice or lapse of time or both) a default under any thereof,
or result in the creation or imposition of any lien, security interest,
mortgage, pledge, charge or other encumbrance upon any properties or assets of
the Company or any of its subsidiaries, except in the case of the foregoing
clauses (i), (ii) and (iv) for those violations, breaches or defaults which
would not, singly or in the aggregate, have a material adverse effect upon the
Company's operations, prospects or financial condition ("Material Adverse
Effect").
5. To our knowledge (without independent investigation), there is no
action, suit or proceeding before or by any court or governmental agency or
body, domestic or foreign, now pending, or threatened, against or affecting the
Company or any of its subsidiaries which might, singly or in the aggregate, have
a Material Adverse Effect, or which might materially and adversely affect the
consummation of the Documents; to our knowledge (without independent
investigation) all pending legal or governmental proceedings to which the
Company or any of its subsidiaries is a party or of which any of their property
or assets is the subject, including ordinary routine litigation incidental to
the business, are, considered in the aggregate, not material to the business of
the Company and its subsidiaries.
6. Except for compliance with Rule 506 of Regulation D under the
Securities Act of 1933 and applicable state securities laws in connection with
the offer and sale of the Bonds, and except
Board of Directors
December , 1999
Page 3
for compliance with applicable federal and state securities laws in connection
with the resale by purchasers of the Bonds of the Underlying Common Stock (as
defined in the Bonds), no consent, approval, authorization, order, registration,
filing, qualification, license or permit of or with any court or any public,
governmental, or regulatory agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their respective properties or assets is
required for the execution, delivery and performance under the Documents or the
consummation of the transactions contemplated hereby.
_________________
We hereby authorize the Purchasers to rely upon this opinion as if it were
addressed individually to each Purchaser.
Very truly yours,
XXXXXX & XXXXXX
Xxxxxxx X. Xxxxxx, Xx.
RCH:JMH
