PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made this 16th day of August,
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, Xxxxxxxxx & Xxxxx California, LLC, a California limited liability
company with offices at Xxx Xxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx 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 $800,000 aggregate principal amount of the Company's Convertible Bonds
due August 15, 2000 (the "Bonds"). The Bonds shall provide, and shall be in the
form described below:
1.1. Provisions and Form. The Bonds shall pay interest and principal, 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 C Convertible Preferred Stock, par value $.01 per share,
("Series C 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 C Preferred Stock are set
forth in the Form of Preferred Stock Certificate and Form of Certificate of
Preferences and Rights of Series C 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 C 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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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. $365,426.00
Xxxxx Parnters International III, L.P. $33,077.00
Xxxxx Employee Fund III, L.P. $1,497.00
Xxxxxxxxx & Xxxxx California, LLC $300,000.00
Med-Tec Investors, LLC $100,000.00
2.2. Documents. This Agreement and the agreements executed by the Company,
its subsidiaries and the Purchasers pursuant hereto 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 C 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 August 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 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 seven days of the first Closing for
such series.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company
hereby represents and warrants to, and covenants with, each Purchaser as
follows:
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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. Authorized Capital Stock. 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)
3,333,340 shares of Series B Convertible Preferred Stock of which 666,668 are
outstanding and 6,666,660 shares of undesignated preferred stock of which none
are outstanding.
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 C Preferred Stock and
Common Stock. When executed and delivered by the Company, the Bonds, Series C
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 applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' and
contracting parties rights generally and except as enforceability may be subject
to general
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principles of equity (regardless of whether such enforceability is
considered in a proceeding at equity or at law). Upon issuance, the Series C
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 and on Schedule 4.7 attached hereto, 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 three (3) 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 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
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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 knowledgeable, 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 principal
amount of 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 C 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 C 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 C 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, 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
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Securities Act ("Regulation D"); and (vi) the
Purchaser understands that the Bonds and the Series C 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 Series C 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 C 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 C
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 C
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 C
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 C 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 provisions contained herein shall not in any way
be affected or impaired thereby.
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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: ___________________________
XXXXX PARTNERS INTERNATIONAL III, L.P.
By: ___________________________
XXXXX EMPLOYEE FUND III, L.P.
By: ___________________________
XXXXXXXXX & XXXXX CALIFORNIA, LLC
By: ___________________________
MED-TEC INVESTORS, LLC
By: ___________________________
COMPANY:
DERMA SCIENCES, INC.
By: ___________________________
Xxxxxx X. Xxxxxx, Chairman and
Chief Executive Officer
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SCHEDULE 4.7
1. SECOND QUARTER, 1999 OPERATING LOSS
The Company experienced an operating loss of approximately $1,050,000 in
the second quarter, 1999. Approximately $250,000 of this loss was attributable
to the closing of the Company's St. Xxxx, Minnesota, facility and to other
restructuring charges.
2. CONTINUED LOSSES LIKELY
The Company anticipates that it will continue to experience significant
losses through the third quarter, 1999. The Company believes that its operating
losses will narrow appreciably in the fourth quarter, 1999 and that the Company
may achieve break-even operations during this quarter. However, the Company
cannot offer any assurances as to whether, or the extent to which, its operating
results will improve.
APPENDIX 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]
August 16, 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 August 15, 2000 in the
aggregate principal amount of $800,000 (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 C 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) 3,333,340 shares
Board of Directors
August 16, 1999
Page 2
of Series B Convertible Preferred Stock of which 666,668 shares are outstanding
and 6,666,660 shares of undesignated preferred stock of which none are
outstanding.
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 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
Board of Directors
August 16, 1999
Page 3
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
