<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
/X/ Filed by the Registrant
/ / Filed by a Party Other than the Registrant
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule
14a-12
</TABLE>
<TABLE>
<S> <C>
HELPMATE ROBOTICS INC.
- ------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- ------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/ / No Fee Required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
14,372,152
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
$12,500,000
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$12,500,000
----------------------------------------------------------
(5) Total fee paid:
$2,500
----------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</TABLE>
<PAGE>
HELPMATE ROBOTICS INC.
22 SHELTER ROCK LANE
DANBURY, CONNECTICUT 06810
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 30, 1999
------------------------
A Special Meeting of Stockholders (the "SPECIAL MEETING") of HelpMate
Robotics Inc. (the "COMPANY") will be held on Thursday, December 30, 1999 at
10:00 a.m., at the offices of the Company, 22 Shelter Rock Lane, Danbury,
Connecticut 06810 for the following purposes:
1. To consider and vote upon a proposal to approve the sale for cash
(the "PROPOSED SALE") to Pyxis Corporation (the "BUYER") of substantially
all of the assets and the assumption by the Buyer of specified liabilities
of the Company pursuant to the Asset Purchase Agreement between the Company
and the Buyer dated as of October 14, 1999, the text of which (other than
schedules and exhibits) is attached as Appendix A to the accompanying proxy
statement; and
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The proposal to be acted upon at the meeting is further described in detail
in the attached Proxy Statement. Only stockholders of record at the close of
business on November 16, 1999 (the "RECORD DATE") will be entitled to notice of
and to vote at the meeting and any adjournments or postponement thereof.
If your shares are held of record by a broker, bank or other nominee and you
wish to attend the meeting, you must obtain a letter from the broker, bank or
other nominee confirming your beneficial ownership of the shares and bring it to
the meeting. In order to vote your shares at the meeting, you must obtain from
the record holder a proxy issued in your name.
IMPORTANT: WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, IT IS IMPORTANT
THAT YOUR SHARES BE REPRESENTED, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD.
ACCORDINGLY, YOU ARE ENCOURAGED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
IN THE REPLY ENVELOPE PROVIDED AS SOON AS POSSIBLE. THANK YOU FOR ACTING
PROMPTLY.
BY ORDER OF THE BOARD OF DIRECTORS,
PRUDENCE SHEPARD, ASSISTANT SECRETARY
DANBURY, CONNECTICUT
DECEMBER 19, 1999
<PAGE>
HELPMATE ROBOTICS INC.
22 SHELTER ROCK LANE
DANBURY, CONNECTICUT 06810
(203) 798-8988
PROXY STATEMENT
QUESTIONS AND ANSWERS ABOUT THE PROPOSED SALE
Q: When and where is the Special Meeting?
A: The Special Meeting will take place on Thursday, December 30, 1999, at
10:00 a.m., at the offices of the Company, 22 Shelter Rock Lane, Danbury,
Connecticut 06810.
Q: What proposal will I be voting on at the Special Meeting?
A: You will be asked to consider a proposal to approve the sale for cash (the
"PROPOSED SALE") to Pyxis Corporation (the "BUYER") of substantially all of
the assets and the assumption by the Buyer of certain specified liabilities
of the Company. Specifically, you will be asked to approve the Asset
Purchase Agreement (the "SALE AGREEMENT") between the Company and the Buyer
dated as of October 14, 1999, the full text of which (other than exhibits or
schedules) is attached as Appendix A to this proxy statement.
Q: Why is your Board of Directors recommending the Proposed Sale?
A: The Board of Directors has determined that the terms of the Proposed Sale are
in the best interests of the stockholders of the Company. In reaching this
conclusion, the Board considered a number of factors, including:
- the amount and nature of the consideration to be received by the Company;
- the financial results of the Company since 1996 and the prospects for the
Company's historical business;
- the Company's working capital and liquidity problems and its inability to
obtain working capital financing from other sources;
- the terms of the Proposed Sale and its effect on the Company's
stockholders;
- the absence of any better offer;
- the current and historical stock prices of the Company's Common Stock; and
- the proposed business plan and opportunities for the Company after the
Proposed Sale.
To review the background and reasons for the Proposed Sale in greater
detail, see "BACKGROUND OF THE PROPOSED SALE" and "REASONS FOR THE PROPOSED
SALE; RECOMMENDATION OF THE BOARD OF DIRECTORS." As a condition to its
execution of the Sale Agreement, the Buyer required that the Company's
Chairman, Joseph F. Engelberger, agree not to compete with the Buyer's
business for a period of five years, and to provide up to 246 days of
consulting services to the Buyer over a three year period. As payment for
the consulting services, Mr. Engelberger would receive up to $246,000 in
consulting fees during the three year consulting period. In negotiating the
terms of this consulting agreement, Mr. Engelberger might be deemed to have
had interests which conflicted with those of the other stockholders. See
"CONFLICTS OF INTEREST OF MR. ENGELBERGER."
Q: How will the Company pay for the costs and expenses associated with the
Proposed Sale?
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A: To the extent not paid prior to the closing of the Proposed Sale, the Company
will pay all of the costs and expenses associated with the Proposed Sale,
and certain other liabilities, including payments to certain third parties,
from the proceeds of the Proposed Sale.
Q: Will I receive any payment as a result of the Proposed Sale?
A: The Company's Board of Directors has voted to make a distribution (the
"INITIAL DISTRIBUTION") to the Company's stockholders of record as of the
Distribution Record Date described herein in the aggregate amount of
$9,800,000 from the Proposed Sale proceeds received by the Company at the
Closing. In the likely event that certain outstanding options and warrants
are exercised, the amount of this Initial Distribution would be $0.58 per
share. It is expected that the Initial Distribution will be made during the
first quarter of fiscal 2000. In the event that the closing of the Proposed
Sale does not occur until the year 2000, however, the Initial Distribution
will be postponed until January 2001. See "MATERIAL FEDERAL TAX
CONSEQUENCES." The Company's Chairman also has the authority to reduce the
Initial Distribution under certain circumstances.
Q: Can I still sell my Shares?
A: Neither the Proposed Sale nor the Sale Agreement will affect your right to
sell or otherwise transfer your Shares of the Company's Common Stock. In
connection with voting support agreements entered into with the Buyer,
Mr. Engelberger, and Connecticut Innovations, Incorporated, a shareholder of
the Company, have agreed to restrictions on the transfer of their shares
prior to the time they vote on the Proposed Sale or the transaction is
terminated. See "THE SALE AGREEMENT: VOTING SUPPORT AGREEMENTS."
Q: What is the required vote to approve the Proposed Sale?
A: The affirmative vote of the holders of a majority of the outstanding Shares
of Common Stock is required to approve the Proposed Sale.
Q: If I sign and return the proxy without completing it, will that be considered
a "yes" or "no" vote?
A: If a proxy is executed and returned without instructions as to how it is to
be voted, such proxy will be voted FOR the approval of the Proposed Sale.
Q: What if I want to change my vote?
A: To change your vote, just send in a later-dated, completed and signed proxy
card before the Special Meeting or attend the Special Meeting in person and
vote.
Q: If my Shares are held in "street name" by my broker, will my broker vote my
Shares for me?
A: Your broker will vote your Shares ONLY if you instruct your broker how to
vote. Your broker should mail information to you that will explain how to
give instructions to your broker.
Q: Will I owe any federal income tax as a result of the Proposed Sale?
A: Although you would not owe any federal income tax as a result of the Proposed
Sale, under certain circumstances you may be required to pay federal income
taxes on amounts distributed by the Company after the closing of the
Proposed Sale. You should contact your own tax advisor regarding the
federal, state and local tax consequences of your receipt of these
distributed amounts. See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES."
Q: When do you expect the Proposed Sale to be completed?
A: The Company and the Buyer are working toward completing the Proposed Sale as
quickly as possible, with the goal of closing on the Proposed Sale on the
same date that the Special Meeting is held, or as soon as possible
thereafter.
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Q: Will I have dissenters' rights?
A: Under Connecticut law, Stockholders who do not vote in favor of the Proposed
Sale may be entitled to exercise their dissenters' rights to obtain payment
of the fair value of their Shares in the event the Proposed Sale is
consummated. The fair value of the Shares, however, would be determined
excluding any appreciation or depreciation in value in anticipation of the
Proposed Sale and would be in lieu of any other distribution described in
this Proxy Statement and any other benefit of continuing ownership of the
Shares. Failure to comply with the statutory procedures in the exercise of
dissenters' rights will nullify such rights. See "THE PROPOSED
SALE--DISSENTERS' RIGHTS."
Q: What will happen to the Company after the Proposed Sale?
A: As a result of the Proposed Sale, substantially all of the Company's assets
will be sold to, and certain of its liabilities will be assigned to and
assumed by, the Buyer. After the Proposed Sale, the Company's objective will
then be to serve as a vehicle to effect a business combination, whether by
merger, exchange of capital stock, acquisition of assets or similar
transaction, with, or into, an operating company that the management and the
Board of Directors believe has potential to increase stockholder value. The
Company may at any time cease to pursue this business objective, and may
consider other alternatives, including recommending the dissolution of the
Company to its stockholders.
Q: Will I be able to vote separately on the change in the nature of the
Company's business?
A: You will not have an opportunity to vote separately on the Proposed Sale and
the change in the nature of the business of the Company. Consequently, a
vote in favor of the approval of the Proposed Sale will constitute a vote in
favor of changing the nature of the business of the Company.
Q: What do I need to do now?
A: Please complete and mail your signed proxy card in the enclosed return
envelope as soon as possible, so that your Shares may be represented at the
Special Meeting. In addition, you may attend and vote at the Special Meeting
in person, whether or not you have completed, signed and mailed your proxy
card.
Q: Whom should I call with questions?
A: If you have any questions about the Proposed Sale or this Proxy Statement,
please call Joseph F. Engelberger, the Company's Chairman, at 203-798-8988.
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<PAGE>
INFORMATION ABOUT THE MEETING
INTRODUCTION
This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors (the "BOARD") of HelpMate
Robotics Inc., a Connecticut corporation (the "COMPANY"). Proxies are being
solicited for use at a Special Meeting of Stockholders (the "SPECIAL MEETING")
to be held at 10:00 a.m., local time, on Thursday, December 30, 1999, at the
offices of the Company, 22 Shelter Rock Lane, Danbury, Connecticut 06810, and
for all adjournments and postponements thereof.
The purpose of the Special Meeting is to consider a proposal to approve the
sale for cash (the "PROPOSED SALE") to Pyxis Corporation (the "BUYER") of
substantially all of the assets and the assumption by Buyer of specified
liabilities of the Company. Specifically, you will be asked to approve the Asset
Purchase Agreement between the Company and the Buyer dated as of October 14,
1999, the full text of which (other than schedules and exhibits) is attached as
Appendix A to this proxy statement.
Only holders of record (the "STOCKHOLDERS") of shares ("SHARES") of the
Company's Common Stock, no par value per share (the "COMMON STOCK") as of the
close of business on November 16, 1999, the record date for the Special Meeting
(the "RECORD DATE"), will be entitled to notice of and to vote at the Special
Meeting. At the close of business on the Record Date, 14,372,152 shares of the
Company's Common Stock were outstanding and entitled to vote at the Special
Meeting. Each share of Common Stock is entitled to one vote.
The Notice of Special Meeting, this proxy statement, and the accompanying
proxy are first being mailed on or about December 20, 1999 to Stockholders of
record as of the close of business on the Record Date.
You can ensure that your Shares are voted at the Special Meeting by signing,
dating and promptly returning the enclosed proxy in the envelope provided.
Sending in a signed proxy will not affect your right to attend the meeting and
vote in person. You may revoke your proxy at any time before it is voted by
notifying the Company's Transfer Agent, American Stock Transfer & Trust Company,
40 Wall Street, New York, New York 10005 in writing or by executing a subsequent
proxy, which revokes any previously executed proxy or by voting in person at the
meeting.
The Company's principal executive offices are located at 22 Shelter Rock
Lane, Danbury, Connecticut, 06810.
INFORMATION CONCERNING SOLICITATION AND VOTING
VOTE REQUIRED. An affirmative vote of the holders of at least a majority of
the outstanding Shares of Common Stock entitled to vote will be required to
approve the Proposed Sale.
QUORUM. In order to constitute a quorum for the conduct of business at the
Special Meeting, a majority of the outstanding shares of Common Stock entitled
to vote at the Special Meeting must be represented at the Special Meeting. If a
Share is represented for any purpose at the Special Meeting, it is deemed to be
present for all other matters. Shares represented by proxies that reflect
abstentions or broker non-votes will be counted as Shares that are present and
entitled to vote for purposes of determining the presence of a quorum.
VOTING OF PROXIES. Stockholders are encouraged to specify the way they wish
to vote their shares by marking the appropriate boxes on the enclosed proxy. All
Shares represented by each properly executed, unrevoked proxy received in time
for the Special Meeting will be voted in the manner specified therein.
Abstentions and broker non-votes are not treated as votes cast at the Special
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Meeting. If the manner of voting with respect to the Proposed Sale is not
specified in an executed proxy received by the Company, the proxy will be voted
FOR approval of the Proposed Sale.
Sending in a signed proxy will not affect a Stockholder's right to attend
the meeting and vote in person. Any Stockholder giving a proxy in the form
accompanying this proxy statement has the power to revoke the proxy prior to its
exercise. A proxy may be revoked at any time before it is exercised by the
Stockholder's delivery of a written instrument of revocation to the Company's
Transfer Agent, American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York 10005. A Stockholder may also revoke the proxy by presenting at
the Special Meeting a duly executed proxy bearing a later date or time than the
date or time of the proxy being revoked. Finally, a proxy may be revoked if the
Stockholder is present at the Special Meeting and elects to vote in person. Mere
attendance at the Special Meeting will not serve to revoke a proxy.
EXPENSES. The expense of soliciting proxies will be borne by the Company.
The solicitation will be by mail. Expenses include reimbursement paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Special Meeting to beneficial owners of the
Company's Common Stock. Further solicitation of proxies may be made by telephone
or oral communication with Stockholders by directors, officers and other
employees of the Company who will not receive additional compensation for the
solicitation.
The Board does not intend to present any matters for a vote at the meeting
except for proposal to approve the Proposed Sale described in this Proxy
Statement. The persons named in the proxy will, however, have discretionary
voting authority regarding any other business that may properly come before the
Special Meeting.
RISK FACTORS
The purchase price payable to the Company is subject to a potentially
unlimited downward adjustment as provided in the Sale Agreement. Moreover, in
the event of the closing of the Proposed Sale, the Company after the Proposed
Sale ("POST-SALE HRI") will serve as a vehicle to effect business combinations.
See "BUSINESS OF THE COMPANY AFTER THE PROPOSED SALE." The Stockholders of the
Company will not have the right to vote separately on whether to change the
nature of Post-Sale HRI's business to an acquisition company. Consequently, the
following risk factors should be taken into consideration by each Stockholder in
determining whether to approve the Sale Agreement.
RISK OF SUBSTANTIAL REDUCTION IN OR ELIMINATION OF THE INITIAL
DISTRIBUTION. The Company's Board of Directors has voted to make an Initial
Distribution (as defined below) to the Company's stockholders of record as of
the Distribution Record Date (as defined below) in the amount of $9,800,000. The
Initial Distribution is more fully described in the Section entitled
"DISTRIBUTION TO THE COMPANY'S STOCKHOLDERS." Funding for the Initial
Distribution will come from the $11,250,000 Closing Date Payment to be made by
the Buyer as part of the Purchase Price. That payment, however, is subject to
the closing and post closing downward adjustments set forth in the Sale
Agreement. See "CLOSING ADJUSTMENTS" and "POST CLOSING ADJUSTMENTS." The Sale
Agreement does not provide for a limit on the amount of these downward
adjustments. See "THE PROPOSED SALE: UNLIMITED NATURE AND ESTIMATE OF CLOSING
AND POST CLOSING ADJUSTMENTS." Accordingly, if large enough, these downward
adjustments might leave the Company with insufficient cash to make the proposed
$9,800,000 Initial Distribution. Moreover, the Company's Chairman has the
authority to reduce or terminate the Initial Distribution in the event that,
prior to the date of the distribution, he determines the actual amount required
to satisfy these closing and post closing downward reductions and required
payments to Connecticut Innovations, expenses and taxes related to the Proposed
Sale, operating expenses through the date of the Initial Distribution, reserves
for the conduct of the Company business after the Closing, including amounts to
discharge liabilities retained by the Company after the Closing, exceeds the
Company's present estimate. See "DISTRIBUTION TO THE COMPANY'S STOCKHOLDERS:
PAYMENT OF THE INITIAL DISTRIBUTION TO HOLDERS
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OF COMMON STOCK." Accordingly, there can be no assurance that the Company will
make the Initial Distribution or that the amount of the Initial Distribution
would not be materially less than the Company's estimate. Moreover, a material
downward adjustment might also leave the Company with insufficient cash to carry
on its post-closing business plan. Because the Company's management believes
that such a downward adjustment of such magnitude is so remote, the Company's
management has made no specific plans as to what steps it would take in such
event.
NO OPERATING HISTORY. The Company will change the nature of its business if
the Sale Agreement is approved and the Proposed Sale is consummated. Post-Sale
HRI will have had no operating history in its new line of businesses, which is
yet to be determined. Accordingly, there can be no assurance that Post-Sale
HRI's future operations will generate operating or net income, and Post-Sale
HRI's prospects must therefore be considered in light of the risks, expenses,
problems and delays inherent in establishing a new business.
ACQUISITION RISKS. Post-Sale HRI's strategy is to pursue business
combinations with new operating businesses. The success of Post-Sale HRI will
depend almost entirely on the operations, financial condition and management of
the companies with which Post-Sale HRI may merge or which it may acquire.
Further, these acquisitions involve certain financial and operational risks.
Financial risks include the possible incurrence of indebtedness by Post-Sale HRI
in order to effect the acquisition and the consequent need to service that
indebtedness. Operational risks include the possibility that an acquisition does
not ultimately provide the benefits originally anticipated by management to
result from the business combination while Post-Sale HRI continues to incur
operating expenses to provide the services formerly provided by the acquired
company. In addition, if Post-Sale HRI makes a strategic investment by acquiring
a minority interest in a company, Post-Sale HRI would lack control over the
operations and strategy of the business in which Post-Sale HRI invested. There
can be no assurance that Post-Sale HRI will be successful in identifying new
operating businesses, completing and financing business combination transactions
on favorable terms, or operating the new operating business profitably. In
implementing its strategy, Post-Sale HRI will attempt to minimize the risk of
unexpected liabilities and contingencies associated with the new operating
businesses through planning, investigation and negotiation, but such unexpected
liabilities may nevertheless accompany such business combination transactions.
UNSPECIFIED BUSINESS RISKS. The Company has not identified the business
opportunities in which it will attempt to obtain an interest. The Company
therefore cannot describe the specific risks presented by such business. To the
extent that Post-Sale HRI effects a business combination with a financially
unstable company or an entity in its early stage of development or growth
(including entities without established records of revenues or income),
Post-Sale HRI will become subject to numerous risks inherent in the business and
operations of financially unstable and early stage or potential emerging growth
companies. In addition, to the extent that Post-Sale HRI effects a business
combination with an entity in an industry characterized by a high level of risk,
Post-Sale HRI will become subject to the currently unascertainable risks of that
industry. An extremely high level of risk frequently characterizes certain
industries which experience rapid growth. Although management will endeavor to
evaluate the risks inherent in a particular new operating business or industry,
there can be no assurance that it will properly ascertain or assess all such
risks. Such new operating business may involve an unproven product, technology
or marketing strategy, the ultimate success of which cannot be assured. The new
operating business may be in competition with larger, more established firms
over which it will have no competitive advantage. Post-Sale HRI's investment in
a business opportunity may be highly illiquid and could result in a total loss
to Post-Sale HRI if the opportunity is unsuccessful.
NEED FOR ADDITIONAL FINANCING. Post-Sale HRI may be required to raise cash
to consummate a business combination or to provide funds for an additional
infusion of capital into a new operating business. The amount and nature of any
borrowings by Post-Sale HRI will depend on numerous
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considerations, including Post-Sale HRI's capital requirements, Post-Sale HRI's
perceived ability to meet debt service on any such borrowings and the then
prevailing conditions in the financial markets, as well as general economic
conditions. If Post-Sale HRI is able to raise additional funds through the
incurrence of debt, and it does so, it would likely become subject to
restrictive financial covenants. Additionally, to the extent that debt financing
ultimately proves to be available, any borrowings may subject Post-Sale HRI to
various risks and restrictions traditionally associated with indebtedness,
including the risks of interest rate fluctuations and insufficiency of cash flow
to pay principal and interest. If additional funds are raised through the
issuance of equity securities, the percentage ownership of Post-Sale HRI's then
current stockholders, including the ownership interests represented by Common
Shares, would be reduced and, if such equity securities take the form of
preferred stock, the holders of such preferred stock may have rights,
preferences or privileges senior to those of holders of Common Shares. Post-Sale
HRI is not currently in discussions, nor has it had any discussions in regard to
obtaining any debt or equity financing. There can be no assurance that Post-Sale
HRI will be able to raise equity capital, obtain capital lease or bank financing
or incur other borrowings to fund any business combination or the working
capital and other capital requirements of a new operating business on terms
deemed to be commercially acceptable by and in the best interests of Post-Sale
HRI.
REGULATION. Post-Sale HRI will continue to be subject to regulation under
the Securities Act of 1933 and the Securities Exchange Act of 1934. Post-Sale
HRI does not intend to invest the net proceeds of the Proposed Sale in
investment securities or take any other action which would subject it to
regulation under the Investment Company Act of 1940 (the "1940 ACT"). There can
be no assurance, however, that, as a result of a business combination, the
Company would not become subject to, or be required to register under, the 1940
Act.
LIMITED MANAGEMENT RESOURCES AND EXPERIENCE. Prior to any such business
combination, Mr. Engelberger will administer the affairs of Post-Sale HRI
(including financial reporting matters, general administrative concerns and the
payment of retained liabilities) with the assistance of consultants hired on an
as needed basis. In order to supplement the business experience of management
and the directors, Post-Sale HRI may employ accountants, technical experts,
appraisers, attorneys or other consultants or advisors. The selection of any
such advisors will be made by Post-Sale HRI's management and directors.
Additionally, it is anticipated that such persons may be engaged by Post-Sale
HRI on an independent basis without a continuing fiduciary or other obligation
to Post-Sale HRI.
ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL. Post-Sale HRI's future success
may depend on its ability to attract and retain key management and other
personnel with expertise required in connection with the growth and development
of a new operating business. There can be no assurance that Post-Sale HRI will
be successful in attracting and retaining such executives and personnel. The
loss of the services of key personnel, or the inability to attract additional
qualified personnel, could have a material adverse effect on Post-Sale HRI's
results of operations, development efforts and ability to expand.
CONFLICTS OF INTEREST. Certain of the directors and officers of Post-Sale
HRI will be associated with other firms or occupations involving other business
activities. Because of the affiliations, there are potential inherent conflicts
of interest in their acting as directors and officers of Post-Sale HRI and of
other entities. Post-Sale HRI's directors and officers may be directors or
controlling stockholders of other entities engaged in a variety of businesses
which may in the future have various transactions with Post-Sale HRI. Additional
conflicts of interest and non-arm's length transactions may also arise in the
future in the event the officers or directors of Post-Sale HRI are involved in
the management of any firms with which Post-Sale HRI transacts business.
Post-Sale HRI may pay finder's fees or other fees to its post-Sale officers,
directors or affiliates in connection with any potential business combination
involving Post-Sale HRI.
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SCARCITY OF AND COMPETITION FOR BUSINESS COMBINATIONS. Post-Sale HRI will
be an insignificant participant in the business of seeking mergers with and
acquisitions of small private entities. Post-Sale HRI expects to encounter
intense competition from other entities having business objectives similar to
those of Post-Sale HRI. Many of these entities are well-established and have
extensive experience in identifying and effecting business combinations directly
or through affiliates. Many of these competitors possess greater financial,
technical, human and other resources than Post-Sale HRI and there can be no
assurance that Post-Sale HRI will have the ability to compete successfully.
Post-Sale HRI's financial resources will be limited in comparison to those of
many of its competitors. This inherent competitive limitation may compel
Post-Sale HRI to select certain less attractive business combination prospects.
There can be no assurance that Post-Sale HRI will be able to achieve its stated
business objectives.
NO AGREEMENT FOR BUSINESS COMBINATION OR OTHER TRANSACTION. The Company has
no current arrangement, agreement or understanding with respect to a business
combination transaction with any entity, private or public. There can be no
assurance Post-Sale HRI will be successful in identifying and evaluating
suitable new operating businesses and in concluding a business combination
transaction on terms favorable to Post-Sale HRI; or, if concluded, whether any
such business combination transaction will result in a financial return to its
stockholders.
POSSIBLE LACK OF DIVERSIFICATION. Post-Sale HRI may be unable to diversify
its business activities and, as a consequence, may suffer a total loss to
Post-Sale HRI and the stockholders should a business combination by Post-Sale
HRI prove to be unprofitable. Post-Sale HRI's failure or inability to diversify
its activities into a number of areas may subject Post-Sale HRI to economic
fluctuations within a particular business or industry and, therefore, increase
the risks associated with Post-Sale HRI's operations.
TAX CONSIDERATIONS. The Company expects that its remaining net loss carry
forwards will remain available for use by the Company following the Proposed
Sale. The Company received an assessment from the Internal Revenue Service in
connection with its unpaid payroll tax obligations. See "THE PROPOSED SALE:
BACKGROUND OF THE PROPOSED SALE." As part of the offer in compromise with the
IRS, the Company agreed to pay $100,067 to the IRS in full payment of the IRS
claims. In addition, the Company agreed reduce its net operating losses by
$2,710,432 which was the amount of the remaining portion of the assessment. The
Company had $17,390,142 of net operating losses after such reduction. However,
there are a number of potential restrictions under various provisions of the
Internal Revenue Code of 1986, as amended, including the time periods during
which the carry forwards may be used, that may apply to limit Post-Sale HRI's
(or any successor's) future utilization of the carry forwards, in the event of a
change in control of Post-Sale HRI. In general, under Internal Revenue Code
Section 382, a change in control occurs when the major shareholders of a
corporation with net operating losses increase their ownership of its stock by
more than fifty percentage points within a three year period ending on the day
of any ownership shift. If such a change in control occurs, the utilization of
the remaining net loss carry forwards would be limited. The amount of this
limitation if determined by taking the value of the stock of the corporation
multiplied by a "long-term tax exempt rate." The long-term tax exempt rate for
December 1999 is 5.72%. To finance a business combination, Post-Sale HRI may
have to raise equity from persons or entities not presently stockholders of the
Company, which could result in a change in control. There is no assurance that
Post-Sale HRI (or any Company successor) will receive future tax benefits from
such utilization.
As a general rule, federal and state tax laws and regulations have a
significant impact upon the structuring of business combinations. Post-Sale HRI
will evaluate the possible tax consequences of any prospective business
combination and will endeavor to structure the business combination so as to
achieve the most favorable tax treatment to Post-Sale HRI, the Acquired Business
and their respective stockholders. There can be no assurance, however, that the
Internal Revenue Service or appropriate state tax authorities will ultimately
assent to Post-Sale HRI's tax treatment of a consummated business
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combination. To the extent the IRS or state tax authorities ultimately prevail
in recharacterizing the tax treatment of a business combination, there may be
adverse tax consequences to Post-Sale HRI, the new operating business and the
respective stockholders.
LIMITED PUBLIC MARKET FOR COMMON SHARES. There can be no assurance that an
active trading market for Post-Sale HRI's Shares will be developed or
maintained. Historically, the market prices for securities of non-operating
companies in the business of seeking mergers with and acquisitions have been
highly volatile. The market price of the Shares could be subject to significant
fluctuations in response to various factors and events, including the liquidity
of the market for the Shares, announcements of potential business combinations,
and changes in general market conditions. Post-Sale HRI expects to continue to
file and be current in its Securities Exchange Act reporting requirements as it
pursues its business objective. Accordingly, the Company anticipates that its
Stock will continue to be quoted on the OTC Bulletin Board.
ISSUANCE OF ADDITIONAL SHARES. Generally, the Board of Directors has the
power to issue such shares without stockholder approval, except that stockholder
approval may be required under applicable law with respect to the approval of
transactions, such as a merger with a target company, in which securities of
Post-Sale HRI would be issued. Post-Sale HRI may issue Common Shares to raise
additional capital or to effect a merger or acquisition with a target
corporation. In order to effect a business combination, Post-Sale HRI may issue
securities to the stockholders of a new operating business. Any additional
issuance by Post-Sale HRI from its authorized but unissued shares would have the
effect of further reducing the percentage ownership of Post-Sale HRI's
stockholders and could result in stockholders of a target company obtaining a
controlling interest in Post-Sale HRI.The Company has no current arrangement,
agreement or understanding with respect to the sale or issuance of any
additional securities.
POSSIBLE ADVERSE EFFECT OF "PENNY STOCK" RULES IN LIQUIDITY FOR POST-SALE
HRI'S SECURITIES. Regulations of the Securities and Exchange Commission (the
"COMMISSION") define a "penny stock" to be any equity security that has a market
price (as therein defined) of less than $5.00 per share, subject to specific
exceptions set forth in the regulations. For any transaction involving a penny
stock, unless exempt, the rules require delivery prior to any transaction in a
penny stock, of a disclosure schedule prepared by the Commission relating to the
penny stock market. Disclosure is also required to be made about commissions
payable to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. The foregoing required
penny stock restrictions will not apply to Post-Sale HRI's securities if
(i) such securities are listed or approved for listing on a national securities
exchanges, (ii) have specified price and volume information provided on a
current and continuing basis, and (iii) the Post-Sale HRI meets certain minimum
net tangible assets or average revenue criteria. There can be no assurance that
the Company's securities will qualify for exemption from these restrictions.
In any event, even if Post-Sale HRI's securities were exempt from such
restrictions, it would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the Commission the authority to prohibit any person that is engaged
in unlawful conduct while participating in a distribution of a penny stock from
associating with a broker-dealer or participating in a distribution of a penny
stock, if the Commission finds that such a restriction would be in the public
interest.
If Post-Sale HRI's securities were subject to the rules on penny stocks, the
market liquidity for the Company's securities could be severely adversely
affected. In such event, the regulations on penny stocks could limit the ability
of broker-dealers to sell Post-Sale HRI's securities and thus the ability of
purchasers of Post-Sale HRI's securities to sell their securities in the
secondary market.
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RISKS OF LOW-PRICED STOCKS. Until such times as Post-Sale HRI's stock were
to be listed on a national securities exchange, it would be subject to Rule
15g-9 under the Exchange Act, which imposes additional sales practice
requirements on broker-dealers which sell such securities to persons other than
established customers and "accredited investors" (generally, individuals with
net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or
$300,000 together with their spouses). For transaction covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's 20 written consent to the transaction prior to
sale. Consequently, such rule may adversely affect the ability of broker-dealers
to sell Post-Sale HRI's securities and may adversely affect the ability of
purchasers of Post-Sale HRI's securities to sell in the secondary market any of
the securities acquired hereby.
POSSIBLE ADVERSE EFFECT OF RULES AFFECTING "BLANK CHECK COMPANIES" ON FUTURE
ISSUANCES OF POST-SALE HRI SECURITIES. Under the securities laws of many states,
Post-Sale HRI may be considered a "blank check company", that is a development
stage or similar company that has no specific business plan or purpose or has
indicated that its business plan is to engage in a merger or acquisition with an
unidentified company or companies, or other entity or person. Many of those
states have enacted statutes, rules and regulations which limit the sale of
securities by blank check companies. For example, some states will not permit
blank check companies to take advantage of exemptions from state securities law
registrations which would otherwise be available to non-blank check companies.
Accordingly, these restrictions could adversely affect Post-HRI's ability to
raise money or enter into transactions involving the sale of its securities in
those states.
CERTAIN ANTI-TAKEOVER PROVISIONS. The following provisions of the
Connecticut Business Corporation Act (the "CBCA") and Post-Sale HRI's
certificate of incorporation and by-laws may have the effect of delaying,
deterring or preventing a future takeover or change in control of Post-Sale HRI:
(1) The certificate of incorporation and by-laws of Post-Sale HRI (a) give the
Board of Directors the power to fill all board vacancies, and increase the size
of the board and fill vacancies created thereby; and (b) provide certain advance
notice procedures for any meeting at which stockholders will propose to nominate
candidates for election to the Board of Directors, remove directors, or amend
the certificate of incorporation or by-laws; (2) The CBCA and Post-Sale HRI's
certificate of incorporation and by-laws provide that stockholder action may
only be taken by unanimous written stockholder consent, or at a duly held
meeting of the stockholders; (3) The CBCA provides that specific actions
requiring stockholder approval must first be recommended to stockholders by the
board of directors. Such actions generally include certain amendments to the
certificate of incorporation, a merger or consolidation, the sale of all or
substantially all of Post-Sale HRI's assets outside of the regular course of
business, and the dissolution of Post-Sale HRI; (4) The anti-takeover provisions
of (a) Section 33-841 of the CBCA prohibit Post-Sale HRI from engaging in a
"business combination" with an "interested stockholder" (as such terms are
defined in Section 33-840 of the CBCA) unless the business combination is
approved in a prescribed manner, or the interested stockholder satisfies certain
requirements under Section 33-842 of the CBCA, including requirements respecting
the amount and form of consideration paid; and (b) Section 33-844 of the CBCA
prohibit Post-Sale HRI from engaging in a "business combination" with an
"interested stockholder" (as such terms are defined in Section 33-843 of the
CBCA) for a period of five years after the date of the transaction in which the
person became an interested stockholder, unless the business combination is
approved in a prescribed manner; and (5) The provisions of Section 33-756(d) of
the CBCA require that the directors of Post-Sale HRI consider the interests of
constituencies other than the shareholders or the corporation (including without
limitation customers, creditors, or employees) when making a decision on a
merger or consolidation, a sale of all or substantially all of Post-Sale HRI's
assets, or any business combination described above with an interested
shareholder.
NO DIVIDENDS ANTICIPATED. Any determination to pay dividends in the future
will be at the discretion of the Board of Directors and will be dependent upon
the Company's results of operations,
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financial condition, capital requirements, contractual restrictions and other
factors deemed relevant by the Board of Directors. Other than the Initial
Distribution, and a distribution of the net proceeds of the Holdback Amount at
the end of the escrow period, the Board of Directors does not intend to declare
dividends or make any other distributions in the foreseeable future, but instead
intends to retain earnings, if any, for use in the Company's business
operations. Although no assurance can be given, Post-Sale HRI intends to
structure any business combination in a manner which would permit the Company's
pre-business combination stockholders to obtain the economic benefit of the net
Holdback Amount.
YEAR 2000. Many currently installed computer systems and software products
use only two digits to identify a year in the date field with the assumption
that the first two digits of the year are always "19." Consequently, on
January 1, 2000, computers that are not Year 2000 compliant may read the year as
1900. Systems that calculate, compare or sort using the incorrect date may
malfunction. As a result, computer systems and software products used by many
companies may need to be upgraded before the end of 1999 to comply with such
"Year 2000" requirements. Specifically, these systems and programs must be
modified to accept four digit entries in the date field to distinguish
21st-century dates from 20th-century dates. Significant uncertainty exists
concerning the potential effects associated with such compliance. Post-Sale HRI
will not immediately be engaged in any substantial business operations, and
management, therefore, does not believe that computer problems associated with
the change of year to the Year 2000 will have any material effect on its
operations. However, the possibility exists that Post-Sale HRI may merge with or
acquire a business that will be negatively affected by the "year 2000" problem.
The effect of such problem on Post-Sale HRI in the future can not be predicted
with any accuracy until such time as Post-Sale HRI identifies a merger or
acquisition target.
FORWARD LOOKING STATEMENTS. This Proxy Statement contain forward-looking
statements. Actual results could differ materially from those projected herein.
Such difference could occur because of the application of factors referred to
above, of competitive or general business conditions or of some other and
unforeseen factor.
THE PROPOSED SALE
THE TERMS AND CONDITIONS OF THE PROPOSED SALE ARE CONTAINED IN THE SALE
AGREEMENT, A COPY OF WHICH (WITHOUT EXHIBITS AND SCHEDULES) IS ATTACHED TO THIS
PROXY STATEMENT AS APPENDIX A AND IS INCORPORATED HEREIN BY REFERENCE.The
description in this Proxy Statement of the terms and conditions of the Proposed
Sale is qualified in its entirety by, and made subject to, the more complete
information set forth in the Sale Agreement. STOCKHOLDERS ARE URGED TO, AND
SHOULD, CAREFULLY READ THE SALE AGREEMENT IN ITS ENTIRETY.
GENERAL
The Sale Agreement, which was executed and delivered by the Company and the
Buyer on October 14, 1999, provides, in part, for the sale for cash of
substantially all of the assets of the Company (the "PROPERTY") to the Buyer,
and the assumption by the Buyer of specified liabilities of the Company (the
"ASSUMED LIABILITIES"). Subject to approval by the Stockholders, the Company's
Board of Directors has approved the Proposed Sale of the Property to the Buyer
pursuant to the terms and conditions set forth in the Sale Agreement. See "THE
SALE AGREEMENT."
The consideration to be received by the Company from the Buyer pursuant to
the Sale Agreement consists of a cash payment of $12,500,000 payable at the
Closing, subject to certain downward adjustments, payments to third parties and
to a requirement that $1,250,000 of such cash payment be held in escrow and be
available to satisfy certain indemnification and reimbursement obligations of
the Company. See "THE SALE AGREEMENT,"; "THE PROPOSED SALE: UNLIMITED NATURE AND
ESTIMATE OF CLOSING AND POST CLOSING ADJUSTMENTS"; and "RISK FACTORS: RISK OF
SUBSTANTIAL REDUCTION OF THE INITIAL DISTRIBUTION."
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THE COMPANY
The Company was incorporated in May 1984. The Company is primarily engaged
in the design, manufacture and sale of the Company's flagship product, the
HelpMate-Registered Trademark- robotics courier system, a trackless robotic
courier used primarily in the health care industry to transport materials. The
Company derives revenue primarily from rentals and sales of HelpMate robots. The
Company also sells robotic components such as LabMate, LightRanger and BiSight
and performs research and development contracts. If the Proposed Sale is
approved by the Stockholders and the Proposed Sale to the Buyer is consummated,
the Company will no longer engage in this business. The Company's business and
principal office is located at 22 Shelter Rock Lane, Danbury, Connecticut 06810,
and its telephone number is 203-798-8988.
THE BUYER
The Buyer, established in 1987, is the No. 1 provider of automated
pharmaceutical and medical-supply dispensing systems. These advanced systems
streamline and control inventory-management processes in hospitals and clinics,
and capture information to help further reduce costs and improve outcomes. The
Buyer has advised the Company that the Buyer's technology is used in more
hospitals than any other form of pharmaceutical dispensing automation and that
the Buyer serves more than 3,300 customers worldwide with more than 60,000 units
installed. The Buyer is based in San Diego, California and is a wholly-owned
subsidiary of Cardinal Health, Inc.
BACKGROUND OF THE PROPOSED SALE
Since the founding of the Company in 1984, the Company has proceeded from a
contract research robotics company into a product company with the HelpMate
robotic courier system being its flagship product. The Company believes it has
proven the viability of HelpMate as a hospital courier.
Historically, the Company has been dependent upon sources other than
operations to finance its working capital requirements. These sources include
loans and/or investments from stockholders and their affiliates, private
placements of its debt and equity securities, the Company's initial public
offering and the proceeds of financed rentals.
During the second half of 1997, the Company's financial condition
deteriorated significantly as the Company experienced severe cash shortages. A
substantial downsizing of the Company was concluded in the third quarter of
fiscal 1997, sales and marketing activities were limited, the Company relocated
to smaller operational space, and the Company continued to build and install
robots at a reduced rate, filling orders from its existing backlog, and using
materials and parts which had been previously ordered and received. However, no
new materials for robots were ordered.
In the first half of 1998, the Company completed a series of steps directed
at improving its short-term liquidity and cash flow, including the receipt of
certain loans, the completion of a $1,350,000 private placement of common stock
and warrants, the agreement by certain creditors to accept reduced cash payments
in liquidation of outstanding trade payables, and the agreement by certain
creditors, including the Company's Chairman, Joseph F. Engelberger, and
Connecticut Innovations, Incorporated ("CONNECTICUT INNOVATIONS"), to whom the
Company has certain royalty obligations, to convert their loans, trade payables,
and other obligations of the Company to them into shares of common stock and
warrants to purchase common stock. To further reduce costs, the Company changed
its outside auditors. By mid-1998, the Company's near-term objective was to
stabilize its business at the level of its then current customer base while
seeking additional financing necessary to resume its original marketing plans.
In July of 1998, on behalf of the Company, Mr. Engelberger contacted the
Buyer suggesting that the Buyer consider having the Company develop a version of
its HelpMate robot to serve with the
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Buyer's "MedStation-Registered Trademark-." In September of 1998,
representatives of the Buyer visited the Company and discussions then started on
how the Company might design a version of its HelpMate robot which was
compatible with the Buyer's product and how the Buyer might market the HelpMate
robot courier in all of its applications. As discussions progressed, the
interest of the Buyer broadened. Discussions between the Buyer and the Company
next led to consideration of the Buyer becoming the Company's exclusive
distributor. In October 1998 the Buyer's Vice President of Marketing wrote to
Mr. Engelberger suggesting a phased approach of co-marketing followed by
co-development and requested additional information about the Company and its
financial condition. However, the Company continued to seek an infusion of
working capital.
In October 1998 the Company's efforts to improve its working capital
position were dealt a severe setback. The Company announced that it was
conducting an investigation to determine the extent to which it had been
defrauded by its former payroll company resulting in an estimated exposure to
the United States Internal Revenue Services ("IRS") of $1,000,000 for unpaid
payroll taxes exclusive of interest and penalties.
The Company continued to pursue other avenues of meeting its working capital
needs. However, efforts to become bankable were thwarted by the potential IRS
liability. Three banks had been contacted about lines of credit; each rejected
the Company's proposals in light of the potential IRS liability. The Company
also considered the possibility of another round of private financing.
Management's analysis was that, given the Company's market capitalization, an
additional private placement, if available, would result in an unacceptable
dilution to the Company's existing stockholders. Management's belief was that a
fair valuation of the Company demanded a strategic investor who could see the
advantage of the Company's technology and the product acceptance so far garnered
by the Company's HelpMate robotic couriers.
In January 1999, Mr. Engelberger met with representatives of the Buyer and
indicated that the Company had two objectives: finding a strong national
distributor which handles equipment sales to hospitals, and obtaining sufficient
working capital to supply product. At the end of that month, the Buyer's Vice
President of Marketing wrote back to the Company asking for exclusivity in
discussions regarding a sole source marketing agreement, as well as an
"equity/co-development program." In February 1999, the Company and the Buyer
signed a confidentiality agreement permitting the Buyer to conduct a due
diligence investigation of the Company.
In February 1999, officials from the Buyer and from its parent corporation,
Cardinal Health Inc. met with the Company and suggested that the Buyer acquire
the Company's HelpMate product line. Mr. Engelberger responded to the Buyer
suggesting, instead, that the Company continue to own the product line and that
the Buyer consider a significant equity investment in the Company. The Buyer,
however, expressed concerns over a co-marketing, co-development arrangement. As
discussions continued, the Buyer stated it would not agree to an intermediate
transaction involving just a distribution agreement and an investment in the
Company. During the spring of 1999, discussions continued as the Buyer conducted
a due diligence investigation into the Company, its business, technical
capabilities and its financial condition.
On August 24, 1999 the Company reached a settlement with the IRS regarding
the unpaid payroll tax obligations. The Company paid $100,067, including
interest, to the IRS in full payment of the IRS claims, and agreed with the IRS
to forego the use of $2,710,432 of net operating loss carry forwards.
During the course of its due diligence, the Buyer cited three key issues
which would be required to be resolved as a condition to its moving forward with
a sale agreement. The first was that four of the Company's stockholders that had
previously been granted certain "negotiation rights" with respect to any sale of
the Company's assets to a third party ("NEGOTIATION RIGHTS") waive such rights.
The Company contacted these stockholders and by September 3, 1999 the Company
had obtained the requested waivers.
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Second, the Buyer noted that any sale of the Company's assets would require
the consent of Connecticut Innovations, which held a security interest in the
Company's assets. Moreover, the Buyer sought relief from, among other things,
the royalty payment obligations which the Company was required to pay to
Connecticut Innovations upon the sale of its robots. The Buyer also required
that Connecticut Innovations pledge to vote its Shares in favor of the
transaction with the Buyer. Discussions with Connecticut Innovations continued
through September. On October 13, 1999, Connecticut Innovations consented to the
Proposed Sale, and agreed to release the Company from the royalty obligations
and all other obligations and restrictions under the Company's agreements with
Connecticut Innovations in exchange for certain payments. See "CONNECTICUT
INNOVATIONS AGREEMENTS."
Third, the Buyer requested that Leasing Technologies International, Inc.
("LTI") consent to the Proposed Sale and agree to modify certain obligations of
the Company to LTI regarding exclusivity and rights of first refusal with
respect to financing under the Company's existing agreements with CII. On
October 13, 1999, LTI agreed with the Buyer to do so in exchange for a $25,000
payment from the Buyer to be made at the Closing. See "AGREEMENT WITH LTI."
The discussions with the Buyer regarding the material terms and conditions
of the sale, including pricing, continued through September and early October,
pending resolution of the Connecticut Innovations and LTI issues. In its
negotiation of pricing terms, the Company asserted that, in the Company's case,
market valuation was not appropriate in light of the value of the Company's
proprietary technology to the Buyer.
On September 23, 1999, the Company's Board of Directors reviewed the terms
of a draft purchase agreement and evaluated the benefits of transaction
described therein. After discussion and with the recommendation of the Company's
senior management, the Board of Directors determined that the Sale Agreement and
Proposed Sale were fair to and in the best interests of the stockholders,
approved the Sale Agreement and Proposed Sale, and authorized the execution of
the Sale Agreement, as conclusively negotiated by management. See "REASONS FOR
THE PROPOSED SALE; RECOMMENDATION OF THE BOARD OF DIRECTORS."
Execution of the Sale Agreement was delayed, however, through early October
pending resolution of certain issues regarding the payment of the waiver fee
proposed to be paid to Connecticut Innovations. See "CONNECTICUT INNOVATIONS
AGREEMENTS." After further discussions, and following the execution of the
Connecticut Innovations and LTI agreements described below, on the evening of
October 14, 1999, the Company and the Buyer reached agreement on all outstanding
issues and executed the Sale Agreement. The following morning, the Buyer issued
a press release announcing the execution of the Sale Agreement.
REASONS FOR THE PROPOSED SALE; RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE PROPOSED SALE
ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, AND
HAS APPROVED THE SALE AGREEMENT. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS VOTE TO APPROVE AND ADOPT THE SALE AGREEMENT.
The purchase price was negotiated on an arm's length basis between
representatives of the Company and the Buyer. In reaching its conclusion, the
Board considered a number of factors, including: (i) the amount and nature of
the consideration to be received by the Company; (ii) the financial results of
the Company since 1996 and the prospects for the Company's historical business;
(iii) the Company's working capital and liquidity problems and its inability to
obtain working capital financing from other sources; (iv) the terms of the
Proposed Sale and its effect on the Company's stockholders; (v) the absence of
any better offer; (vi) the current and historical stock prices of the Common
Shares; and (vii) the proposed business plan and opportunities for the Company
after the Proposed Sale.
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During the twenty-two month period prior to the execution of the Sale
Agreement, the Company approached four other companies regarding an investment
in the Company or an acquisition of the Company's business. These companies
included two companies who were among the Company's earliest strategic
investors, a company in the robotics industry and a company which was a
competitor of the Buyer. These companies either did not respond to the Company's
overtures, or expressed no serious interest in moving forward with the Company.
During this period, the Company received no solicitations of interest with
respect to an investment or acquisition transaction from any company other than
the Buyer. Accordingly, other than the Buyer's proposals, no proposals were
considered by the Board.
During the course of the negotiations with the Buyer, and in evaluating the
Buyer's offer, the Company's Board of Directors of the Company considered the
following:
- The Company's continued dependence upon sources other than operations to
finance its working capital requirements;
- That the Company's relative mix of robot rentals versus robot sales
continued to erode the Company's cash position;
- The price and terms of the Proposed Sale, as reflected in the Sale
Agreement;
- That the Buyer will pay cash for the assets purchased, eliminating the
credit risk related to a Buyer promissory note and the investment risk
associated with receiving stock or other securities as consideration;
- The advantages and disadvantages of selling the Company's business in a
negotiated transaction without conducting an auction, which principal
advantages included the avoidance of instability among employees, the
generally shorter time needed to effect a negotiated transaction, and the
presence of a buyer that could continue the Company's product line and
effect the Proposed Sale without a financing contingency. These advantages
of a negotiated sale outweighed the possible advantages of an auction
which might have had the ability to generate pricing and terms and
conditions of sale which would have been more favorable to the Company;
- The effect of the Proposed Sale on the Company's stockholders which
included the likelihood that the Company could make a per share
distribution to the Company's stockholders significantly in excess of the
prices per share at which the Company's shares had been trading during an
extended period prior to the execution of the Sale Agreement;
- That, based on the Company's efforts in seeking potential acquirors and
management's assessment of the marketplace, a sale could not be structured
with another buyer, including prior strategic investors which held a
minority interest in the Company, that would offer greater value to the
Stockholders;
- The Company's goals and future business prospects; and
- That the terms and conditions of the Sale Agreement were favorable to the
Company and its stockholders.
The Board also placed value on the possibility that the Company may be able
to generate returns for its stockholders in the future through the
implementation of a post-sale strategy. See "BUSINESS OF THE COMPANY FOLLOWING
THE PROPOSED SALE."
THE COMPANY DID NOT OBTAIN, AND THE BOARD OF DIRECTORS DID NOT RELY ON, ANY
REPORT, OPINION OR APPRAISAL REGARDING THE PROPOSED SALE, THE SALE AGREEMENT OR
THE TRANSACTIONS RELATED TO THE PROPOSED SALE.
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As a condition to its execution of the Sale Agreement, the Buyer required
that Mr. Engelberger agree not to compete with the Buyer's business for a period
of five years, and to provide up to 246 days of consulting services to the Buyer
over a three year period. As payment for the consulting services, Mr.
Engelberger would receive up to $246,000 in consulting fees during the three
year consulting period. AS A RESULT, MR. ENGELBERGER WILL BE RECEIVING FEES IN
CONNECTION WITH THE PROPOSED SALE WHICH WILL NOT BEEN ENJOYED BY THE OTHER
STOCKHOLDERS. IN NEGOTIATING THE TERMS OF THIS CONSULTING AGREEMENT, MR.
ENGELBERGER MIGHT BE DEEMED TO HAVE HAD INTERESTS WHICH CONFLICTED WITH THOSE OF
THE OTHER STOCKHOLDERS. See "CONFLICTS OF INTEREST OF MR. ENGELBERGER."
The foregoing discussion of the factors considered by the Board is not
intended to be complete, though it does include all material factors considered
by the Board. The Board did conclude that each of these material factors
supported its conclusion regarding the fairness of the transaction. The Board
did not attempt to quantify or otherwise assign relative weights to the specific
factors it considered or determine that any factor was of particular importance.
In addition, individual members of the Board may have given different weight to
different factors or may have concluded that some of the factors did not support
the Board's position and recommendations. A determination of various weightings
would, in the view of the Board, be impractical. The Board viewed its position
and recommendations as being based on the totality of the information presented
to, and considered by, the Board.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
APPROVAL OF THE PROPOSED SALE.
DISSENTERS' RIGHTS
The rights of the Stockholders to dissent from the Proposed Sale are
governed by the provisions of the Connecticut Business Corporation Act (the
"CBCA"). Pursuant to Section 33-855 through Section 33-872 of the CBCA, a
Stockholder of the Company has the right to dissent from the Proposed Sale and
demand payment in cash for the fair value of his or her Shares of the Company's
Common Stock as of the time immediately before the consummation of the Proposed
Sale, excluding any appreciation or depreciation in value in anticipation of the
Proposed Sale. A copy of the dissenters' rights provisions of the CBCA is
attached to this Proxy Statement as Appendix C.
To claim this right the Stockholder:
(1) must, before the vote is taken, deliver to the Company a written notice
(addressed to: the HelpMate Robotics Inc., 22 Shelter Rock Lane, Danbury,
Connecticut 06810-8159, Attention: Assistant Secretary) of the
Stockholder's intent to demand payment for his or her Shares if the
Proposed Sale is effectuated; and
(2) must not vote in favor of the Proposed Sale in person or by proxy at the
Special Meeting.
A STOCKHOLDER WILL NOT BE CONSIDERED ENTITLED TO RIGHTS UNDER SECTION 33-855
THROUGH SECTION 33-872 OF THE CBCA UNLESS THE STOCKHOLDER BOTH DELIVERS TIMELY
WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT, AND EITHER VOTES AGAINST THE
PROPOSED SALE OR REFRAINS FROM VOTING.
Stockholders who execute and return the enclosed proxy but do not specify a
choice on the Proposed Sale will be deemed to have voted in favor of the
Proposed Sale, and, accordingly to have waived their dissenters' rights, unless
they revoke the proxy prior to its being voted.
If the Proposed Sale is approved by the Stockholders, then no later than ten
(10) days after the consummation of the Proposed Sale, the Company will send a
notice of dissenters' rights to those Stockholders who have given the Company
written notice (in the manner set forth above) of their
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intent to demand payment, and have not voted in favor of the Proposed Sale at
the Special Meeting. The Company's notice will (1) state where the payment
demand must be sent, and where and when the dissenting Stockholders' stock
certificates must be deposited, (2) supply a proper form for demanding payment,
(3) set a date by which the Company must receive the payment demand (which date
shall be no fewer than 30 days and no more than 60 days after the date the
notice is delivered), and (4) include a copy of Section 33-855 through
Section 33-872 of the CBCA.
After the consummation of the Proposed Sale or upon receipt of a payment
demand, the Company will pay each dissenting Stockholder who has complied with
all requirements of Section 33-855 through Section 33-872 of the CBCA and of the
Company's notice, the Company's estimate of the fair value of the dissenting
Stockholder's shares as of the time immediately prior to the Proposed Sale,
excluding any appreciation or depreciation in value in anticipation of the
Proposed Sale, plus interest accrued from the Closing of the Proposed Sale until
the payment date. The determination of the Company's estimate of "fair value"
will be based on the financial condition of the Company, the trading history of
the Company's Common Stock, and other factors normally used to determine the
value of a publicly-held company's stock. See "HISTORICAL MARKET PRICE" and
"RECENT MARKET PRICE" for a description of the Company's reported trading prices
during the periods prior to the announcement of the Sale Agreement.
Dissenters may object to the fair value estimated by the Company by stating
their estimate of the fair value and demanding payment of the additional amount
claimed as fair value plus interest within 30 days after the Company makes
payment for the dissenters' shares. The Company shall either pay the amounts
demanded by the dissenting Stockholders, or within 60 days after receiving the
demand for payment commence an action in the Superior Court for the Judicial
District of Danbury at Danbury, Connecticut, petitioning the court to determine
the fair value of the dissenters' shares and accrued interest. If the Company
initiates a judicial proceeding to determine fair value, all dissenters whose
demands remain unsettled shall be made parties to the proceeding. The Court may
appoint one or more appraisers to recommend a decision on the fair value. The
costs of the proceeding, including reasonable compensation and expenses of the
appraisers appointed by the Court, will be assessed against the Company, except
that the Court may assess costs against some or all of the dissenters, in
amounts the Court finds equitable, to the extent that the Court finds that the
dissenters acted arbitrarily, vexatiously or not in good faith in demanding
payment. The Court may also assess the fees and expenses of counsel and experts
for the parties, against the Company or any dissenter or dissenters, in amounts
the Court finds equitable. Each dissenter made a party to the action will be
entitled to receive the amount, if any, by which the Court finds the fair value
of the dissenters' shares, plus interest, exceeds the amount paid by the
Company.
THIS SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY THE STATUTORY PROVISIONS ATTACHED
TO THIS PROXY STATEMENT AS APPENDIX C.
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THE SALE AGREEMENT
The Company and the Buyer are the parties to the Sale Agreement. The
following discussion summarizes the material terms of the Sale Agreement. THE
DESCRIPTION OF THE SALE AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE COMPLETE TEXT OF THE SALE AGREEMENT, A COPY OF WHICH (WITHOUT EXHIBITS OR
SCHEDULES) IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX A AND IS INCORPORATED
HEREIN BY REFERENCE. All stockholders are urged to carefully read the Sale
Agreement in its entirety.
THE PROPERTY TO BE SOLD
At the closing, the Company has agreed to sell, and the Buyer has agreed to
purchase, substantially all of the assets, properties, rights (contractual or
otherwise) and business of the Company (the "PROPERTY"). Excluded from the sale
are certain items of personal property consisting of certain claims against the
Company's former payroll service related to the IRS liability described above,
the Seller's corporate records and tax returns, certain non-assignable permits
and licenses, certain benefit plans and employment related agreements, insurance
policies and an account receivable in favor of LTI which is offset by an account
payable (the "EXCLUDED ASSETS").
With respect to specified contracts and personal property leases included
within the Property, the Company must use either its best efforts or
commercially reasonable efforts to obtain the consent of such other party to an
assignment to the Buyer. If such consent is not obtained, the Company has agreed
to cooperate with Buyer in any reasonable arrangement designed to provide the
Buyer with the benefits of any such contract or personal property lease.
LIABILITIES TO BE ASSUMED BY THE BUYER
At Closing the Buyer will assume the Company's liabilities and obligations
arising under the specified personal property leases and contracts to the extent
such liabilities and obligations arise and are first required to be performed
after the closing and such contracts and personal property leases are actually
assigned to Buyer or Buyer gets the benefit of such contracts and personal
property leases. The Buyer will also assume certain other liabilities of Seller
consisting of accounts payable other than accounting or legal expenses, certain
sales tax liabilities, sublease security deposits, unearned maintenance contract
obligations, unamortized liabilities to LTI, office equipment liabilities, and
new liabilities arising in the ordinary course of business which would be
included in the specified liabilities consistent with Seller's past practices
(collectively, the "SCHEDULE 2.1 LIABILITIES"). All of the liabilities of Seller
being assumed by Buyer are hereinafter referred to as the "ASSUMED LIABILITIES."
The Buyer will not assume or otherwise be responsible for any other liability or
obligation of any nature of the Company (the "RETAINED LIABILITIES"), including
any liability or obligation of the Company to any Governmental Authority with
respect to unpaid taxes, other than as expressly assumed in the Schedule 2.1
Liabilities.
PURCHASE PRICE
Upon the terms, conditions and adjustments set forth in the Sale Agreement,
the purchase price to be paid for the Property will be $12,500,000 (the
"PURCHASE PRICE"). The Purchase Price shall be payable by the Buyer as follows:
(a) a cash payment of $11,250,000 (the "CLOSING DATE PAYMENT"), less the
Estimated Closing Date Net Current Asset Value Deficiency described below, shall
be payable to the Company in cash at the Time of Closing; and (b) a cash payment
of $1,250,000 (the "HOLDBACK AMOUNT"), shall be deposited into an escrow account
at the Closing to be held in accordance with the terms and conditions of an
Escrow Agreement by and among the Company, the Buyer and Bank One Trust Company,
NA, a national banking association (the "ESCROW AGREEMENT"). A copy of the
Escrow Agreement (without exhibits or schedules) is attached hereto as Annex B.
See "THE PROPOSED SALE: UNLIMITED NATURE AND ESTIMATE OF CLOSING AND POST
CLOSING ADJUSTMENTS" and "RISK FACTORS: RISK OF SUBSTANTIAL REDUCTION OF THE
INITIAL DISTRIBUTION."
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CLOSING ADJUSTMENTS
The Purchase Price and Closing Date Payment are subject to a downward
adjustment at the closing. See "THE PROPOSED SALE: UNLIMITED NATURE AND ESTIMATE
OF CLOSING AND POST CLOSING ADJUSTMENTS" and "RISK FACTORS: RISK OF SUBSTANTIAL
REDUCTION OF THE INITIAL DISTRIBUTION." Prior to the closing, the Company shall
estimate its Closing Date Net Current Asset Value (as described below) as of the
Time of Closing (the "ESTIMATED CLOSING DATE NET CURRENT ASSET VALUE"). To the
extent this Estimated Closing Date Net Current Asset Value is less than zero,
such difference (the "ESTIMATED CLOSING DATE NET CURRENT ASSET VALUE
DEFICIENCY") will be deducted from the Closing Date Payment.
POST CLOSING ADJUSTMENTS
The Purchase Price is subject to a downward adjustment following the
closing. See "THE PROPOSED SALE: UNLIMITED NATURE AND ESTIMATE OF CLOSING AND
POST CLOSING ADJUSTMENTS" and "RISK FACTORS: RISK OF SUBSTANTIAL REDUCTION OF
THE INITIAL DISTRIBUTION." Within thirty (30) days after the Closing, the
Company must deliver its balance sheet dated as of the Closing Date (the
"CLOSING DATE BALANCE SHEET") and an accompanying closing statement (the
"CLOSING STATEMENT") of the Company's Closing Date Net Current Asset Value and
its Book Asset Value as determined below.
If the Closing Date Net Current Asset Value is less than zero and less than
the Estimated Closing Date Net Current Asset Value, the Company must pay to the
Buyer, within thirty (30) business days after the final determination, the
difference between the Closing Date Net Current Asset Value and the Estimated
Closing Date Net Current Asset Value (the "CLOSING DATE NET CURRENT ASSET VALUE
DEFICIENCY") (together with interest at the rate of nine percent (9%) per annum
from the closing until paid).
If the Book Asset Value is less than $1,900,000, the Company must pay to the
Buyer, within thirty (30) business days after the final determination of the
Book Asset Value, the amount that the Book Asset Value is less than $1,900,000
(the "BOOK ASSET VALUE DEFICIENCY") (together with interest at the rate of nine
percent (9%) per annum from the Closing Date until paid).
The Buyer has the right, but not the obligation, to withdraw the Closing
Date Net Current Asset Value Deficiency or the Book Asset Value Deficiency, as
the case may be, from the Holdback Amount (together with interest at the rate of
nine percent (9%) per annum from the closing until withdrawn).
The "CLOSING DATE NET CURRENT ASSET VALUE" shall be determined by
subtracting: (i) the sum of the Schedule 2.1 Liabilities shown on the Closing
Date Balance Sheet, from (ii) the amount of cash and cash equivalents shown on
the Closing Date Balance Sheet. The "BOOK ASSET VALUE" shall mean the book value
(as determined in accordance with GAAP) of the assets being purchased as
reflected on the Closing Date Balance Sheet (x) decreased by (A) the amount of
cash and cash equivalents reflected on the Closing Date Balance Sheet, and
(B) accumulated depreciation relating to such assets as of the closing, and
(y) increased by the net proceeds actually received by the Company prior to the
closing in respect of sales of inventory and robots in the ordinary course of
business consistent with past practice; provided, however, that such proceeds
are either transferred to the Buyer at the closing or are used by the Company
prior to the closing to discharge the Schedule 2.1 Liabilities.
The Buyer has the right to object to the Closing Date Balance Sheet and
Closing Statement within 60 days of its receipt. With respect to any disputed
amounts, the parties have agreed to negotiate in good faith to resolve any such
disputes. If they are unable to so resolve all such disputes, then the disputes
shall be submitted to a nationally recognized public accounting firm selected by
the parties who shall be engaged to provide a final, conclusive and binding
resolution of all unresolved disputes.
The Holdback Amount is also subject to a reduction with respect to a
reimbursement to the Buyer for certain payments made in accordance with the
retention agreements described below. See "TREATMENT OF THE COMPANY'S
EMPLOYEES."
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UNLIMITED NATURE AND ESTIMATE OF CLOSING AND POST CLOSING ADJUSTMENTS
As indicated, the Purchase Price is subject to downward adjustments in the
amount of the Estimated Closing Date Net Current Asset Value Deficiency, the
Closing Date Net Current Asset Value Deficiency, the Book Asset Value
Deficiency, and any interest payable thereon. The Sale Agreement does not
provide for a limit on the amount of this downward adjustment. Accordingly, the
net amount of the $11,250,000 Closing Date Payment could be materially reduced
after giving effect to this downward adjustment. A material reduction in the
Closing Date Payment could also have the effect of materially reducing or
causing the elimination of the Initial Distribution and could leave the Company
with insufficient cash to carry on its post-closing business plan. See "RISK
FACTORS: RISK OF SUBSTANTIAL REDUCTION IN THE INITIAL DISTRIBUTION."
As of the date of this Proxy Statement, the Company estimates that
adjustments for the Estimated Closing Date Net Current Asset Value Deficiency,
the Closing Date Net Current Asset Value Deficiency, the Book Asset Value
Deficiency, and any interest payable thereon will be approximately $200,000.
This amount is subject to change and can be affected by, among other things,
unanticipated changes in the results of the Company's operations through the
closing date and any dispute between the Company and the Buyer over the
calculations of the post-closing adjustments described above.
CONNECTICUT INNOVATIONS AGREEMENTS
As a condition to its execution of the Sale Agreement, the Buyer required
that the Company obtain the consent of Connecticut Innovations. Connecticut
Innovations is a beneficial owner of 3,078,675 Shares (including certain
warrants) of the Company's Common Stock and has a security interest in certain
of the Company's assets, including certain of the Property to be sold to the
Buyer. The Company is required to pay certain royalties to Connecticut
Innovations under a Development Agreement dated December 29, 1986, pursuant to
which Connecticut Innovations reimbursed the Company for certain costs related
to the development of the HelpMate robotics courier system (the "SPONSORED
PRODUCTS"). Such royalties must be paid until the total royalties paid to or
credited by Connecticut Innovations have aggregated $2,205,000 ("ROYALTY
THRESHOLD"). Thereafter, the Company must pay royalties at a reduced rate for a
period equal to the period of time taken to reach the Royalty Threshold. The
Company's obligations to make royalty payments under the Development Agreement
are secured by Connecticut Innovations's lien on certain of the Company's
property.
In October 1999, Connecticut Innovations executed a letter agreement (the
"CONNECTICUT INNOVATIONS CONSENT LETTER") consenting to the Proposed Sale, and
agreeing to release the Company from all royalty and other obligations to
Connecticut Innovations. Connecticut Innovations' consent and release are
subject to the following conditions: (1) the closing of the Proposed Sale must
take place by February 1, 2000; (2) at the closing, Connecticut Innovations must
be paid all accrued and unpaid royalties through the Closing Date; (3) at the
closing, Connecticut Innovations must receive an additional payment of $400,000
(the "WAIVER AND RELEASE PAYMENT"); and (4) (a) the total consideration paid to
the Company at the Closing, including amounts placed in escrow, must be at least
$0.65 per share of outstanding Company shares (assuming the exercise of all the
Special Options described below), or (b) Connecticut Innovations shall receive
an additional payment (the "CONNECTICUT INNOVATIONS ADDITIONAL PAYMENT") at the
closing equal to the multiple of (i) the difference between the per share amount
(assuming the exercise of all the Special Options described below) received by
the Company at the Closing and $0.65, multiplied by (ii) the sum of the number
of Shares owned by Connecticut Innovations and the number of warrants held by
Connecticut Innovations with a per share exercise price of $0.65 or less,
reduced by (iii) the aggregate exercise price of such Connecticut Innovations
warrants.
The Buyer and the Company have agreed that the Buyer shall pay $300,000 of
the Waiver and Release Payment and that the Company shall pay $100,000 of the
Waiver and Release Payment. The
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Company also estimates that, assuming a December 30, 1999 closing, the aggregate
amount of all royalties required to be paid by the Company to Connecticut
Innovations as of the closing will be approximately $132,000. Finally, the
Company has estimated that it will not be required to make any Connecticut
Innovations Additional Payment.
AGREEMENT WITH LTI
In connection with the Proposed Sale, LTI has entered into an agreement with
the Buyer (1) consenting to the Proposed Sale and to the assignment to and
assumption by the Buyer of LTI's agreements with the Company; (2) from and after
the closing, consenting to waive all exclusivity and first refusal rights LTI
enjoys with respect to equipment financing by the Company pursuant to the
agreements between LTI and the Company; and (3) affirming the remaining amount
of the rental payments due to LTI from the Company pursuant to the Master Lease
Agreement dated January 23, 1997. LTI is a creditor and a security-holder of the
Company. LTI provided courier lease financing to the Company by purchasing
HelpMate robotic couriers and leasing them back to the Company to sublease to
hospitals, or by leasing them to hospitals directly. The HelpMate robotic
couriers leased to the Company for sublease to the hospitals are the subject of
the Master Lease Agreement. The Company's agreements with LTI also give LTI
certain rights of first refusal and exclusivity rights for future equipment
financing by the Company. LTI's consent and waiver of rights are contingent upon
its receipt of $25,000 from the Buyer on the closing date.
BUYER'S REPRESENTATIONS AND WARRANTIES
The Buyer has made certain representations and warranties in the Sale
Agreement relating to: (a) its corporate organization and authority, (b) its
authority relative to the Sale Agreement, (c) the absence of conflicts in its
performance of the Sale Agreement, (d) the absence of any brokerage, finder's or
similar fees in connection with the transaction and (e) its financial capacity
to pay the Closing Date Payment and Holdback Amount.
THE COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company has made certain representations and warranties in the Sale
Agreement relating to: (a) its corporate organization and authority, (b) its
authority relative to the Sale Agreement, (c) its capitalization, (d) the
absence of any conflicts in its performance of the Sale Agreement, (e) the
absence of certain changes since December 31, 1998, (f) its employees and
certain compensation paid or payable by the Company, (g) its financial
statements, (h) its filing of tax returns and payment of taxes, (i) its
compliance with law, (j) its Intellectual Property, (k) its title to and the
condition of its properties, (l) certain environmental matters, (m) litigation,
(n) the absence of brokerage, finders' or similar fees in connection with the
transactions, (o) its employee benefit plans, (p) certain of its contracts,
(q) its accounts receivable and inventory, (r) labor matters, (s) the absence of
undisclosed liabilities, (t) the operations of the Company's business and its
relationships with suppliers and customers, (u) product warranties and
liabilities, (v) the recommendation of the Company's Board of Directors,
(w) its insurance, (x) its year 2000 compliance, (y) its compliance with the
Negotiation Rights, and (z) the technology developed under specified government
agreements.
PROHIBITION AGAINST SOLICITING ACQUISITION PROPOSALS
Without the prior written consent of the Buyer, the Company has agreed not
to directly or indirectly solicit or encourage (including by way of furnishing
any non-public information concerning its business, properties or assets), or
enter into or participate in any negotiations or discussions concerning, any
Acquisition Proposal. "ACQUISITION PROPOSAL" means any proposal received by the
Company prior to the closing for a merger or other business combination
involving the Company, or for the acquisition of the Company, or the acquisition
of an equity interest in, or a portion of the assets
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of, the Company, other than as contemplated by the Sale Agreement. The Buyer has
the right to obtain injunctive relief to enforce the foregoing provisions.
CONDUCT OF BUSINESS PRIOR TO CLOSING
The Company has agreed that prior to the closing, it shall operate its
business and maintain the Property in the ordinary course of business consistent
with past practice and that it shall not take certain actions without the prior
written consent of the Buyer, including (a) incurring any obligation or
liability (absolute or contingent), except (i) sales of inventory in the
ordinary course of business and consistent with past practice, and (ii) current
liabilities incurred, and obligations under contracts entered into, in the
ordinary course of business consistent with past practice which do not exceed
$20,000 in respect of any individual contract or $60,000 with respect to all
such contracts; (b) paying any obligation or liability (absolute or contingent)
other than (i) liabilities payable in the ordinary course of business,
(ii) certain royalties owed to Connecticut Innovations, and (iii) any accrued
vacation pay to its employees; (c) encumbering or selling any of the Property;
(d) entering into any transaction other than in the ordinary course of business
consistent with past practice; (e) introducing any new method of management,
operation or accounting with respect to the Company's business; or
(f) declaring or paying any dividend or other distribution (whether in cash,
stock, property or any combination thereof) in respect of the Company's capital
stock.
TREATMENT OF THE COMPANY'S EMPLOYEES
In connection with the transaction, the Buyer has entered into retention
agreements with each employee of the Company (other than Mr. Engelberger). Each
agreement provides that the employee will be entitled to a bonus of up to 25% of
the employee's base salary (the "MAXIMUM BONUS") if the employee remains
employed with Pyxis through the one-year anniversary of the closing (in which
case the employee will be entitled to 75% of the Maximum Bonus), or through the
two-year anniversary of the closing (in which case the employee will be entitled
to 100% of the Maximum Bonus. The Company has agreed to reimburse the Buyer for
certain portions of the retention amounts payable by the Buyer in an aggregate
amount of up to $31,593 to be funded from the Holdback Amount.
Moreover, the Company has agreed not to employ or enter into any
partnership, joint venture or other business association with, any person who
was at any time during the twelve months preceding the closing an employee,
representative or agent of the Company for a period of twelve months after such
person ceases or has ceased, for any reason, to be an employee, representative
or agent of the Company.
THE COMPANY'S NON-COMPETE RESTRICTIONS
During the five-year period following the closing, the Company has agreed,
in the United States or any other country, not to, directly or indirectly,
whether individually on its own account, or as a shareholder, partner, joint
venturer, director, officer, employee, consultant, creditor and/or agent, of any
person, firm, corporation or other entity or otherwise: (i) enter into or engage
in any business which competes with the business carried on by Company on the
date of the Sale Agreement, or by the Buyer or any Buyer Affiliates (the
"BUSINESS"); (ii) solicit customers or business patronage which result in
competition with the Business; or (iii) promote or assist, financially or
otherwise, any person, firm, association, corporation or other entity engaged in
any business which competes with the Business; provided, however, the foregoing
covenant shall not be deemed to have been violated by the ownership of shares of
any class of capital stock of any publicly held corporation so long as the
aggregate holdings represent less than 3% of the outstanding shares of such
class of capital stock. "BUYER AFFILIATE" includes the Buyer and all
subsidiaries and affiliates of the Buyer.
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LEASE NEGOTIATION ASSISTANCE
The Company agreed to cooperate with the Buyer and take all action
reasonably requested by the Buyer in connection with negotiating the termination
or buy-out of the Company's lease of its Danbury, Connecticut headquarters.
CLOSING
The Company anticipates that the closing of the Proposed Sale will take
place on the same date that the Special Meeting is held, or as soon as possible
thereafter, if the Proposed Sale is approved by the Company's Stockholders at
the Special Meeting.
CONDITIONS TO THE PROPOSED SALE
The obligations of the Buyer to effect the Proposed Sale are subject to,
among other things: (a) the representations and warranties of the Company in the
Sale Agreement being true and correct when made and as of the Time of Closing;
(b) the Company having performed or complied with all covenants and other
obligations under the Sale Agreement in all material respects; (c) the Company
having obtained (i) all consents required under any law, statute, rule,
regulation, order or decree in connection with the consummation of the Sale
Agreement, except where the failure to obtain any such consent would not have a
material adverse effect (as defined in the Sale Agreement) on the Buyer or the
Company's business, and (ii) the certain specific consents listed in the Sale
Agreement; (d) there not having occurred any material adverse change in the
condition (financial or otherwise) of the Company's business or the Property;
(e) the Stockholders having approved the Proposed Sale at the Special Meeting;
and (f) the conditions specified in the Connecticut Innovations Consent Letter
having been satisfied or waived by Connecticut Innovations at or prior to the
closing.
The Company's obligations to effect the Proposed Sale are subject to, among
other things: (a) the Buyer's representations and warranties in the Sale
Agreement being true and correct when made and as of the Time of Closing;
(b) the Buyer having performed or complied with all covenants and other
obligations under the Sale Agreement in all material respects; (c) the
Stockholders having approved the Proposed Sale at the Special Meeting; (d) the
Buyer's payment of $300,000 of the Waiver and Release Payment (as defined in the
Connecticut Innovations Consent Letter); and (e) the Buyer's payment of the
$25,000 payment required to be paid to LTI pursuant to the LTI Agreement.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
The representations and warranties of Buyer and the Company in the Sale
Agreement and in documents delivered pursuant to the Sale Agreement shall
survive until the second anniversary of the closing.
INDEMNIFICATION
The Sale Agreement provides that the Company must defend, indemnify and hold
harmless the Buyer, its affiliates, shareholders, officers, directors, agents
and employees (each, a "BUYER INDEMNIFIED PARTY") from any Damages resulting
from: (a) any breach of any of the representations or warranties made by the
Company in the Sale Agreement; (b) any misrepresentation in or any omission from
any certificate, schedule or exhibit, or the documents furnished by the Company
pursuant to the Agreement (collectively, the "COMPANY'S ADDITIONAL DOCUMENTS");
(c) any breach or non-performance of any covenant, agreement or obligation to be
performed by Seller pursuant to the Sale Agreement or Company's Additional
Documents; (d) any liability or obligation imposed upon the Buyer as transferee
of the business or operations of the Company or the Property, or otherwise
relating to the conduct of the Company's business prior to the closing, except
to the extent such liability or obligation is an Assumed Liability; or (e) any
liability or obligation relating to the Retained Liabilities.
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The Purchase Agreement provides the Buyer must defend, indemnify and hold
harmless the Company and its affiliates, shareholders, officers, directors,
agents and employees (each, a "COMPANY INDEMNIFIED PARTY") from any Damages
from: (a) any breach of any of the representations or warranties made by Buyer
in the Sale Agreement; (b) any misrepresentation in or any omission from any
certificate, Schedule or Exhibit, or the documents furnished by the Buyer
pursuant to the Sale Agreement (collectively, the "BUYER'S ADDITIONAL
DOCUMENTS"); (c) any breach or non-performance of any covenant, agreement or
obligation to be performed by Buyer pursuant to the Sale Agreement or Buyer's
Additional Documents; (d) any liability or obligation imposed upon the Company
as a result of the Buyer's conduct of the Company's business after the closing,
except to the extent such liability or obligation is a Retained Liability; or
(e) any liability or obligation relating to the Assumed Liabilities.
An indemnified party is only entitled to indemnification arising out of a
breach of a representation or warranty to the extent that the aggregate amount
of its damages exceeds $50,000. The indemnification obligations terminate on the
second anniversary of the closing; provided that indemnification claims made on
or prior to that second anniversary date may be pursued by the claiming party
beyond that second anniversary date. Any rights of any of the Buyer Indemnified
Parties to (i) indemnification, or (ii) reimbursement of certain portions of the
Retention Agreement Payments described below will be satisfied solely out of the
Holdback Amount, and none of the Buyer Indemnified Parties may make any claim
against any of the other assets or property of the Company. The indemnification
provisions of the Sale Agreement are the exclusive remedy available to any of
the Buyer Indemnified Parties, except for claims based on fraud or intentional
misrepresentation.
THE REPRESENTATIVE
The Sale Agreement also provides that in the event of the liquidation or
dissolution of the Company, the Company shall appoint an individual to act on
behalf of the Company with respect to all matters relating to the Sale Agreement
and the Company's Additional Documents (the "REPRESENTATIVE"). The
Representative will have no liability to the Company or its Stockholders with
respect to actions taken or omitted to be taken in its capacity as
Representative, except with respect to any liability resulting primarily from
the Representative's gross negligence or willful misconduct. The Representative
shall be entitled to rely upon any directions received from the Stockholders
holding a majority of Seller's common shares at the time of closing; provided,
however, that the Representative shall not be required to follow any such
direction, and shall be under no obligation to take any action in its capacity
as the Representative, unless the Representative has been provided with funds,
security or indemnities which, in the sole determination of the Representative,
are sufficient to protect the Representative against the costs, expenses and
liabilities which may be incurred by the Representative in responding to such
direction or taking such action. The Representative shall be entitled to
reimbursement by the Company's stockholders for all reasonable expenses,
disbursements and advances incurred by the Representative in such capacity, and
for indemnification, by the Company's stockholders, against any loss, liability
or expenses arising out of actions taken or omitted to be taken in its capacity
as the Representative (except for those arising primarily out of the
Representative's gross negligence or willful misconduct), including the costs
and expenses of investigation and defense of claims.
TERMINATION
The Sale Agreement may be terminated prior to the closing by either party
if: (i) any of the representations or warranties of the other party is
inaccurate or untrue in any material respects; (ii) any covenant, obligation,
term or condition to be performed, kept or observed by the other party has not
been performed, kept or observed in any material respect by the time specified
in the Sale Agreement; or (iii) the closing has not occurred on or before
March 1, 2000 (except as a result of the failure of Stockholders to approve the
Proposed Sale at the Special Meeting; and provided, further, that in each such
case, the terminating party is not then in default in any material respect in
the performance of any
25
<PAGE>
obligation, term or condition to be performed, kept or observed by the
terminating party and no representation or warranty of the terminating party is
inaccurate or untrue in any material respect. The terminating party will not be
deemed to have waived any claim that it may have against the other for a breach
of the Sale Agreement. The Sale Agreement may also be terminated and canceled by
either party if the Stockholders do not approve the Proposed Sale at the Special
Meeting (a "NON-APPROVAL TERMINATION").
CONSEQUENCES OF TERMINATION
If (i) it shall be judicially determined that the Buyer's termination of the
Sale Agreement resulted from an intentional breach of the Sale Agreement by the
Company, (ii) the Sale Agreement is terminated by reason of the Company's
failure to perform any covenant or obligation under the Sale Agreement and such
failure has been the cause of or resulted in the failure of the transaction
contemplated by the Sale Agreement to be consummated on or before March 1, 2000,
or (iii) if there has been a Non-Approval Termination, and prior to such
Non-Approval Termination, there shall have been made to the Company or publicly
disclosed a bona fide Acquisition Proposal with respect to the Company, then the
Company would be required to pay the Buyer (x) a non-accountable, liquidated
expense reimbursement of $500,000, and (y) a termination fee equal to
$1,500,000. Upon a termination in connection with (i), (ii) or (iii) above, the
Company would be prohibited for a period of two hundred seventy (270) days from
the date of such termination from directly or indirectly soliciting or
encouraging, or entering into or participating in any negotiations or
discussions concerning, or consummating any contemplated transaction resulting
from an Acquisition Proposal. See "THE SALE AGREEMENT--PROHIBITION AGAINST
SOLICITING ACQUISITION PROPOSALS." In the event of such a termination, the
Company's Board of Directors would need to make a determination as to how to
proceed in light of the prohibitions imposed by the termination provisions. The
Company's Board could, in their business judgement, make a determination to
pursue those kinds of negotiations, discussions or transactions which are
prohibited by the termination provisions. It is likely, however, the Buyer would
attempt to obtain additional payments from the Company as consideration for its
agreement to eliminate, or to forebear from enforcing, these prohibitions.
Buyer's insistence on such a payment could have a material adverse effect on the
Company's ability to negotiate and complete a sale transaction with third party
purchaser, and, if paid, such a payment could have a material adverse effect on
any benefit derived by the Company's stockholders from such a third party sale.
VOTING SUPPORT AGREEMENTS
In connection with the transaction, Mr. Engelberger and Connecticut
Innovations executed Support/Voting Agreements in favor of the Buyer.
Mr. Engelberger is the Company's co-founder, and its Chairman, and a director.
Connecticut Innovations is a security-holder and creditor of the Company. In
their Support/Voting Agreements, Mr. Engelberger and Connecticut Innovations
each agreed to vote their Shares controlled by them in favor of the Proposed
Sale, and not in favor of any competing transaction, and each agreed not to sell
or transfer any Shares or voting rights controlled by them before the Special
Meeting. The Support/Voting Agreements also provide that Mr. Engelberger and
Connecticut Innovations will not transfer the Shares controlled by them until
prior to the time they vote on the Proposed Sale or the transaction is
terminated. In aggregate, Mr. Engelberger and Connecticut Innovations have the
power to vote 3,703,375 Shares of the Company's Common Stock, or approximately
25.8% of the Shares entitled to vote, at the Special Meeting.
ACCOUNTING TREATMENT OF THE SALE
The Proposed Sale will be accounted for as a sale of certain assets and a
transfer of certain liabilities. The Proposed Sale will not have any federal
income tax consequences to the Company's stockholders. Upon consummation of the
Proposed Sale, the Company will recognize a financial
26
<PAGE>
reporting gain equal to the net proceeds (the sum of the consideration received
less the expenses of the Proposed Sale) plus the liabilities transferred, less
the closing net book value of the assets sold.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING SUMMARIZES THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE
PROPOSED SALE. IT DOES NOT ADDRESS ANY STATE OR LOCAL TAX CONSEQUENCES.
STOCKHOLDERS ARE ADVISED TO CONSULT WITH THEIR TAX ADVISORS FOR A MORE DETAILED
ANALYSIS OF ANY FEDERAL, STATE OR LOCAL TAX CONSEQUENCES.
For tax purposes, the gain will be equal to the net proceeds of the sale
plus liabilities transferred less the tax basis of the assets sold. In
accordance with the limitations imposed upon the utilization of net operating
losses by the Internal Revenue Code, an Alternative Minimum Tax of approximately
$200,000 will be imposed on the Company and accordingly, a tax expense and
related obligation will be recognized in connection with the Proposed Sale.
The cash received by a stockholder as its Initial Distribution would first
be treated as a dividend (subject to applicable ordinary income tax rates) to
the extent of the Company's earnings and profits for the year in which the
Initial Distribution is paid. Next, any cash received in excess thereof would be
treated as a nontaxable return of capital to the extent of the stockholder's tax
basis in the Company's stock. Thereafter, any cash received in excess of such
tax basis will be treated as either short-term or long-term capital gain
depending upon the length of the stockholder's holding period.
The federal income tax consequences to the Company's stockholders of the
Initial Distribution will depend on the timing of both the closing date of the
Proposed Sale and the making of the Initial Distribution. The gain reported by
the Company on the Proposed Sale will be includable in the Company's earnings
and profits for the tax year in which the Closing occurs. If the closing of the
Proposed Sale and the making of the Initial Distribution occur in different tax
years, then the gain on the Proposed Sale would not result in any dividend
treatment with respect to the Initial Distribution. Accordingly, if, as
expected, the closing of the Proposed Sale occurs in 1999 and the making of the
Initial Distribution occurs in 2000, the gain on the Proposed Sale would not
result in any dividend treatment with respect to the Initial Distribution.
On the other hand, if the closing of the Proposed Sale and the making of the
Initial Distribution were both to occur in 2000, the Company estimates a
material portion of the Initial Distribution would be taxable as a dividend.
Accordingly, in the event the closing date of the Proposed Sale occurs in the
year 2000, the Initial Distribution will be postponed until January 2001.
Stockholders should consult their personal tax advisor to determine the
impact of these transactions to their particular tax situation.
THE COMPANY WILL NOT SEEK AN OPINION OF COUNSEL WITH RESPECT TO THE
ANTICIPATED TAX TREATMENT.
DISTRIBUTIONS TO THE COMPANY'S STOCKHOLDERS
PAYMENT OF INITIAL DISTRIBUTION TO HOLDERS OF COMMON SHARES
The Company's Board of Directors has voted to make a distribution to the
Company's stockholders of record as of the Distribution Record Date described
below in the aggregate amount of $9,800,000 (the "INITIAL DISTRIBUTION"). The
Initial Distribution is subject to the closing of the Proposed Sale. The
Distribution Record Date shall be the date which is the thirtieth (30(th)) day
after the closing; provided, however, that if the closing occurs on or after
January 1, 2000, then the Distribution Record Date will be January 2, 2001. The
Initial Distribution will be made on the date which is the tenth (10(th)) day
following the Distribution Record Date or as soon as reasonably practicable
thereafter (the "INITIAL DISTRIBUTION DATE").
27
<PAGE>
The Company believes that the $11,250,000 Closing Date Payment to be made by
the Buyer will be sufficient for the Company to make the Initial Distribution
and to satisfy: (1) the closing and post closing reductions to the Purchase
Price set forth in the Sale Agreement (see "CLOSING ADJUSTMENTS,"and "POST
CLOSING ADJUSTMENTS") currently estimated to be approximately $200,000;
(2) payments required to be made to Connecticut Innovations pursuant to the
Connecticut Innovations Letter and the Sale Agreement (see "CONNECTICUT
INNOVATIONS AGREEMENTS") currently estimated to be approximately $232,000;
(3) the expenses and taxes related to the Proposed Sale, currently estimated to
be approximately $450,000, (4) the Company's operating expenses through the
Initial Distribution Date; and (5) the amount of reserves as may be determined
by the Company's Chairman to be necessary and appropriate to the conduct of the
Company's business after the closing, including discharging or making provision
for discharging the Company's closing date liabilities retained by the Company.
The Company's Chairman, however, has the authority to reduce the Initial
Distribution in the event that, prior to the Initial Distribution Date, he
determines that the actual amounts required to satisfy items (1) through
(5) will be more than the Company's present estimate. Accordingly, there can be
no assurance that the Company will make the Initial Distribution or that the
amount of the Per Share Distribution will not be materially less than the
Company's estimate.
SUBSEQUENT DISTRIBUTION OF THE HOLDBACK AMOUNT
The Holdback Amount will remain in escrow for approximately two years after
the closing and will be available to satisfy the Buyer's claims for
indemnification under the Sale Agreement. See "INDEMNIFICATION."Moreover a
portion of the Holdback Amount will be used to reimburse the Buyer for the
Retention Bonus Reimbursement. See "EMPLOYEE REIMBURSEMENT AGREEMENTS." The net
amount of the Holdback Amount remaining after satisfaction of these obligations
will be distributed to the Company. The Company, in turn, intends to make a
distribution of this net amount to the Company's stockholders. The amount of
such distribution, however, could be reduced by, among other things, the
Company's need to satisfy or provide for liabilities, contingencies and reserves
existing at the time of such distribution, any contractual restrictions limiting
such a distribution which may exist at the time of such distribution, and the
Company's activities after the sale. See "BUSINESS OF THE COMPANY FOLLOWING THE
PROPOSED SALE." Accordingly, there can be no assurance that any portion of the
Holdback Amount will be distributed to the Company's stockholders.
CASHLESS EXERCISE OF CERTAIN OUTSTANDING OPTIONS AND WARRANTS
The Company currently has outstanding options and warrants to purchase
5,599,161 Shares at per Share exercise prices between ten cents ($0.10) and
thirty three cents ($0.33) (the "SPECIAL OPTIONS"). The Company believes that it
is likely that all or a material portion of the Special Options will be
exercised on or prior to the Distribution Date in the event the Proposed Sale is
consummated.
In order to facilitate the exercise of the Special Options, the Company's
Board of Directors has authorized a procedure permitting a "cashless" exercise
of the Special Options (the "CASHLESS EXERCISE") as follows: the Company will
permit each holder of the Special Options to exercise its Special Options in
full by delivery of written instructions to the Company to withhold the dollar
amount of the exercise price of the Special Option from the Per Share
Distribution with respect to the Shares issuable upon exercise of a Special
Option. The Cashless Exercise may only be made during the period from the
closing to the Distribution Record Date (the "CASHLESS EXERCISE PERIOD"). A
Cashless Exercise will be effective upon, and only upon, the making of the
Initial Distribution and only if the Per Share Distribution to an exercising
option holder would be at least equal to the option exercise price. The Cashless
Exercise described above is in addition to any other payment terms provided for
in the Special Option or the plan pursuant to which the Special Option was
issued. For purposes of determining the Per Share Distribution, (i) the Shares
issuable upon all Special Options for which the Company has received a valid and
timely exercise notice (the "EXERCISED SPECIAL OPTIONS") shall be considered
outstanding and of record as of the Distribution Record Date, and (ii) the
exercise price of
28
<PAGE>
all Exercised Special Options shall be deemed received by the Company and added
to the dollar amount of the Initial Distribution. The actual amount of the per
Share Initial Distribution to all of the Company's stockholders will be
calculated based upon the number of Shares outstanding as of the date of the
Distribution Record Date, including Shares to be issued upon the Cashless
Exercise of the Special Options on or before the Distribution Record Date. The
amount of the Per Share Distribution payable to holders of Shares received upon
exercise of Special Options (the "CASHLESS EXERCISE SHARES") will be reduced by
the aggregate exercise price of those Special Options.
Assuming no options or warrants are exercised prior to the Distribution
Record Date, and based upon 14,372,152 Shares outstanding, the amount of the Per
Share Distribution would be approximately $0.68. In the likely event all of the
Special Options were exercised on a Cashless Exercise basis, and assuming no
other change in the Company's capitalization, the Company would have 19,971,313
shares outstanding on the Distribution Record Date, and the Per Share
Distribution would then be approximately $0.58. The net amount of the Per Share
Distribution payable with respect to the Cashless Exercise Shares will range
from $0.25 to $0.48 per Share.
The Stockholders will not have the ability to vote upon the "cashless"
exercise provisions described above at the Special Meeting.
CONFLICTS OF INTEREST OF MR. ENGELBERGER
As a condition to its execution of the Sale Agreement, the Buyer required
that Mr. Engelberger enter into a Consulting Agreement pursuant to which Mr.
Engelberger would provide the Buyer with up to 246 days of consulting services
over the three year consulting period. The Agreement includes agreements on the
part of Mr. Engelberger (1) not to disclose confidential information of the
Buyer or its affiliated companies; (2) not to solicit employees,
representatives, officers or directors of the Buyer or its affiliated companies
for the longer of two years after the termination or expiration of
Mr. Engelberger's consulting services, or five years after the date of the
Agreement (the "RESTRICTED PERIOD"); (3) not to engage in any business
competitive with the business or activities of the Buyer or its affiliated
companies during the Restricted Period; and (4) acknowledging the Buyer's
ownership of technology developed during the term of Mr. Engelberger's
consulting services. Mr. Engelberger has also agreed not to knowingly take
action which would impair the value of the business of the Buyer or its
affiliated companies, including actions which would interfere with its
contractual relationships, diminish its reputation, or divert its customers. The
terms of the Proposed Sale were negotiated by Mr. Engelberger who is an
executive officer, director and stockholder of the Company. Mr. Engelberger
recommended the transaction to the Board of Directors and, as a member of the
Board of Directors, he voted in favor of the Proposed Sale. As a result of the
Consulting Agreement, Mr. Engelberger will be receiving fees in connection with
the proposed sale which will not been enjoyed by the other stockholders. In
negotiating the terms of the Consulting Agreement, Mr. Engelberger might be
deemed to have had interests which conflicted with those of the other
stockholders. At the closing, Mr. Engelberger's existing employment agreement
with the Company will be terminated.
In connection with the Proposed Sale, the Board of Directors has approved an
amendment to the Company's 1995 Amended and Restated Stock Option Plan to
accelerate the vesting of all outstanding options issued under that plan upon
the consummation of the Proposed Sale. As a result of this action, options
having an exercise price of between $.18 and $.20 per Share held by the
following officers and directors of the Company will vest (with respect to the
number of Shares listed in parentheses) as a result of the Proposed Sale: Joseph
F. Engelberger (64,543) and Fred T. Cordano (44,161). Assuming that the Company
makes an Initial Distribution of $9,800,000, and that Mr. Engelberger and
Mr. Cordano exercise these options prior to the Distribution Record Date, they
would receive, respectively, an aggregate amount of $25,806 and $17,661 with
respect to the Initial Distribution on the shares each receives upon exercise of
these options.
29
<PAGE>
PRO FORMA SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
The following unaudited pro forma selected financial data for the fiscal
year ended December 31, 1998, and the nine month period ended September 30, 1999
and as of September 30, 1999 were derived from the unaudited pro forma
statements of operations and the unaudited pro forma balance sheet included
elsewhere in this Proxy Statement and reflect the historical accounts of the
Company as of that date adjusted to give pro forma effect to the Proposed Sale
as if the transaction had occurred as of September 30, 1999. The pro forma
financial data for the nine month period ended September 30, 1998 is not
included in this Proxy Statement. This pro forma selected financial data should
be read in conjunction with the description of the Sale Agreement contained in
this Proxy Statement and the pro forma statements appearing elsewhere herein. As
of September 30, 1999, Stockholders' equity was $1,522; the pro forma
Stockholders' equity as of September 30, 1999 after giving effect to the
Proposed Sale and the estimated Initial Distribution would be $1,244.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
------------------- -----------
1999 1998 1998
-------- -------- -----------
<S> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA
Net revenues................................................ $ -- $ 271 $ 271
Net loss.................................................... 100 120 128
Net loss per share before Special Options:
Basic and diluted........................................... $(.01) $(.01) $(.01)
Net loss per share after Special Options
Basic and diluted........................................... $ .00 $(.01) $ .00
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
PRO FORMA BALANCE SHEET DATA ------------------------
<S> <C>
Current assets.............................................. $1,250
Total assets................................................ $2,500
Stockholders' equity........................................ $1,244
</TABLE>
30
<PAGE>
HISTORICAL MARKET PRICE
The following table sets forth the high and low sales price of the Company's
Common Stock, as reported on the NASDAQ Small Cap Market (prior to
September 29, 1997) and on the OTC Bulletin Board (thereafter).
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1997
First Quarter............................................... $1.50 $.75
Second Quarter.............................................. 1.03 .78
Third Quarter............................................... .94 .31
Fourth Quarter.............................................. .67 .27
1998
First Quarter............................................... $ .45 $.27
Second Quarter.............................................. .34 .16
Third Quarter............................................... .25 .13
Fourth Quarter.............................................. .69 .13
1999
First Quarter............................................... $ .44 $.19
Second Quarter.............................................. .39 .17
Third Quarter............................................... .34 .19
</TABLE>
RECENT MARKET PRICE
The following table sets forth the closing price and the high and low sales
price per share of the Company's Common Stock on the OTC Bulletin Board on
October 12, 1999, the last trading day preceding the public announcement of the
Proposed Sale and on November 4, 1999, the latest practicable trading day before
the printing of this Proxy Statement.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
October 12, 1999............................................ $.17 $.17
November 4, 1999............................................ $.38 $.33
</TABLE>
NUMBER OF HOLDERS
As of the Record Date, there were approximately 1,100 holders of record of
the Company's Common Stock.
31
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following tabulation reflects the historical loss per share from
operations in comparison with the pro forma loss per share from operations after
giving effect to the Sale Agreement and discontinued operations resulting
therefrom. The information presented in this tabulation should be read in
conjunction with the description of the Sale Agreement contained in this Proxy
Statement and the pro forma financial statements appearing elsewhere herein and
the Company's financial statements included in the Company's 1998 Annual Report
on Form 10-KSB, as amended, and the Company's Quarterly Report on Form 10-QSB,
as amended, for the nine month period ended September 30, 1999, copies of which
are attached hereto, respectively, as Appendix D and Appendix E.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
----------------- -----------
1999 1998
---- -----------
<S> <C> <C>
Basic and diluted loss per share
Historical.................................................. $(.03) $(.04)
Pro Forma Before Special Options............................ (.01) (.01)
Pro Forma After Special Options............................. .00 .00
</TABLE>
BOOK VALUE PER SHARE
(UNAUDITED)
The following tabulation reflects the historical net book value per Share of
the Company's Common Stock from operations in comparison with the pro forma net
book value per share of the Company's Common Stock from operations after giving
effect to the Sale Agreement and estimated Initial Distribution at
September 30, 1999 (1) before giving effect to the Special Options, based on
14,372,152 basic and diluted shares outstanding, and (2) after giving effect to
the Special Options, based on 19,971,313 basic and diluted shares outstanding.
The information presented in this tabulation should be read in conjunction with
the description of the Sale Agreement contained in this Proxy Statement and the
pro forma financial statements appearing elsewhere herein and in the Company's
1998 Annual Report on Form 10-KSB, as amended, and the Company's Quarterly
Report on Form 10-QSB, as amended, for the nine month period ended
September 30, 1999, copies of which are attached hereto, respectively, as
Appendix D and Appendix E.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-----------------------------------------------------------
PRO FORMA PRO FORMA
HISTORICAL BEFORE SPECIAL OPTIONS AFTER SPECIAL OPTIONS
---------- ---------------------- ---------------------
<S> <C> <C> <C>
Book value per share.......................... $.11 $.09 $.06
</TABLE>
32
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma statements of operations for the nine
months ended September 30, 1999 and the year ended December 31, 1998 reflect the
historical accounts of the Company for that period, adjusted to give pro forma
effect to the Proposed Sale as if the transaction had occurred at the beginning
of each period presented.
The following unaudited pro forma balance sheet as of September 30, 1999
reflects the historical accounts of the Company as of that date adjusted to give
pro forma effect to the Proposed Sale as if the transaction had occurred as of
September 30, 1999.
The pro forma financial data and accompanying notes should be read in
conjunction with the description of the Sale Agreement contained in this Proxy
Statement, the Financial Statements and related notes included in Company's 1998
Annual Report on Form 10-KSB, as amended, previously filed with the Securities
and Exchange Commission and Form 10-QSB, as amended, for the quarter ended
September 30, 1999, copies of which are attached hereto, respectively, as
Appendix D and Appendix E. The Company believes that the assumptions used in the
following statements provide a reasonable basis on which to present the pro
forma financial data. The pro formal financial data is provided for
informational purposes only and should not be construed to be indicative of the
Company's financial condition or results of operations had the Proposed Sale
been consummated on the dates assumed and are not intended to project the
Company's financial condition on any future date or results of operations for
any future period.
33
<PAGE>
HELPMATE ROBOTICS INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS (1) PRO FORMA
---------- --------------- ----------
<S> <C> <C> <C>
Revenues:.............................................. $4,546,574 $(4,275,391) $ 271,183
Cost of revenues:...................................... 2,798,667 (2,499,482) 299,185
---------- ----------- ----------
Gross Profit........................................... 1,747,907 (1,775,909) (28,002)
Selling general and administrative..................... 2,205,343 (2,105,343) 100,000
---------- ----------- ----------
Operating loss......................................... (457,436) 329,434 (128,002)
Other income/expense, net.............................. (4,682) 4,682 --
---------- ----------- ----------
Net Loss............................................... $ (462,118) $ 334,116 $ (128,002)
========== =========== ==========
Net Loss per share (before Special Options):
Basic and diluted...................................... $ (.04) $ (.01)
========== ==========
Weighted average shares (before Special Options):
Basic and diluted...................................... 11,429,291 11,429,291
Net loss per share (after Special Options):
Basic and diluted...................................... NA $ .00
Weighted average shares (after Special Options)........ NA 17,028,452
========== ==========
</TABLE>
- ------------------------
(1) Elimination of sales, costs of sales and selling, general and administrative
expenses related to the sale of the Company's assets.
34
<PAGE>
HELPMATE ROBOTICS INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS (1) PRO FORMA
---------- --------------- ----------
<S> <C> <C> <C>
Revenues:.............................................. $2,326,013 $(2,326,013) $ --
Cost of revenues:...................................... 1,297,750 (1,297,750) --
---------- ----------- ----------
Gross Profit........................................... 1,028,263 (1,028,263) --
Selling general and administrative..................... 1,372,530 (1,272,530) 100,000
---------- ----------- ----------
Operating loss......................................... (344,267) 244,267 (100,000)
Other income/expense, net.............................. (7,155) 7,155 --
---------- ----------- ----------
Net Loss............................................... $ (351,422) $ 251,422 $ (100,000)
========== =========== ==========
Net Loss per share (before Special Options):
Basic and diluted...................................... $ (.03) $ (.01)
========== ==========
Weighted average shares (before Special Options):
Basic and diluted...................................... 14,276,238 14,276,238
Net Loss per share (after Special Options):
Basic and diluted...................................... N/A $ .00
Weighted average shares (after Special Options): N/A 19,875,399
========== ==========
</TABLE>
- ------------------------
(1) Elimination of sales, costs of sales and selling, general and administrative
expenses related to the sale of the Company's assets.
35
<PAGE>
HELPMATE ROBOTICS INC.
PRO FORMA BALANCE SHEET AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................. $ 399,025 $ (399,025)(1) $ 1,250,000
11,050,000 (2)
(9,800,000)(4)
Accounts Receivable net of allowance for doubtful
accounts....................................... 239,498 (239,498)(1) --
Inventory, net of reserve for obsolescence....... 576,881 (576,881)(1) --
----------- ------------ -----------
Total current assets............................. 1,215,404 34,596 1,250,000
Property and equipment, net of accumulated
depreciation and amortization.................. 1,008,596 (1,008,596)(1) --
Deposits......................................... 113,189 (113,189)(1) --
Cash held in escrow.............................. -- 1,250,000 (2) 1,250,000
----------- ------------ -----------
$ 2,337,189 $ 162,811 $ 2,500,000
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable................................. $ 121,428 $ (95,059)(1) $ 26,369
Accrued Expenses................................. 498,502 550,356 (1)(6) 1,048,858
Notes payable.................................... 98,086 -- 98,086
Deferred revenue................................. 96,890 (14,669)(1) 82,221
----------- ------------ -----------
Total current liabilities........................ 814,906 440,628 1,255,534
Stockholders Equity.............................. 1,522,283 9,522,183 (3) 1,244,466
(9,800,000)(4)
----------- ------------ -----------
$ 2,337,189 $ 162,811 $ 2,500,000
=========== ============ ===========
Book value per share before Special Options...... $ .11 $ .09
=========== ===========
Shares at end of period before Special Options... 14,372,152 14,372,152
=========== ===========
Book value per share after Special Options....... N/A $ .06
=========== ===========
Shares at end of period after Special Options.... N/A 19,971,313
=========== ===========
</TABLE>
- ------------------------
(1) Reflects assets that will be sold and includes liabilities that will be
assumed by the Buyer in connection with the Proposed Sale.
(2) To reflect proceeds resulting from and related to the Proposed Sale.
<TABLE>
<CAPTION>
<S> <C>
Proceeds:
Cash from sale of assets (See Note 5)................... $12,500,000
Estimated purchase price adjustments.................... (200,000)
Cash held in escrow for two years....................... (1,250,000)
-----------
Net proceeds............................................ $11,050,000
Estimated distributions (See Note 4).................... (9,800,000)
-----------
$ 1,250,000
===========
</TABLE>
36
<PAGE>
(3) Estimated book gain resulting from the proposed sale calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross proceeds (See Note 5)............................. $12,500,000
Estimated Purchase Price Adjustments.................... (200,000)
Net book value of acquired assets....................... (2,227,817)
Taxes and transaction costs (See Note 6)................ (550,000)
-----------
Book gain............................................... $ 9,522,183
===========
</TABLE>
(4) Estimated Initial Distribution of $9,800,000.
(5) Exclusive of $300,000 Waiver and Releases Payment paid directly by Buyer to
Connecticut Innovations.
(6) Includes the $100,000 Waiver and Release Payment paid by the Company to
Connecticut Innovations.
37
<PAGE>
BUSINESS OF THE COMPANY FOLLOWING THE PROPOSED SALE
As a result of the Proposed Sale, substantially all of the Company's assets
will be sold, and certain of its liabilities will be assigned to and assumed by
the Buyer, and the Company will retain cash, certain remaining net loss carry
forwards (which may be used to offset future income, if any) and certain
liabilities. Set forth below is a description of the Company's business as
proposed to be operated following consummation of the Proposed Sale. The
stockholders of the Company will not have an opportunity to vote separately on
the Proposed Sale and the change in the nature of the Company's business. A vote
for the approval of the Proposed Sale is also a vote for a change in the nature
of the Company's business. See "RISK FACTORS."
BUSINESS PLAN
Upon consummation of the Proposed Sale, the business objective of the
Company (hereinafter, "POST-SALE HRI") will be to effect a business combination
with an operating business which Post-Sale HRI believes has potential to
increase stockholder value. Any such business combination would depend on the
availability of attractive candidates and the Company's ability to consummate
any such business combination. Post-Sale HRI intends to use its available cash
after payment of the Initial Distribution, together with additional equity or
debt, if any, or a combination thereof, in effecting a business combination.
Post-Sale HRI will endeavor to structure any business combination in a manner
which would not require a substantial capital investment by Post-Sale HRI of the
net proceeds of the Proposed Sale. Post-Sale HRI may at any time cease to pursue
this business objective, and may consider other alternatives, including
recommending the dissolution of Post-Sale HRI to its stockholders.
Of the various methods and forms by which Post-Sale HRI may structure a
business combination, Post-Sale HRI may use, without limitation, one of the
following forms: (i) a merger or consolidation of the new operating business
into or with Post-Sale HRI; (ii) a merger or consolidation of the new operating
business into or with a subsidiary of Post-Sale HRI,; (iii) an acquisition of
all, a controlling amount or a minority interest in the equity of a new
operating business; (iv) an acquisition of the assets of a new operating
business by Post-Sale HRI or a subsidiary; (v) a merger or consolidation of
Post-Sale HRI with or into the new operating business or subsidiary thereof;
(vi) a leveraged buyout transaction in which most of the purchase price is
provided by borrowings; or (vii) a combination of any of the foregoing. The
actual form and structure of a business combination may also be dependent upon
numerous other factors pertaining to the new operating business and its
stockholders as well as potential tax and accounting treatments afforded the
business combination.
The Company has not identified any acquisition candidates or the
availability of financing arrangements, and there can be no assurance that any
business combination will be accomplished or, if accomplished, it will result in
increased stockholder value. The Company has not chosen (nor will it choose
prior to the completion of the Proposed Sale) any particular area of business in
which it may propose to engage. Post-Sale HRI, however, would not engage in any
business which would cause it to be in violation of the non-competition
provisions of the Sale Agreement. See "THE PROPOSED SALE--THE COMPANY'S
NON-COMPETE RESTRICTIONS." The Company has not conducted any market studies with
respect to any business, property or industry. Nothing contained herein is, nor
shall it be deemed to be, a representation regarding the viability of Post-Sale
HRI, or of the availability, viability or success of any subsequent business
combinations or the results of operations of Post-Sale HRI in connection with
such subsequent business combinations or business venture. While Post-Sale HRI
expects to explore possible business combinations with more than one prospective
operating business, there can be no assurance that any business combination
transaction will be effected. See "RISK FACTORS" below for important factors
that should be considered in connection with the realization of Post-Sale HRI's
business objective.
This newly reconfigured Company will endeavor to effect a business
combination transaction that will add to stockholder value. Mr. Engelberger, at
the direction of the Board of Directors, will initially
38
<PAGE>
have the primary responsibility of seeking potential business combinations. The
Company currently intends to pursue this business strategy for a period of six
months following the closing of the Proposed Sale. Prior to the end of that
period, if no business combination has been effected and Post-Sale HRI
determines that no potential business combination is reasonably likely to occur,
Post-Sale HRI would terminate this business strategy and would consider what
appropriate action to take at that point. Such appropriate action could include
the dissolution and winding up of Post-Sale HRI. The dissolution of Post-Sale
HRI would require the vote of its stockholders.
The ability to acquire and to successfully and profitably operate a new
operating business, if any, will be subject to substantial business risks. See
"RISK FACTORS."
TRANSITION ACTIVITIES AND OPERATIONS
It is anticipated that the sole executive officer of Post-Sale HRI will
initially consist of Mr. Engelberger who will implement Post-Sale HRI's strategy
of pursuing business combinations with new operating businesses at the direction
of the Board of Directors. Mr. Engelberger expects to devote no more than
approximately three days per month of his professional time to the business of
Post-Sale HRI. At the present time, it is the intention of management and the
Board of Directors to meet or be in telephone contact periodically to review
business opportunities and evaluate potential business combinations. Prior to
any such business combination, Mr. Engelberger will administer the affairs of
Post-Sale HRI (including financial reporting matters, general administrative
concerns and the payment of retained liabilities) with the assistance of
consultants hired on an as needed basis. The need for employees or consultants
and their availability will be addressed in connection with the decision of
whether or not to acquire a new operating business or otherwise participate in a
specific business combination. HRI is unable to make any estimate as to the
future number of employees which may be necessary, if any, to work for Post-Sale
HRI. If a new operating business is acquired, it is possible that the existing
staff of that new operating business would be hired by Post-Sale HRI.
STRUCTURE AND FINANCING OF BUSINESS COMBINATIONS
No agreements, commitments or understandings have been made with any
operating business candidates. No assurances can be made that future discussions
will result in definitive agreements, although it is the Company's intention to
proceed diligently with the implementation of Post-Sale HRI's business plan.
It is anticipated that Post-Sale HRI would use cash, equity, debt or a
combination of these to achieve a business combination. POST-SALE HRI WILL
ENDEAVOR TO USE NO MORE THAN $100,000 OF THE PROCEEDS OF THE PROPOSED SALE
RECEIVED AT CLOSING TO STRUCTURE ANY BUSINESS COMBINATION. POST-SALE HRI WOULD
NOT USE ANY OF THE HOLDBACK AMOUNT TO STRUCTURE ANY BUSINESS COMBINATION.
Post-Sale HRI may borrow funds to increase the amount of capital available for a
business combination or otherwise finance the operation of the new operating
business. The amount and nature of any borrowings by Post-Sale HRI will depend
on numerous considerations including its capital requirements, its perceived
ability to service such debt and prevailing conditions in the financial markets
and the general economy. Although Post-Sale HRI has no commitments to issue any
Common Stock, Post-Sale HRI may issue a substantial number of additional shares
in connection with a business combination. To the extent that such additional
Shares are issued, dilution to the interest of Post-Sale HRI's stockholders may
occur and the value of the Shares may be adversely affected. To the extent
required by applicable law in connection with any material future business
combinations or with respect to the issuance of its securities, Post-Sale HRI
would file all proxy materials required to be filed with the Commission, would
solicit proxies in accordance with the requirements of the applicable securities
laws with respect to meetings where such business combinations or securities
issuances were to be approved by its stockholders, and would file any requisite
registration statements under the applicable securities laws in connection with
such business combinations or securities issuances. See "RISK FACTORS."
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INFORMATION ABOUT CERTAIN BENEFICIAL OWNERS OF COMMON STOCK
The following table sets forth information based upon the Company's records
and Securities and Exchange Commission filings with respect to each executive
officer, each director and nominee for director, each person known to be a
beneficial owner of more than 5% of the Common Stock of the Corporation and all
executive officers and directors as a group as of November 4, 1999. Under the
rules and regulations of the Securities and Exchange Commission, a person is
deemed to own beneficially all securities of which that person owns or shares
voting or investment power as well as all securities which may be acquired
through the exercise of currently available conversion, warrant or option
rights. Unless otherwise indicated, each such person possesses sole voting and
investment power with respect to the shares owned by him.
<TABLE>
<CAPTION>
ADDRESS SHARES PERCENT
------- --------- --------
<S> <C> <C> <C>
Connecticut Financial c/o Prospect Street Connecticut Capital 1,014,188 7.06%
Developments, LP Inc.
250 Park Avenue, 17th Floor
New York, NY 10177
Robert Gault (1) 91 Shelby Street 806,060 5.53%
Eminence, KY 40019
Gabriel Kaplan (2) 9551 Hidden Valley Road 1,099,091 7.49%
Beverly Hills, CA 90210
The Boston Group, LP (3) 545 Madison Avenue, 14(th) Floor 2,411,866 14.37%
New York, NY 10022
Connecticut Innovations, 999 West Street 3,144,822 20.54%
Incorporated (4) Rocky Hill, CT 06067
Joseph F. Engelberger(5) HelpMate Robotics Inc. 2,139,048 14.25%
22 Shelter Rock Lane
Danbury, CT 06810
Fred T. Cordano (6)(7) HelpMate Robotics Inc. 81,555 (9)
22 Shelter Rock Lane
Danbury, CT 06810
Howard E. Motter (8) 810 Monroe Turnpike 30,000 (9)
Monroe, 06468
Theodore Sall (8) 47 Lake View Drive 43,000 (9)
Old Tappan, NJ 07675
Sheldon Sandler (8) 11131 Taylor Court 30,000 (9)
Lawrenceville, NJ 08648
Joseph Cote (8) 19 Mallard Drive 30,000 (9)
Huntington, NY 11743
All Directors and Executive 2,353,603 15.47%
Officers as a Group (6)(7)(8)
</TABLE>
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(1) Includes warrants to purchase 200,000 Shares.
(2) Includes warrants to purchase 300,000 Shares.
(3) Consists of warrants to purchase 2,411,866 Shares.
(4) Includes warrants to purchase 938,939 Shares.
(5) Includes 72,589 Shares of owned by Mr. Engelberger's wife, Margaret
Engelberger, but does not include Shares beneficially owned by
Mr. Engelberger's adult children or his brother. Also includes 311,616
Shares owned by the Joseph F. Engelberger Foundation. Includes options to
purchase 64,543 shares whose vesting will be accelerated as a result of the
Proposed Sale. See "CONFLICTS OF INTEREST OF MR. ENGELBERGER." Also includes
warrants to purchase 504,200 Shares, and options to purchase 72,613 Shares.
(6) Includes options to purchase 44,161 shares whose vesting will be accelerated
as a result of the Proposed Sale.
(7) Include Options to purchase 32,468 Shares.
(8) Includes options to purchase 30,000 shares owned by each such person.
(9) Less than one percent.
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SOLICITATION OF PROXIES
The cost of soliciting proxies for the Special Meeting will be borne by the
Company. In addition to solicitation by mail, solicitations may also be made by
personal interview, telecopier, telegram and telephone. The Company will use the
services of American Stock Transfer & Trust Company to assist in soliciting
proxies, and expects to pay a nominal fee for such services. Arrangements will
be made with brokerage houses and other custodians, nominees and fiduciaries to
send proxies and proxy material to their principals. Consistent with the
Company's confidential voting procedure, directors, officers and other regular
employees of the Company, as yet undesigned, may also request the return of
proxies by telephone, telecopier, telegram or in person.
STOCKHOLDER PROPOSALS
As more fully explained in the Company's Bylaws, stockholder proposals
intended to be presented at any meeting of stockholders, including the Special
Meeting, including proposals for the nomination of directors, removal of
directors, amendments to the Company's Certificate of Incorporation or Bylaws or
the repeal of a bylaw, must be received in writing by the Company's Secretary,
no later than 50 days in advance of the meeting of stockholders, or, if fewer
than 50 days' notice or prior public disclosure of the meeting date is given or
made by the Company, not later than the seventh day after which notice was
mailed or such public disclosure was made.
INDEPENDENT AUDITORS
Representatives of Arthur Andersen LLP, the Company's independent auditors,
are expected to be present at the Meeting, where they will be available to
respond to appropriate questions and have the opportunity to make a statement if
they so desire.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
As required by law, the Company files reports, proxy statements and other
information with the SEC (SEC file number 1-14160). These reports, proxy
statements and other information contain additional information about the
Company. You can inspect and copy these materials at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the following Regional Offices of the SEC:
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade
Center, Suite 1300, New York, New York 10048. For further information concerning
the SEC's public reference rooms, you may call the SEC at 1-800-SEC-0330. Some
of this information may also be accessed on the World Wide Web through the SEC's
Internet address at http://www.sec.gov.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT.
THE COMPANY HAS NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION DIFFERENT FROM THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED
DECEMBER 19, 1999.
OTHER REPORTS
Attached hereto and incorporated herein are copies of the following
documents which have been filed by the Company with the Commission:
(a) The Company's Annual Report on Form 10-KSB, as amended, for the year
ended December 31, 1998, which is attached hereto as Appendix D; and
(b) The Company's Quarterly Report on Form 10-QSB, as amended, for the nine
months ended September 30, 1999, which is attached hereto as Appendix E.
41
<PAGE>
OTHER BUSINESS
The Board does not intend to bring any matters before the Special Meeting
other than those set forth in the accompanying notice. The Board knows of no
other matters to be brought before the Special Meeting by others. However, if
any other matters are brought before the meeting, the proxies named in the
enclosed form of proxy will vote in accordance with their judgment on such
matters.
By Order of the Board of Directors,
Prudence Shepard
Assistant Secretary
December 19, 1999
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APPENDIX A
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of October 14, 1999,
is between Pyxis Corporation, a Delaware corporation ("Buyer"), and Helpmate
Robotics, Inc., a Connecticut corporation ("Seller").
RECITALS :
A. Seller is in the business of developing, manufacturing and marketing
mobile robotic systems which are distinguished by their ability to navigate
autonomously without the need for fixed tracks or guide wires, and selling other
robot components; and
B. Buyer desires to purchase and Seller desires to sell substantially all of
the assets of Seller used or useful in the business of Seller on the terms and
subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, Buyer and Seller hereby agree as follows:
ARTICLE I. ASSETS TO BE PURCHASED
Section 1.1. DESCRIPTION OF ASSETS. Except for Excluded Assets (as
hereinafter defined), upon the terms and subject to the conditions set forth in
this Agreement, at the Closing (as hereinafter defined), Seller shall convey,
sell, transfer, assign and deliver to Buyer, and Buyer shall purchase from
Seller, all right, title and interest of Seller at the Time of Closing in and to
all of the assets, properties, rights (contractual or otherwise) and business of
Seller wherever located, including, without limitation, those set forth below:
(a) All machinery, equipment (including, without limitation, computer
hardware), tooling, parts, furniture, supplies, and other tangible personal
property (the "Personal Property") including, without limitation, the Personal
Property listed on Schedule 1.1(a)(1);
(b) All raw materials, component parts, production and non-production
supplies, work-in-process and finished goods inventory and other inventory of
Seller (the "Inventory"), including, without limitation, the Inventory listed on
Schedule 1.1(b);
(c) All franchises, licenses, permits, consents, authorizations, approvals
and certificates of any regulatory, administrative or other governmental agency
or body (to the extent the same are transferable) (the "Permits"), including,
without limitation, the Permits listed on Schedule 1.1(c);
(d) All patents, inventions, trade secrets, processes, proprietary rights,
proprietary knowledge, know-how, computer software, trademarks (including,
without limitation, the trademarks for the names "HelpMate" and "LabMate"),
names (including, without limitation, the names "LightRanger" and "BiSight"),
service marks, trade names, copyrights, symbols, logos, trade secrets,
franchises, formulas, manufacturing data, blueprints, drawings and permits and
all applications therefor, registrations thereof and licenses, sublicenses or
agreements in respect thereof, which Seller owns or has the right to use or to
which Seller is a party and all filings, registrations or issuances of any of
the foregoing with or by any federal, state, local or foreign regulatory,
administrative or governmental office (collectively, the "Proprietary Rights")
including, without limitation, the Proprietary Rights listed on Schedule 1.1(d);
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(1) Each reference in this Agreement to an Exhibit or Schedule shall mean an
Exhibit or Schedule attached to this Agreement and incorporated into this
Agreement by such reference.
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(e) All leases of equipment, computer hardware, machinery, vehicles or other
tangible personal property (the "Personal Property Leases"), including, without
limitation, the Personal Property Leases listed on Schedule 1.1(e);
(f) All contracts, agreements, contract rights, license agreements,
franchise rights and agreements, policies, purchase and sales orders, quotations
and executory commitments, instruments, third party guaranties,
indemnifications, arrangements, and understandings, whether oral or written, to
which Seller is a party (whether or not legally bound thereby) (the
"Contracts"), including, without limitation, the Contracts listed on Schedule
1.1(f);
(g) All accounts receivable and notes receivable, deposits, prepaid expenses
and other miscellaneous assets of Seller, including, without limitation, the
items listed on Schedule 1.1(g);
(h) All causes of action, judgments, claims or demands of whatever kind or
description which Seller has or may have against any other person or entity (the
"Seller's Claims"), including, without limitation, the Seller's Claims listed on
Schedule 1.1(h);
(i) All automobiles, trucks and other vehicles (the "Vehicles"), including,
without limitation, the Vehicles described on Schedule 1.1(i);
(j) All books of account, customer lists, supplier lists, files, papers and
records;
(k) All telephone and facsimile numbers and web site addresses;
(l) All goodwill of or relating to the business of Seller; and
(m) All cash and cash equivalents.
Notwithstanding the foregoing, there shall be excluded from the assets,
properties, rights (contractual and otherwise) and business of Seller to be
conveyed, sold, transferred, assigned and delivered to Buyer under this
Agreement all items listed or described on Schedule 1.1(x) (the "Excluded
Assets"). All of the assets, properties, rights (contractual and otherwise) and
business to be conveyed, sold, transferred, assigned and delivered to Buyer
pursuant to this Section 1.1 are hereinafter collectively referred to as the
"Property."
Section 1.2. NON-ASSIGNMENT OF CERTAIN PROPERTY. To the extent that the
assignment hereunder of any of the Contracts or Personal Property Leases shall
require the consent of any other party (or in the event that any of the same
shall be non-assignable), neither this Agreement nor any action taken pursuant
to its provisions shall constitute an assignment or an agreement to assign if
such assignment or attempted assignment would constitute a breach thereof or
result in the loss or diminution thereof; provided, however, that with respect
to any Contract or Personal Property Lease set forth on Schedule 7.1(f), Seller
shall use its best efforts to obtain the consent of such other party to an
assignment to Buyer, and with respect to any Contract or Personal Property Lease
not set forth on Schedule 7.1(f), Seller shall use commercially reasonable
efforts to obtain the consent of such other party to an assignment to Buyer. If
such consent is not obtained, Seller shall cooperate with Buyer in any
reasonable arrangement designed to provide for Buyer the benefits of any such
Contract or Personal Property Lease including, without limitation, enforcement
for the account and benefit of Buyer of any and all rights of Seller against any
other person with respect to any such Contract or Personal Property Lease.
ARTICLE II. ASSUMPTION OF OBLIGATIONS
Section 2.1. ASSUMPTION OF CERTAIN LIABILITIES. Buyer shall assume, and
indemnify (in accordance with the rights, procedures and limitations set forth
in Article VIII of this Agreement) Seller and the Seller Indemnified Parties (as
defined herein) with respect to, hold Seller and the Seller Indemnified Parties
harmless from and defend Seller and the Seller Indemnified Parties against
(a) the liabilities
A-2
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and obligations of Seller arising under the Personal Property Leases listed on
Schedule 1.1(e) and the Contracts listed on Schedule 1.1(f) to the extent such
liabilities and obligations arise and are first required to be performed after
the Closing and such Contracts and Personal Property Leases are actually
assigned to Buyer or Buyer gets the benefit of such Contracts and Personal
Property Leases, and (b) the liabilities of Seller set forth on Schedule 2.1.
All of the liabilities of Seller being assumed by Buyer are hereinafter referred
to as the "Assumed Liabilities" and the liabilities of Seller set forth on
Schedule 2.1 being assumed by Buyer are hereinafter referred to as the "Schedule
2.1 Liabilities".
Section 2.2. LIABILITIES NOT ASSUMED. With the exception of the Assumed
Liabilities, Buyer shall not, by the execution or performance of this Agreement,
or otherwise, assume or otherwise be responsible for any liability or obligation
of any nature of Seller, or claims of such liability or obligation, matured or
unmatured, liquidated or unliquidated, fixed or contingent, or known or unknown,
whether arising out of occurrences prior to, at or after the date hereof (the
"Retained Liabilities"), including, without limitation, any liability or
obligation of Seller to any Governmental Authority (as defined herein) with
respect to unpaid Taxes (as defined in Section 4.2(i)(v)). Seller shall pay or
otherwise satisfy in full, when due, all liabilities and obligations of Seller,
other than the Assumed Liabilities.
ARTICLE III. PURCHASE PRICE
Section 3.1. CONSIDERATION. Upon the terms and subject to the conditions
set forth in this Agreement, in consideration for the sale by Seller to Buyer of
the Property and the representations, warranties and covenants made by Seller to
Buyer:
(a) Buyer shall assume, and indemnify Seller and the Seller Indemnified
Parties with respect to, hold Seller and the Seller Indemnified Parties harmless
from and defend Seller and the Seller Indemnified Parties against (in accordance
with the rights, procedures and limitations set forth in Article VIII of this
Agreement), the Assumed Liabilities at the Time of Closing as provided in
Section 2.1 of this Agreement; and
(b) Subject to Section 3.3 of this Agreement, the purchase price for the
Property shall be $12,500,000 (the "Purchase Price"), payable in accordance with
Section 3.2.
Section 3.2. Payment of Purchase Price. The Purchase Price set forth in
Section 3.1(b) shall be paid at the Time of Closing by Buyer as follows:
(a) An amount equal to $11,250,000 (the "Closing Date Payment"), less any
deduction pursuant to Section 3.3(a) of this Agreement, payable by delivery to
Seller by wire transfer of immediately available funds to a bank account
designated by Seller in writing prior to the Time of Closing; and
(b) An amount equal to $1,250,000 (the "Holdback Amount"), payable by
deposit into an escrow account at the Closing to be held in accordance with the
terms and conditions of an Escrow Agreement by and among Buyer, Seller and Bank
One Trust Company, NA, a national banking association, in the form attached
hereto as Exhibit 3.2(b) (the "Escrow Agreement").
Section 3.3. ADJUSTMENT OF PURCHASE PRICE.
(a) Not less than three (3) business days prior to the Closing Date, Seller
shall deliver to Buyer an estimate of the Closing Date Net Current Asset Value
(as determined pursuant to clause (d) below) of Seller as of the Time of
Closing, determined on an accrual basis in accordance with generally accepted
accounting principles ("GAAP"), consistently applied (the "Estimated Closing
Date Net Current Asset Value"). To the extent that the Estimated Closing Date
Net Current Asset Value is less than zero, such difference (the "Estimated
Closing Date Net Current Asset Value Deficiency") will be deducted from the
Closing Date Payment to be paid to Seller.
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(b) As promptly as practicable (but in no event later than thirty (30) days
after the Closing Date), Seller shall deliver to Buyer a balance sheet of Seller
dated as of the close of business on the Closing Date (the "Closing Date Balance
Sheet") and an accompanying closing statement (the "Closing Statement")
reasonably detailing Seller's determination of the Closing Date Net Current
Asset Value of Seller and the Book Asset Value (as defined in clause (d) below)
of Seller. For purposes of this Section 3.3, the Closing Date Balance Sheet
shall be: (i) prepared as if it were a year-end balance sheet (including typical
year-end adjustments customarily made by Seller); (ii) prepared in accordance
with GAAP, applied on a basis consistent with that used to prepare the balance
sheet included in the Audited Statements using the accrual basis method;
provided, however, the Closing Date Balance Sheet shall not be required to be
audited; and (iii) in a format identical to the balance sheet included in the
Audited Statements. The accounting procedures used to prepare the Closing Date
Balance Sheet shall include the taking of a physical inventory as of ten
(10) days immediately preceding the Closing Date (the "Inventory Test Date") and
a subsequent adjustment to reflect sales which occur during the period beginning
on the Inventory Test Date and ending on the Closing Date. Buyer and its
independent public accountant shall be entitled to observe the taking of such
physical inventory. During such ten (10) day period, Buyer and its accountants
shall be permitted to discuss with Seller and its accountants the proposed
Closing Date Balance Sheet and, provided Buyer executes and delivers a letter
agreement in the form of Exhibit 3.3(b), Buyer and its accountants shall from
and after the Time of Closing have full access upon reasonable notice at all
reasonable times during normal business hours to the work papers and supporting
records of Seller and its accountants so as to permit Buyer and its accountants
to make copies of such work papers and supporting records and to allow Buyer to
become informed concerning all matters relating to the preparation of the
Closing Date Balance Sheet and the accounting procedures, methods, tests and
approaches being utilized in connection therewith. Buyer must, within sixty (60)
days after Buyer's receipt of the Closing Date Balance Sheet and the Closing
Statement, give written notice (the "Notice") to Seller specifying in reasonable
detail Buyer's objections, if any, with respect thereto. If Buyer does not
timely deliver the Notice, Seller's determination of the Closing Date Balance
Sheet, Closing Date Net Current Asset Value and the Book Asset Value shall be
final, binding and conclusive on Seller and Buyer. With respect to any disputed
amounts, Seller and Buyer shall meet in person and negotiate in good faith
during the ten (10) business day period (the "Resolution Period") after the date
of Seller's receipt of the Notice to resolve any such disputes. If Seller and
Buyer are unable to resolve all such disputes within the Resolution Period, then
within five (5) business days after the expiration of the Resolution Period, all
disputes shall be submitted to a nationally recognized public accounting firm
selected by Seller and Buyer (the "Independent Accountant") who shall be engaged
to provide a final and conclusive resolution of all unresolved disputes within
fifteen (15) business days after such engagement. The determination of the
Independent Accountant shall be final, binding and conclusive on Seller and
Buyer, and the fees and expenses of the Independent Accountant shall be borne by
the party that the Independent Accountant determines is the non-prevailing
party.
(c) If the Closing Date Net Current Asset Value is less than zero and less
than the Estimated Closing Date Net Current Asset Value, Seller shall pay to
Buyer, within thirty (30) business days after the final determination of the
Closing Date Net Current Asset Value pursuant to this Section 3.3, the
difference between the Closing Date Net Current Asset Value and the Estimated
Closing Date Net Current Asset Value (the "Closing Date Net Current Asset Value
Deficiency") (together with interest at the rate of nine percent (9%) per annum
from the Closing Date until paid). If the Book Asset Value is less than
$1,900,000, Seller shall pay to Buyer, within thirty (30) business days after
the final determination of the Book Asset Value pursuant to this Section 3.3,
the amount that the Book Asset Value is less than $1,900,000 (the "Book Asset
Value Deficiency") (together with interest at the rate of nine percent (9%) per
annum from the Closing Date until paid). If the Closing Date Net Current Asset
Value Deficiency or any interest thereon due to Buyer, or the Book Asset Value
Deficiency or any interest thereon due to Buyer, as the case may be, is not paid
to Buyer within thirty (30) business
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days after the final determination of the Closing Date Net Current Asset Value
or the Book Asset Value, as the case may be, pursuant to this Section 3.3, Buyer
shall have the right, but not the obligation, to withdraw the Closing Date Net
Current Asset Value Deficiency or the Book Asset Value Deficiency, as the case
may be, from the Holdback Amount (together with interest at the rate of nine
percent (9%) per annum from the Closing Date until withdrawn).
(d) The "Closing Date Net Current Asset Value" shall be determined by
subtracting: (i) the sum of the Schedule 2.1 Liabilities shown on the Closing
Date Balance Sheet, from (ii) the amount of cash and cash equivalents shown on
the Closing Date Balance Sheet. The "Book Asset Value" shall mean the book value
(as determined in accordance with GAAP) of the assets being purchased by Buyer
hereunder as reflected on the Closing Date Balance Sheet (x) decreased by (A)
the amount of cash and cash equivalents reflected on the Closing Date Balance
Sheet, and (B) accumulated depreciation relating to such assets as of the Time
of Closing, and (y) increased by the net proceeds actually received by Seller
prior to the Time of Closing in respect of sales of inventory and robots made by
Seller in the ordinary course of business consistent with past practice;
provided, however, that such proceeds are either transferred to Buyer on the
Closing Date or are used by Seller prior to the Time of Closing to discharge the
Schedule 2.1 Liabilities.
Section 3.4. PURCHASE PRICE ALLOCATION. Seller and Buyer hereby agree that
the Purchase Price shall be allocated for purposes of this Agreement and for
federal, state and local tax purposes as set forth on Schedule 3.4. Buyer and
Seller shall file all federal, state, local and foreign tax returns, including
Internal Revenue Form 8594, in accordance with the allocation set forth on
Schedule 3.4.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
Section 4.1. Buyer represents and warrants to Seller that:
(a) ORGANIZATION AND STANDING. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to own, lease, use and operate its
properties and to conduct its business as and where now owned, leased, used,
operated and conducted. Buyer is duly qualified to do business and in good
standing in each jurisdiction in which the nature of the business conducted by
it or the property it owns, leases or operates, makes such qualification
necessary, except where the failure to be so qualified or in good standing in
such jurisdiction would not have a Material Adverse Effect (as defined in
Section 10.13) on Buyer. Buyer is not in default in the performance, observance
or fulfillment of any provision of its Certificate of Incorporation, as amended
and restated (the "Buyer Certificate"), or Bylaws, as amended and restated (the
"Buyer Bylaws").
(b) CORPORATE POWER AND AUTHORITY. Buyer has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement has been duly executed and delivered by Buyer, and constitutes the
legal, valid and binding obligation of Buyer enforceable against Buyer in
accordance with its terms.
(c) CONFLICTS, CONSENTS AND APPROVAL. Neither the execution and delivery
of this Agreement by Buyer nor the consummation of the transactions contemplated
hereby will:
(i) conflict with, or result in a breach of any provision of, the Buyer
Certificate or Buyer Bylaws;
(ii) violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with the giving of notice,
the passage of time or otherwise, would constitute a default) under, or
entitle any party (with the giving of notice, the passage of time or
otherwise) to terminate, accelerate, modify or call a default under, or
result in the creation of any lien, security
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interest, charge or encumbrance upon any of the properties or assets of
Buyer or any of its subsidiaries under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
contract, undertaking, agreement, lease or other instrument or obligation to
which Buyer or any of its subsidiaries is a party;
(iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Buyer or any of its subsidiaries or their
respective properties or assets; or
(iv) require any action or consent or approval of, or review by, or
registration or filing by Buyer or any of its affiliates with, any third
party or any local, domestic, foreign or multi-national court, arbitral
tribunal, administrative agency or commission or other governmental or
regulatory body, agency, instrumentality or authority (a "Governmental
Authority"), except that which the failure to obtain would not, individually
or in the aggregate, have a Material Adverse Effect on Buyer or upon the
ability of Buyer to consummate the transactions contemplated hereby.
(d) BROKERAGE AND FINDER'S FEES. Neither Buyer nor any of its
shareholders, directors, officers or employees has incurred, or will incur, on
behalf of Buyer, any brokerage, finder's or similar fee in connection with the
transactions contemplated by this Agreement.
(e) BUYER'S FINANCIAL CONDITION. Buyer has, and at the Time of Closing
will have, the financial capacity to pay the Closing Date Payment, less any
deduction pursuant to Section 3.3(a) of this Agreement, and the Holdback Amount
as set forth in Section 3.2.
Section 4.2. Seller represents and warrants to Buyer that:
(a) ORGANIZATION AND STANDING. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Connecticut
with full corporate power and authority to own, lease, use and operate its
properties and to conduct its business as and where now owned, leased, used,
operated and conducted. Except as set forth on Schedule 4.2(a), Seller is duly
qualified to do business and in good standing in each jurisdiction listed on
Schedule 4.2(a), is not qualified to do business in any other jurisdiction and
neither the nature of the business conducted by it nor the property it owns,
leases or operates requires it to qualify to do business as a foreign
corporation in any other jurisdiction, except where the failure to be so
qualified or in good standing in such jurisdiction would not have a Material
Adverse Effect on Seller. Seller is not in default in the performance,
observance or fulfillment of any provision of its Articles of Incorporation (the
"Seller Articles"), or its By-laws, as in effect on the date hereof (the "Seller
By-laws"). Seller has heretofore furnished to Buyer a complete and correct copy
of the Seller Articles and the Seller By-laws.
(b) SUBSIDIARIES. Seller does not own, directly or indirectly, any equity
or other ownership interest in any corporation, partnership, joint venture or
other entity or enterprise. Seller is not subject to any obligation or
requirement to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any such entity.
(c) CORPORATE POWER AND AUTHORITY. Seller has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Seller, other
than the approval of its shareholders as required by the laws of the State of
Connecticut. Upon approval of this Agreement by Seller's shareholders as
required by the laws of the State of Connecticut, this Agreement shall be duly
executed and delivered by Seller and shall constitute the legal, valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms.
(d) CAPITALIZATION OF SELLER. As of July 28, 1999, Seller's authorized
capital stock consisted solely of 40,000,000 shares of common stock, no par
value ("Seller Common Stock"), of which (i) 14,201,402 shares were issued and
outstanding. Each outstanding share of Seller Common Stock is duly authorized
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and validly issued, fully paid and nonassessable, and has not been issued in
violation of any preemptive or similar rights. Except as set forth on Schedule
4.2(d), there are no outstanding subscriptions, options, warrants, puts, calls,
agreements, understandings, claims or other commitments or rights of any type
relating to the issuance, sale or transfer of any securities of Seller by Seller
or, to the knowledge of Seller, any other person or entity, nor are there
outstanding any securities which are convertible into or exchangeable for any
shares of Seller Common Stock, and Seller has no obligation of any kind to issue
any additional securities or to pay for securities of Seller or any predecessor.
The issuance and sale of all of the shares of Seller Common Stock have been in
compliance with federal and state securities laws.
(e) CONFLICTS; CONSENTS AND APPROVALS. Except as set forth in Schedule
4.2(e), and subject to the approval of this Agreement by the Seller's
shareholders as required by the laws of the State of Connecticut, neither the
execution and delivery of this Agreement by Seller nor the consummation of the
transactions contemplated hereby will:
(i) conflict with, or result in a breach of any provision of, the Seller
Articles or the Seller By-laws;
(ii) violate, in any material respect, or result in a material breach of
any provision of, or constitute a material default (or an event which, with
the giving of notice, the passage of time or otherwise, would constitute a
default) under, or entitle any party (with the giving of notice, the passage
of time or otherwise) to terminate, accelerate, modify or call a default
under, or result in the creation of any material lien, security interest,
charge or encumbrance upon any of the properties or assets of Seller under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, contract, undertaking, agreement, lease
or other instrument or obligation to which Seller is a party;
(iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Seller; or
(iv) require any action or consent or approval of, or review by, or
registration or filing by Seller or any of its affiliates with, any third
party or any Governmental Authority, other than (A) approval of this
Agreement and the transactions contemplated hereby by Seller's shareholders
at a special meeting of shareholders (the "Special Meeting"), and (B) the
filing of a proxy statement and other proxy materials with the United States
Securities and Exchange Commission ("SEC").
(f) ABSENCE OF CERTAIN CHANGES. Since December 31, 1998, and except as set
forth on Schedule 4.2(f) or in Seller's Form 10-QSB Quarterly Report under
Section 13 of 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), for the fiscal quarter ended June 30, 1999, a copy of which has
been made available to the Buyer through EDGAR (the "Seller's June 30, 1999
10-QSB"), there has not been:
(i) Any material adverse change in the business, operations, assets,
properties, customer base, rights or condition (financial or otherwise) of
Seller or any material adverse change relating to Seller's relationship with
any material customer.
(ii) Any declaration, setting aside or payment of any dividend or any
distribution (in cash or in kind) to any shareholder of Seller, or any
direct or indirect redemption, purchase or other acquisition by Seller of
any of its capital stock or any options, warrants, rights or agreements to
purchase or acquire such stock;
(iii) Any increase in amounts payable by Seller to or for the benefit
of, or committed to be paid by Seller to or for the benefit of, any
shareholder, director, officer or other consultant, agent or employee of
Seller whose total annual compensation exceeds $50,000 or any relatives of
such
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person, or any increase in any benefits granted under any bonus, stock
option, profit-sharing, pension, retirement, severance, deferred
compensation, group health, insurance, or other direct or indirect benefit
plan, payment or arrangement made to, with or for the benefit of any such
person;
(iv) Any material transaction entered into or carried out by Seller
other than in the ordinary and usual course of business consistent with past
practices;
(v) Any material borrowing or agreement to borrow funds by Seller, any
incurring by Seller of any other obligation or liability (contingent or
otherwise), except liabilities incurred in the usual and ordinary course of
Seller's business (consistent with past practices), or any endorsement,
assumption or guarantee of payment or performance of any loan or obligation
of any other person by Seller;
(vi) Any material change in Seller's method of doing business or any
change in its accounting principles or practices or its method of
application of such principles or practices;
(vii) Any material mortgage, pledge, lien, security interest,
hypothecation, charge or other encumbrance imposed or agreed to be imposed
on or with respect to the property or assets of Seller;
(viii) Any sale, lease or other disposition of, or any agreement to
sell, lease or otherwise dispose of any of the properties or assets of
Seller, other than sales in the usual and ordinary course of business for
fair equivalent value to persons other than directors, officers,
shareholders, or other affiliates of Seller;
(ix) Any purchase of or any agreement to purchase assets (other than
purchases in the ordinary course of business consistent with past practices)
for an amount in excess of $25,000 for any one purchase or $50,000 for all
such purchases made by Seller or any lease or any agreement to lease, as
lessee, any capital assets with payments over the term thereof to be made by
Seller exceeding an aggregate of $50,000;
(x) Any loan or advance made by Seller to any person other than loans
made to Seller's customers in the ordinary course of business consistent
with past practices not exceeding $50,000, in the aggregate;
(xi) Any modification, waiver, change, amendment, release, rescission or
termination of, or accord and satisfaction with respect to, any material
term, condition or provision of any contract, agreement, license or other
instrument to which Seller is a party, other than any satisfaction by
performance in accordance with the terms thereof in the usual and ordinary
course of business; or
(xii) Any labor dispute or disturbance adversely affecting the business
operations, prospects or condition (financial or otherwise) of Seller,
including, without limitation, the filing of any petition or charge of
unfair labor practice with any governmental or regulatory authority, efforts
to effect a union representation election, actual or threatened employee
strike, work stoppage or slow down.
(g) OFFICERS, EMPLOYEES AND COMPENSATION. Schedule 4.2(g) sets forth the
names of all directors, officers and employees of Seller, the total salary,
bonus, fringe benefits and perquisites each received from Seller in the year
ended December 31, 1998, and any changes to the foregoing which have occurred
subsequent to December 31, 1998. Except as disclosed in Schedule 4.2(g), there
are no other forms of compensation paid to any such director, officer or
employee of Seller. Except as disclosed in Schedule 4.2(g), the amounts accrued
on the books and records of Seller for vacation pay, sick pay, and all
commissions and other fees payable to agents, salesmen and representatives will
be adequate to cover Seller's liabilities for all such items. Except as set
forth in Schedule 4.2(g), Seller has not become obligated, directly or
indirectly, to any shareholder, director or officer of Seller or any person
related to such person by blood or marriage, except for current liability for
such compensation. Except as set forth in Schedule 4.2(g), to the knowledge of
Seller, no shareholder, director, officer, agent or
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employee of Seller or any person related to such person by blood or marriage
holds any position or office with or has any material financial interest, direct
or indirect, in any supplier, customer or account of, or other outside business
which has material transactions with, Seller. Seller has no agreement or
understanding with any shareholder, director, officer, employee or
representative of Seller which would influence any such person not to become
associated with Buyer from and after the Closing or from serving Buyer after the
Closing in a capacity similar to the capacity presently held.
(h) FINANCIAL STATEMENTS.
(i) Seller has furnished to Buyer the audited balance sheet of Seller as
of December 31, 1998, and the related statements of income, changes in
stockholders' equity, and cash flows for the period then ended, including,
in each case, the related notes (collectively, the "Audited Statements").
The Audited Statements have been made available to the Buyer through EDGAR,
have been prepared from and are in accordance with the books and records of
Seller, have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis, and fairly present the financial
condition of Seller as of the date stated and the results of operations of
Seller for the period then ended in accordance with such practices. The
Audited Statements have been prepared by Seller based on the assumption that
Seller will continue as a going concern.
(ii) When delivered in accordance with Section 5.12, the balance sheet
and the related statements of income for Seller as of the end of each
calendar month after the date hereof (the "Interim Statements") shall have
been prepared from and in accordance with the books and records of Seller,
shall be true and correct and shall fairly present the financial condition
of Seller as of such date and the results of operations of Seller for such
period in accordance with such practices.
(i) TAXES.
(i) Except as set forth in Schedule 4.2(i), Seller has duly filed all
federal, state, local and foreign income, franchise, excise, real and
personal property and other Tax Returns (as defined below in Section
4.2(i)(v)) and reports (including, but not limited to, those filed on a
consolidated, combined or unitary basis) required to have been filed by
Seller prior to the date hereof. All of the foregoing Tax Returns and
reports are true and correct, and Seller has paid or, prior to the Closing,
will pay all Taxes (as defined below in Section 4.2(i)(v)), interest and
penalties required to be paid in respect of the periods covered by such
returns or reports or otherwise due to any federal, state, foreign, local or
other taxing authority. The unpaid Taxes of Seller do not, as of the date
hereof and as of the Closing Date, exceed the reserve for Tax liability (as
distinguished from any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of the
balance sheet of Seller included in the Audited Statements (as distinguished
from in any notes thereto). Seller will not have any liability for any Taxes
in excess of the amounts so paid or reserves so established and Seller is
not delinquent in the payment of any material Tax, assessment or
governmental charge and it has not requested or filed any document having
the effect of causing any extension of time within which to file any returns
in respect of any fiscal year which have not since been filed. No
deficiencies for any Tax, assessment or governmental charge have been
proposed in writing, asserted or assessed (tentatively or definitely), in
each case, by any taxing authority, against Seller for which there are not
adequate reserves. Except as set forth in Schedule 4.2(i), Seller is not the
subject of any Tax audit. As of the date of this Agreement, there are no
pending requests for waivers of the time to assess any such Tax, other than
those made in the ordinary course and for which payment has been made or
there are adequate reserves. Seller has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency. There are no liens with respect
to Taxes upon any of the properties or assets, real or personal, tangible or
intangible of
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Seller (other than liens for Taxes not yet due). No claim has ever been made
by an authority in a jurisdiction where Seller does not file Tax Returns
that Seller is or may be subject to taxation by that jurisdiction.
(ii) Except as set forth in Schedule 4.2(i), Seller is not obligated by
any contract, agreement or other arrangement to indemnify any other person
with respect to Taxes. Seller is not now nor has ever been a party to or
bound by any agreement or arrangement (whether or not written and including,
without limitation, any arrangement required or permitted by law) binding
Seller which (A) requires Seller to make any Tax payment to or for the
account of any other person, (B) affords any other person the benefit of any
net operating loss, net capital loss, investment Tax credit, foreign Tax
credit, charitable deduction or any other credit or Tax attribute which
could reduce Taxes (including, without limitation, deductions and credits
related to alternative minimum Taxes) of Seller, (C) requires or permits the
transfer or assignment of income, revenues, receipts or gains to Seller,
from any other person, or (D) otherwise requires Seller to indemnify any
other person in respect of Taxes.
(iii) Schedule 4.2(i) sets forth (A) a list of all jurisdictions
(whether foreign or domestic) to which any material Tax is or has been
properly payable by Seller, (B) all sales for which gain has been reported
under the installment method of accounting for Tax purposes and for which
gain has to be recognized for Tax purposes by Seller subsequent to the
Closing Date, (C) all rulings or determinations obtained by Seller from any
Governmental Authority responsible for the imposition of any Tax that may
affect Seller subsequent to the Closing Date, (D) all Seller returns with
respect to which the applicable period for assessment under Applicable Law
(as defined in Section 4.2(j)), after giving effect to extensions or
waivers, has not expired, (E) any material intercompany items (as described
in Treasury Regulations Section 1.1502-13(b)(2) or in similar state or local
income Tax provisions) resulting from any intercompany transaction to which
Seller is a party, (F) a list of all pending Tax audits or inquiries, and
(G) any Tax reserves included in the "Deferred Taxes" or similar line item
in the Audited Statements, separately identified and itemized by dollar
amount.
(iv) Except as set forth in Schedule 4.2(i), Seller has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
shareholder or other third party.
(v) For purposes of this Agreement, "Tax Returns" means returns, reports
and forms required to be filed with any Governmental Authority of the United
States or any other jurisdiction responsible for the imposition or
collection of Taxes. "Tax" or "Taxes" means (A) all taxes (whether federal,
state, local or foreign) based upon or measured by income and any other tax
whatsoever, including, without limitation, gross receipts, profits, sales,
use, occupation, value added, ad valorem, transfer, franchise, withholding,
payroll, employment, excise, or property taxes, together with any interest
or penalties imposed with respect thereto and (B) any obligations under any
agreements or arrangements with respect to any taxes described in clause
(A) above.
(j) COMPLIANCE WITH LAW. Except as set forth in Schedule 4.2(j), Seller is
in compliance with, and at all times since December 31, 1995, has been in
compliance with, all applicable laws, statutes, orders, rules, regulations,
policies or guidelines promulgated, or judgments, decisions or orders entered by
any Governmental Authority (collectively, "Applicable Laws") relating to Seller
or its business or properties. Seller has heretofore made available to Buyer
copies of all material correspondence from and to all Governmental Authority and
inspectors since December 31, 1995.
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(k) INTELLECTUAL PROPERTY.
(i) Set forth in Schedule 4.2(k) is a true and complete list of all of
Seller's foreign and domestic patents, patent applications, invention
disclosures, trademarks, service marks, trade names, copyrights (and any
registrations or applications for registration for any of the foregoing) and
all material design rights, and all material agreements to which Seller is a
party which concern any of the Intellectual Property. "Intellectual
Property" shall mean all intellectual property or other proprietary rights
of every kind, including, without limitation, all domestic or foreign
patents, patent applications, inventions (whether or not patentable),
processes, products, technologies, discoveries, copyrightable and
copyrighted works, apparatus, trade secrets, trademarks and trademark
applications and registrations, service marks and service mark applications
and registrations, trade names, trade dress, copyright applications and
registrations, design rights, customer lists, marketing and customer
information, mask works rights, know-how, licenses, technical information
(whether confidential or otherwise), software, hardware, systems, databases,
models, methodologies and all documentation thereof necessary for the
conduct of the business of Seller as presently conducted. Other than the
Intellectual Property set forth in Schedule 4.2(k), no name, patent,
invention, trade secret, proprietary right, computer software (other than
software generally available to the public from third party sources),
trademark, trade name, service mark, logo, copyright, franchise, license or
sublicense of Intellectual Property, or other such right is necessary for
the operation of the business of Seller in substantially the same manner as
such business is presently or proposed to be conducted. Except as set forth
in Schedule 4.2(k), (A) Seller owns, free and clear of any liens, claims or
encumbrances, the Intellectual Property and has the exclusive right to bring
actions for the infringement thereof; (B) all of the patents, trademark
registrations, service mark registrations, trade name registrations, design
right registrations, and copyright registrations included in the
Intellectual Property are valid; (C) the Intellectual Property does not
infringe and has not infringed any now existing or subsequently issued
domestic or foreign patent, trademark, service mark, trade name, copyright,
design right or other intellectual property or proprietary right; (D) no
person or entity has asserted to Seller and Seller has no knowledge that,
with respect to the Intellectual Property, Seller or a licensee of Seller is
infringing or has infringed any domestic or foreign patent, trademark,
service mark, trade name, copyright or design right, or has misappropriated
or improperly used or disclosed any trade secret, confidential information
or know-how; (E) the Intellectual Property, and its use or operation, do not
infringe, and have not infringed, any foreign or domestic patent, trademark,
service mark, trade name, copyright or contractual right of any entity, and
have not involved the misappropriation or improper use or disclosure of any
trade secrets, confidential information or know-how of any entity; (F) all
working requirements and all fees, annuities, and other payments which are
due from Seller on or before the Closing Date for any of the Intellectual
Property, including, without limitation, all foreign or domestic patents,
patent applications, trademark registrations, service mark registrations,
tradename registrations, copyright registrations and any applications for
any of the preceding, have been met or paid; (G) the claims made in the
foreign or domestic patents and patent applications that are a part of the
Intellectual Property are not dominated by claims of patents owned by other
persons or entities; (H) the making, using, selling, manufacturing,
marketing, licensing, reproduction, distribution, or publishing of any
process, service, machine, manufacture, composition of matter, or material
pursuant to any part of the Intellectual Property, does not and will not
infringe any domestic or foreign patent, trademark, service mark, trade
name, copyright or other intellectual property right; (I) no unexpired
foreign or domestic patents or patent applications exist that are adverse to
the material interests of Seller; (J) the Intellectual Property is not the
subject of any pending Action as defined in Section 4.2(n); (K) no part of
the Intellectual Property was obtained through inequitable conduct or fraud
in the United States Patent and Trademark Office or any foreign governmental
entity; (L) Seller is not aware of any (1) prior act that would adversely
affect, void or invalidate any of the Intellectual
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Property or (2) conduct or use by Seller or any third party that would
adversely affect, void or invalidate any of the Intellectual Property; (M)
the execution, delivery and performance of this Agreement by Seller, and the
consummation of the transactions contemplated hereby, will not breach,
violate or conflict with any instrument or agreement governing or contained
within any of the Intellectual Property, will not cause the forfeiture or
termination or give rise to a right of forfeiture or termination of any of
the Intellectual Property or in any way impair the right of Buyer to use,
sell, offer to sell, license or dispose of, or to bring any action for the
infringement of, any Intellectual Property; (N) there are no royalties,
honoraria, fees or other payments payable to any third party by reason of
the ownership, use, license, sale or disposition of the Intellectual
Property; (O) no part of the source or object code, algorithms or structure
included in any of the Intellectual Property is copied from, based upon or
derived from any source or object code, algorithm or structure included in
any computer software product owned by any third party nor does any
substantial similarity of any of such source or object code, algorithms or
structure to any computer software product owned by any third party result
from such source or object code, algorithms or structure being copied from,
based upon or derived from any computer software product owned by any third
party; and (P) no software included in the Intellectual Property contains
any "Self-Help Code," i.e., any back door, time bomb, drop dead device, or
other software routine designed to disable a computer program automatically
with the passage of time or under the positive control of any unauthorized
person, or, to Seller's knowledge, any "Unauthorized Code," i.e., any virus,
Trojan horse, worm, or other software routines or hardware components
designed to permit unauthorized access, disable, erase, or otherwise harm
software, hardware, or data or to perform any other such actions.
(ii) Seller has taken all steps that are reasonably necessary and
appropriate to safeguard and maintain the secrecy and confidentiality of all
trade secrets contained in the Intellectual Property (including, without
limitation, entering into appropriate confidentiality, nondisclosure and
non-competition agreements with all officers, directors, employees and
third-party consultants of Seller).
(iii) Seller has taken all steps that are reasonably necessary and
appropriate to safeguard and maintain all copyrights and patents contained
in the Intellectual Property, including, without limitation, entering into
appropriate assignments with all current and former officers, directors,
employees and third party consultants of Seller.
(iv) Seller has taken all steps that are reasonably necessary and
appropriate to safeguard and maintain all trademarks and tradenames
contained in the Intellectual Property.
(l) TITLE TO AND CONDITION OF PROPERTIES.
(i) Except as set forth in Schedule 4.2(l), Seller has good, valid and
indefeasible title to all of its material assets and properties of every
kind, nature and description, tangible or intangible, wherever located,
which constitute all of the property now used in and necessary for the
conduct of its business as presently conducted (including, without
limitation, all material property and assets shown or reflected on the
Audited Statements or the Interim Statements, when delivered, except
inventory sold in the ordinary course of business). Except as set forth in
Schedule 4.2(l), all such properties are owned free and clear of all
mortgages, pledges, liens, security interests, encumbrances and restrictions
of any nature whatsoever, including, without limitation, (A) rights or
claims of parties in possession; (B) easements or claims of easements;
(C) encroachments, overlaps, boundary line or water drainage disputes or any
other matters; (D) any lien or right to a lien for services, labor or
material furnished; (E) special tax or other assessments; (F) options to
purchase, leases, tenancies, or land contracts; (G) contracts, covenants, or
reservations which restrict the use of such properties and (H) violations of
any Applicable Laws applicable to such properties. All such properties are
usable for their current uses without violating any Applicable
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Laws, or any applicable private restriction, and such uses are legal
conforming uses. Except as set forth in Schedule 4.2(l), no financing
statement under the Uniform Commercial Code or similar law naming Seller or
any of its predecessors is on file in any jurisdiction in which Seller owns
property or does business, and Seller is not a party to or bound under any
material agreement or legal obligation authorizing any party to file any
such financing statement. Schedule 4.2(l) contains a complete and accurate
list of the location of all real property which is owned, leased or operated
by Seller and describes the nature of Seller's interest in that real
property. With respect to any real property leased by Seller, Seller has a
valid leasehold interest in that real property.
(ii) Except as set forth in Schedule 4.2(l), all real property, plants
and structures and all machinery and equipment and tangible personal
property owned, leased or used by Seller and material to the operation of
its business are suitable for the purpose or purposes for which they are
being used (including full compliance with all Applicable Laws) and are in
good condition and repair, ordinary wear and tear excepted. EXCEPT AS
EXPRESSLY SET FORTH HEREIN, SELLER HAS NOT MADE, DOES NOT INTEND TO MAKE,
AND HEREBY EXPRESSLY DISCLAIMS ANY AND ALL IMPLIED REPRESENTATIONS OR
WARRANTIES AS TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
Schedule 4.2(l) lists, and Seller has furnished or made available to Buyer,
copies of all engineering, geologic and environmental reports prepared by or
for Seller or with respect to the real property owned, leased or used by
Seller; provided, however, Seller has made no representation whatsoever
about the accuracy of such reports or the sufficiency thereof for Buyer's
purposes.
(m) ENVIRONMENTAL MATTERS.
(i) As used herein, the term "Environmental Laws" means all federal,
state, local or foreign laws relating to pollution or protection of human
health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or industrial,
toxic or hazardous substances or wastes (collectively, "Hazardous
Materials") into the environment, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials, as well as all authorizations, codes,
decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
(ii) Except as set forth in Schedule 4.2(m), there are, with respect to
Seller or any of its predecessors, no past or present violations of
Environmental Laws, releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations relating to any property owned, leased or used by Seller and any
of its predecessors which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and Seller has not received any notice with respect to any of
the foregoing, nor is any Action pending or threatened in connection with
any of the foregoing. Notwithstanding anything in this Section 4.2(m) to the
contrary, Seller makes no representations regarding off-site releases of
Hazardous Materials by third parties, except that Seller represents that it
has no knowledge of any such releases.
(iii) Except as set forth in Schedule 4.2(m), no Hazardous Materials
were or are contained on or about any real property currently or previously
owned or leased by Seller and no Hazardous Materials were released on or
about any real property previously owned or leased by Seller during the
period the property was owned or leased by Seller or its predecessors,
except in amounts that do not violate Environmental Laws. To the extent
Seller and any of its predecessors currently uses or previously used real
property which Seller or any of its predecessors ever owned or leased, no
Hazardous Materials were or are contained on or about the portion of such
property currently or
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previously used by Seller and any of its predecessors and no Hazardous
Materials were released on or about any such portion of property previously
used by Seller and any of its predecessors during the period the property
was used by Seller or any of its predecessors, except in amounts that do not
violate Environmental Laws.
(iv) Except as set forth in Schedule 4.2(m), there are no underground
storage tanks on or under any real property currently or previously owned,
leased or used by Seller.
(n) LITIGATION. Except as set forth in Schedule 4.2(n), there is no suit,
claim, action, proceeding or investigation (an "Action") pending or, to the
knowledge of Seller (or its officers or directors), threatened against Seller or
any officer or director of Seller. Seller is not subject to any outstanding
order, writ, injunction or decree. Except as set forth in Schedule 4.2(n), since
December 31, 1995, (i) there has not been any Action asserted, or to the
knowledge of Seller, threatened against Seller relating to Seller's method of
doing business or its relationship with past, existing or future users or
purchasers of any goods or services of Seller, and (ii) Seller has not been
subject to any outstanding order, writ, injunction or decree relating to
Seller's method of doing business or its relationship with past, existing or
future customers, lessees, users, purchasers or licensees of any Intellectual
Property, goods or services of Seller.
(o) BROKERAGE AND FINDER'S FEES; EXPENSES. Neither Seller nor, to the
knowledge of Seller, any shareholder, director, officer or employee thereof, has
incurred or will incur on behalf of Seller, any brokerage, finder's or similar
fee in connection with the transactions contemplated by this Agreement.
(p) EMPLOYEE BENEFIT PLANS.
(i) For purposes of this Section 4.2(p), the following terms have the
definitions given below:
"Controlled Group Liability" means any and all liabilities under (A)
Title IV of ERISA, (B) Section 302 of ERISA, (C) Sections 412 and 4971 of
the Code, (D) the continuation coverage requirements of section 601 et
seq. of ERISA and Section 4980B of the Code, and (E) corresponding or
similar provisions of foreign laws or regulations, in each case other
than pursuant to the Plans.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"ERISA Affiliate" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a group
described in Section 414(b), (c), (m) or (o) of the Code or Section
4001(b)(1) of ERISA that includes the first entity, trade or business, or
that is a member of the same "controlled group" as the first entity,
trade or business pursuant to Section 4001(a)(14) of ERISA.
"Plans" means all employee benefit plans, programs, policies,
practices, and other arrangements providing benefits to any employee or
former employee or beneficiary or dependent thereof, whether or not
written, and whether covering one person or more than one person,
sponsored or maintained by Seller or to which Seller contributes or is
obligated to contribute. Without limiting the generality of the
foregoing, the term "Plans" includes all employee welfare benefit plans
within the meaning of Section 3(1) of ERISA and all employee pension
benefit plans within the meaning of Section 3(2) of ERISA.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan,
as those terms are defined in Part I of Subtitle E of Title IV of ERISA.
(ii) Schedule 4.2(p) lists all Plans of Seller. With respect to each
Plan, Seller has made available to Buyer a true, correct and complete copy
of: (A) each writing constituting a part of
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such Plan, including, without limitation, all plan documents, benefit
schedules, trust agreements, and insurance contracts and other funding
vehicles; (B) the most recent Annual Report (Form 5500 Series) and
accompanying schedule, if any; (C) the current summary plan description, if
any; (D) the most recent annual financial report, if any; and (E) the most
recent determination letter from the Internal Revenue Service, if any.
(iii) The Internal Revenue Service has issued a favorable determination
letter with respect to each Plan that is intended to be a "qualified plan"
within the meaning of Section 401(a) of the Code (a "Qualified Plan"), and
there are no existing circumstances nor any events that have occurred that
could adversely affect the qualified status of any Qualified Plan or the
related trust.
(iv) Buyer will not be responsible for any debt, obligation,
contribution, responsibility, withdrawal liability or other liability of
Seller or any of its ERISA Affiliates under any Plans, including, without
limitation, any penalty, fee or funding obligation related to any such Plan.
(v) Seller has complied and is in compliance with all provisions of
ERISA, the Code and all laws and regulations applicable to the Plans, and
each Plan has been operated in compliance with its terms. There is not now,
and there are no existing, circumstances that could give rise to the
imposition of any lien on the assets of Seller under ERISA or the Code.
(vi) No Plan is subject to Title IV or Section 302 of ERISA or Section
412 or 4971 of the Code. No Plan is a "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA (a "Multiemployer Plan") or a plan
that has two or more contributing sponsors at least two of whom are not
under common control, within the meaning of Section 4063 of ERISA (a
"Multiple Employer Plan"), nor has Seller or any of its respective ERISA
Affiliates, at any time within five years before the date hereof,
contributed to or been obligated to contribute to any Multiemployer Plan or
Multiple Employer Plan.
(vii) There does not now exist, and there are no existing, circumstances
that could result in, any Controlled Group Liability that would be a
liability of Seller following the Closing. Without limiting the generality
of the foregoing, neither Seller nor any of its respective ERISA Affiliates
has engaged in any transaction described in Section 4069 or Section 4204 of
ERISA.
(viii) Seller has provided or caused to be provided notice of the
availability of continuation health care coverage for those present or
former employees of Seller, and their dependents or any qualified
beneficiary of such employees or former employees in accordance with the
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended or any applicable state law requiring continuing health care
coverage (hereinafter referred to as "Continuation Coverage") entitled to
such notice because of a qualifying event. All Continuation Coverage has
been provided prior to the date hereof, and all Continuation Coverage will
be provided up to and including the Closing Date.
(ix) Schedule 4.2(p) sets forth the only individual for whom Seller is
presently providing Continuation Coverage (the "Coverage Recipient").
Subject to Section 5.10(b), Seller's obligation to provide Continuation
Coverage to the Coverage Recipient will terminate as of the Closing Date.
(q) CONTRACTS.
(i) Schedule 4.2(q) lists all written or oral contracts, agreements,
guarantees, leases and executory commitments which are not terminable on
thirty (30) or fewer days notice without penalty or liability (each an
"Agreement") to which Seller is a party and which fall within any of the
following categories: (A) Agreements not entered into in the ordinary course
of Seller's business, (B) joint venture, partnership and similar agreements,
(C) Agreements which are service contracts or equipment leases involving
payments by Seller of more than $25,000 per year, (D) Agreements containing
covenants purporting to limit the freedom of Seller to compete in any
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line of business in any geographic area or to hire any individual or group
of individuals, (E) Agreements which after the Time of Closing would have
the effect of limiting the freedom of Buyer or its subsidiaries to compete
in any line of business in any geographic area or to hire any individual or
group of individuals, including any Agreements with distributors granting
any exclusive rights, (F) Agreements which contain minimum purchase
conditions or requirements or other terms that restrict or limit the
purchasing relationships of Seller or its affiliates, or any customer,
licensee or lessee thereof, (G) Agreements relating to any outstanding
commitment for capital expenditures in excess of $25,000, (H) Agreements
relating to the lease or sublease of or sale or purchase of real or personal
property involving any annual expense or price in excess of $25,000 and not
cancelable by Seller (without premium or penalty) within one month,
(I) Agreements with any labor organization, (J) indentures, mortgages,
promissory notes, loan agreements, guarantees of amounts in excess of
$25,000, letters of credit or other agreements or instruments of Seller or
commitments for the borrowing or the lending of amounts in excess of $25,000
by Seller or providing for the creation of any charge, security interest,
encumbrance or lien upon any of the assets of Seller, (K) Agreements which
are fixed price or other risk sharing agreements with customers not
cancelable by Seller (without premium or penalty) within one month;
(L) Agreements involving annual revenues or expenditures to the business of
Seller in excess of 3.0% of Seller's annual revenues, (M) Agreements
providing for "earn-outs" or other contingent payments involving more than
$25,000 over the term of the Agreement and (N) Agreements with or for the
benefit of any affiliate (as such term is defined in Rule 12b-2 promulgated
under the Exchange Act) of Seller or immediate family member thereof. All
such Agreements are valid and binding obligations of Seller and, to the
knowledge of Seller, the valid and binding obligation of each other party
thereto. Except as set forth in Schedule 4.2(q), neither Seller nor, to the
knowledge of Seller, any other party thereto is in violation of or in
default in respect of, nor has there occurred an event or condition which
with the passage of time or giving of notice (or both) would constitute a
default under or permit the termination of, any Agreement. Seller has
complied with and properly discharged the obligations of Seller arising
under any Agreements granting to third parties any rights of first refusal
or rights of negotiation as a result of the transactions contemplated by
this Agreement, and all such third parties have irrevocably waived any such
rights.
(ii) Except as set forth in Schedule 4.2(q) or as contemplated by the
transactions contemplated hereby, there are no Contracts or other
transactions between Seller, on the one hand, and any (A) officer or
director of Seller, (B) record or beneficial owner of five percent or more
of the voting securities of Seller or (C) affiliate of any such officer,
director or beneficial owner, on the other hand.
(iii) Except as set forth in Schedule 4.2(q), no consent, permission,
waiver or approval is required to be obtained, and no penalty, assessment or
special payment is required to paid to, any third party or governmental
authority in order to preserve for Seller after the Closing the benefits of
the Contracts.
(r) ACCOUNTS RECEIVABLE; INVENTORIES.
(i) Except as set forth in Schedule 4.2(r), all accounts receivable and
notes receivable (including lease and finance notes receivable) and accrued
interest receivable of Seller are fully collectible (after application of
the reserves in the balance sheet included in the Interim Statements) and
have arisen in the ordinary course of business and the accounts receivable
reserves reflected on the balance sheet included in the Audited Statements
and the Interim Statements will be as of the date thereof established in
accordance with GAAP, consistently applied, and will be adequate.
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(ii) The inventories reflected on the balance sheet included in the
Audited Statements and the Interim Statement have been (or will be) valued
in accordance with generally accepted accounting principles consistently
applied. No physical adjustments have been made since the date of the
Audited Statements. Such inventories (A) are carried at an amount not in
excess of the lower of cost or net realizable value, and (B) do not include
any inventory which is obsolete, surplus or not usable or saleable in the
lawful and ordinary course of business of Seller as heretofore conducted, in
each case net of reserves provided therefor. Such inventories consist of
items of quality and quantity that are adequate for the conduct of the
business of Seller and inventory levels are not in excess of normal
operating requirements of Seller.
(s) LABOR MATTERS. Except as set forth in Schedule 4.2(s), Seller does not
have any labor contracts, collective bargaining agreements or employment or
consulting agreements with any persons employed by Seller or any persons
otherwise performing services primarily for Seller (the "Seller Business
Personnel"). Seller has not engaged in any unfair labor practice with respect to
Seller Business Personnel, and there is no unfair labor practice complaint
pending or, to the knowledge of Seller, threatened, against Seller with respect
to Seller Business Personnel. There is no labor strike, dispute, slowdown or
stoppage pending or, to the knowledge of Seller, threatened against Seller, and
Seller has not experienced any labor strike, dispute, slowdown or stoppage or
other labor difficulty involving its employees since December 31, 1995.
(t) UNDISCLOSED LIABILITIES. Except (i) as and to the extent disclosed or
reserved against on the balance sheet of Seller included in the Audited
Statements, (ii) as incurred after the date thereof in the ordinary course of
business consistent with prior practice and not prohibited by this Agreement and
which in any event are not material, (iii) as set forth in Schedule 4.2(t), or
(iv) as expressly set forth in Seller's June 30, 1999 10-QSB, Seller does not
have any liabilities or obligations of any nature, whether known or unknown,
absolute, accrued, contingent or otherwise and whether due or to become due,
that, individually or in the aggregate, could have a Material Adverse Effect on
Seller.
(u) OPERATION OF SELLER'S BUSINESS; RELATIONSHIPS.
(i) Since December 31, 1998 through the date of this Agreement, and
except as expressly disclosed in Seller's June 30, 1999 10-QSB, Seller has
not engaged in any transaction which, if done after execution of this
Agreement, would violate Section 5.6 hereof except as set forth in Schedule
4.2(u). Schedule 4.2(u) describes each termination or non-renewal that has
occurred with respect to any Contract with any customer or supplier from
January 1, 1998 to the date of this Agreement.
(ii) No supplier of the Company has indicated that it shall stop, or
decrease the rate of, or substantially increase its fees for, supplying
products or services to Seller either prior to, or following the
consummation of the transactions contemplated by this Agreement. Schedule
4.2(u) sets forth a list of all customers which have terminated their
relationships with Seller since December 31, 1998, or have notified Seller
since December 31, 1998, that they intend to terminate their relationships
with Seller. Except as set forth in Schedule 4.2(u), Seller does not know of
any customers of Seller which have indicated to the Company that they are
considering or planning to (A) discontinue being customers of Seller,
(B) discontinue being customers of Seller after the Closing, or (C)
substantially decrease the amount of business that they conduct with Seller
or materially alter the terms of such business either before or after the
Closing.
(iii) No product produced by Seller or produced for Seller by a third
party has been recalled voluntarily or involuntarily since December 31,
1996, no such recall is being considered by Seller, and, to the knowledge of
Seller, no such recall is being considered by or has been requested or
ordered by any Seller customer, Governmental Authority or consumer group.
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(iv) Seller is and since February 5, 1996, has been engaged in the
development, manufacturing and marketing of mobile robotic systems and
component parts for mobile robotic systems, and except as disclosed in
Seller's June 30, 1999 10-QSB, Seller has engaged in no other business
whatsoever, except as may be incidental to the foregoing.
(v) Seller is in possession of all material franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions,
consents, certificates, approvals and orders necessary to own, lease and
operate its properties and to carry on its business as it is now being
conducted (collectively, the "Seller Permits"), and there is no Action
pending or, to the knowledge of Seller, threatened regarding any of the
Seller Permits. Seller is not in conflict with, or in default or violation
of any of the Seller Permits, except for any such conflicts, defaults or
violations which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on Seller. During the period
commencing on January 1, 1996 and ending on the date hereof, Seller has not
received any notification with respect to possible conflicts, defaults or
violations of Applicable Laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations
could not have a Material Adverse Effect on Seller. No consent, approval,
registration or filing with any third party or Governmental Authority
pursuant to any Seller Permits is required as a result of the transactions
contemplated by this Agreement.
(v) PRODUCT WARRANTIES AND LIABILITIES. Schedule 4.2(v) lists all forms of
written warranties, guarantees or assurances of Seller's products and services
that are in effect or proposed to be used by it. Schedule 4.2(v) sets forth a
description of each pending or, to the knowledge of Seller, threatened Action
under any warranty or guaranty against Seller. Seller has not incurred, nor does
Seller know or have any reason to believe there is any basis for alleging, any
liability, damage, loss, cost or expense as a result of any defect or other
deficiency (whether of design, materials, workmanship, labeling instructions or
otherwise) ("Product Liability") with respect to any product sold or services
rendered by or on behalf of Seller (including any licensee thereof) after
July 1, 1992 and prior to the Closing, whether such Product Liability is
incurred by reason of any express or implied warranty (including, without
limitation, any warranty of merchantability or fitness), any doctrine of common
law (tort, contract or other), any statutory provision or otherwise and
irrespective of whether such Product Liability is covered by insurance. There
are no oral warranties, guarantees or assurances of Seller's products and
services that are in effect.
(w) BOARD RECOMMENDATION. The Board of Directors of Seller, at a meeting
duly called and held and at which a quorum was present, has by a unanimous vote
of those directors in attendance determined that this Agreement and the
transactions contemplated hereby, are fair to and in the best interests of the
shareholders of Seller, (ii) resolved to approve this Agreement and the
transactions contemplated herein, and (iii) resolved to recommend the approval
of this Agreement and the transactions contemplated herein to the shareholders
of Seller.
(x) INSURANCE. Schedule 4.2(x) sets forth Seller's current insurance
coverage.
(y) BOOKS OF ACCOUNT; RECORDS. Seller's general ledgers, minute books and
other material records relating to the assets, properties, contracts and
outstanding legal obligations of Seller, and to Seller's knowledge its stock
record books, are, in all material respects, complete and correct, and have been
maintained in accordance with good business practices and the matters contained
therein are appropriate and accurately reflected in the Audited Statements.
(z) YEAR 2000 COMPLIANCE. Except as set forth in Schedule 4.2(z),The
computer systems of Seller (including without limitation all software, hardware,
workstations and related components, automated devices, embedded chips and other
date sensitive equipment such as security systems, alarms, elevators and HVAC
systems) are Year 2000 Compliant. The term "Year 2000 Compliant" as used herein
means that the computer systems (i) are capable of recognizing, processing,
managing, representing,
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interpreting, and manipulating correctly date-related data for dates earlier and
later than January 1, 2000, including, but not limited to, calculating,
comparing, sorting, storing, tagging and sequencing, without resulting in or
causing logical or mathematical errors or inconsistencies in any user-interface
functionalities or otherwise, including data input and retrieval, data storage,
data fields, calculations, reports, processing, or any other input or output,
(ii) have the ability to provide date recognition for any data element without
limitation (including, but not limited to, date-related data represented without
a century designation, date-related data whose year is represented by only two
digits and date fields assigned special values), (iii) have the ability to
automatically function into and beyond the year 2000 without human intervention
and without any change in operations associated with the advent of the year
2000, (iv) have the ability to correctly interpret data, dates and time into and
beyond the year 2000, (v) have the ability not to produce noncompliance in
existing information, nor otherwise corrupt such data into and beyond the year
2000, (vi) have the ability to correctly process after January 1, 2000 data
containing dates before that date, and (vii) have the ability to recognize all
"leap years," including February 29, 2000. Except as set forth on Schedule
4.2(z), the computer systems of Seller have the ability to properly interface
and will continue to properly interface with internal and external applications
and systems of third parties with whom Seller exchanges data electronically
(including, without limitation, customers, clients, suppliers, service
providers, subcontractors, processors, converters, shippers, warehousemen,
outsourcers, data processors, regulatory agencies and banks) whether or not they
have achieved Year 2000 Compliance. Except as set forth on Schedule 4.2(z),
Seller has inquired of all such third parties whose lack of Year 2000 Compliance
would be materially or significantly adverse to Seller, and all such third
parties have represented that they are Year 2000 Compliant.
(aa) NEGOTIATION RIGHTS. Seller has complied with its obligations with
respect to the Negotiation Rights (as defined in Section 5.3 below) and each
party listed on Schedule 4.2(e) with whom Seller has a prior written obligation
to negotiate an Acquisition Proposal (as defined Section 5.3 below) or similar
arrangement has waived, in writing, its Negotiation Rights (each, a "Negotiation
Rights Waiver"). Each Negotiation Rights Waiver is legal, valid and binding on
the party from whom it was received.
(bb) GOVERNMENT AGREEMENTS. Seller represents and warrants that none of
the technology developed or conceived under the agreements described at Schedule
1.1(f), Item 4, Subitem 10 (the "Government Agreements") is incorporated into or
is otherwise a part of Seller's HelpMate, LabMate, LightRanger or BiSight
products. Seller has not received any notice from any Governmental Authority or
entity asserting any ownership rights in or otherwise evidencing an intent to
own any technology developed under any of the Government Agreements.
ARTICLE V. COVENANTS
Section 5.1. COVENANT AGAINST HIRING. Seller understands that in Buyer's
view it is essential to the successful operation of the business to be acquired
from Seller that Buyer retain substantially unimpaired (to the extent determined
by Buyer in its sole discretion) Seller's operating organization. Accordingly,
Seller shall assist and cooperate with Buyer in securing employment arrangements
acceptable to Buyer, in Buyer's sole discretion, between Buyer and the employees
of Seller listed on Schedule 5.1, and Seller shall not take any action which is
likely to induce any employee or representative of Seller not to become or
continue as an employee or representative of Buyer. Without limiting the
generality of the foregoing, Seller shall not, whether directly or indirectly,
employ, whether as an employee, officer, agent, consultant or independent
contractor, or enter into any partnership, joint venture or other business
association with, any person who was at any time during the twelve (12) months
preceding the Closing an employee, representative or agent of Seller for a
period of twelve (12) months after such person ceases or has ceased, for any
reason, to be an employee, representative or agent of Seller. At the Closing,
Seller shall deliver to Buyer the employee files of all employees listed on
Schedule 5.1 who are engaged for employment by Buyer. Nothing contained in this
Section 5.1 is
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intended to confer any benefit upon any person not a party to this Agreement. No
third party shall be deemed a third party beneficiary of this Section 5.1.
Section 5.2. COVENANT AGAINST DISCLOSURE. Except in the ordinary course of
Seller's business and consistent with past practice, from and after the date
hereof, Seller agrees not to (a) disclose to any person, association, firm,
corporation or other entity (other than Buyer or those designated in writing by
Buyer) in any manner, directly or indirectly, any proprietary information or
data relevant to the business of Seller, whether of a technical or commercial
nature, or (b) use, or permit or assist, by acquiescence or otherwise, any
person, association, firm, corporation or other entity (other than Buyer or
those designated in writing by Buyer) to use, in any manner, directly or
indirectly, any such information or data.
Section 5.3. EXCLUSIVE RIGHTS. Seller shall not without the prior written
consent of Buyer directly or indirectly solicit or encourage (including by way
of furnishing any non-public information concerning the business, properties or
assets of Seller), or enter into or participate in any negotiations or
discussions concerning, any Acquisition Proposal (as defined herein). Seller
shall notify Buyer promptly by telephone, and thereafter promptly confirm in
writing, if any such information is requested from, or any Acquisition Proposal
is received by, Seller. As used in this Agreement, "Acquisition Proposal" shall
mean any proposal received by Seller prior to the Closing for a merger or other
business combination involving Seller, or for the acquisition of Seller, or the
acquisition of an equity interest in, or a portion of the assets of, Seller,
other than the one contemplated by this Agreement. Buyer acknowledges that
Seller has contacted those parties listed on Schedule 4.2(e) with whom it has a
prior written obligation to negotiate an Acquisition Proposal or similar
arrangement ("Negotiation Rights") in order to request and negotiate the terms
of a waiver of such Negotiation Rights.
Section 5.4. INJUNCTIVE RELIEF. Seller acknowledges and agrees that
Buyer's remedy at law for any breach of any of Seller's obligations under
Sections 5.1, 5.2 or 5.3 hereof would be inadequate, and agrees and consents
that temporary and permanent injunctive relief may be granted in a proceeding
which may be brought to enforce any provision of Sections 5.1, 5.2 or 5.3
without the necessity of proof of actual damage or the posting of a bond or
other security.
Section 5.5. ACCESS TO PROPERTY; DUE DILIGENCE. Except as provided in the
next sentence, between the date hereof and the Time of Closing, Seller shall
provide Buyer and its representatives and agents with full access to the
properties and records of Seller during normal business hours and shall allow
Buyer and its representatives and agents to make copies of such documents,
records and other information as Buyer or such representatives and agents may
request. Without limiting the generality of the foregoing, Seller shall provide
Buyer and its representatives and agents with full access to all properties
owned, leased or used by Seller in the conduct of the business of Seller in
connection with the general due diligence of Buyer, as deemed necessary by Buyer
in its sole discretion. Any such inspection or review of property leased by
Seller shall be subject to the terms of Seller's lease of such property.
Promptly upon completion of any such review, Buyer shall return the property to
the condition it was in prior to the review. Buyer hereby agrees to defend,
indemnify and hold Seller harmless with respect to any liability, damage, loss,
cost or expense incurred by Seller as a result of Buyer's investigation of such
properties.
Section 5.6. CONDUCT OF BUSINESS PRIOR TO CLOSING. Seller agrees that
after execution of this Agreement and prior to the Time of Closing, Seller shall
operate its business and maintain the Property in the ordinary course of
business consistent with past practice. Seller shall not without the prior
written consent of Buyer, which consent shall not be unreasonably withheld or
delayed with respect to the matters set forth in subsections 5.6(k) and (m)
below:
(a) incur or become subject to, or agree to incur or become subject to, any
obligation or liability (absolute or contingent), except (i) sales of inventory
in the ordinary course of business and consistent with past practice, and
(ii) current liabilities incurred, and obligations under contracts entered into,
in
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the ordinary course of business consistent with past practice which do not
exceed $20,000 in respect of any individual contract or $60,000 with respect to
all such contracts;
(b) discharge or satisfy any lien or encumbrance or pay any obligation or
liability (absolute or contingent) other than (i) liabilities payable in the
ordinary course of business, (ii) royalties described in Section 5.19(b) of this
Agreement, and (iii) any accrued vacation pay payable by Seller to its
employees;
(c) mortgage, pledge or subject to lien, charge or any other encumbrance,
any of the Property or agree so to do;
(d) sell or transfer or agree to sell or transfer any of the Property, or
cancel or agree to cancel any debt or claim, except in each case in the ordinary
course of business consistent with past practice;
(e) consent or agree to a waiver of any right of substantial value;
(f) enter into any transaction other than in the ordinary course of business
consistent with past practice;
(g) directly or indirectly increase the compensation payable or to become
payable by Seller to any employee or agent of Seller over the compensation being
paid to them as of March 31, 1999, any such increase to be made only in the
ordinary course of business consistent with past practice;
(h) terminate any contract, agreement, license or other instrument to which
Seller is a party, the termination of which, either individually or in the
aggregate, would have a Material Adverse Effect on Seller;
(i) through negotiation or otherwise, make any commitment or incur any
liability or obligation to any labor organization;
(j) make or agree to make any accrual or arrangement for or payment of
bonuses or special compensation of any kind to any shareholder, director,
officer, employee or agent;
(k) terminate any employee or directly or indirectly pay or make a
commitment to pay any severance or termination pay to any employee or agent
except in the ordinary course of business consistent with past practice (or
except for termination for cause);
(l) introduce any new method of management, operation or accounting with
respect to the business of Seller or any of the assets, properties or rights
applicable thereto;
(m) offer or extend more favorable prices, discounts or allowances than were
offered or extended regularly on and prior to March 31, 1999, other than in the
ordinary course of business consistent with past practice or as reasonably
required by competitive conditions;
(n) incur any expense or make capital expenditures or commitments therefor
in excess of $25,000, except for repairs and maintenance in the ordinary course
of business consistent with past practice; or
(o) declare or pay any dividend or other distribution (whether in cash,
stock, property or any combination thereof) in respect of Seller's capital
stock; or purchase, acquire, redeem, split, combine or reclassify any shares of
the capital stock of Seller.
Section 5.7. FURTHER ASSURANCES. On and after the Time of Closing, Seller
shall prepare, execute and deliver, at Seller's expense, such further
instruments of conveyance, sale, assignment or transfer, and shall take or cause
to be taken such other or further action as Buyer or Buyer's counsel shall
reasonably request at any time or from time to time in order to perfect, confirm
or evidence in Buyer title to all or any part of the Property or to consummate,
in any other manner, the terms and conditions of this Agreement. On and after
the Time of Closing, Buyer shall prepare, execute and deliver, at Buyer's
expense, such further instruments, and shall take or cause to be taken such
other or
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further action as Seller or Seller's counsel shall reasonably request at any
time or from time to time in order to confirm or evidence Buyer's assumption of
the Assumed Liabilities or to consummate, in any other manner, the terms and
conditions of this Agreement.
Section 5.8. ANNOUNCEMENTS. Neither party to this Agreement shall make any
public announcements or disclosures with respect to this Agreement or the
transactions contemplated hereby without the written consent of the other party
hereto, except as required by law. To the extent any disclosure is required by
law, the party required to make such disclosure shall afford the other party the
opportunity to review and make comments to the content of such disclosure.
Section 5.9. CONSENTS. Seller agrees to use its best efforts to obtain all
permits, approvals, authorizations and consents of third parties necessary for
the consummation of the transactions contemplated hereby. Buyer shall provide
such information as may be reasonably required by such third parties and use its
best efforts to cooperate in Seller's efforts to obtain such permits, approvals,
authorizations and consents. With respect to the preceding sentence, Buyer shall
be responsible for only the direct costs of the provision of information
reasonably required by third parties. All other costs related to Buyer's
cooperation in Seller's efforts to obtain permits, approvals, authorizations and
consents shall be the responsibility of Seller.
Section 5.10. EMPLOYEE MATTERS. (a) Prior to the Closing, Buyer shall
enter into a retention agreement in the form of Exhibit 5.10 with each of the
employees listed on Schedule 5.10 (the "Retention Agreements").
(b) From and after the Closing Date, Buyer shall be responsible for
providing Continuation Coverage for the Coverage Recipient to the extent such
Continuation Coverage (i) is required by law and (ii) would be provided under a
group health plan (as defined in Code Section 4980B(g)) maintained by Buyer for
its eligible employees; provided, however, that Buyer's obligation to provide
such Continuation Coverage to the Coverage Recipient will terminate prior to the
second anniversary of the Closing Date. Notwithstanding anything in this
Agreement to the contrary, Seller shall be responsible for providing
Continuation Coverage for the Coverage Recipient to the extent such Continuation
Coverage is required by law but would not be provided under a group health plan
maintained by Buyer for its eligible employees.
(c) Nothing contained in this Section 5.10 is intended to confer any benefit
upon any person not a party to this Agreement. No third party shall be deemed a
third party beneficiary of this Section 5.10.
Section 5.11. ESCROW AGREEMENT. Contemporaneously with the Closing, Buyer
and Seller shall enter into the Escrow Agreement.
Section 5.12. UPDATED FINANCIAL STATEMENTS. During the period prior to the
Closing, with respect to each month following June 30, 1999, Seller shall
deliver to Buyer updated balance sheets and income statements for the month and
year to date period then ended. Such balance sheets and income statements shall
be prepared in accordance with the methods described in Section 4.2(h) and shall
be delivered by Seller to Buyer within fifteen (15) days following the last day
of each such month.
Section 5.13. PROXY MATERIALS. Seller shall, at its sole cost and expense,
take all action, make all necessary filings and prepare all materials (the
"Proxy Materials") required in connection with the solicitation of votes from
Seller's shareholders by virtue of the transactions contemplated by this
Agreement. Seller shall deliver the Proxy Materials to Buyer for its review and
comment prior to filing and no later than fourteen (14) days following the date
of this Agreement. All initial filings required under any applicable law in
connection with the Proxy Materials shall be made no later than twenty-one (21)
days following the date of this Agreement. Seller shall use commercially
reasonable efforts to commence the proxy solicitation no later than thirty-five
(35) days following the date of this Agreement, and, thereafter, shall use
commercially reasonable efforts to complete the proxy solicitation no later than
December 15, 1999. Buyer shall provide such information as may be reasonably
requested
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by Seller or as may be required by the Exchange Act and the rules and
regulations promulgated thereunder with respect to the Proxy Materials and use
commercially reasonable efforts to cooperate in Seller's efforts to respond to
any comments received by Seller from the SEC with respect to the Proxy Materials
and the approval of Seller's shareholders of the transactions contemplated by
this Agreement. With respect to the preceding sentence, Buyer shall be
responsible for only the direct costs of the provision of information reasonably
required by Seller or required by the Exchange Act. All other costs related to
Buyer's cooperation in Seller's efforts to respond to any comments received by
Seller from the SEC with respect to the Proxy Materials and the approval of
Seller's shareholders of the transactions contemplated by this Agreement shall
be the responsibility of Seller.
Section 5.14. NON-COMPETE.
(a) During the Restriction Period (as defined herein), the Seller shall not,
in the United States or any other country, engage, directly or indirectly,
whether individually on its own account, or as a shareholder, partner, joint
venturer, director, officer, employee, consultant, creditor and/or agent, of any
person, firm, corporation or other entity or otherwise, in any or all of the
following activities: (i) enter into or engage in any business which competes
with the business carried on by Seller on the date hereof, or by Buyer or any
Buyer Affiliates (as defined herein) (the "Business"); (ii) solicit customers or
business patronage which result in competition with the Business; or
(iii) promote or assist, financially or otherwise, any person, firm,
association, corporation or other entity engaged in any business which competes
with the Business; provided, however, the foregoing covenant shall not be deemed
to have been violated by the ownership of shares of any class of capital stock
of any publicly held corporation so long as the aggregate holdings represent
less than 3% of the outstanding shares of such class of capital stock.
(b) For purposes of this agreement: (i) "Buyer Affiliate" shall include
Buyer and all subsidiaries and affiliates of Buyer, and (ii) the "Restriction
Period" shall mean the period commencing on the Closing Date and continuing for
a period of five (5) years thereafter.
Section 5.16. POST CLOSING ASSISTANCE. After the Closing, upon the receipt
of reasonable prior written notice from Seller, Buyer shall make available to
Seller, without additional cost, the books and records of Seller relating to
periods prior to the Closing Date and the reasonable assistance of Seller's
former employees in order to facilitate the liquidation and winding up of
Seller's business.
Section 5.17. CONSULTING AGREEMENT. Prior to the Closing, Buyer shall
enter into a consulting agreement in the form of Exhibit 5.17 with Joseph F.
Engelberger (the "Consulting Agreement"). Nothing contained in this Section 5.17
is intended to confer any benefit upon any person not a party to this Agreement.
No third party shall be deemed a third party beneficiary of this Section 5.17.
Section 5.18. LEASE NEGOTIATION ASSISTANCE. Seller agrees that for the
period beginning on the date of execution of this Agreement and ending on the
Closing Date, Seller shall, at no cost to Seller, cooperate with Buyer and take
all action reasonably requested by Buyer in connection with negotiating the
termination or buy-out of the Lease dated February 1, 1998, between Seller and
Shelter Rock Business Center, L.L.C., a Connecticut limited liability company,
on terms and conditions acceptable to Buyer.
Section 5.19. OBLIGATIONS TO CONNECTICUT INNOVATIONS, INCORPORATED. At or
before the Time of Closing, Seller shall pay to Connecticut Innovations,
Incorporated, a Connecticut corporation ("CII"), pursuant to the Letter
Agreement dated October 5, 1999, between CII and Seller (the "CII Letter") the
sum of the following: (a) an amount equal to $100,000 of the Waiver and Release
Payment (as defined in the CII Letter); plus (b) an amount equal to all
royalties which are due and payable as of the Closing Date to CII by Seller
under the Development Agreement dated December 29, 1986, between CII and Seller;
plus (c) an amount equal to the Total Consideration Deficiency (as defined in
the CII Letter), if any.
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Section 5.20. REIMBURSEMENT FOR RETENTION BONUS INCREASES. Seller agrees
that it shall reimburse Buyer, solely out of the Holdback Amount, for the First
Anniversary Reimbursement Obligation (as defined in the Escrow Agreement) and
the Second Anniversary Reimbursement Obligation (as defined in the Escrow
Agreement) in accordance with the provisions of Article VIII of this Agreement
and Article III of the Escrow Agreement.
ARTICLE VI. CLOSING
Section 6.1. CLOSING. This transaction shall close (the "Closing") and all
deliveries to be made at the time of closing shall take place at 10:00 a.m., on
the third business day following the satisfaction or waiver of all conditions
set forth in Article VII of this agreement ("Closing Date"), at the offices of
Seller's counsel, Reid and Riege, P.C., One State Street, Hartford, Connecticut
06103, or at such other place or date as may be agreed upon from time to time in
writing by Seller and Buyer. The Closing Date will automatically be extended
from time to time until such time and date as all necessary governmental and
regulatory approvals have been obtained; provided, however, that the Closing
Date shall not be extended for the foregoing reason without the mutual agreement
of Seller and Buyer to any date after February 1, 2000; provided, however, that
if the Proxy Materials are reviewed by the SEC, such date shall be March 1,
2000. The point in time on the Closing Date at which the last of the conditions
precedent set forth in Sections 7.1 and 7.2 hereof has been satisfied (or waived
by the party for whose benefit such condition exists) is referred to herein as
the "Time of Closing".
Section 6.2. DELIVERIES BY SELLER. At or prior to the Time of Closing,
Seller shall deliver to Buyer, duly and properly executed, the following:
(a) A good and sufficient General Conveyance, Assignment and Bill of Sale,
in the form attached hereto as Exhibit 6.2(a), conveying, selling, transferring
and assigning to Buyer title to all of the Property free and clear of all
security interests, liens, charges, encumbrances or equities whatsoever, except
for those approved in writing by Buyer prior to the Closing;
(b) An Assignment and Assumption of the Personal Property Leases and the
Contracts, in the form attached hereto as Exhibit 6.2(b) and which shall
include, to the extent obtained, the written consents of all parties necessary
in order to duly transfer all of Seller's rights thereunder to Buyer (the
"Assignment and Assumption Agreement");
(c) A certificate of the Seller in accordance with Section 7.1(c), in the
form attached hereto as Exhibit 6.2(c);
(d) An Assignment of Trademark and Servicemark, in the form attached hereto
as Exhibit 6.2(d);
(e) An Assignment of the Patents, in the form attached hereto as Exhibit
6.2(e);
(f) A receipt of Seller with respect to amounts paid to or on behalf of
Seller pursuant to Article III in form and substance satisfactory to counsel to
Seller and Buyer;
(g) The Retention Agreements, executed by the employees listed on Schedule
5.10;
(h) The Escrow Agreement;
(i) A copy of the resolutions adopted by the board of directors of Seller
authorizing the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, certified by the Secretary of Seller;
(j) A certificate of the Secretary of State of the State of Connecticut
dated as of a recent date as to the legal existence of Seller in such State;
(k) An opinion of Reid & Riege, PC, counsel for Seller, addressed to Buyer
and dated the Closing Date, in the form attached hereto as Exhibit 6.2(k);
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(l) The Consulting Agreement, executed by Joseph F. Engelberger;
(m) UCC-3 Termination Statements executed by CII as the secured party
pertaining to the financing statements (filing numbers 20768ST, 0001632386 and
1632386) referenced as Items I.a., I.b. and I.c. in the attachment to Item 1 of
Schedule 4.2(l) of this Agreement;
(n) An Assignment and Assumption Agreement in the form attached hereto as
Exhibit 6.2(n) (the "LTI Assignment and Assumption Agreement"); and
(o) Such other separate instruments of sale, assignment or transfer that
Buyer may reasonably deem necessary or appropriate in order to perfect, confirm
or evidence title to all or any part of the Property.
Section 6.3. DELIVERIES BY BUYER. At or prior to the Time of Closing,
Buyer shall deliver to or for the account of Seller the Closing Date Payment,
less any deduction pursuant to Section 3.3(a) of this Agreement and in
accordance with Section 3.2, and shall deliver to Seller, all duly and properly
executed, the following:
(a) The Assignment and Assumption Agreement;
(b) A certificate of Buyer in accordance with Section 7.2(c), in the form
attached hereto as Exhibit 6.3(b);
(c) The Retention Agreements;
(d) The Escrow Agreement;
(e) A copy of the resolutions adopted by the board of directors of Buyer
authorizing the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, certified by the Secretary of Buyer; and
(f) A certificate of the Secretary of State of the State of Delaware dated
as of a recent date as to the good standing of Buyer in such State.
(g) An opinion of Baker & Hostetler LLP, counsel for Buyer, addressed to
Seller and dated the Closing Date, in the form attached hereto as Exhibit
6.3(g);
(h) The Consulting Agreement;
(i) The LTI Assignment and Assumption Agreement; and
(j) Such other documents, agreements and instruments which Seller may
reasonably deem necessary or appropriate in order to carry out the terms of this
Agreement.
ARTICLE VII. CONDITIONS PRECEDENT TO OBLIGATIONS
Section 7.1. CONDITIONS TO OBLIGATIONS OF BUYER. Each and every obligation
of Buyer to be performed at the Closing shall be subject to the satisfaction as
of or before the Time of Closing of the following conditions (unless waived in
writing by Buyer):
(a) REPRESENTATIONS AND WARRANTIES. Seller's representations and
warranties set forth in Section 4.2 of this Agreement shall have been true and
correct when made and shall be true and correct in all materials respects at and
as of the Time of Closing as if such representations and warranties were made as
of the Time of Closing.
(b) PERFORMANCE OF AGREEMENT. All covenants and other obligations under
this Agreement which are to be performed or complied with by Seller at or prior
to the Time of Closing shall have been fully performed and complied with in all
material respects.
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(c) CERTIFICATE. Seller shall have delivered to Buyer a certificate
executed by a duly authorized officer of Seller, dated the date of the Closing,
to the effect that the conditions set forth in subsections (a) and (b) of this
Section 7.1 have been satisfied.
(d) DAMAGE. Between the date hereof and the Time of Closing, (i) there
shall have been no material damage to any of the Property not covered by
insurance, (ii) there shall have been no disruption of Seller's business or
operations as a result of fire, flood, explosion, or other casualty, not covered
by insurance, or as a result of any strike or other form of labor disturbance,
and (iii) if there has been material damage to any of the Property or disruption
of Seller's business or operations as a result of fire, flood, explosion, or
other casualty which is covered by insurance, there shall have been no effective
assignment of the insurance proceeds to any third parties and Seller shall have
paid all applicable deductibles under the insurance policies.
(e) EMPLOYEES. Buyer shall have entered into a Retention Agreement with
each of the employees listed on Schedule 5.10.
(f) CONSENTS AND APPROVALS. Seller shall have obtained, at its sole cost
and expense, without any condition or modification adverse to Buyer, (i) all
consents required under any law, statute, rule, regulation, order or decree in
connection with the consummation of the transactions contemplated by this
Agreement, except where the failure to obtain any such consent would not have a
Material Adverse Effect on Buyer or the business of Seller, and (ii) the
consents listed on or described in Schedule 7.1(f).
(g) GOVERNMENTAL AUTHORITY; ACTIONS. No preliminary or permanent
injunction or other order, decree or ruling issued by any Governmental Authority
nor any statute, rule regulation or executive order promulgated or enacted by
any Governmental Authority shall be in effect which would (i) make the
consummation of the transactions contemplated hereby illegal, or (ii) otherwise
prevent the consummation of the transaction contemplated hereby. No Action which
seeks to prevent or enjoin the consummation of the transaction contemplated
hereby shall be pending or threatened at the Time of Closing.
(h) MATERIAL ADVERSE CHANGE. Between the date hereof and the Time of
Closing, there shall not have occurred any material adverse change in the
condition (financial or otherwise) of the business of Seller or the Property.
(i) SHAREHOLDER APPROVAL. Shareholders holding greater than 50% of the
voting power of Seller entitled to vote at the Special Meeting shall have
authorized the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby.
(j) CII LETTER. The CII Letter shall have been delivered to Seller and all
of the conditions therein shall have been satisfied or waived by CII at or prior
to the Time of Closing.
Section 7.2. CONDITIONS TO OBLIGATIONS OF SELLER. Each and every
obligation of Seller to be performed at the Closing shall be subject to the
satisfaction as of or before the Time of Closing of the following conditions
(unless waived in writing by Seller):
(a) REPRESENTATIONS AND WARRANTIES. Buyer's representations and warranties
set forth in Section 4.1 of this Agreement shall have been true and correct when
made and shall be true and correct at and as of the Closing as if such
representations and warranties were made as of the Time of Closing.
(b) PERFORMANCE OF AGREEMENT. All covenants and other obligations under
this Agreement which are to be performed or complied with by Buyer at or prior
to the Time of Closing shall have been fully performed and complied with in all
material respects.
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(c) CERTIFICATE. Buyer shall have delivered to Seller a certificate
executed by a duly authorized officer of Buyer, dated the date of the Closing,
to the effect that the conditions set forth in subsections (a) and (b) of this
Section 7.2 have been satisfied.
(d) GOVERNMENTAL AUTHORITY; ACTIONS. No preliminary or permanent
injunction or other order, decree or ruling issued by any Governmental Authority
nor any statute, rule regulation or executive order promulgated or enacted by
any Governmental Authority shall be in effect which would (i) make the
consummation of the transactions contemplated hereby illegal, or (ii) otherwise
prevent the consummation of the transaction contemplated hereby. No Action which
seeks to prevent or enjoin the consummation of the transaction contemplated
hereby shall be pending or threatened at the Time of Closing. (e) Shareholder
Approval. Shareholders holding greater than 50% of the voting power of Seller
entitled to vote at the Special Meeting shall have authorized the execution and
delivery of this Agreement and the consummation of the transaction contemplated
hereby.
(e) SHAREHOLDER APPROVAL. Shareholders holding greater than 50% of the
voting power of Seller entitled to vote at the Special Meeting shall have
authorized the execution and delivery of this Agreement and the consummation of
the transaction contemplated hereby.
(f) CII PAYMENT. Buyer shall have delivered to CII pursuant to the CII
Letter an amount equal to $300,000 of the Waiver and Release Payment (as defined
in the CII Letter).
(g) LTI PAYMENT. Buyer shall have delivered to Leasing Technologies
International, Inc., a Delaware corporation ("LTI"), the $25,000 payment
required to be paid to LTI by Buyer pursuant to the Agreement dated of even date
herewith between Buyer and LTI.
ARTICLE VIII. INDEMNIFICATION
Section 8.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. Notwithstanding any investigation conducted at any time with regard
thereto by or on behalf of Buyer or Seller, representations and warranties of
Buyer and Seller in this Agreement and in the Additional Documents (as defined
in Section 8.2(b)(ii)) shall survive the execution, delivery and performance of
this Agreement until the second anniversary of the Time of Closing and shall be
deemed to have been made again by Buyer and Seller at and as of the Time of
Closing. All statements contained in any Additional Document or Schedule or
Exhibit hereto or thereto shall be deemed representations and warranties of
Buyer or Seller set forth, as the case may be, in this Agreement within the
meaning of this Article VIII; provided, however, no statement, representation or
warranty of any matter in any contract, instrument, certificate, or agreement
described in any of the Schedules attached hereto shall be deemed a
representation or warranty by Seller within the meaning of this Article VIII.
Notwithstanding the foregoing, all covenants and agreements of Buyer and Seller
in this Agreement and in the Additional Documents shall survive the execution,
delivery and performance of this Agreement indefinitely or until such covenants
and agreements have been discharged in accordance with the terms of this
Agreement.
Section 8.2. INDEMNIFICATION.
(a) Subject to the limitations set forth in this Article VIII, Seller shall
defend, indemnify and hold harmless Buyer, its affiliates, shareholders,
officers, directors, agents and employees (each, a "Buyer Indemnified Party")
from and against any and all losses, liabilities, damages, demands, claims,
suits, actions, judgments or causes of action, assessments, costs and expenses
including, without limitation, interest, penalties, reasonable attorneys' fees,
any and all reasonable expenses incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation (collectively, "Damages"), asserted against, resulting to, imposed
upon, or incurred or suffered by any Buyer Indemnified Party, directly or
indirectly, as a result of or arising from any of the following (individually an
"Indemnifiable Claim" and
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collectively "Indemnifiable Claims" when used in the context of a Buyer
Indemnified Party as the Indemnified Party (as defined below)):
(i) Any breach of any of the representations or warranties made by
Seller in this Agreement;
(ii) Any misrepresentation in or any omission from, as the case may be,
any certificate, Schedule or Exhibit, or the documents furnished or to be
furnished by or on behalf of Seller pursuant to Section 6.2 of this
Agreement (collectively, "Seller's Additional Documents");
(iii) Any breach or non-performance of any covenant, agreement or
obligation to be performed by Seller pursuant to this Agreement or Seller's
Additional Documents;
(iv) Any liability or obligation imposed upon Buyer as transferee of the
business or operations of Seller or the Property, or otherwise relating to
the conduct of the business of Seller prior to the Closing, except to the
extent such liability or obligation is an Assumed Liability; or
(v) Any liability or obligation relating to the Retained Liabilities.
(b) Subject to the limitations set forth in this Article VIII, Buyer shall
defend, indemnify and hold harmless Seller and its affiliates, shareholders,
officers, directors, agents and employees (each, a "Seller Indemnified Party")
from and against any and all Damages asserted against, resulting to, imposed
upon, or incurred or suffered by any Seller Indemnified Party, directly or
indirectly, as a result of or arising from the following (individually an
"Indemnifiable Claim" and collectively "Indemnifiable Claims" when used in the
context of a Seller Indemnified Party as the Indemnified Party):
(i) Any breach of any of the representations or warranties made by Buyer
in this Agreement;
(ii) Any misrepresentation in or any omission from, as the case may be,
any certificate, Schedule or Exhibit, or the documents furnished or to be
furnished by or on behalf of Buyer pursuant to Section 6.3 of this Agreement
(collectively, "Buyer's Additional Documents" and, together with Seller's
Additional Documents, the "Additional Documents");
(iii) Any breach or non-performance of any covenant, agreement or
obligation to be performed by Buyer pursuant to this Agreement or Buyer's
Additional Documents;
(iv) Any liability or obligation imposed upon Seller as a result of
Buyer's conduct of the business of Seller after the Closing, except to the
extent such liability or obligation is a Retained Liability; or
(v) Any liability or obligation relating to the Assumed Liabilities.
Section 8.3. LIMITATIONS ON INDEMNIFICATION. Rights to indemnification
under this Article VIII are subject to the following limitations:
(a) Neither Seller nor Buyer shall be entitled to indemnification hereunder
with respect to an Indemnifiable Claim arising out of a breach of a
representation or warranty (or, if more than one such Indemnifiable Claim is
asserted, with respect to all such Indemnifiable Claims) unless the aggregate
amount of Damages with respect to such Indemnifiable Claim or Claims exceeds
$50,000 (the "Threshold") in which event Seller or Buyer, as the case may be,
shall be entitled to indemnification hereunder for Damages with respect to all
Indemnifiable Claims in excess of the Threshold. In no event shall any payments
required by Seller pursuant to Section 5.20 of this Agreement be subject to this
Section 8.3(a).
(b) The obligation of indemnity provided herein shall terminate on the
second anniversary of the Closing Date.
(c) The foregoing provisions of this Section 8.3 notwithstanding, if, prior
to the termination of any obligation to indemnify, written notice of a claimed
breach or other occurrence or matter giving rise to
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a claim of indemnification is given by the party seeking indemnification (the
"Indemnified Party") to the party from whom indemnification is sought (the
"Indemnifying Party"), or a suit or action based upon a claimed breach is
commenced against the Indemnifying Party, the Indemnified Party shall not be
precluded from pursuing such claimed breach, occurrence, other matter, or suit
or action, or from recovering from the Indemnifying Party (whether through the
courts or otherwise) on the claim, suit or action, by reason of the termination
otherwise provided for above.
(d) Seller's obligation to indemnify any of the Buyer Indemnified Parties
shall be reduced by the amount of the proceeds of any insurance policy actually
paid to such Buyer Indemnified Party as a result of the matter giving rise to
the claim for indemnification against Seller. Buyer's obligation to indemnify
any of the Seller Indemnified Parties shall be reduced by the amount of the
proceeds of any insurance policy actually paid to such Seller Indemnified Party
as a result of the matter giving rise to the claim for indemnification against
Buyer.
Section 8.4. PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD-PARTY
CLAIMS.
(a) If the Indemnified Party determines to seek indemnification under this
Article VIII with respect to Indemnifiable Claims resulting from the assertion
of liability by third parties, it shall give notice to the Indemnifying Party
within 45 calendar days of the Indemnified Party's becoming aware of any such
Indemnifiable Claim or of facts upon which any such Indemnifiable Claim will be
based; the notice shall set forth such information with respect thereto as is
then reasonably available to the Indemnified Party. If any such liability is
asserted against the Indemnified Party, and the Indemnified Party notifies the
Indemnifying Party thereof, the Indemnifying Party will be entitled, if it so
elects by written notice delivered to the Indemnified Party within 20 calendar
days after receiving the Indemnified Party's notice, to assume the defense
thereof with counsel satisfactory to the Indemnified Party. Notwithstanding the
foregoing (i) the Indemnified Party shall also have the right to employ its own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of the Indemnified Party; (ii) the Indemnified Party shall not have
any obligation to give any notice of any assertion of liability by a third party
unless such assertion is in writing; and (iii) the rights of the Indemnified
Party to be indemnified hereunder in respect of Indemnifiable Claims resulting
from the assertion of liability by third parties shall not be adversely affected
by its failure to give notice pursuant to the foregoing unless, and, if so, only
to the extent that the Indemnifying Party is materially prejudiced thereby. With
respect to any assertion of liability by a third party that results in an
Indemnifiable Claim, the parties hereto shall make available to each other all
relevant information in their possession material to any such assertion.
(b) In the event that the Indemnifying Party, within 20 days after receipt
of the aforesaid notice of an Indemnifiable Claim, fails to assume the defense
of the Indemnified Party against such Indemnifiable Claim, the Indemnified Party
shall have the right to undertake the defense, compromise or settlement of such
action on behalf of and for the account and risk of the Indemnifying Party.
(c) Notwithstanding anything in this Section 8.4 to the contrary, the
Indemnifying Party will not be entitled to assume control of the defense of an
Indemnifiable Claim, and will pay the reasonable fees and expenses of legal
counsel retained by the Indemnified Party, if:
(i) the Indemnified Party reasonably believes that an adverse
determination of such proceeding could be detrimental to or injure the
Indemnified Party's reputation or future business prospects;
(ii) the Indemnified Party reasonably believes that there exists or
could arise a conflict of interest which, under applicable principles of
legal ethics, could prohibit a single legal counsel from representing both
the Indemnified Party and the Indemnifying Party in such proceeding;
(iii) a court of competent jurisdiction rules that the Indemnifying
Party has failed or is failing to prosecute or defend vigorously such claim;
or
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(iv) the amount of such indemnification claim, together with the amount
of all other pending indemnification claims made by the Indemnified Party,
as reasonably estimated in good faith in each case by the Indemnified Party
in its reasonable discretion, exceeds the then remaining balance of any
funds or securities held pursuant to the Escrow Agreement.
(d) The Indemnifying Party shall not, without such Indemnified Party's prior
written consent, settle or compromise any Indemnifiable Claim or consent to
entry of any judgment in respect of any Indemnifiable Claim unless such
settlement, compromise or consent includes, as an unconditional term, the giving
by the claimant or the plaintiff to such Indemnified Party (and all its
affiliates) a release from all liability in respect of such Indemnifiable Claim.
Section 8.5. PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO NON-THIRD-PARTY
CLAIMS. In the event that the Indemnified Party asserts the existence of an
Indemnifiable Claim (but excluding claims resulting from the assertion of
liability by third parties), it shall give written notice to the Indemnifying
Party specifying the nature and amount of the claim asserted. If the
Indemnifying Party, within 30 days after receiving the notice from the
Indemnified Party, shall not give written notice to the Indemnified Party
announcing its intent to contest such assertion of the Indemnified Party, such
assertion shall be deemed accepted and the amount of claim shall be deemed a
valid Indemnifiable Claim. During the time period set forth in the preceding
sentence, the Indemnified Party shall cooperate fully with the Indemnifying
Party in respect of such Indemnifiable Claim.
Section 8.6. HOLDBACK. Subject to the terms and conditions of the Escrow
Agreement, any rights of any of the Buyer Indemnified Parties to (i)
indemnification under Section 8.2, or (ii) reimbursement under Section 5.20,
shall be satisfied solely out of the Holdback Amount, and none of the Buyer
Indemnified Parties shall make any claim against any of the other assets or
property of Seller.
Section 8.7. SELLER SHAREHOLDER REPRESENTATIVE.
(a) At least ten (10) days prior to adopting any plan or liquidation or
dissolution, Seller shall irrevocably appoint an individual, who shall be a
resident of the United States (the "Seller Representative") to act on behalf of
Seller with respect to all matters relating to this Agreement and the Additional
Documents, including without limitation in considering and certifying the amount
of any Indemnifiable Claim hereunder, in communicating with the shareholders of
Seller, in appointing a successor Escrow Agent under the Escrow Agreement, in
considering and acting with respect to any amendment or termination of this
Agreement, and generally in performing all acts expressly required or permitted
to be performed by Seller pursuant hereto and pursuant to the Additional
Documents. At such time as the Seller Representative is appointed by Seller,
Seller shall give written notice to Buyer and the Escrow Agent specifying the
name, address, telephone number and facsimile number of the Seller
Representative (the "Appointment Notice"). From and after the date of receipt of
the Appointment Notice, Buyer and the Escrow Agent shall have the right to deal
exclusively with the Seller Representative with respect to all matters under
this Agreement and Additional Documents and neither Buyer nor the Escrow Agent
shall have any liability to Seller or any of its shareholders for any acts or
omissions of the Seller Representative, or any acts or omissions taken or not
taken by Buyer or the Escrow Agent at the direction of the Seller
Representative, including, without limitation, the transferring or the failure
to transfer any funds released from escrow. Upon a distribution of funds to the
Seller Representative (or to one or more of the shareholders of Seller upon
written instruction of the Seller Representative) in accordance with this
Agreement, the Escrow Agent and Buyer shall be deemed to have fully satisfied
any and all obligations to Seller or the shareholders of Seller under this
Agreement and the Escrow Agreement with respect to the amount of such
distribution. If Seller fails to appoint the Seller Representative in accordance
with this Section 8.7(a), either Buyer or the Escrow Agent may petition any
court of competent jurisdiction to appoint an individual to act as the Seller
Representative for and on behalf of Seller.
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(b) The Seller Representative will have no liability to Seller or the
shareholders of Seller with respect to actions taken or omitted to be taken in
its capacity as Seller Representative, except with respect to any liability
resulting primarily from the Seller Representative's gross negligence or willful
misconduct. The Seller Representative shall be entitled to rely upon any
directions received from the shareholders holding a majority of Seller's common
shares at the Time of Closing (the "Majority Holders"); provided, however, that
the Seller Representative shall not be required to follow any such direction,
and shall be under no obligation to take any action in its capacity as the
Seller Representative, unless the Seller Representative has been provided with
funds, security or indemnities which, in the sole determination of the Seller
Representative, are sufficient to protect the Seller Representative against the
costs, expenses and liabilities which may be incurred by the Seller
Representative in responding to such direction or taking such action. The Seller
Representative shall be entitled to engage such counsel, experts and other
agents and consultants as it shall deem necessary in connection with exercising
its powers and performing its function hereunder and (in the absence of bad
faith on the part of the Seller Representative) shall be entitled to
conclusively rely on the opinions and advice of such persons. The Seller
Representative shall be entitled to reimbursement by the shareholders of Seller
for all reasonable expenses, disbursements and advances (including fees and
disbursements of its counsel, experts and other agents and consultants) incurred
by the Seller Representative in such capacity, and for indemnification, by the
shareholders of Seller, against any loss, liability or expenses arising out of
actions taken or omitted to be taken in its capacity as the Seller
Representative (except for those arising primarily out of the Seller
Representative's gross negligence or willful misconduct), including the costs
and expenses of investigation and defense of claims.
(c) Notwithstanding the foregoing provisions of this Section 8.7, nothing in
this Section 8.7 shall in any way effect or derogate from any obligation or
liability of Seller to Buyer hereunder.
Section 8.8. EXCLUSIVE REMEDY.
(a) The provisions of this Article VIII shall be the exclusive remedy
available to any of the Buyer Indemnified Parties with respect to any of the
matters set forth in Section 8.2(a)(i), (ii), (iii), (iv) or (v), except for
claims based on fraud or intentional misrepresentation.
(b) The provisions of the Article VIII shall be the exclusive remedy
available to any of the Seller Indemnified Parties with respect to any of the
matters set forth in Section 8.2(b)(i), (ii), (iii), (iv) or (v), except for
claims based on fraud or intentional misrepresentation.
Section 8.9. NOTICE AND CURE. Notwithstanding anything in this Agreement
to the contrary, if after the execution of this Agreement, but prior to the Time
of Closing, Buyer determines that Seller has breached any covenant or agreement
contained in this Agreement or any Additional Document, Buyer shall give Seller
written notice of such breach and ten (10) days to cure such breach. If Buyer
fails to give such notice to Seller, then no claim for indemnification under
this Article VIII shall be made against Seller for such breach. The provisions
of this Section 8.9 do not apply to a breach by Seller of any representation or
warranty contained in this Agreement or any Additional Document.
ARTICLE IX. TERMINATION
Section 9.1. TERMINATION BY EITHER PARTY.
(a) This Agreement may be terminated and canceled at any time prior to the
Time of Closing by Buyer upon written notice to the Seller if: (i) any of the
representations or warranties of Seller contained herein or in any Additional
Document is inaccurate or untrue; (ii) any covenant, obligation, term or
condition to be performed, kept or observed by Seller hereunder has not been
performed, kept or observed in any material respect at or prior to the time
specified in this Agreement; or (iii) the Closing has not occurred on or before
February 1, 2000 (except as a result of the failure of shareholders holding
greater than 50% of the voting power of Seller entitled to vote at the Special
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Meeting, to have authorized the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby); provided, however, that
if the Proxy Materials are reviewed by the SEC, such date shall be March 1,
2000; and provided, further, that in each such case Buyer is not then in default
in any material respect in the performance of any obligation, term or condition
to be performed, kept or observed by Buyer and no representation or warranty of
Buyer contained herein or in any Schedule attached hereto is inaccurate or
untrue in any material respect. If Buyer terminates this Agreement, Buyer shall
not be deemed to have waived and Buyer shall retain all rights with respect to
any claim that Buyer may have against Seller for a breach under this Agreement.
(b) This Agreement may be terminated and canceled at any time prior to the
Time of Closing by Seller upon written notice to Buyer if: (i) any of the
representations or warranties of Buyer contained herein or in any Schedule
attached hereto is inaccurate or untrue; (ii) any covenant, obligation, term or
condition to be performed, kept or observed by Buyer hereunder has not been
performed, kept or observed in any material respect at or prior to the time
specified in this Agreement; (iii) the Closing has not occurred on or before
February 1, 2000 (except as a result of the failure of shareholders holding
greater than 50% of the voting power of Seller entitled to vote at the Special
Meeting, to have authorized the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby); provided, however, that
if the Proxy Materials are reviewed by the SEC, such date shall be March 1,
2000; and provided, further, that in each such case Seller is not then in
default in any material respect in the performance of any obligation, term or
condition to be performed, kept or observed by Seller and no representation or
warranty of Seller contained herein or in any Schedule attached hereto is
inaccurate or untrue in any material respect. If Seller terminates this
Agreement, Seller shall not be deemed to have waived and Seller shall retain all
rights with respect to any claim that Seller may have against Buyer for a breach
under this Agreement.
(c) This Agreement may be terminated and canceled by Seller or Buyer within
seven (7) days after the Special Meeting upon written notice to the other party
if at the Special Meeting, shareholders of Seller holding greater than 50% of
the voting power of Seller entitled to vote at the Special Meeting do not
approve this Agreement and the transactions contemplated by this Agreement.
Section 9.2. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 9.1(a), (b) or (c), this Agreement, except
for the provisions of Article VIII, the last sentence of Section 5.5, this
Section 9.2 and Section 10.12, shall become void and have no effect, without any
liability on the part of any party or its directors, officers, shareholders or
agents; provided, however, that a termination under Section 9.1(a), (b) or (c)
shall not relieve the non-terminating party of liability for a material breach
of any provision of this Agreement. Notwithstanding the immediately preceding
sentence, if (i) it shall be judicially determined that termination of this
Agreement resulted from an intentional breach of this Agreement by Seller, (ii)
this Agreement is terminated by reason of Seller's failure to perform any
covenant or obligation under this Agreement and such failure has been the cause
of or resulted in the failure of the transaction contemplated by this Agreement
to be consummated on or before February 1, 2000 (or March 1, 2000, if the Proxy
Materials are reviewed by the SEC), or (iii) at any time prior to a termination
pursuant to Section 9.1(c) there shall have been made to Seller or publicly
disclosed a bona fide Acquisition Proposal with respect to Seller, then Seller
shall pay to Buyer by wire transfer of immediately available funds to an account
designated by Buyer (x) a non-accountable, liquidated expense reimbursement of
$500,000, and (y) a termination fee equal to $1,500,000. Upon the termination of
this Agreement in connection with (i), (ii) or (iii) above, Seller shall be
prohibited for a period of two hundred seventy (270) days from the date of such
termination of this Agreement from directly or indirectly soliciting or
encouraging (including by way of furnishing any non-public information
concerning the business, properties or assets of Seller), or entering into or
participating in any negotiations or discussions concerning, or consummating,
any Competing Transaction. For purposes of this Section 9.2, a "Competing
Transaction" means any contemplated transaction resulting from an Acquisition
Proposal.
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<PAGE>
ARTICLE X. MISCELLANEOUS PROVISIONS
Section 10.1. NOTICE. All notices and other communications required or
permitted under this Agreement shall be deemed to have been duly given and made
if in writing and if served either by personal delivery to the party for whom
intended (which shall include delivery by Federal Express or similar service) or
three (3) business days after being deposited, postage prepaid, certified or
registered mail, return receipt requested, in the United States mail bearing the
address shown in this Agreement for, or such other address as may be designated
in writing hereafter by, such party:
<TABLE>
<S> <C>
If to Seller: Helpmate Robotics, Inc,
1 Shelter Rock Lane
Danbury, Connecticut 06810
Attention: Joseph F. Engelberger
with a copy to: Reid and Riege, P.C.
One State Street
Hartford, Connecticut 06103
Attention: Craig L. Sylvester, Esq.
If to Buyer: Pyxis Corporation
3750 Torrey View Court
San Diego, California 92121
Attention: Stephen S. Thomas
with a copy to: Cardinal Health, Inc.
7000 Cardinal Place
Dublin, Ohio 43017
Attention: General Counsel
and with a copy to: Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Attention: Ronald A. Stepanovic
</TABLE>
Section 10.2. ENTIRE AGREEMENT. This Agreement, the Additional Documents,
the Exhibits and Schedules hereto, the documents referred to herein, the
Confidentiality Agreement dated June 29, 1999, between Seller and Cardinal
Health, Inc. and the Confidentiality Agreement dated February 19, 1999, between
Seller and Buyer, embody the entire agreement and understanding of the parties
hereto with respect to the subject matter hereof, and supersede all prior and
contemporaneous agreements and understandings, oral or written, relative to said
subject matter.
Section 10.3. BINDING EFFECT; ASSIGNMENT. This Agreement and the various
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon Seller and its successors and permitted assigns, and Buyer and its
successors and permitted assigns. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be transferred or assigned (by
operation of law or otherwise) by any of the parties hereto without the prior
written consent of the other party except that Buyer shall have the right to
assign its rights, interests and obligations hereunder to an affiliate of Buyer,
provided such assignment does not adversely affect the satisfaction of any of
the conditions set forth in Section 7.2. Any such assignment shall not relieve
Buyer of any of its obligations under this Agreement. Any transfer or assignment
of any of the rights, interests or obligations hereunder in violation of the
terms hereof shall be void and of no force or effect.
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<PAGE>
Section 10.4. CAPTIONS. The Article and Section headings of this Agreement
are inserted for convenience only and shall not constitute a part of this
Agreement in construing or interpreting any provision hereof.
Section 10.5. EXPENSES OF TRANSACTION. Except as otherwise specifically
provided herein, Seller shall pay all costs and expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby, and
will make all necessary arrangements so that the Property will not become
subject to any lien or encumbrance as a result of any non-payment of any such
cost or expense. Buyer shall pay all costs and expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby. The
liability for sales, real estate transfer and/or documentary taxes (but not
income or similar type taxes) in connection with the consummation of the
transactions contemplated hereby shall be the responsibility of Seller.
Section 10.6. WAIVER; CONSENT. This Agreement may not be changed, amended,
terminated, augmented, rescinded or discharged (other than by performance), in
whole or in part, except by a writing executed by the parties hereto, and no
waiver of any of the provisions or conditions of this Agreement or any of the
rights of a party hereto shall be effective or binding unless such waiver shall
be in writing and signed by the party claimed to have given or consented
thereto. Except to the extent that a party hereto may have otherwise agreed in
writing, no waiver by that party of any condition of this Agreement or breach by
the other party of any of its obligations or representations hereunder or
thereunder shall be deemed to be a waiver of any other condition or subsequent
or prior breach of the same or any other obligation or representation by the
other party, nor shall any forbearance by the first party to seek a remedy for
any noncompliance or breach by the other party be deemed to be a waiver by the
first party of its rights and remedies with respect to such noncompliance or
breach.
Section 10.7. NO THIRD PARTY BENEFICIARIES. Nothing herein, expressed or
implied, is intended or shall be construed to confer upon or give to any person,
firm, corporation or legal entity, other than the parties hereto, any rights,
remedies or other benefits under or by reason of this Agreement.
Section 10.8. COUNTERPARTS. This Agreement may be executed simultaneously
in multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
Section 10.9. GENDER. Whenever the context requires, words used in the
singular shall be construed to mean or include the plural and vice versa, and
pronouns of any gender shall be deemed to include and designate the masculine,
feminine or neuter gender.
Section 10.10. REMEDIES OF BUYER. The Property is unique and not readily
available. Accordingly, Seller acknowledges that, in addition to all other
remedies to which Buyer is entitled, Buyer shall have the right to enforce the
terms of this Agreement by a decree of specific performance.
Section 10.11. SEVERABILITY. With respect to any provision of this
Agreement finally determined by a court of competent jurisdiction to be
unenforceable, Seller and Buyer hereby agree that such court shall have
jurisdiction to reform such provision so that it is enforceable to the maximum
extent permitted by law, and the parties agree to abide by such court's
determination. In the event that any provision of this Agreement cannot be
reformed, such provision shall be deemed to be severed from this Agreement, but
every other provision of this Agreement shall remain in full force and effect.
Section 10.12. GOVERNING LAW. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of Delaware.
Section 10.13. MATERIAL ADVERSE EFFECT. For the purposes of any provision
of this Agreement, a "Material Adverse Effect" with respect to any party shall
mean a material adverse effect on the assets, liabilities, results of
operations, prospects or condition (financial or otherwise) of such party and
its subsidiaries taken as a whole.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
<TABLE>
<S> <C>
BUYER:
PYXIS CORPORATION
By:
Name:
Title:
SELLER:
HELPMATE ROBOTICS, INC.
By:
Name:
Title:
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
- ---------
<C> <S>
1.1(a) Personal Property
1.1(b) Inventory
1.1(c) Permits
1.1(d) Proprietary Rights
1.1(e) Personal Property Leases
1.1(f) Contracts
1.1(g) Accounts Receivable
1.1(h) Seller's Claims
1.1(i) Vehicles
1.1(x) Excluded Assets
2.1 Assumed Liabilities
3.4 Purchase Price Allocation
4.2(a) Organization and Standing
4.2(d) Capitalization of Seller
4.2(e) Conflicts, Consent and Approvals
4.2(f) Changes in Operations
4.2(g) Officers, Employees and Compensation
4.2(i) Taxes
4.2(j) Compliance with Law
4.2(k) Intellectual Property
4.2(l) Title to Property
4.2(m) Environmental Matters
4.2(n) Litigation
4.2(p) Employee Benefit Plans
4.2(q) Contracts
4.2(r) Accounts Receivable; Inventories
4.2(s) Labor Matters
4.2(t) Undisclosed Liabilities
4.2(u) Conduct of the Business
4.2(v) Product Warranties and Liabilities
4.2(x) Insurance
4.2(z) Year 2000 Compliance
5.1 Employee Arrangements
5.10 Key Employees
7.1(f) Consents and Approvals
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
3.2(b) Escrow Agreement
3.3(b) Accountant's Letter Agreement
5.10 Retention Agreements
5.17 Consulting Agreement
6.2(a) General Conveyance, Assignment and Bill of Sale
6.2(b) Assignment and Assumption Agreement
6.2(c) Certificate of Seller
6.2(d) Assignment of Trademark and Servicemark
6.2(e) Assignment of the Patents
6.2(k) Opinion of Reid & Riege PC
6.2(n) LTI Assignment and Assumption Agreement
6.3(c) Certificate of Buyer
6.3(g) Opinion of Baker & Hostetler LLP
</TABLE>
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<PAGE>
APPENDIX B
ESCROW AGREEMENT
This Escrow Agreement (this "Agreement") is made and entered into as of
, 1999, among Pyxis Corporation, a Delaware corporation ("Pyxis"),
HelpMate Robotics, Inc., a Connecticut corporation ("HRI"), and Bank One Trust
Company, NA, a national banking association, as escrow agent (the "Escrow
Agent").
RECITALS:
A. Pyxis and HRI have simultaneously herewith entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement"), providing for, among other things,
Pyxis' acquisition of substantially all of the assets of HRI in accordance with
the terms and conditions of the Asset Purchase Agreement.
B. Capitalized terms used but not otherwise defined herein shall have the
respective meanings given them in the Asset Purchase Agreement.
C. Pursuant to the Asset Purchase Agreement, HRI is obligated to indemnify
Pyxis for certain damages and to reimburse Pyxis for certain amounts paid by
Pyxis to its employees pursuant to certain retention bonus agreements.
D. The Asset Purchase Agreement provides for the deposit into escrow of One
Million Two Hundred Fifty Thousand Dollars ($1,250,000) of the Purchase Price
otherwise to be paid to HRI in order to secure the indemnification and
reimbursement obligations of HRI (the "Holdback Amount").
E. Pyxis and HRI desire to secure the services of the Escrow Agent, and the
Escrow Agent is willing to provide such services, pursuant to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, the parties hereto hereby agree as follows:
ARTICLE I
APPOINTMENT OF ESCROW AGENT; RESIGNATION AND SUCCESSOR
Section 1.1. APPOINTMENT OF ESCROW AGENT. The Escrow Agent is hereby
appointed, and accepts its appointment and designation, as Escrow Agent pursuant
to the terms and conditions of this Agreement.
Section 1.2. RESIGNATION OF ESCROW AGENT; APPOINTMENT OF SUCCESSOR. The
Escrow Agent acting at any time hereunder may resign at any time by giving at
least 30 days' prior written notice of resignation to Pyxis and HRI, such
resignation to be effective on the date specified in such notice. Upon receipt
of such notice, Pyxis shall, unless otherwise agreed between Pyxis and HRI,
appoint a bank or trust company with a combined capital and surplus of at least
$100 million as successor Escrow Agent, by a written instrument delivered to
such Escrow Agent and HRI, whereupon such successor Escrow Agent shall succeed
to all the rights and obligations of the retiring Escrow Agent as of the
effective date of resignation as if originally named herein. Upon such
assignment of this Agreement, the retiring Escrow Agent shall duly transfer and
deliver the remaining portion of the Holdback Amount at the time held by the
retiring Escrow Agent, provided that, if no successor Escrow Agent shall have
been appointed on the effective date of resignation of the resigning Escrow
Agent hereunder, the resigning Escrow Agent may transfer and deliver the
remaining portion of the Holdback Amount into a court of competent jurisdiction.
B-1
<PAGE>
ARTICLE II
ESCROW ARRANGEMENTS
Section 2.1. LIABILITY SECURED BY THE HOLDBACK AMOUNT. This Agreement has
been executed and delivered and the Escrow Account (as defined in
Section 2.2(b) of this Agreement) is hereby established, to facilitate any
indemnification which may be owed to Pyxis pursuant to Article VIII of the Asset
Purchase Agreement and to facilitate any reimbursement which may be due Pyxis
pursuant to Section 5.20 of the Asset Purchase Agreement. The Holdback Amount
deposited into the Escrow Account will be available to satisfy claims of Pyxis
in accordance with Section 3.1 hereof.
Section 2.2. DELIVERY OF THE HOLDBACK AMOUNT.
(a) On the Closing Date, Pyxis shall deliver to the Escrow Agent the
Holdback Amount. The parties agree that all distributions of additional property
made to HRI in respect of the Holdback Amount including, without limitation, all
such interest and all other income earned on the Holdback Amount shall be
interest and income of HRI and shall be reported for federal, state and local
tax purposes as for the account of HRI.
(b) The Escrow Agent shall hold the Holdback Amount in an escrow account
(the "Escrow Account") for the benefit of HRI. Neither the Holdback Amount nor
the Escrow Account shall be subject to any lien or attachment of any creditor,
and shall be used solely for the purposes and subject to the conditions set
forth in this Agreement and the Asset Purchase Agreement.
Section 2.3. INVESTMENT OF THE HOLDBACK AMOUNT. The Escrow Agent is hereby
authorized and directed to invest the Holdback Amount in the following
obligations (collectively, the "Permitted Investments"):
(a) obligations of the United States of America or obligations fully
guaranteed by the United States of America as to timely payment of principal and
interest;
(b) such money market funds as are agreed to from time to time by Pyxis and
HRI; and
(c) certificates of deposit with any bank or trust company organized under
the laws of the United States of America or any agency or instrumentality
thereof or under the laws of any state thereof which has a combined capital and
surplus of at least $100,000,000.
Subject to the foregoing limitations, the Escrow Agent shall invest the
Holdback Amount in accordance with written instructions delivered to it by HRI
from time to time. Except to satisfy any Indemnification Obligation (as defined
in Section 3.1(a) hereof), any First Anniversary Reimbursement Obligation (as
defined in Section 3.1(e) hereof), any Second Anniversary Reimbursement
Obligation (as defined in Section 3.1(f) hereof) or as provided above, the
Escrow Agent shall have no power or duty to invest the Holdback Amount or to
make substitutions therefor or to sell, transfer or otherwise dispose of
investments acquired hereunder.
ARTICLE III
RELEASE OF THE HOLDBACK AMOUNT
Section 3.1. DISTRIBUTIONS FOR INDEMNIFICATION; RETENTION BONUSES.
(a) At any time prior the second anniversary of the Closing Date, Pyxis may
deliver to the Escrow Agent (with a copy to HRI) a certificate (a "Notice of
Claim") (i) stating that Pyxis believes that it is entitled to indemnification
pursuant to Article VIII of the Asset Purchase Agreement (an "Indemnification
Obligation"), (ii) stating the aggregate amount (the "Claim Amount") of such
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Indemnification Obligation (or, in the case of an unliquidated or uncertain
Indemnification Obligation, a good faith and reasonable estimate thereof), and
(iii) specifying in reasonable detail the nature of such Indemnification
Obligation, including the specific provision or provisions of the Asset Purchase
Agreement pursuant to which indemnification is being sought. Any Notice of Claim
delivered pursuant to this Section 3.1 with respect to any unliquidated
Indemnification Obligation may be supplemented by a later Notice of Claim
specifying in greater detail the applicable Claim Amount or any other items set
forth therein. Upon delivery of any such Notice of Claim, the Escrow Agent
shall, within three business days of receipt thereof, deliver a written notice
together with a copy of such Notice of Claim to HRI.
(b) If HRI shall object to the Indemnification Obligation or the Claim
Amount specified in such Notice of Claim, HRI shall, within ten (10) business
days after delivery of the written notice containing a copy of any such Notice
of Claim, deliver to the Escrow Agent a certificate (a "Reply Certificate")
(i) specifying each such objection, and (ii) specifying in reasonable detail the
nature and basis for such objection. Within three (3) business days after
delivery to the Escrow Agent of a Reply Certificate, the Escrow Agent shall
deliver a copy of such Reply Certificate to Pyxis. Pyxis and HRI shall negotiate
in good faith for a period of twenty (20) business days after delivery of such
Reply Certificate to Pyxis to reach a written resolution of any objections
raised in the Reply Certificate.
(c) If no Reply Certificate is delivered with respect to any Notice of Claim
within ten (10) business days after delivery of the Notice of Claim, then HRI
shall be deemed to have delivered a Payment Authorization (as defined below)
acknowledging Pyxis' right to receive the Claim Amount specified in such Notice
of Claim with respect to the applicable Indemnification Obligation and the
Escrow Agent shall transfer to Pyxis a portion of the Holdback Amount equal to
such Claim Amount, all in accordance with the procedures set forth in
Section 3.1(g).
(d) If the Escrow Agent receives a Reply Certificate in a timely manner with
respect to any Notice of Claim, the Claim Amount referred to in such Notice of
Claim shall be held by the Escrow Agent and shall not be released to Pyxis
except upon Pyxis' delivery to the Escrow Agent of either (i) joint written
instructions signed by an authorized officer of Pyxis and by HRI directing the
Escrow Agent as to the disposition of the Claim Amount (or any other amount
mutually agreed upon by such parties), or (ii) a final, non-appealable judgment
of a court of competent jurisdiction as to the disposition of the
Indemnification Obligation referred to in such Notice of Claim (either of
(i) or (ii) being a "Payment Authorization"), at which date the Claim Amount (or
such other amount as set forth in the Payment Authorization) shall promptly be
disbursed to Pyxis pursuant to the Payment Authorization.
(e) Within ten (10) days following the first anniversary of the Closing
Date, Pyxis shall deliver to HRI and the Escrow Agent a certificate (the "First
Anniversary Retention Bonus Notice") setting forth the names of the individuals
to whom Pyxis has, as of the first anniversary of the Closing Date, paid a
retention bonus in accordance with the Retention Agreement (as defined in the
Asset Purchase Agreement) pertaining to such individual. The First Anniversary
Retention Bonus Notice shall state that Pyxis is entitled to reimbursement with
respect to each such individual for the amount of the retention bonus increase
set forth on SCHEDULE 1 attached hereto opposite such individual's name
(collectively, all such retention bonus increases referenced on the First
Anniversary Retention Bonus Notice are hereinafter referred to as the "First
Anniversary Reimbursement Obligation"). Within three (3) business days after
delivery of the First Anniversary Retention Bonus Notice, the Escrow Agent shall
transfer to Pyxis a portion of the Holdback Amount equal to the amount of the
First Anniversary Reimbursement Obligation, all in accordance with the
procedures set forth in Section 3.1(g).
(f) Within ten (10) days following the second anniversary of the Closing
Date, Pyxis shall deliver to HRI and the Escrow Agent a certificate (the "Second
Anniversary Retention Bonus Notice") setting forth the names of the individuals
to whom Pyxis has, as of the second anniversary of the Closing Date, paid, in
accordance with the Retention Agreement pertaining to such individual, a
retention bonus with respect to the twelve (12) calendar month period
immediately preceding the second anniversary of the
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Closing Date. The Second Anniversary Retention Bonus Notice shall state that
Pyxis is entitled to reimbursement with respect to each such individual for the
amount of the retention bonus increase set forth on SCHEDULE 2 attached hereto
opposite such individual's name (collectively, all such retention bonus
increases referenced on the Second Anniversary Retention Bonus Notice are
hereinafter referred to as the "Second Anniversary Reimbursement Obligation").
Within three (3) business days after delivery of the Second Anniversary
Retention Bonus Notice, the Escrow Agent shall transfer to Pyxis a portion of
the Holdback Amount equal to the amount of the Second Anniversary Reimbursement
Obligation, all in accordance with the procedures set forth in Section 3.1(g).
(g) The Escrow Agent shall pay all payments required to made to Pyxis
pursuant to Section 3.1 of this Agreement by wire transfer to the bank account
or accounts designated by Pyxis to the Escrow Agent in writing not less than one
(1) business day prior to the date of such payment.
Section 3.2. RELEASE OF ESCROW.
(a) On the second anniversary of the Closing Date (the "Escrow Termination
Date"), the Escrow Agent shall distribute the remainder of the Holdback Amount,
less the aggregate amount of the retention bonuses set forth on SCHEDULE 2
attached hereto (the "Maximum Second Anniversary Reimbursement Obligation"), to
HRI. Notwithstanding the foregoing, if the Escrow Agent shall have received a
Notice of Claim from Pyxis prior to the Escrow Termination Date with respect to
an indemnification claim (an "Unresolved Claim") for which the Escrow Agent has
not received a subsequent Payment Authorization or written notification signed
by Pyxis and HRI informing the Escrow Agent of the termination or other
resolution of such claim or claims (each, a "Claim Termination Notice"), then
(i) the Escrow Agent shall retain a portion of the Holdback Amount sufficient
for the payment of all Claim Amounts with respect to all such Unresolved Claims
(but not in excess of the remainder of the Holdback Amount), and (ii) the Escrow
Agent shall release to HRI the portion of the Holdback Amount in the Escrow
Account not otherwise retained in accordance with this Section 3.2(a).
(b) Upon the resolution of any Unresolved Claim, the Escrow Agent shall
(i) release any portion of the Holdback Amount retained in respect of such
Unresolved Claim (A) to Pyxis in accordance with any Payment Authorization
received by the Escrow Agent in respect of such Unresolved Claim, or (B) to HRI
in accordance with any Claim Termination Notice received by the Escrow Agent in
respect of such Unresolved Claim, and (ii) if no other Unresolved Claims remain
outstanding, release the remainder of the Holdback Amount to HRI, less the
Maximum Second Anniversary Reimbursement Obligation to the extent Pyxis has not
yet received payment of a portion of the Holdback Amount to discharge the Second
Anniversary Reimbursement Obligation. Upon payment to Pyxis of the portion of
the Holdback Amount equal to the amount of the Second Anniversary Reimbursement
Obligation in accordance with Section 3.1, the Escrow Agent shall release to HRI
the remainder of the portion of the Holdback Amount retained pursuant to
Section 3.2(a) in respect of the Maximum Second Anniversary Reimbursement
Obligation, if any.
(c) The Escrow Agent shall pay all payments required pursuant to
Section 3.2 of this Agreement by wire transfer to the bank account or accounts
designated by Pyxis or HRI, as the case may be, to the Escrow Agent in writing
not less than one (1) business day prior to the date of such payment.
ARTICLE IV
ESCROW AGENT
Section 4.1. FEES. For its services hereunder, the Escrow Agent shall
receive (i) upon execution of this Agreement, an acceptance fee One Thousand Two
Hundred Fifty Dollars ($1,250) as payment for initiating the transaction,
(ii) commencing on the Closing Date and then annually thereafter until it
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has delivered all of the Holdback Amount pursuant to Article III hereof, an
administrative fee of Two Thousand Five Hundred Dollars ($2,500) as payment in
advance for each calendar year of its service under this Agreement (not prorated
for partial years; provided, however, if the entire Holdback Amount has not been
delivered pursuant to Article III hereof as of the Escrow Termination Date
solely as a result of Pyxis' assertion that it is entitled to reimbursement
pursuant to Section 3.3(f) hereof for the Second Anniversary Reimbursement
Obligation, the Escrow Agent shall receive an administrative fee prorated based
on a 365-day year for its services rendered during the period of time beginning
on the Escrow Termination Date and ending the date that the remainder of the
Holdback Amount is delivered pursuant to Article III hereof), and (iii) the
transaction fees set forth on SCHEDULE 3 attached hereto. The Escrow Agent shall
be reimbursed for all reasonable out-of-pocket expenses incurred by the Escrow
Agent necessary to perform such services (other than taxes imposed in respect of
the receipt of the fees referred to in the preceding sentence). The fees,
expenses and reimbursements referred to in the foregoing two sentences shall be
shared equally by Pyxis and HRI.
Section 4.2. RESPONSIBILITIES OF ESCROW AGENT. The Escrow Agent's
acceptance of its duties under this Agreement is subject to the following terms
and conditions, which the parties hereto agree shall govern and control with
respect to its rights, duties, liabilities and immunities:
(a) Except as to its due execution and delivery of the Agreement, it makes
no representation and has no responsibility as to the validity of this Agreement
or of any other instrument referred to herein, or as to the correctness of any
statement contained herein, and it shall not be required to inquire as to the
performance of any obligation under the Asset Purchase Agreement.
(b) The Escrow Agent shall be protected in acting upon any written notice,
request, waiver, consent, receipt or other paper or document, not only as to its
due execution and the validity and effectiveness of its provisions, but also as
to the truth of any information therein contained, which it in good faith
believes to be genuine and what it purports to be.
(c) The Escrow Agent shall not be liable for any error of judgment, or for
any act done or step taken or omitted by it in good faith, or for any mistake of
fact or law, or for anything which it may do or refrain from doing in connection
therewith, except its own gross negligence or misconduct.
(d) The Escrow Agent may consult with competent and responsible legal
counsel selected by it, and it shall not be liable for any action taken or
omitted by it in good faith in accordance with the advice of such counsel.
(e) The Escrow Agent shall have no discretion whatsoever with respect to the
management, disposition or investment of the Escrow Account and is not a trustee
or fiduciary to Pyxis or HRI. Pyxis and HRI acknowledge and agree that all
investments made pursuant to this section shall be for the account and risk of
Pyxis and HRI and any losses associated with investments shall be borne solely
by Pyxis and HRI.
(f) Pyxis and HRI agree to jointly and severally indemnify and hold the
Escrow Agent and its directors, employees, officers, agents, successors and
assigns (collectively, the "Indemnified Parties") harmless from and against any
and all losses, claims, damages, liabilities and expenses (collectively,
"Damages"), including, without limitation, reasonable costs of investigation and
counsel fees and expenses which may be imposed on the Escrow Agent or incurred
by it in connection with its acceptance of this appointment as the Escrow Agent
hereunder or the performance of its duties hereunder. Such indemnity includes,
without limitation, Damages incurred in connection with any litigation (whether
at the trial or appellate levels) arising from this Escrow Agreement or
involving the subject matter hereof. The indemnification provisions contained in
this paragraph are in addition to any other rights any of the Indemnified
Parties may have by law or otherwise and shall survive the termination of this
Agreement or the resignation or removal of the Escrow Agent. Notwithstanding any
provision to the contrary in this Escrow Agreement, Pyxis and HRI shall have no
liability to the
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Indemnified Parties with respect to any Damages that result, directly or
indirectly, from the gross negligence or misconduct of the Escrow Agent.
(g) The Escrow Agent shall have no duties or responsibilities except those
expressly set forth herein, and it shall not be bound by any modification of
this Agreement unless in writing and signed by Pyxis and HRI or their respective
successors in interest.
(h) The Escrow Agent shall have no responsibility in respect of the validity
or sufficiency of this Escrow Agreement or of the terms hereof. The recitals of
facts in this Escrow Agreement shall be taken as the statements of Pyxis and
HRI, and the Escrow Agent assumes no responsibility for the correctness of the
same.
(i) The Escrow Agent shall be protected in acting upon any notice,
resolution, request, consent, order, certificate, report, opinion, bond or other
paper or document reasonably believed by it to be genuine and to have been
signed and presented by the proper party or parties. Whenever the Escrow Agent
shall deem it necessary or desirable that a matter be proved or established
prior to taking or suffering any action under this Escrow Agreement, such matter
may be deemed conclusively proved and established by a certificate signed by
Pyxis and HRI, and such certificate shall be full warranty for any action taken
or suffered in good faith under the provisions of this Escrow Agreement.
(j) In the event of a dispute between the parties hereto sufficient in the
discretion of Escrow Agent to justify its doing so, the Escrow Agent shall be
entitled, after providing written notice to Pyxis and HRI, to tender the
Holdback Amount into the registry or custody of any court of competent
jurisdiction, to initiate such legal proceedings as it deems appropriate, and
thereupon to be discharged from all further duties and liabilities under this
Agreement. Any such legal action may be brought in any such court as Escrow
Agent shall determine to have jurisdiction over the Holdback Amount. The filing
of any such legal proceedings shall not deprive Escrow Agent of its compensation
hereunder earned prior to such filing. Any expenses relating to the tendering of
the Holdback Amount into the registry or custody of any court of competent
jurisdiction or filing any such legal proceedings shall be paid out of the
Holdback Amount.
(k) Except as specifically set forth above, the Escrow Agent does not have
any interest in the Holdback Amount but is serving as escrow agent only and
having only possession thereof. This Section 4.2(k) shall survive
notwithstanding any termination of this Agreement or the resignation of the
Escrow Agent.
ARTICLE V
CERTAIN TRANSACTIONS
Section 5.1. MERGER, ETC. OF PYXIS. Nothing contained in this Escrow
Agreement shall prevent any merger, liquidation or consolidation of Pyxis or HRI
with or into another corporation or corporations, or successive consolidations
or mergers in which Pyxis or HRI or their respective successors shall be a party
or parties, or any sale or other conveyance of all or substantially all of the
property of Pyxis or HRI to another corporation.
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ARTICLE VI
MISCELLANEOUS
Section 6.1. HRI REPRESENTATIVE. At least ten (10) days prior to adopting
any plan of liquidation or dissolution, HRI shall irrevocably appoint an
individual, who shall be a resident of the United States (the "HRI
Representative"), to act on behalf of HRI with respect to all matters relating
to this Agreement and Article VIII of the Asset Purchase Agreement, including
without limitation, in considering and certifying the amount of any
indemnification hereunder, in appointing a successor Escrow Agent hereunder, in
considering and acting with respect to any amendment or termination of this
Agreement, and generally in performing all acts expressly required or permitted
to be performed by HRI pursuant hereto and pursuant to the Asset Purchase
Agreement. At such time as the HRI Representative is appointed by HRI, HRI shall
give written notice to Pyxis and the Escrow Agent specifying the name, address,
telephone number and facsimile number of the HRI Representative (the
"Appointment Notice"). From and after the date of receipt of the Appointment
Notice, Pyxis and the Escrow Agent shall have the right to deal exclusively with
the HRI Representative with respect to all matters under this Agreement and
neither Pyxis nor the Escrow Agent shall have any liability to HRI for any acts
or omissions of the HRI Representative, or any acts or omissions taken or not
taken by Pyxis or the Escrow Agent at the direction of the HRI Representative,
including, but not limited to the transferring of or the failure to transfer any
portion of the Holdback Amount released from escrow. Upon a distribution of the
Holdback Amount to the HRI Representative in accordance with this Agreement, the
Escrow Agent and Pyxis shall be deemed to have fully satisfied any and all
obligations to HRI under this Agreement and the Asset Purchase Agreement with
respect to the amount of such distribution. If HRI fails to appoint the HRI
Representative in accordance with this Section 6.1, either Pyxis or the Escrow
Agent may petition any court of competent jurisdiction to appoint an individual
to act as the HRI Representative for and on behalf of HRI.
Section 6.2. AMENDMENT AND TERMINATION This Agreement may be amended or
terminated by the written agreement of Pyxis and the HRI Representative, or
shall terminate automatically at such time as all funds from the Holdback Amount
have been paid or distributed in accordance with the terms of this Agreement and
the Escrow Agent has received all fees as described in Section 4.1 hereto.
Notwithstanding the foregoing, all provisions concerning the indemnification of
the Escrow Agent shall survive any termination of this Agreement.
Section 6.3. NOTICES. All notices, requests, demands, letters, waivers and
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if
(i) delivered personally, (ii) mailed, certified or registered mail with postage
prepaid, (iii) sent by next-day or overnight mail or delivery, or (iv) sent by
fax, as follows:
To HRI:
HelpMate Robotics, Inc.
Shelter Rock Lane
Danbury, Connecticut 06810
Attention: Joseph F. Engelberger
Fax: (203) 791-1082
With a copy to:
Reid and Riege, P.C.
One State Street
Hartford, Connecticut 06103
Attention: Craig L. Sylvester
Fax: (860) 240-1002
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To Pyxis:
Pyxis Corporation
3750 Torrey View Court
San Diego, California 92121
Attention: Stephen S. Thomas
Fax: (858) 480-6329
With a copy to:
Cardinal Health, Inc.
7000 Cardinal Place
Dublin, Ohio 43017
Attention: General Counsel
Fax: (614) 757-8919
And with a copy to:
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Attention: Ronald A. Stepanovic
Fax: (216) 696-0740
To the Escrow Agent:
Bank One Trust Company, NA
Corporate Trust Department
100 East Broad Street, OH1-0181
Columbus, Ohio 43271-0181
Attention: Michael Dockman
Fax: (614) 248-5195
or to such other person or address as any party shall specify by notice in
writing to the party entitled to notice. All such notices, requests, demands,
letters, waivers and other communications shall be deemed to have been received
(w) if by personal delivery on the day after such delivery, (x) if by certified
or registered mail, on the fifth business day after the mailing thereof, (y) if
by next-day or overnight mail or delivery, on the day delivered, or (z) if by
fax, on the next day following the day on which such fax was sent, provided that
a copy is also sent by certified, registered or overnight mail.
Section 6.4. GOVERNING LAW. This Agreement shall be construed, performed
and enforced in accordance with the laws of the State of Ohio.
Section 6.5. MISCELLANEOUS. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. The headings in
this Agreement are for convenience of reference only and shall not define or
limit the provisions hereof. This Agreement may be executed in several
counterparts, each of which is an original but all of which together shall
constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PYXIS CORPORATION
By:___________________________________
Name:_________________________________
Title:________________________________
HELPMATE ROBOTICS, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
BANK ONE TRUST COMPANY, NA
By:___________________________________
Name:_________________________________
Title:________________________________
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APPENDIX C
DISSENTERS' RIGHTS
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
SEC. 33-855. DEFINITIONS.
As used in sections 33-855 to 33-872, inclusive: (1) "Corporation" means the
issuer of the shares held by a dissenter before the corporate action or the
surviving or acquiring corporation by merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under section 33-856 and who exercises that right when and in the manner
required by sections 33-860 to 33-868, inclusive. (3) "Fair value", with respect
to a dissenter's shares, means the value of the shares immediately before the
effectuation of the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate action.
(4) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the corporation
on its principal bank loans or, if none, at a rate that is fair and equitable
under all the circumstances. (5) "Record shareholder" means the person in whose
name shares are registered in the records of a corporation or the beneficial
owner of shares to the extent of the rights granted by a nominee certificate on
file with a corporation. (6) "Beneficial shareholder" means the person who is a
beneficial owner of shares held in a voting trust or by a nominee as the record
shareholder. (7) "Shareholder" means the record shareholder or the beneficial
shareholder.
SEC. 33-856. RIGHT TO DISSENT.
(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions: (1) Consummation of a plan of merger to which the corporation is a
party (A) if shareholder approval is required for the merger by section 33-817
or the certificate of incorporation and the shareholder is entitled to vote on
the merger or (B) if the corporation is a subsidiary that is merged with its
parent under section 33-818; (2) Consummation of a plan of share exchange to
which the corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan; (3) Consummation
of a sale or exchange of all, or substantially all, of the property of the
corporation other than in the usual and regular course of business, if the
shareholder is entitled to vote on the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to court order or a sale for cash
pursuant to a plan by which all or substantially all of the net proceeds of the
sale will be distributed to the shareholders within one year after the date of
sale; (4) An amendment of the certificate of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares; (B) creates, alters
or abolishes a right in respect of redemption, including a provision respecting
a sinking fund for the redemption or repurchase, of the shares; (C) alters or
abolishes a preemptive right of the holder of the shares to acquire shares or
other securities; (D) excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or
(E) reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
section 33-668; or (5) Any corporate action taken pursuant to a shareholder vote
to the extent the certificate of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting shareholders are entitled
to dissent and obtain payment for their shares. (b) Where the right to be paid
the value of shares is made available to a shareholder by this section, such
remedy shall be his exclusive remedy as holder of such shares against the
corporate transactions described in this section, whether or not he proceeds as
provided in sections 33-855 to 33-872, inclusive.
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SEC. 33-857. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders. (b) A beneficial shareholder may assert
dissenters' rights as to shares held on his behalf only if: (1) He submits to
the corporation the record shareholder's written consent to the dissent not
later than the time the beneficial shareholder asserts dissenters' rights; and
(2) he does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
SECS. 33-858 AND 33-859. RESERVED FOR FUTURE USE.
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
SEC. 33-860. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' rights under sections 33-855 to 33-872, inclusive, and be
accompanied by a copy of said sections. (b) If corporate action creating
dissenters' rights under section 33-856 is taken without a vote of shareholders,
the corporation shall notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in section 33-862.
SEC. 33-861. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights (1) shall deliver to the corporation
before the vote is taken written notice of his intent to demand payment for his
shares if the proposed action is effectuated and (2) shall not vote his shares
in favor of the proposed action. (b) A shareholder who does not satisfy the
requirements of subsection (a) of this section is not entitled to payment for
his shares under sections 33-855 to 33-872, inclusive.
SEC. 33-862. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of section 33-861. (b) The dissenters' notice shall be sent no
later than ten days after the corporate action was taken and shall: (1) State
where the payment demand must be sent and where and when certificates for
certificated shares must be deposited; (2) Inform holders of uncertificated
shares to what extent transfer of the shares will be restricted after the
payment demand is received; (3) Supply a form for demanding payment that
includes the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action and requires that the person
asserting dissenters' rights certify whether or not he acquired beneficial
ownership of the shares before that date; (4) Set a date by which the
corporation must receive the payment demand, which date may not be fewer than
thirty nor more than sixty days after the date the subsection (a) of this
section notice is delivered; and (5) Be accompanied by a copy of sections 33-855
to 33-872, inclusive.
SEC. 33-863. DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in section 33-862 must
demand payment, certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenters' notice pursuant to
subdivision (3) of subsection (b) of said section and deposit his
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certificates in accordance with the terms of the notice. (b) The shareholder who
demands payment and deposits his share certificates under subsection (a) of this
section retains all other rights of a shareholder until these rights are
cancelled or modified by the taking of the proposed corporate action. (c) A
shareholder who does not demand payment or deposit his share certificates where
required, each by the date set in the dissenters' notice, is not entitled to
payment for his shares under sections 33-855 to 33-872, inclusive.
SEC. 33-864. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under section 33-866. (b) The
person for whom dissenters' rights are asserted as to uncertificated shares
retains all other rights of a shareholder until these rights are cancelled or
modified by the taking of the proposed corporate action.
SEC. 33-865. PAYMENT.
(a) Except as provided in section 33-867, as soon as the proposed corporate
action is taken, or upon receipt of a payment demand, the corporation shall pay
each dissenter who complied with section 33-863 the amount the corporation
estimates to be the fair value of his shares, plus accrued interest. (b) The
payment shall be accompanied by: (1) The corporation's balance sheet as of the
end of a fiscal year ending not more than sixteen months before the date of
payment, an income statement for that year, a statement of changes in
shareholders' equity for that year and the latest available interim financial
statements, if any; (2) a statement of the corporation's estimate of the fair
value of the shares; (3) an explanation of how the interest was calculated;
(4) a statement of the dissenter's right to demand payment under
section 33-860; and (5) a copy of sections 33-855 to 33-872, inclusive.
SEC. 33-866. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares. (b) If after returning deposited
certificates and releasing transfer restrictions, the corporation takes the
proposed action, it must send a new dissenters' notice under section 33-862 and
repeat the payment demand procedure.
SEC. 33-867. AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by section 33-865
from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under subsection
(a) of this section, after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of his
demand. The corporation shall send with its offer a statement of its estimate of
the fair value of the shares, an explanation of how the interest was calculated
and a statement of the dissenter's right to demand payment under
section 33-868.
SEC. 33-868. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate, less any payment under section 33-865, or reject the corporation's
offer under section 33-867 and demand payment of the fair value of his shares
and interest due, if: (1) The dissenter believes that the amount paid under
C-3
<PAGE>
section 33-865 or offered under section 33-867 is less than the fair value of
his shares or that the interest due is incorrectly calculated; (2) The
corporation fails to make payment under section 33-865 within sixty days after
the date set for demanding payment; or (3) The corporation, having failed to
take the proposed action, does not return the deposited certificates or release
the transfer restrictions imposed on uncertificated shares within sixty days
after the date set for demanding payment. (b) A dissenter waives his right to
demand payment under this section unless he notifies the corporation of his
demand in writing under subsection (a) of this section within thirty days after
the corporation made or offered payment for his shares.
SECS. 33-869 AND 33-870. RESERVED FOR FUTURE USE.
JUDICIAL APPRAISAL OF SHARES
SEC. 33-871. COURT ACTION.
(a) If a demand for payment under section 33-868 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded. (b) The corporation shall commence the proceeding in the
superior court for the judicial district where a corporation's principal office
or, if none in this state, its registered office is located. If the corporation
is a foreign corporation without a registered office in this state, it shall
commence the proceeding in the superior court for the judicial district where
the registered office of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located. (c) The corporation shall
make all dissenters, whether or not residents of this state, whose demands
remain unsettled parties to the proceeding as in an action against their shares
and all parties must be served with a copy of the petition. Nonresidents may be
served by registered or certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings. (e) Each
dissenter made a party to the proceeding is entitled to judgment (1) for the
amount, if any, by which the court finds the fair value of his shares, plus
interest, exceeds the amount paid by the corporation, or (2) for the fair value,
plus accrued interest, of his after-acquired shares for which the corporation
elected to withhold payment under section 33-867.
SEC. 33-872. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under section 33-871
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment under section 33-868. (b) The court may also
assess the fees and expenses of counsel and experts for the respective parties,
in amounts the court finds equitable: (1) Against the corporation and in favor
of any or all dissenters if the court finds the corporation did not
substantially comply with the requirements of sections 33-860 to 33-868,
inclusive; or (2) against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by sections 33-855 to 33-872, inclusive. (c) If
the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
SECS. 33-873 TO 33-879. RESERVED FOR FUTURE USE.
C-4
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Appendix D
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(MARK ONE)
X ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM___________ TO ____________
COMMISSION FILE NUMBER 1-14160
HELPMATE ROBOTICS INC.
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-1110906
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
SHELTER ROCK LANE
DANBURY, CONNECTICUT 06810
(Address of principal executive offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER (203) 798-8988
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
None
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Units, Common Stock
and Warrants
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB.
---
The registrant had revenues totaling $4,546,574 during the fiscal year ended
December 31, 1998.
The aggregate market value of the voting stock held by non-affiliates as of
March 10, 1999 was approximately $3,970,000.
The number of shares outstanding of the registrant's common stock as of March
10, 1999 is 14,201,402 shares.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (Check One) Yes No X
---- ----
<PAGE>
PART I
ITEM 1: DESCRIPTION OF BUSINESS
FORM AND YEAR OF ORGANIZATION
HelpMate Robotics Inc. (the "Company"), a Connecticut corporation, was
co-founded in 1984 as a robotics "think-tank" by its chairman, Joseph F.
Engelberger. During its early years, the Company's primary focus was contract
engineering and research and development for third parties. Through the years,
however, the focus of the Company has evolved into the development of commercial
applications for autonomous robotic products with the HelpMate-Registered
Trademark- robotic courier, the flagship product of the Company, becoming its
namesake.
COMPANY TECHNOLOGY
The Company develops, manufactures and markets mobile robotic systems, which are
distinguished by their ability to navigate autonomously without the need for
fixed tracks or guide wires. The Company accomplishes this by employing state of
the art sensor technology, wireless radio, and proprietary software to the
guidance of battery powered vehicles of its own design. So equipped, these
autonomous vehicles can navigate from point to point, avoid stationary and
moving obstacles (including people), make almost instantaneous stops when
necessary, summon elevators to travel between floors, announce their arrival at
destinations, signal closed doors to open, and maintain communications with a
centrally located computer.
The Company also continues to sell, on a limited basis, components of its
autonomous mobile robotics technology to universities and other research
facilities, and has licensed some of its technologies for use in floor-cleaning
and automated prescription-filling applications. The Company also engages in
research and development contracts in the area of mobile robotics technology.
HELPMATE-Registered Trademark- - THE FLAGSHIP PRODUCT
The Company's flagship product is the HelpMate-Registered Trademark- robotic
courier, an intelligent, self-navigating, battery-powered robot used for
automated materials transport. The HelpMate is approximately 4 1/2 feet tall by
2 1/2 feet square, weighs over six hundred pounds, has a payload capacity of
approximately six cubic feet and can be dispatched by users from an ATM-like
screen and keyboard located on its back control panel. HelpMate development
began in 1987, and, following extensive testing at Danbury Hospital in
Connecticut, the first HelpMate became operational there in 1991.
HELPMATE MARKET INTRODUCTION
Potentially applicable in many industries and markets, the institutional
hospital market was chosen as the first market for HelpMate due its need for
constant, around-the-clock transport at a time when major cost reductions and
improved efficiencies continue to be urgently sought.
Transportation throughout a hospital is a significant component of overall
operating cost. It encompasses patient transport as well as the routine delivery
of large items such as meal carts, trash carts, laundry carts, stretchers and
wheel chairs. Also is the less noticed but more numerous small deliveries,
so-called "unit loads", which may be considered merely errands but can represent
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fully one quarter of all materials movement within a hospital. Common examples
of this include delivery of medications, retrieval of lab specimens, re-supply
of out of stock items, and deliveries of special or late meal trays resulting
from dietary changes, patient transfers and new or late admissions, which can
amount to 10 percent of all meals delivered in the hospital. Another typical
situation is in hospital departments such as pharmacies and central supply areas
where delivery needs on second and third shifts are complicated by the presence
of only a single staff member who cannot leave to make needed deliveries.
Some hospitals maintain a transportation department with human couriers
dedicated to this task. This is not an insignificant undertaking however, since
full coverage with just one person for three shifts a day, 365 days a year,
requires over five and a half (5 1/2) full time equivalents (FTEs) when
weekends, holidays, vacations and sick time are considered. And while these
deliveries may be assigned to unskilled, low wage workers, they are always
managed by, and often shared with, high skilled personnel who would otherwise be
engaged in either department management, critical patient care, or both. Again,
independent studies cite significant amounts of nurse's time spent on deliveries
and running errands as a detriment to patient care.
The HelpMate is offered to hospitals as an automation solution to the transport
problem which is both cheaper and more reliable than the use of humans for these
low value yet necessary, "fetch and carry" tasks. HelpMate is available at lower
capital cost and can be installed faster and with less disruption than
alternative automation systems such as conveyors, dumbwaiters, pneumatic tubes
or automated guided vehicles. These other systems have various inherent
limitations such as payload size, fixed routes (horizontal or vertical only),
maintenance accessibility, etc. that restrict their application to only certain
types of transport. By comparison to HelpMate, they are all deficient in the
areas of cost, installation and overall flexibility, in that they require
extensive permanent modifications to be made to the facility for installation of
ductwork, tubes, tracks and guide path systems in ceilings, walls and floors,
making them not only more expensive to install but also considerably more
difficult to modify in the event of changing materials delivery requirements.
The overall market potential for HelpMate robots in United States hospitals
alone is estimated to be 10,000 robots, based on a formula of one robot for
every 100 beds in the nation's 2,000 largest hospitals. The Company believes the
European and Asian markets to be equally as large.
HELPMATE PRICING
HelpMates may be purchased, rented or, most recently, leased. List price of a
basic HelpMate robotic system, complete with standard peripheral equipment, is
$105,000. Various peripheral equipment and options can increase this amount
upwards to $140,000 when installation costs are included. The Company also
offers annual maintenance contracts priced according to the list price of the
HelpMate equipment. Based upon current wage rates, the Company estimates that
hospitals can achieve a payback on the purchase of a HelpMate system in nine to
twenty-four months, depending on the number of hours the system is operated and
the efficiency of its utilization.
The Company has depended upon a rental program for a large percentage
(approximately 78%) of its initial placements in the United States. The rental
arrangement is attractive to hospitals because the base rental rates for
HelpMates, which range from $7.00 per hour for the minimum 12-hour daily use to
$5.50 per hour for 24-hour daily use, compare quite favorably with the typical
rates for nurses of $22 per hour and for couriers of $10 per hour. Additional
peripheral equipment adds to these basic hourly charges without measurably
impacting perceived economic advantage to the
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customer. Maintenance is included in the rental charge.
The Company considers the rental approach essential to the introduction of
HelpMate, providing a necessary stimulus to early market development by removing
the need for a financial decision and commitment prior to evaluation and
acceptance of such a revolutionary new product. It also facilitates
decision-making at lower levels within the hospital's management. The term of
the rental agreement is short, typically one year, with a one month cancellation
provision. Domestic sales of HelpMate systems have often been made to those
end-users who previously had rented a HelpMate robot. Purchase of a rental
HelpMate robot is encouraged with a discount based on prior months rent.
HELPMATE MARKET STATUS
Within the United States, HelpMates may be found in use across the country in
some 30 different states. HelpMates have been accepted for transport service in
scheduled and unscheduled trips in hospitals, carrying all types of unit loads
including medications, lab samples, supplies, radiology films, late meal trays,
and medical records between departments and nursing stations on the floors.
HelpMates are found dedicated exclusively to certain departments and/or shared
amongst several departments; in service as single units or more recently, as
multiple units in a small fleet.
COMPANY FINANCING
The Company's capital requirements in connection with the continuing development
and commercialization of the HelpMate robot have been significant, and have been
funded principally through private investment, the Company's 1996 initial public
offering, and certain financing transactions whereby the Company has assigned
the rental stream from rental robots in exchange for lump sum payments. (See
Footnotes 4 and 6 to the Financial Statements).
Operationally, the Company's cash balance and overall profitability are highly
dependent upon the mix of HelpMate robot rentals to robot sales. From the sale
of a basic HelpMate robotic system for $105,000, the Company achieves a gross
margin of approximately 40% (at current volume and design levels), which is
received immediately upon completion of installation. The rental program yields
an average annual revenue to the Company of $30,000 per robot net of
approximately $6,000 in maintenance expense. However, with a rented robot, it
currently takes approximately 18 months for the Company to recoup production and
installation costs. Thus with a high mix of rentals, the Company is not able to
sustain growth without continuing outside financing, although, as market
acceptance increases, the Company anticipates being able to negotiate longer
term rental and lease contracts with its customers such that these agreements
may be used as collateral for additional working capital financing.
The Company was compelled during late 1996 and 1997 to take steps, resulting in
a significant down-sizing of the Company and reduction of its sales and
marketing efforts, in order to reduce expenses and conserve cash. In January,
1998 the Company announced a series of steps directed at improving its
short-term liquidity. These included the completion of a private placement of
$1,350,000 in convertible notes, the agreement by certain creditors to accept
reduced cash payment in liquidation of outstanding trade payables, and the
agreement by certain creditors to convert their loans, trade payables, and other
obligations of the Company to them into shares of common stock and warrants to
purchase common stock. (See Footnote 6 to the Financial Statements).
3
<PAGE>
DISTRIBUTION METHODS
The Company's domestic sales and marketing activity focuses principally on the
North American hospital market for the HelpMate. The Company handles all
marketing activity directly from its Danbury, Connecticut location. The
Company's sales and marketing staff currently consists of two people (the
director of marketing and two part-time sales people) and an independent
manufacturers representative for the Greater New York City area. Other officers
of the Company also are employed in this function from time to time in the
course of their travels to different regions of the country.
The Company has conducted its foreign marketing and distribution program
principally through sales to two foreign distributors. In exchange for certain
royalties previously provided to the Company and certain royalties payable to
the Company in the future, the Company granted an exclusive license to a Danish
affiliate of Otis Elevator Company ("Otis") to distribute the Company's HelpMate
systems in Europe, the former Soviet Union, Africa and parts of the Middle East.
This license agreement was terminated in September 1998 and the Company is
currently seeking a European partner. The Company granted an exclusive license
to Yaskawa Electric Corporation ("Yaskawa"), to manufacture and distribute
HelpMate and other of its products in Japan and other Asian countries. (See
Management's Discussion and Analysis - Distribution Agreement").
COMPETITIVE BUSINESS CONDITIONS
The Company believes its HelpMate robotics systems currently have no direct
competition other than human beings against which the HelpMate robot provides a
lower cost and superior service. The Company has not experienced any resistance
from organized labor and continues to believe that a HelpMate can be used to the
benefit of all job labor categories within the organization.
While the Company also believes the HelpMate system technology provides a lower
cost and flexible alternative to large fixed automation systems such as
automatic conveyors, dumbwaiters, pneumatic tubes, and track-guided systems such
as automated guided vehicles, the Company also recognizes that manufacturers of
these systems have greater sales and marketing resources to bring to bear on the
available market.
In addition, other major robotics manufacturers who may have significantly
greater financial, technical and marketing resources than the Company could
enter the market in which the Company competes and prove to be more effective in
selling alternative systems. To date however, these companies generally have
adhered to industrial and manufacturing applications of robotics. In addition,
some companies have developed robotics products aimed at the service, rather
than the industrial sector, although the Company believes these products
currently do not compete with HelpMate in the hospital and healthcare industry.
RAW MATERIALS AND PRINCIPAL SUPPLIERS
All HelpMate components, fabricated parts and electronic assemblies are
manufactured by third-party vendors. The Company's manufacturing technicians
perform inspection, testing, final assembly and quality assurance. The Company
has approximately four primary suppliers and several hundred secondary vendors.
Two suppliers, AB Electronics Inc. of Danbury, Connecticut, and Aldine Metal
Corporation of Brookfield, Connecticut provide more than ten percent of the cost
of the components and assembly work for the HelpMate units.
4
<PAGE>
The Company's current small batch production mode results in sporadic shipments
from vendors increasing the overall product lead time to six months from batch
order to customer shipment. The Company believes that increases in the batch
size would reduce overall product lead time to three months, would improve the
quality, reliability and performance of its HelpMate robotics systems, and would
allow the Company to realize cost savings through volume discount purchases of
component parts. The Company has implemented process controls and quality
assurance procedures in anticipation of any transition to a higher volume
building program. A significant increase in volume would require the Company to
hire additional employees.
PATENTS AND TECHNOLOGY
The Company's technology is embodied in a core set of hardware and software
modules for sensing and control of mobile systems as well as
application-specific technology. The Company's component technologies include
drive and controls, vision sensors, proximity sensors, wireless radio, network
communication, navigation software and supervisory capabilities. The Company has
obtained fourteen United States patents related to such technology to date.
The Company's success is heavily dependent on its proprietary software. The
Company's software is not patented or copyrighted and patent and copyright laws
offer only limited practical protection. The Company relies largely on its
license agreements with customers and its own security systems, confidentiality
procedures and employee nondisclosure agreements to maintain the trade secrecy
of its products. Further, the Company does not believe that its operations or
products infringe on the intellectual property rights of others.
TRADEMARKS
The Company currently holds registered trademarks for the names
HelpMate-Registered Trademark- and Labmate-Registered Trademark-, a component of
the Company's autonomous robotics navigation technology sold to universities,
laboratories and other research facilities.
LICENSES
In addition to its license with Yaskawa, the Company has licensed certain of its
intellectual property regarding navigation and control systems for use in
various floor care equipment to Electrolux.
ROYALTY AGREEMENTS
The Company has an agreement with Connecticut Innovations, Incorporated ("CII"),
a State of Connecticut sponsored development corporation, pursuant to which CII
reimbursed the Company for $441,000 of development costs related to the HelpMate
systems (the "Sponsored Products"). In return for such reimbursement, the
Company must pay royalties aggregating $2,205,000 to CII. (See Footnote 9 to
Financial Statements).
RESEARCH AND DEVELOPMENT
Since its inception the Company has engaged in research and development in
the areas of service robotics and robotics technology applications. The
Company has performed this work under contract to various government agencies
and industrial clients. Generally the Company has retained commercial
development rights to certain of the technologies and has, in some instances,
subsequently invested its own funds to supplement the development of a
commercial product. These research and development contracts have also
enabled the Company to allocate a portion of the cost of Company overhead and
technical resources used in maintaining its existing HelpMate product line.
The Company intends to continue to engage in such contract research and
development to the extent that the incremental costs for such activities are
fully funded by the contracting party or other outside sources. The Company
may incur unfunded expenses in soliciting such research and development
contracts.
5
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The Company also has funded research and development activities related to the
development and enhancement of its HelpMate systems. In 1997 the Company spent
$571,688 primarily on research and development in connection with HelpMate
compared to 1998 when very little was spent due to the reduced staff levels. The
Company also spent $291,185 and $308,700 in 1998 and 1997 respectively in
connection with other projects, including its contract research and development
activities.
BACKLOG
The backlog at December 31, 1998 consisted of approximately $90,000 in annual
rental revenue. This is a decrease of approximately $390,000 from the backlog at
December 31, 1997. This decrease was attributable to the decrease in sales staff
and reduction in marketing activities. It is anticipated that these systems and
robots will be placed in service by mid year 1999. In addition, the Company
estimates that, as of December 31, 1998, it had a backlog of approximately
$90,000 with respect to orders to purchase components for certain of its
research products.
EMPLOYEES
As of December 31, 1998, the Company had sixteen employees on a full-time basis
and one employee on a part-time basis.
ITEM 2: PROPERTIES
The Company leases a facility in Danbury, Connecticut with 22,951 square feet
from Shelter Rock Business Center pursuant to a lease which expires in February
2001. Rent for the premises is $15,625 per month and includes amounts for taxes
and outside maintenance. The lease does not contain any renewal option. The
Company subleases approximately half of this space to tenants at the same rental
rate, charged pro rata on the basis of square footage. These tenant leases are
on a month to month basis and the Company may expand into this space with
minimum notice if and when it needs to do so to support increased production.
The Company believes that the facilities used in its operations are in
satisfactory condition and adequate for its current and reasonably foreseeable
future needs.
ITEM 3: LEGAL PROCEEDINGS
NONE
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock and Warrants are currently traded on the Nasdaq
Bulletin Board. A recent last sales price for the shares of Common Stock as
reported on the Nasdaq Bulletin Board was $.31 on March 10, 1999.
6
<PAGE>
The following table sets forth the high and low bid price of the Company's
Common Stock as reported on the Nasdaq Bulletin Board:
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Quarter ended March 31, 1998 $0.45 $0.27
Quarter ended June 30, 1998 0.34 0.16
Quarter ended September 30, 1998 0.25 0.13
Quarter ended December 31, 1998 0.69 0.13
</TABLE>
HOLDERS
The Company estimates that as of March 10, 1999, there were approximately 1,200
holders of record of the Company's Common Stock.
DIVIDENDS
The Company has not paid nor does it anticipate paying cash dividends on the
Common Stock in the foreseeable future since currently it intends to retain any
earnings for use in its business. In addition, in connection with certain
financing provided to the Company by CII, the Company agreed that for a period
expiring June 2001, it would not directly or indirectly declare, order, pay or
reserve any sum or property for the payment of any dividend or other
distribution on the Company's capital stock until such time as the Company has
achieved a net profit for three consecutive fiscal quarters.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
As a result of disappointing performance in 1996, the Company experienced a
severe shortage of cash in 1997 and was forced to take drastic actions to
preserve the Company in the latter half of the year. These actions resulted in a
further reduction of staff and slowing of marketing and manufacturing activity.
During 1998 the Company continued to support existing customers, drawing from
materials and parts that were previously ordered and received, to fill orders
that had been previously booked.
The remaining backlog at December 31, 1998 is scheduled to be installed and
operational by mid year 1999. At that point, the Company will have 76 robots on
rental in its US customer base, providing a stream of on-going revenues. The
two-armed, mobile robot project under contract to NASA was completed and
delivered to NASA in September, 1998.
The Company believes the opportunity to establish the HelpMate robot as a
flexible, cost-efficient and preferred method for transporting materials within
hospitals and other healthcare facilities remains significant. Although the
Company does not presently have specific plans to purchase parts for builds of
new HelpMate robots, the Company will continue to maintain a sales presence in
the marketplace. Therefore, while the Company's near-term objective is to
stabilize and enhance its business at the level of the current customer base, it
will actively pursue additional means of financing that would be necessary to
resume expansion of its original aggressive marketing plans.
7
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LIQUIDITY AND CAPITAL RESOURCES
The Company's near-term objective is to stabilize its business at the level of
its current customer base while seeking additional financing necessary to resume
original marketing plans.
As a result of the termination of the Otis agreement, the Company will receive
during fiscal 1999 seven robots from Otis at a cost of $1 each. In addition,
during fiscal 1999 the Company has the option to repurchase up to nine robots,
which are currently rented to hospitals, from HTLP robots, for an aggregate of
$81,000. Assuming these rentals continue, the Company estimates that these
robots would generate approximately $100,000 in rental revenue in 1999. Also,
the Company believes it has in inventory most of the parts necessary to perform
routine maintenance and repairs on its rental robots in 1999.
The Company is operating at slightly below a cash break-even level and
management believes that at the Company's current level of operations, it will
have sufficient cash to maintain operations throughout 1999.
Historically, the Company has been dependent upon sources other than operations
to finance its working capital requirements. These sources include loans and/or
investments from stockholders and their affiliates, private placements of its
debt and equity securities, the Company's initial public offering and the
proceeds of Financed Rentals. (See Footnote 6 to Financial Statements).
The Company continues to actively seek additional financing alternatives in
order to strengthen its liquidity situation in the short term. Although the
Company has identified some potential sources of such financing, the Company has
no current commitments or agreements with respect to such and there can be no
assurance that any additional financing will be available to the Company on
acceptable terms, or at all. Such alternatives include, but are not limited to
Financed Rental transactions similar in nature to that entered into with Leasing
Technologies International, Inc. ("LTI"); private placement of the Company's
securities in the United States or abroad; and/or mezzanine type financing
(including senior or subordinated debt). Further, additional equity financing
may involve substantial dilution of the stock ownership of the Company's
existing stockholders. Moreover, financial or other covenants imposed by future
financing sources might further adversely affect the Company's ability to pay
dividends and management's ability to control the Company. Additionally, by
transferring the title and rental agreements to a third party in Financed Rental
transactions for an immediate cash payment, the Company could lose all or a
portion of its opportunity to benefit from ongoing rentals in the future or from
the residual value of the units upon the expiration of the rental agreements.
Finally, no assurances can be given that any such financing will provide
sufficient cash required for the Company to attain an operating revenue stream
of cash sufficient to support the Company's continued operations. It is also not
anticipated that current stockholders will provide any additional financing.
In October 1998 the Company announced that it is conducting an investigation to
determine the extent to which it has been defrauded by its former payroll
company. The payroll company, KPM, Inc., of Brookfield, Connecticut, did
business under the names Payroll Express and Compusystems. Based upon the
Company's preliminary investigation, the Company believes that KPM
misappropriated Company funds which KPM was required to pay to the Internal
Revenue Service with respect to Company employment taxes. As part of its
investigation, the Company has discovered that copies of the tax returns
provided by KPM to the Company differ materially from the actual returns which
KPM filed on the Company's behalf with the IRS. KPM was engaged as
8
<PAGE>
the Company's payroll service from the late 1980's until August 1998. KPM filed
for bankruptcy in July 1998.
The Company understands from published reports that KPM may have similarly
misappropriated funds from a number of other KPM customers and that IRS Criminal
Investigation Division and the office of the United States Attorney are
currently investigating KPM.
Under the Internal Revenue Code, the Company is liable for the payment of these
unpaid taxes as well as interest and penalties assessed, if any. The Company has
calculated these unpaid taxes to approximate $1,000,000 exclusive of interest
and penalties. The Company anticipates that it will be able to negotiate a
settlement with the Internal Revenue Service not to exceed $150,000 and
therefore have recorded this amount in Accrued expenses and Selling, general and
administrative expenses in the accompanying 1998 financial statements.
The Company believes that this tax liability may have a material and adverse
affect on the Company's business, its financial condition and on the results of
its operations. The Company has taken the following actions; (a) filed a claim
in the KPM bankruptcy proceedings; (b) filed a claim under the Company's
insurance policy; the claim was denied; and (c) entered into discussion with the
Internal Revenue Service regarding a compromise of the Company's liability for
these employment taxes. In addition, the Company may need to use its available
cash and future revenues to liquidate its tax liability.
The Company is continuing to investigate this matter and expects to cooperate
fully with the ongoing IRS and United States Attorney investigations of KPM.
Although the accompanying financial statements have been prepared assuming that
the Company will continue as a going concern, failure to reach a compromise on
this matter on terms favorable to the Company raises substantial doubt about its
ability to continue as a going concern.
FINANCING AND RESTRUCTURING TRANSACTIONS
In January 1998, the Company announced a series of steps directed at improving
its short-term liquidity and cash flow. These included the receipt of certain
loans, the completion of a private placement of $1,350,000 in convertible notes,
the agreement by certain creditors to accept reduced cash payment in liquidation
of outstanding trade payables, and the agreement by certain creditors to convert
their loans, trade payables, and other obligations of the Company to them into
shares of common stock and warrants to purchase common stock. (See Footnote 6 to
the Financial Statements).
REVENUES
Total revenues increased by $899,065 or 25% from the year ended December 31,
1997 compared to the year ended December 31, 1998. Rental revenues increased
by $816,585 or 39% and sales revenues increased by $119,997 or 10%. Also, net
revenues from research and development contracts decreased by $37,517 or 12%
due to the completion of the NASA project in the third quarter of 1998. Total
sales revenue increased while the mix of sales shifted toward the sale of
robots versus sales of component products. In 1998 the Company increased its
sale of robots to twelve from five in 1998. At the same time the sale of
component products decreased in 1998 to $133,000 from $498,000 in 1997. The
increase in rental revenues reflects the Company's larger rental fleet of 73
robots being in place for an entire year.
9
<PAGE>
COST OF REVENUES
Cost of revenues increased by $466,366 or 20% from the year ended December 31,
1997, compared to the year ended December 31, 1998. Overall, cost of revenues
has decreased slightly as a percentage of revenues, which reflects the Company's
ongoing efforts to reduce the cost associated with manufacturing and installing
its HelpMate robots.
GROSS PROFIT
Gross profit increased by 32% or $432,699 from the year ended December 31, 1997
compared to the year ended December 31, 1998. The increase in gross profit
percentage and dollars reflects the Company's on-going strategy to reduce costs
associated with manufacturing and installing its HelpMate robots coupled with
the fact that several of the Company's rental units are now fully depreciated.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative Expenses decreased by $1,332,911 or 38% from
the year ended December 31, 1997, compared to the year ended December 31, 1998.
The decrease reflects the full effect of the staff reductions instituted in
August 1997.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense, net of interest income decreased by $90,241 or 37% from the
year ended December 31, 1997, compared to the year ended December 31, 1998. The
decrease in net interest expense is reflective of a decrease in financing
obligations.
LOSSES
The Company incurred a net loss of $452,862 and $2,243,471 for each of the
years ended December 31, 1998 and 1997, respectively. These losses were
sustained primarily because the Company has not achieved the volume and mix
of sales and rentals of HelpMates required to cover the overhead expenses
associated with the commercialization of its HelpMate systems. Although the
decrease in staffing and sales and marketing expense have reduced losses
during fiscal 1998, the Company anticipates that such losses will continue
until the volume of sales and rentals of HelpMates necessary to cover
overhead expenses is achieved. As noted above, the overall profitability and
cash flow of the Company is highly dependent upon its mix of robot rentals,
i.e., more robot rentals than sales results in larger losses and a quicker
depletion of cash.
LOSS PER SHARE
Loss per share for the years ended December 31, 1998 and 1997 was ($0.04) and
($0.36), respectively. Basic and diluted loss per common share is computed
based on the weighted average number of common shares and common stock
equivalent shares outstanding during the period, as adjusted for the stock
split that occurred in conjunction with the initial public offering. Shares
from the assumed exercise of options and warrants granted by the Company have
been included in the computations of earnings per share for all periods
unless their inclusion would be anti-dilutive.
10
<PAGE>
OTHER
The Company finalized the termination of its European license agreement with
Otis in September 1998. As a result, the Company purchased, for $1 each plus
transportation costs, seven robots from Otis and the Company will support three
installed robots in Europe until the leases with Otis expire, when the robots
will be owned by HelpMate and returned. Also, the Company paid Otis $25,381 to
settle all outstanding debts.
For the foreseeable future, the Company does not anticipate paying dividends and
the Company anticipates retaining any earnings to fund its operations. Moreover,
the ability of the Company to pay dividends is subject to contractual
restrictions through September 2001. Specifically, during that period, the
Company may not, unless otherwise approved by one of its lenders, directly or
indirectly declare, order, pay or reserve any sum or property for the payment of
any dividend or other distribution on the Company's capital stock until such
time as the Company has achieved a net profit for three consecutive fiscal
quarters.
INCOME TAXES
The Company accounts for income taxes in accordance with Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes" ("SFAS 109"),
SFAS 109. The Company's net operating loss carry forwards of approximately $18.6
million at December 31, 1998 expire during the years 1999 through 2013. The
related deferred tax asset has been fully reserved because the ability of the
Company to realize a future tax benefit from its net operating loss carry
forwards may be limited.
INFLATION
The Company does not believe that the relatively moderate levels of inflation
which have been experienced in the United States has had or will have a
significant effect on its revenues or operations.
YEAR 2000 READINESS
The Year 2000 issue affects computer and information technology ("IT") systems,
as well as non-IT systems which include embedded technology such as
micro-processors and micro-chips that have date sensitive programs that may not
properly recognize the year 2000. Systems that do not properly recognize such
information could generate inaccurate date or cause a system to fail, resulting
in business interruption. The Company is currently implementing a plan to
provide measured assurances that its computer and IT-systems and non-IT systems,
including analytical instruments and equipment, and those of third parties which
have a material relationship with the Company are or will be compliant.
The Company expects to complete in April 1999 a comprehensive inventory and
assessment of its existing IT and non-IT systems and those of third parties.
Assessment will include identifying critical systems - internal and external
(including third parties) - in order to formulate a remediation and verification
plan. The Company currently believes that remediation and verification , which
include obtaining written assurances from key vendors and suppliers, as well as
testing, will be
11
<PAGE>
complete by July 1999. The Company has completed its testing of its flagship
product, the HelpMate robotic courier system, and determined that it is year
2000 compliant.
The Company believes, based on preliminary information, that the costs
associated with remediation and verification to become year 2000 compliant will
not have a material adverse impact on the Company's financial position, results
of operations, or cash flow.
Although the Company has taken steps to address the year 2000 issue, there can
be no assurance that the failure of the Company and/or its material third
parties to timely attain year 2000 compliance or that the failures and/or the
impacts of broader compliance failures by telephone, mail, data transfer or
other utility or general service providers or government or private entities
will not have a material adverse effect on the Company. Further, based on the
information available, the Company cannot conclude that any failure of the
Company or third parties to achieve Year 2000 compliance will not adversely
effect the Company.
FORWARD LOOKING STATEMENTS
Statements made in this report regarding (a) the projection of revenues, income,
earning per share, capital expenditures, dividends or other financial items, (b)
the plans and objectives of management for the Company's future operations, (c)
the future economic performance of the Company, and (d) statements regarding the
assumptions underlying or relating to the foregoing items are forward-looking
statements. Forward-looking statements are contained in this report, including
under the sections entitled "Description of Business -- Company Financing; --
Distribution Methods; and -- Research and Development," "Management's Discussion
and Analysis --General; -- Liquidity and Capital Resources -- Losses; and --
Other." There are important factors that could cause the actual results to
differ materially from those in the forward-looking statements. These important
factors include the following: (a) if the mix of robot rentals versus sales
changes; (b) if there are substantial returns of robots currently on rental or
if the Company is unable to place returned robots with new customers; (c) if
there is a substantial reduction in the aggregate number of hours for which
robots are rented; (d) if existing orders in backlog are canceled; (e) if the
Company's own order/installation forecast changes; (f) if the Company is unable
to purchase the robots from HTLP; (g) if the Company is unable to sustain its
current level of operations;(h) if the Company's financial condition negatively
impacts the Company's reputation in the marketplace and consequently negatively
impacts order receipts; (i) if the Company is unable in the foreseeable future
to secure additional financing; (j) the Company is unable to reach an agreement
with a new strategic marketing partner in Europe; (k) if customers or vendors
have year 2000 issues which adversely affect the Company; and (l) the impact of
the payroll company matters described in "Liquidity and Capital Resources."
ITEM 7: FINANCIAL STATEMENTS
The information required by Item 7 of Part II is incorporated herein by
reference to the financial statements filed with this report. See item 13 of
Part III.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In order to reduce its auditing expenses, on January 21, 1998, the Company
appointed Arthur Andersen LLP ("Arthur Andersen") as auditors for the fiscal
year ended December 31, 1997 and terminated the appointment of Ernst &Young LLP
("Ernst & Young") as its auditors for that year. Ernst & Young had audited the
Company's financial statements since 1985.The reports of Ernst &
12
<PAGE>
Young on the financial statements of the Company as of December 31, 1996 and
1995 did not contain an adverse opinion or a disclaimer of opinion, or was
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with the audits of the Company's financial statements for each of
the two years ended December 31, 1996 and in the subsequent interim period,
there were no disagreements with Ernst & Young on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope and
procedures, which disagreements, if not resolved to the satisfaction of Ernst
&Young would have caused it to make reference to the subject matter of the
disagreement in their reports.
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The Company's executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Joseph F. Engelberger 73 Chairman, President, CEO and Director
Fred T. Cordano 56 Vice President, Manufacturing
Joseph G. Cote 57 Director
Howard Motter 51 Director
Theodore Sall 72 Director
Sheldon Sandler 54 Director
</TABLE>
Mr. Engelberger co-founded the Company in 1984 and has served as a Director and
the Chairman since that time. Prior to that, Mr. Engelberger founded and served
as the first president of Unimation, Inc., the first industrial robotics
company, which was acquired by Westinghouse Electric Corporation. He also
founded and was the first president of Consolidated Controls Corporation, which
was ultimately acquired by Eaton Corporation. Mr. Engelberger has written
extensively on the subjects of instrumentation and robotics. Mr. Engelberger is
the father of Gay Engelberger, the Company's director of marketing. Mr.
Engelberger formerly served as a director of Anderson Group, Inc. and currently
serves as a director of EDO Corporation.
Mr. Cordano has been employed with the Company in various engineering capacities
since 1990 and during the past two years he has served as the Company's Vice
President of Engineering.
Mr. Cote has been a director of the Company since August 1997. Currently Mr.
Cote is an independent business consultant. Prior to that Mr. Cote served as
co-president and chief operating officer of Prospect Street Ventures, a venture
capital firm, until 1998.
Mr. Motter has been a director of the Company since September 1998. Currently
Mr. Motter is a management consultant. Prior to that Mr. Motter served as
President and Chief Executive Officer of Elekta Oncology Systems and President
and Chief Executive Officer of Elekta Canada, Inc. Mr. Motter also spent 26
years with Philips Medical Systems. Mr. Motter currently serves as a Director of
Quanta Vision, Inc.
Dr. Sall has been a director of the Company since March 1996. He currently is a
Professor Emeritus at Ramapo College of New Jersey. Prior to holding this
position, Dr. Sall was an Adjunct Professor of Clinical Medicine at the
University of Medicine and Dentistry, New Jersey School of Nursing from 1991 to
July 1995. Dr. Sall is also a Director of International Vitamin Corporation and
Fluro Scan Inc.
13
<PAGE>
Mr. Sandler has been a director of the Company since March 1996. Mr. Sandler is
Chief Executive Officer and a founding partner of Bel Air Partners, a financial
consulting and investment banking firm. Previously Mr. Sandler was a managing
director with Ladenburg Thalmann & Co. Inc. Mr. Sandler was also a chief
examiner at the Securities and Exchange Commission.
BOARD OF DIRECTORS - GENERAL
The Board of Directors held seven meetings in 1998. All of the directors
attended at least 75% of the meetings of the board and the respective committees
of the board of which they were a member during 1998 with the exception of Mr.
Sandler, who did not attend three Board meetings.
COMPENSATION
The Company does not pay any additional remuneration to employees serving as
directors. The Company does pay $500 for each meeting attended to non-employee
directors. Directors' out-of-pocket expenses are not reimbursed by the Company.
COMMITTEES
The Board of Directors has the following standing Committees:
AUDIT COMMITTEE. The Audit Committee, which met once in 1998, consists of three
directors of the Company, all of whom are independent. The Audit Committee is
responsible for the engagement of the Company's independent auditors and reviews
with them the scope and timing of their audit services and any other services
which they are asked to perform, their report on the Company's accounts
following completion of the audit and the Company's policies and procedures with
respect to internal accounting and financial control. The Board of Directors has
appointed Messrs. Sall and Sandler as the members of the Audit Committee. There
is currently a vacancy on this Committee.
COMPENSATION COMMITTEE. The Compensation Committee, which did not meet in 1998,
is responsible for making recommendations to the board of directors with respect
to compensation and benefit levels of executive officers of the Company. The
Board has appointed Mr. Sall as the members of the Compensation Committee. There
is currently a vacancy on this Committee.
STOCK OPTION COMMITTEE. The Stock Option Committee met twice in 1998. The Stock
Option Committee is responsible for administering the Company's 1984, 1988 and
1995 Stock Option Plans. The Board has appointed Messrs. Cote and Sall to the
Stock Option Committee.
ITEM 10: EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
awarded to, earned by, or paid to the Company's chief executive officer and each
other executive officer and employee whose salary and bonus for the fiscal year
ended December 31, 1998 exceeded $100,000.
14
<PAGE>
<TABLE>
<CAPTION>
SECURITIES UNDERLYING
NAME AND POSITION FISCAL YEAR SALARY OPTIONS
<S> <C> <C> <C>
Joseph F. Engelberger 1998 $ 81,250 98,750
Chairman and Chief
Executive Officer 1997 100,000 55,000
1996 100,000 0
Thomas K. Sweeny 1998 $107,873 138,125
President (1)
1997 150,000 58,125
1996 150,000 0
Fred T. Cordano 1998 $103,000 65,300
Vice President of
Manufacturing 1997 103,000 22,745
1996 101,750 0
</TABLE>
(1) As described in Item 13, Mr. Sweeny died on August 6, 1998.
The Company has entered into an employment agreement with Mr. Engelberger. This
agreement contains noncompetition, nondisclosure and noninterference provisions.
Mr. Engelberger's employment agreement initially ran until December 31, 1998 and
is automatically renewable from year to year thereafter. Mr. Engelberger is
employed at fifty percent of normal working hours and, effective April 1, 1998,
receives an annual salary of $75,000. After the initial term, the agreement may
be terminated by Mr. Engelberger at any time and by the Company with at least
twelve months prior notice. If the Company provides less than twelve months
notice, it must continue to compensate Mr. Engelberger through the twelve-month
period.
The following table sets forth information on the exercise of stock options and
warrants issued to individuals named in the executive compensation table.
<TABLE>
<CAPTION>
SHARES ACQUIRED UPON NUMBER OF SECURITIES
EXERCISE OF OPTIONS UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN THE
DURING OPTIONS AT MONEY OPTIONS AT
FISCAL 1998 DECEMBER 31, 1998 DECEMBER 31, 1998
----------- ----------------- -----------------
NUMBER VALUE EXERCISABLE UNEXERCISEABLE EXERCISABLE UNEXERCISEABLE
<S> <C> <C> <C> <C> <C> <C>
Joseph F. Engelberger 0 $0 56,613 80,543 9,447 0
Thomas K. Sweeny 0 $0 166,250 -0- 31,050 0
Fred T. Cordano 0 $0 21,458 55,161 3,261 0
</TABLE>
15
<PAGE>
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information based upon the Company's records and
Securities and Exchange Commission filings with respect to each executive
officer, each director and each person known to be a beneficial owner of more
than 5% of the Common Stock of the Corporation and all officers and directors as
a group as of March 10, 1999.
<TABLE>
<CAPTION>
SHARES TO BE PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED OWNERSHIP
<S> <C> <C>
Connecticut Financial Developments, LP 1,014,188 7.14%
Transitions Two Limited Partnership (1) 451,234 3.17%
Robert Gault (2) 806,061 5.60%
Gabriel Kaplan (3) 1,209,091 8.34%
The Boston Group, LP (4) 2,411,866 14.52%
Connecticut Innovations, Incorporated (5) 3,078,675 20.42%
Joseph F. Engelberger(6) 1,994,374 13.57%
Fred T. Cordano(7) 26,555 (9)
Howard E. Motter (8) 0 0%
Joseph G. Cote (8) 0 0%
Theodore Sall(8) 3,000 (9)
Sheldon Sandler (8) 0 0%
All Directors and Officers as a Group (6)(7)(8) 2,020,929 13.73%
</TABLE>
(1) Includes warrants to purchase 40,967 shares.
(2) Includes warrants to purchase 200,000 shares. This owner's address is 91
Shelby Street, Eminence, KY 40019.
(3) Includes warrants to purchase 300,000 shares. This owner's address is 9551
Hidden Valley Road, Beverly Hills, CA 90210.
(4) Consists of warrants to purchase 2,411,866 shares. This owner's address is
2049 Century Park East, Suite 3000, Los Angeles, CA 90067.
(5) Includes warrants to purchase 872,992 shares. This owner's address is 999
West Street, Rocky Hill, CT 06067. Includes CII Royalty Shares and CII Royalty
Warrants issued through January 1999.
(6) Includes 72,589 shares of common stock owned by Mr. Engelberger's wife,
Margaret Engelberger, but does not include shares beneficially owned by Mr.
Engelberger's adult children or his brother. Also includes 311,616 shares owned
by the Joseph F. Engelberger Foundation. Also includes warrants to purchase
420,326 shares, and options to purchase 57,126 shares.
(7) Includes options to purchase 26,364 shares.
(8) Does not include options to purchase 30,000 shares which are currently not
exerciseable.
(9) Less than one percent.
16
<PAGE>
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of certain transactions between the Company and its Chairman
and President during the two most recent fiscal years, see Footnote to 6 to the
Financial Statements.
The Company currently employs Mr. Engelberger's brother, John Engelberger, as a
part-time Senior Sales Executive. Under the terms of John Engelberger's
employment agreement, he is currently entitled a commission of $5,000 per
robotic courier system that he sells or rents and is successfully installed.
Total compensation paid to John Engelberger for the years ended December 31,
1998 and 1997 was $27,500 and $47,534, respectively.
The Company also employs Mr. Engelberger's daughter, Gay Engelberger, as the
Director of Marketing. Ms Engelberger receives an annual salary of $72,100 and
is eligible to participate in the Company's regular bonus plans and fringe
benefit programs.
ITEM 13: REPORTS ON FORM 8-K
A report on Form 8-K dated August 12, 1998 was filed with the Securities and
Exchange Commission (SEC) reporting the death of HelpMate Robotics Inc.'s
President Thomas K. Sweeny.
A report on Form 8-K dated October 12, 1998 was filed with the SEC reporting the
Company's investigation to determine the extent to which it has been defrauded
by its former payroll service company.
17
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NO. DESCRIPTION OF EXHIBIT
<S> <C>
3.01 Amended and Restated Certificate of Incorporation of Registrant as
filed on December 28, 1995 (Incorporated by reference to Form SB2 No.
33-99348 filed January 31, 1996, Exhibit No. 3.02)
3.02 Form of By-Laws of the Registrant, as amended .(Incorporated by
reference to Form SB2 No, 33-99348 filed January 31, 1996, Exhibit No.
3.03)
3.03 Amendment to the Certificate of Incorporation
4.01* Form of Common Stock Certificate
4.02* Form of Warrant Certificate
4.03* Form of Unit Certificate
4.04* Form of Warrant Agreement
4.05* Form of Underwriters' Unit Purchase Option
4.06* Pages of the Registrant's Certificate of Incorporation that define the
rights of holders of the securities being registered hereby are
incorporated herein by reference to pages 3, 4, 6 and 7 of Exhibit 3.01
4.07* Pages of the Registrant's By-Laws that define the rights of holders of
the securities being registered hereby are incorporated herein by
reference to pages 1, 2, 3, 4, 5, 6, 12 and 13 of Exhibit 3.02
10.01* Loan Agreement dated November 20, 1990 with Connecticut Innovations,
Incorporated ("CII")
10.02* $500,000 Promissory Note dated November 20, 1990 in favor of CII
10.03* Security Agreement dated November 20, 1990 in favor of CII
10.08* Security Agreement dated June 14, 1995 in favor of CII
10.09* Subordination Agreement dated June 14, 1995 among the Registrant, Mr.
Engelberger and CI.
10.10* First Amendment to Financing Agreement dated September 20, 1995 with
CII
10.11* $300,000 Senior Convertible Note dated September 20, 1995 in favor of
CII
10.12* First Amendment to Security Agreement dated September 20, 1995 with CII
10.13* Amendment to Subordination Agreement dated September 20, 1995 with CII
10.20* Sales and Maintenance Agreement with Hospital Transporters, Limited
Partnership dated as of August 19, 1994, with letter agreement dated
October 14, 1994, and letter agreement dated August 4, 1995
10.22* Employment Agreement with Mr. Engelberger dated June 1, 1995 and
amended as of November 1, 1995
10.30* Amended and Restated Buy and Sell Agreement dated April 17, 1987, as
amended on September
10.31* Development Agreement dated May 1985 with Aktiebolaget Electrolux
("Electrolux")
10.32* Development Agreement dated April 15, 1987 with Electrolux
10.33* Development Agreement dated May 1986 between Consolidated Controls
Corporation and Connecticut Product Development Corporation (assumed by
the Registrant and CII, respectively)
10.34* Royalty Reduction Agreement with CII
10.35* Joint Venture Agreement, dated July 1, 1988 with Thrift Drug Company,
Automated Prescription Systems, Inc. ("APS") and Retired Persons
Services, Inc.
10.36* Agreement for Representation of Manufacturer/Licensee dated August,
1988 with APS
10.37* Distributor Agreement, dated August 14, 1991, with Yaskawa Electric
Manufacturing Company, Ltd. ("Yaskawa")
10.38* Technology Transfer and License Agreement with Yaskawa dated as of May
15, 1992
10.39* License Agreement Dated as of December 21, 1992 with Electrolux
10.44* Directors and Officers Liability Insurance Policy
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION OF EXHIBIT
<S> <C>
10.45* Product Liability Insurance Policy
10.46* Stock Purchase Agreement dated July 29, 1987 with Transitions Two,
Limited Partnership ("Transitions Two")
10.47* Stock Purchase Agreement, dated July 29, 1987 with 3M
10.48* Stock Purchase Agreement dated February 24, 1989 with 3M, White
Consolidated Industries, Inc. ("White"), which is a subsidiary of
Electrolux, and Transitions Two, as amended by Amendment to Stock
Purchase Agreement, dated March 9, 1989
10.49* Stock Purchase Agreement, dated August 14, 1991 with Yaskawa
10.50* Preferred Stock Purchase Agreement dated as of May 28, 1993 with CFD
10.51* Registration Rights Agreement dated as of May 28, 1993 with CFD
10.52* Co-Sale Agreement among the Registrant, Mr. Engelberger, Margaret
Engelberger, Technology Transitions, Inc., 3M, White, Transitions Two,
Yaskawa and CFD
10.53* Stock Purchase Agreement dated December 1, 1994 with Otis
10.54* Warrant dated November 20, 1990, as amended on June 14, 1995, issued to
CII for 5,000 shares of the Registrant's Common Stock, expiring on July
1, 2000
10.55* Warrant dated January 16, 1991, issued to 3M for 3,000 shares of the
Registrant's Common Stock, expiring on February 1, 1997
10.61* Warrant dated March 22, 1993, issued to Transitions Two for 5,000
shares of the Registrant's Common Stock, expiring on March 21, 1999
10.62* Warrant dated July 1, 1993, issued to Electrolux for 4,300 shares of
the Registrant's Common Stock, expiring on June 30, 1999
10.63* Warrant dated May 26, 1995, issued to Mr. Engelberger for 4,000 shares
of the Registrant's Common Stock, expiring May 25, 2005
10.64* Stock Subscription Warrant dated June 14, 1995, issued to CII for
10,000 shares of the Registrant's Common Stock, expiring June 14, 2005
10.65* Warrant and Stock Put Agreement dated June 14, 1995 between the
Registrant and CII
10.66* Stock Subscription Warrant dated September 20, 1995, issued to CII for
6,000 shares of the Registrant's Common Stock, expiring September 20,
2005
10.67* Warrant and Stock Put Agreement dated September 20, 1995 with CII.
10.68* Stock Subscription Warrant dated October 3, 1995, issued to 3M for
5,000 shares of the Registrant's Common Stock, expiring September 30,
2005
10.69* Stock Subscription Warrant dated September 28, 1995, issued to Landmark
for 3,000 shares of the Registrant's Common Stock, expiring September
30, 2005
10.70* Stock Subscription Warrant dated September 27, 1995, issued to CFD for
2,000 shares of the Registrant's Common Stock, expiring September 30,
2005
10.71* 1984 Nonqualified Stock Option Plan dated September 21, 1984
10.72* 1988 Nonqualified Stock Option Plan dated October 27, 1988
10.73 Form of Amended and Restated 1995 Stock Option Plan. (Incorporated by
reference to Annex 1 attached to the Company's definitive proxy
statement for the 1997 Annual Meeting of Stockholders)
10.74 Purchase, Security and Remarketing Agreement with Leasing Technologies
International, Inc. dated as of February 7, 1997. 1995 (Incorporated by
reference to Form 8-K filed February 21, 1997, Exhibit No. 10.01)
10.75 Master Lease Agreement with Leasing Technologies International, Inc.
dated as of January 23, 1997 and related Equipment Schedules No. 01
through No. 05. 1995 (Incorporated by reference to Form 8-K No. filed
February 21, 1997, Exhibit No. 10.02)
10.76 Letter Agreement with Leasing Technologies International, Inc. dated as
of February 7, 1997. (Incorporated by reference to Form 8-K filed
February 21, 1997, Exhibit No. 10.03)
10.77 HelpMate Robotics Inc. 1996/1997 Vendor Marketing Program dated
12/12/96
10.78 Purchase, Security and Remarketing Agreement with Leasing Technologies
International, Inc.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION OF EXHIBIT
<S> <C>
dated as of May 5, 1997.(Incorporated by reference
to Form 10-QSB filed May 8, 1997, Exhibit 10.78)
10.79 Equipment Schedules No. 08 through No. 10. To Master Lease Agreement
with Leasing Technologies International, Inc. dated as of January 23,
1997.(Incorporated by reference to Form 10-QSB filed May 8, 1997,
Exhibit 10.79)
10.80 Stock Subscription Warrant dated May 5, 1997, issued to Leasing
Technologies International for 98,182 shares of the Registrant's Common
Stock, expiring May 4, 2006. (Incorporated by reference to Form 10-QSB
filed May 8, 1997, Exhibit 10.80)
10.81 Creditor Agreement with Connecticut Innovations Inc.
10.82 Warrant and Stock Purchase Agreement with Connecticut Innovations Inc.
27.1 Financial Data Schedule for the year ended December 31, 1998.
</TABLE>
* Incorporated by reference to Form SB2 Number 33-99348 filed January 31,
1996 under the same exhibit number as filed therein.
20
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
(Registrant) HelpMate Robotics Inc.
By: /s/ Joseph F. Engelberger
-------------------------
Joseph F. Engelberger, Chairman, President,
Chief Executive Officer and Principal
Financial and Accounting Officer Date December 14, 1999
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Financial Statements:
Report of Independent Public Accountants for the year ended December 31, 1998
and 1997----------------------------------------------------------------------------- F-2
Balance sheet at December 31, 1998 -------------------------------------------------- F-3
Statements of operations for the years ended December 31, 1998 and 1997-------------- F-4
Statements of cash flows for the years ended December 31, 1998 and 1997-------------- F-5
Statements of stockholders' equity (deficit) for the years ended
December 31, 1998 and 1997----------------------------------------------------------- F-6
Notes to Financial Statements-------------------------------------------------------- F-7
</TABLE>
F-1
<PAGE>
Report of Independent Public Accountants
The Board of Directors and Stockholders
HelpMate Robotics Inc.
We have audited the accompanying balance sheet of HelpMate Robotics Inc., a
Connecticut corporation, as of December 31, 1998, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 1998 and 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HelpMate Robotics Inc. as of
December 31, 1998, and the results of its operations and its cash flows for each
of the years ended December 31, 1998 and 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company is liable for certain payroll taxes along with
interest and penalties assessed, if any, under the Internal Revenue Code as a
result of the failure of their former payroll company to remit these taxes to
the Internal Revenue Service. Failure to reach a compromise on this matter on
terms favorable to the Company raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to this matter are
also described in Note 11.
Arthur Andersen LLP
Hartford, Connecticut
March 22, 1999
F-2
<PAGE>
HelpMate Robotics Inc.
Balance Sheet
December 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 440,379
Accounts receivable, net of allowance for doubtful accounts of $50,000 802,862
Inventory, net of reserve for obsolescence of $170,000 395,975
------------
Total current assets 1,639,216
Installation costs, net of accumulated amortization of $811,675 95,793
Equipment leased to others, net (Note 3) 1,111,515
Property and equipment, net (Note 3) 312,723
Deposits 130,160
------------
$ 3,289,407
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 91,587
Accrued expenses 663,764
Accrued employee benefits 97,195
Current portion notes payable (Note 6) 322,448
Deferred revenue (Note 4) 49,817
------------
Total current liabilities 1,224,811
Deferred revenue, less current portion (Note 4) 217,837
Notes payable, less current portion (Note 6) 66,999
------------
Total liabilities
1,509,647
------------
Commitments and contingencies (Note 11)
Stockholders' equity (Note 8):
Common stock, no par value; 40,000,000 shares authorized; 14,004,773 shares
issued and outstanding 19,509,049
Capital surplus 5,232,012
Accumulated deficit (22,961,301)
------------
Total stockholders' equity 1,779,760
------------
$ 3,289,407
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
F-3
<PAGE>
HelpMate Robotics Inc.
Statements of Operations
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues:
Sales revenues $ 1,376,101 $ 1,256,104
Rental revenues 2,899,290 2,082,705
Research and development contracts (net) 271,183 308,700
------------ ------------
Total revenues 4,546,574 3,647,509
Cost of revenues:
Cost of sales 710,775 764,565
Cost of rentals 1,788,707 1,259,036
Cost of research and development contracts 299,185 308,700
------------ ------------
Total costs of revenues 2,798,667 2,332,301
------------ ------------
Gross profit 1,747,907 1,315,208
Operating expenses:
Selling, general and administrative 2,205,343 3,538,254
------------ ------------
Operating loss (457,436) (2,223,046)
Interest expense (183,025) (256,488)
Interest income 29,642 12,864
Other income 19,830 24,204
------------ ------------
Net loss before extraordinary item (590,989) (2,442,466)
Extraordinary item-vendor forgiveness of debt (Note 6) 138,127 198,995
------------ ------------
Net loss $ (452,862) $ (2,243,471)
============ ============
Basic and diluted per share amounts:
Loss before extraordinary item $ (.05) $ (.39)
Extraordinary item .01 .03
------------ ------------
Net loss applicable to common stock $ (0.04) $ (0.36)
============ ============
Weighted average number of shares of common stock outstanding 11,429,291 6,292,650
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
HelpMate Robotics Inc.
Statements of Cash Flows
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (452,862) $(2,243,471)
Adjustments to reconcile net loss to net cash used by operating
activities:
Vendor forgiveness of debt (138,127) (198,995)
Provision for doubtful accounts -- 20,000
Provision for inventory obsolescence -- 50,000
Depreciation and amortization 832,605 735,057
Changes in operating accounts:
(Increase) decrease in accounts receivable (375,700) (287,370)
(Increase) decrease in inventory 488,156 620,543
(Increase) decrease in deposits (32,411) (3,164)
(Decrease) increase in accounts payable and accrued expenses 187,694 336,420
(Decrease) increase in customer advances -- (36,830)
(Decrease) increase in deferred revenue (261,625) (258,759)
----------- -----------
----------- -----------
Net cash provided by (used in) operating activities 247,730 (1,266,569)
----------- -----------
INVESTING ACTIVITIES
Sale of equipment leased to others -- 1,958,416
Installation costs (199,090) (260,407)
Equipment leased to others (164,258) (1,351,832)
Purchase of property and equipment (5,055) (8,382)
----------- -----------
Net cash (used in) provided by investing activities (368,403) 337,795
----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of notes payable 222,000 1,557,012
Repayments of notes payable (468,226) (434,132)
Proceeds from exercise of stock options -- 3,364
----------- -----------
Net cash (used in) provided by financing activities (246,226) 1,126,244
----------- -----------
Net (decrease) increase in cash and cash equivalents (366,899) 197,470
Cash at beginning of year 807,278 609,808
=========== ===========
Cash at end of year $ 440,379 $ 807,278
=========== ===========
SUPPLEMENTAL INFORMATION:
Conversion of notes, accounts payable and accrued expenses
to common stock $ 2,544,545 $ --
=========== ===========
Cash interest paid $ 37,158 $ 62,900
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
HelpMate Robotics Inc.
Statements of Stockholders' Equity (Deficit)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Common Capital Surplus Deficit Total
Stock
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ 16,961,140 $ 5,112,226 $(20,264,968) $ 1,808,398
Exercise of stock options (5,524 shares) 3,364 -- -- 3,364
Issuance of stock options below fair market value -- 62,613 -- 62,613
------------ ------------ ------------ ------------
Net loss -- -- (2,243,471) (2,243,471)
------------ ------------ ------------ ------------
Balance at December 31, 1997 $ 16,964,504 $ 5,174,839 $(22,508,439) $ (369,096)
Conversion of notes, accounts payable, and accrued
expenses to common stock 2,544,545 -- -- 2,544,545
Issuance of stock options below fair market value -- 57,173 -- 57,173
Net loss -- -- (452,862) (452,862)
------------ ------------ ------------ ------------
Balance at December 31, 1998 $ 19,509,049 $ 5,232,012 $(22,961,301) $ 1,779,760
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
HelpMate Robotics Inc.
Notes to Financial Statements
December 31, 1998 and 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
HelpMate Robotics Inc. ("HelpMate", "HRI", or the "Company"), was incorporated
in May 1984. The Company is primarily engaged in the design, manufacture and
sale of the Company's flagship product, the HelpMate(Registered Trademark)
robotics courier system, a trackless robotic courier used primarily in the
healthcare industry to transport materials. The Company derives revenue from
three principal sources: rentals and sales of HelpMates; sales of robotic
components such as LabMate, LightRanger and BiSight and from research and
development contracts.
Historically, the Company has been dependent upon sources other than operations
to finance its working capital requirements. These sources include loans and/or
investments from stockholders and their affiliates, private placements of its
debt and equity securities, the Company's initial public offering and the
proceeds of Financed Rentals.
The Company continues to actively seek additional financing alternatives in
order to strengthen its liquidity in the short term. Although the Company has
identified some potential sources of such financing, the Company has no current
commitments or agreements with respect to such and there can be no assurance
that any additional financing will be available to the Company on acceptable
terms, or at all. Such alternatives include, but are not limited to Financed
Rental transactions similar in nature to that entered into with LTI; (including
senior or subordinated debt). Further, additional equity financing may involve
substantial dilution of the stock ownership of the Company's existing
stockholders. Moreover, financial or other covenants imposed by future financing
sources might further adversely affect the Company's ability to pay dividends
and management's ability to control the Company. Additionally, by transferring
the title and rental agreements to a third party in Financed Rental transactions
for an immediate cash payment, the Company could lose all or a portion of its
opportunity to benefit from ongoing rentals in the future or from the residual
value of the units upon the expiration of the rental agreements. Finally, no
assurances can be given that any such financing will provide sufficient cash
required for the Company to attain an operating revenue stream of cash
sufficient to support the Company's continued operations. It is also not
anticipated that current stockholders will provide any additional financing.
The Company is liable for the payment of unpaid taxes not remitted by the
Company's former payroll company to the Internal Revenue Service as well as
interest and penalties assessed, if any. The Company has calculated these unpaid
taxes to approximate $1,000,000 exclusive of interest and penalties. The Company
anticipates that it will be able to negotiate a settlement with the Internal
Revenue Service not to exceed $150,000 and therefore have recorded this amount
in Accrued Expenses and Selling, general and administrative expenses in the
accompanying 1998 financial statements (Note 11).
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The matter discussed above raises substantial
doubt about the Company's ability to continue as a going concern.
F-7
<PAGE>
SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenues from rentals for equipment leased to others is recognized on a straight
line basis over the lease term which commences upon the delivery, installation
and training of personnel on the product. Revenues from HelpMate product sales
are recognized upon the delivery, installation and training of personnel on the
product. Revenues from the Company's foreign licensors, who are also
shareholders of the Company, and revenues from sales of robotic components are
recognized upon shipment of product. Revenues from research and development
contracts are accounted for on the percentage of completion method, based upon
costs incurred and are comprised principally of studies and prototypes of
robotic applications predominantly for governmental agencies. Where estimated
losses on research and development contracts exist, they are provided for on the
entire contract.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company markets its robotic couriers mainly to hospitals in the United
States. The Company performs periodic credit evaluations of its customer's
financial condition and generally does not require collateral. Included in
accounts receivable is $475,000 due from one customer that was subsequently
received in January 1999.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. As of December 31, 1998, the
Company's cash and cash equivalents are deposited with one financial
institution.
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out method) or market
and is evaluated periodically to determine what level of a reserve for
obsolescence is required.
PROPERTY AND EQUIPMENT
Furniture and fixtures, machinery and equipment and leasehold improvements are
stated at cost. Depreciation is computed on the straight-line method based upon
the estimated useful lives of the assets. These include furniture and fixtures
(three to five years); machinery and equipment (five to ten years); and
leasehold improvements (over the term of the lease). Depreciation expense for
property and equipment was $107,193 and $114,223 for the years ended December
31, 1998 and 1997, respectively.
EQUIPMENT LEASED TO OTHERS
Equipment leased to others is stated at cost. Depreciation is computed on the
straight-line method based upon the estimated useful lives of the assets (five
years). Depreciation expense for equipment leased to others was $422,545 and
$366,063 for the years ended December 31, 1998 and 1997, respectively. The total
of guaranteed future minimum rentals on equipment leased to others at December
31, 1998 was $340,000, which consists of $173,000 in 1999, $149,000 in 2000 and
$72,000 in 2001.
F-8
<PAGE>
INSTALLATION COSTS
The Company incurs certain direct expenses associated with the installation of
its equipment leased to others. Such costs are amortized over the initial term
of the lease in accordance with the generally accepted accounting principles
prescribed for leases. Amortization expense for installation costs was $302,867
and $254,769 for the years ended December 31, 1998 and 1997, respectively.
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred by the Company have historically been
expensed as incurred as the Company has, to date, not been able to demonstrate
recovery (net realizable value) based upon future cash flows from the rental or
sale of the associated products. Current enhancements to the Company's software
are not of a nature considered to be material modifications and therefore would
not be capitalized under Statement of Financial Accounting Standards No.86
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed"("SFAS 86"). The Company will continue to evaluate the significance of
capitalizing software development costs.
EARNINGS PER SHARE AND SUPPLEMENTAL NET LOSS PER SHARE
The Company computes earnings per share in accordance with the provisions of
Statement of Financial Accounting Standards No.128 "Earnings Per Share"("SFAS
128"). Earnings per share is computed both under the basic and dilutive methods.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding;
dilutive earnings per share is computed by giving effect to all dilutive
potential common share equivalents that were outstanding during the period.
Common share equivalents include stock options and warrants.
STOCK BASED COMPENSATION
The Company accounts for stock option grants in accordance with APB 25 and
expects to continue to do so in the future.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). This statement
requires the Company to recognize deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and the tax basis of the assets and
liabilities and the net operating loss carryforwards available for tax reporting
purposes, using applicable tax rates for the years in which the differences are
expected to reverse.
2. INVENTORY
Inventory is comprised of the following at December 31, 1998:
<TABLE>
<S> <C>
Raw materials $213,160
Work in process 199,826
Finished goods 152,989
---------
565,975
Reserve for obsolescence (170,000)
---------
$395,975
---------
---------
</TABLE>
F-9
<PAGE>
3. EQUIPMENT LEASED TO OTHERS AND PROPERTY AND EQUIPMENT
Equipment leased to others and property and equipment is comprised of the
following at December 31, 1998:
<TABLE>
<S> <C>
Equipment leased to others $ 2,278,258
Less accumulated depreciation and amortization (1,166,743)
-----------
Equipment leased to others, net $ 1,111,515
===========
Furniture and fixtures $ 90,843
Machinery and equipment 1,035,012
Leasehold improvements 26,292
-----------
1,152,147
Less accumulated depreciation and amortization (839,424)
-----------
Property and equipment, net $ 312,723
===========
</TABLE>
4. SALE AND LEASEBACK TRANSACTIONS
On February 7, 1997, the Company entered into a Purchase, Security and
Remarketing Agreement and a Master Lease Agreement with Leasing Technologies
International, Inc. ("LTI") for the sale and leaseback of fifteen of its robotic
courier systems which are currently under rent from the Company to hospitals
across the United States ("sold units"). The total proceeds obtained from this
transaction was $1,230,000. As part of the transaction, the Company assigned all
of its right title and interest in the underlying rental agreements for the sold
units and granted a security interest in fifteen additional rental agreements
for units that were not sold to LTI ("collateral units"). The Purchase, Security
and Remarketing Agreement requires the Company to, among other things, refurbish
any sold unit that ceases to be rented by a hospital and place that sold unit on
rent with another hospital prior to the Company placing one of its own units
with another hospital. In addition, the Company is responsible for the
maintenance of both the sold units and the collateral units. Upon the expiration
of the Master Lease Agreement (36 months), the Company shares in residual rental
payments from the sold units in the following manner: a)75% for the Company and
25% for LTI until such time as the Company receives an additional $372,032 and
b) 50% for the Company and 50% for LTI thereafter. Finally, the Company has no
right to repurchase the sold units from LTI. The Master Lease Agreement will be
classified as an operating lease in accordance with Statement of Financial
Accounting Standards No. 13, "Accounting for Leases". The book value and related
depreciation of the sold units, approximately $937,000 and $321,000,
respectively, will be removed from the accounts and the gain realized on the
sale of approximately $614,000 will be deferred and amortized over the term of
the Master Lease Agreement, 36 months. The maintenance costs expected to be
incurred for the sold units during the lease term will be accrued as of the date
of the sale, amortized over the term of the Master Lease Agreement and
correspondingly reduce the gain on the sale. Such costs are expected to
approximate $158,000 thereby reducing the gain to be deferred and amortized to
approximately $456,000. No provision for the refurbishment of the sold units
will be made, as the Company's historical experience demonstrates that units do
not cease being rented. Payments under the Master Lease Agreement are payable
monthly commencing in March, 1997 and approximate $526,000 annually.
Further on May 5, 1997, the Company entered into another Purchase, Security and
Remarketing Agreement and a Master Lease Agreement with LTI for the sale and
leaseback of nine of its robotic courier systems which were under rent from the
Company to hospitals across the United States ("sold units"). The total proceeds
obtained from this transaction were $810,000. As part of the transaction, the
Company assigned all of its rights, title and interest in the underlying rental
agreements for the sold units and granted a security interest in three
additional rental agreements for units that were not sold to LTI ("collateral
units"), and issued to LTI 98,182 warrants to purchase the Company's common
stock at $1.2375. The net book value of these collateral units at December 31,
1997 is approximately $56,000. The warrants expire on May 4, 2006.
F-10
<PAGE>
The Purchase, Security and Remarketing Agreement requires the Company to, among
other things, refurbish any sold unit that ceases to be rented by a hospital and
place that sold unit on rent with another hospital prior to the Company placing
one of its own units with another hospital. In addition, the Company is
responsible for the maintenance of both the sold units and the collateral units.
Upon the expiration of the Master Lease Agreement (32 months), the Company
shares in residual rental payments from the sold units in the following manner:
a)75% for the Company and 25% for LTI until such time as the Company receives an
additional $225,400 and b) 50% for the Company and 50% for LTI thereafter.
Finally, the Company has no right to repurchase the sold units from LTI. The
Master Lease Agreement is classified as an operating lease in accordance with
Statement of Financial Accounting Standards No. 13, "Accounting for Leases". The
book value and related depreciation of the sold units, approximately $548,000
and $26,000, respectively, was removed from the accounts and the gain realized
on the sale of approximately $288,000 was deferred and amortized over the term
of the Master Lease Agreement, 32 months. The maintenance costs expected to be
incurred for the sold units during the lease term were accrued as of the date of
the sale, amortized over the term of the Master Lease Agreement and
correspondingly reduce the gain on the sale. Such costs are expected to
approximate $46,000 thereby reducing the gain to be deferred and amortized to
approximately $242,000. No provision for the refurbishment of the sold units was
made, as the Company's historical experience demonstrates that units do not
cease being rented. Payments under the Master Lease Agreement are payable
monthly, commenced in June, 1997 and approximate $379,000 annually.
5. VENDOR FORGIVENESS OF DEBT
During the fourth quarter of 1997 and the first quarter of 1998, the Company
reached agreements with a majority of its vendors to accept common stock of a
reduced cash payment (first $1,000 plus 30% of the outstanding balance) for the
amounts owed to them at September 30, 1997. Agreements for common stock and
warrants are discussed in Note 6 As a result of agreements received with vendors
to accept reduced cash payments, the Company realized extraordinary gains of
$138,127 in 1998 and $198,995 in 1997.
6. NOTES PAYABLE
Notes Payable is comprised of the following at December 31, 1998:
<TABLE>
<S> <C>
Secured notes payable at12.2% $ 47,848
Secured notes payable to HTLP at 24% 341,599
---------
389,447
Less - current portion (322,448)
---------
$ 66,999
---------
---------
</TABLE>
The non-current portion of notes payable of $66,999 is payable in 2000.
In 1995 and 1994, the Company entered into three agreements with Hospital
Transporters Limited Partnership ("HTLP"), a limited partnership whose limited
partners include the Chairman, the Chairman's brother and the former President
of the Company, whereby the Company transferred title and assigned the related
rental agreements to thirteen of its HelpMate robotic courier systems to HTLP to
provide the Company with additional capital to fund its operations. Under the
agreements, the Company guaranteed payments to HTLP of $2,020,829 over a five
year period. The Company may, at its option, repurchase nine HelpMate robotic
courier systems at the expiration of the five year period in 1999 and four in
2000 for approximately $9,000 each. The total proceeds obtained from these
agreements approximated $1,170,000 and as stipulated by these agreements, the
Company remains responsible for the maintenance of the systems for which HTLP
agreed to pay $3,500 per unit per year to the Company. The Company accounted for
these transactions as a financing, recognizing the proceeds received as
obligations at the discounted present value of the guaranteed payments having an
effective interest rate of approximately 24%. The related assets are being
depreciated over their estimated economic life.
F-11
<PAGE>
In February 1998, the Company concluded a private placement of $1,350,000 (of
which $1,128,000 was received in 1997) of units, consisting of 7% promissory
notes due October 1, 1998 and warrants. Each note was converted effective April
18, 1998 into an aggregate of 4,090,909 shares of common stock. The warrants are
exercisable at $.33 per share for an aggregate of 1,350,000 shares of the common
stock.
In consideration for its services to the Company in connection with the private
placement, the Boston Group, LP was issued warrants, expiring December 31, 2001,
to purchase 2,411,866 shares of common stock at an exercise price of $.33 per
share.
In January 1998, the principal and interest outstanding with respect to a
certain $150,000 note in favor of the Company's chairman was converted into
467,424 shares of the common stock at a rate of one share of Common Stock for
every $.33 converted. In connection with this loan and its conversion, the
Company also issued to its chairman warrants expiring December 31, 2001 to
purchase an aggregate of 179,250 shares of Common Stock at an exercise price of
$.33 per share. Also in consideration of this loan, the Company issued to its
chairman warrants to purchase 25,000 shares at the exercise price of $.33 per
share.
In April 1998, the principal and interest outstanding with respect to a certain
note in favor of the Company's chairman was converted into 534,552 shares of the
common stock at a rate of one share of Common Stock for every $.33 converted. In
connection with this loan and its conversion, the Company also issued to its
chairman warrants expiring December 31, 2001 to purchase an aggregate of 176,402
shares of Common Stock at an exercise price of $.33 per share.
In consideration of a $150,000 loan made by Brookehill Equities, Inc. to the
Company in November 1997, the Company issued, in January 1998, warrants expiring
December 31, 2001 to purchase 25,000 shares of common stock at an exercise price
of $.33 per share.
In January 1998, the principal and interest outstanding with respect to a
certain $60,000 note in favor of the Company's former president was converted
into 189,845 shares of the Company's common stock at a rate of one share for
every $.33 converted. In connection with the conversion of that loan, the
Company issued warrants expiring December 31, 2001 to purchase 62,649 shares of
Common Stock at an exercise price of $.33 per share.
In December 1997 and January 1998, the Company entered into agreements with
certain of its creditors pursuant to which each of these creditors agreed to
liquidate $154,756 of the Company's payables to such creditor in exchange for an
aggregate of 468,958 shares (the "Creditor Shares") of common stock and warrants
expiring on December 31, 2001 to purchase an aggregate of 154,756 shares of
common stock at an exercise price of $.33 per share. These shares and warrants
were issued in April 1998.
In January 1998, CII agreed to convert the outstanding indebtedness under its
June 14, 1995 Note from the Company bearing interest at a rate of 10% per annum
and royalty payments accrued under its Development Agreement with the Company
through December 31, 1997 into shares of common stock at the rate of one share
of Common Stock for each $.33 of indebtedness and royalty liquidated. In
addition the Company agreed to issue CII warrants expiring December 31, 2001
exercisable for shares of Common Stock at an exercise price of $.33 per share
for each dollar liquidated. The number of CII Conversion Shares and CII
Conversion Warrants to be issued will be determined as of the date of
conversion. Moreover, in lieu of cash payments accruing during the fiscal year
ending December 31, 1998, CII also agreed to accept one share of common stock
for each $.33 of royalties required to be paid and warrants expiring December
31, 2001 to purchase one share of common stock at an exercise price of $.33 per
share for each dollar of royalties required to be paid.
As a result of the foregoing CII transactions CII was issued, in June 1998,
1,556,987 shares of Common Stock and warrants to purchase an aggregate of
513,809 shares of common stock in exchange for the liquidation of $513,809 of
principal, interest and accrued royalties through December 31, 1997. In
addition, CII received 402,057 shares of Common Stock and warrants to purchase
an aggregate of 132,678 shares of common stock in exchange for $132,678 of
accrued royalties for the first three quarters of 1998.
F-12
<PAGE>
7. INCOME TAXES
Significant components of the Company's deferred tax assets as of December 31,
1998 are as follows
<TABLE>
<S> <C>
Net operating loss carryforwards $7,454,681
Allowance for doubtful accounts 28,000
Reserve for inventory obsolescence 68,000
Compensation expense 12,044
Vacation accrual 38,878
Equipment leased to others 180,000
Other 82,869
------------------
Total deferred tax assets 7,864,472
Valuation allowance for deferred tax assets (7,864,472)
------------------
Amount recognized in the financial statements $ -
------------------
------------------
</TABLE>
The valuation allowance decreased by approximately $700,000 during the year
ended December 31, 1998 primarily due to options canceled and expired during the
year.
At December 31, 1998, the Company had net operating loss carryforwards for
federal tax purposes of approximately $18,600,000 which expire from 1999 through
2013. However, under the Tax Reform Act of 1986, the ability of the Company to
realize a future tax benefit from its net operating loss carryforwards is
severely limited due to changes in the proportionate ownership of the Company
and the entities which own stock in the Company.
8. STOCKHOLDERS' EQUITY
WARRANTS
As of December 31, 1998, the Company had issued warrants to purchase an
aggregate of 7,068,360 shares of common stock. The warrants have exercise prices
ranging from $0.33 - $5.25 per share, are exercisable upon issuance and expire
as follows: 2006 (98,353); 2005 (226,290); 2002 (3,058,354); 2001 (3,568,255);
2000 (40,947); and 1999 (76,161).
DIVIDENDS ON COMMON STOCK
To date and for the foreseeable future, the Company has not nor does it
anticipate paying dividends on its common stock. Moreover, the ability of the
Company to pay dividends is subject to contractual restrictions through
September, 2001. Specifically during that period, the Company may not, unless
approved by CII, directly or indirectly declare, order, pay or reserve any sum
or property for the payment of any dividend or other distribution on the
Company's common stock until such time as the Company has achieved a net profit
for three consecutive fiscal quarters.
STOCK OPTION PLANS
The Company has two stock option plans. The 1988 Nonqualified Stock Option Plan
provides for the granting of nonqualified stock options for 235,279 shares of
common stock at an exercise price based upon a formula determined by the
Company's Board of Directors, with a minimum price of not less than $0.20 per
share. Options are exercisable starting one year from the date of grant to the
extent of 20% per year on a cumulative basis and expire ten years from the date
of grant. Option holders, upon approval by the Company, may surrender their
options to the Company in exchange for the difference between the fair market
value of the shares covered by the option and the option exercise price. In the
event of cessation of employment, an option holder may exercise his stock
options within a six month period at which time the stock option is canceled. At
December 31, 1998, 6,844 options are available for grant under this plan and
250,000 shares of common stock are reserved for issuance.
F-13
<PAGE>
The Company's 1995 Amended and Restated Stock Option Plan provides for the
granting of up to 700,000 shares of the Company's common stock to officers,
directors and employees of the Company at an exercise price not less than 100%
of the fair market value of the Company's common stock on the date of grant.
Options are exercisable starting one year from the date of grant to the extent
of 20% per year on a cumulative basis and expire ten years from the date of
grant. At December 31, 1998, 79,550 options are available for grant under this
plan and 700,000 shares of common stock are reserved for issuance.
The 1988 plan terminated on October 27, 1998 and the 1995 plan will terminate on
February 5, 2006, except as to options outstanding. The 1995 plan can be
terminated by the Company's Board of Directors at any time.
The Company has adopted the provisions of Statement of Financial Accounting
Standards, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
requires the measurement of the fair value of stock options or warrants to be
included in the statement of operations or disclosed in the notes to financial
statements. The Company has determined that it will continue to account for
stock-based compensation for employees under Accounting Principles Board Opinion
No. 25 and elect the disclosure-only alternative under SFAS 123. The Company has
computed the pro forma disclosures required under SFAS 123 for options granted
in 1998 and 1997 using the Black-Scholes option pricing model prescribed by SFAS
123. The weighted average assumptions used are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Risk free interest rate 6.85%-7% 5.77%-6.30%
Expected dividend yield None None
Expected lives 8 Years 8 Years
Expected volatility 106% 91%
</TABLE>
Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant dates of awards under these plans consistent with
the method of SFAS 123, the Company's net loss and net loss per share would have
been as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net loss
As reported $ (452,862) $ (2,243,471)
Pro forma (484,031) (2,255,612)
Basic and diluted net loss per common share
As reported $ (.04) $ (.36)
Pro forma (.04) $ (.36)
</TABLE>
A summary of the status of the Company's stock option plan at December 31, 1998
and 1997 and changes during the years then ended is presented in the table and
narrative below.
F-14
<PAGE>
<TABLE>
<CAPTION>
1998 1997
------------------------------- --------------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
-------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 483,086 $1.30 218,613 $1.71
Granted 549,175 0.17 273,699 0.96
Exercised - - (5,524) 0.61
Canceled/expired (379,291) 1.60 (3,702) 0.81
--------- ---- ------- ----
Outstanding, end of year 652,970 $0.18 483,086 $1.30
======= ===== ======= =====
Exerciseable, end of year 269,277 $0.17 200,656 $0.72
======= ===== ======= =====
Weighted average fair value
of options granted $0.17 $1.04
===== =====
</TABLE>
As a result of the cancellation or expiration of 379,291 options under the 1988
and 1995 Plans and reissuance of certain options under the 1995 Plan during
1998, all of the Company's outstanding options are exercisable at between $.10
and $.20 with a weighted average remaining contractual life and exercise price
of 5.3 years and $.17, respectively.
9. DEVELOPMENT CONTRACT AND RELATED ROYALTY AGREEMENT
During 1986, the Company entered into a contract with an independent corporation
(the "Corporation") to assist in the development and manufacturing of a
trackless robotic courier to be used primarily in the healthcare industry to
transport materials ("HelpMate"). The Corporation had entered into a development
agreement with CII, a state sponsored development corporation, in which CII
would reimburse the Corporation for a portion of the development costs for the
HelpMate(R) robotics courier system (the "Sponsored Products"). The contract
between the Corporation and the Company granted the Company the right to assume
the Corporation's rights under the agreement with CII.
During 1987, the Company assumed the Corporation's rights under the agreement,
pursuant to which CII reimbursed the Company for $441,000 of development costs
related to the Sponsored Products. In return for such reimbursement, the Company
must pay royalties aggregating $2,205,000 to CII as follows: (i) five percent of
the Company's net sales of Sponsored Products, and (ii) fifty percent of any
royalties received by the Company for payments against shipments of Sponsored
Products by licensees of the Company. Thereafter, the Company must continue to
pay royalties for a period equal to the period of time taken to satisfy this
$2,205,000 royalty obligation. Such royalties are payable only to the extent
that sales and license fees are realized. Through December 31, 1998, the Company
had paid approximately $527,000 in royalties to CII in cash and issued 420,057
shares of common stock.
In January 1996, the Company and CII agreed that during the two-year period
commencing on the closing of the Company's initial public offering, the
obligation (described in (i) in the preceding paragraph) to pay a royalty at a
rate of five percent of sales of Sponsored Products would be reduced so that the
payment with respect thereto would not exceed the greater of (i) one and
one-half percent of the net sales of Sponsored Products or (ii) twenty percent
(20%) of the Company's pre-tax profits (but in no event would such payment be
more than five percent of net sales of Sponsored Products). In addition, the
Company will receive a credit of $300,000 against the $2,205,000 royalty
obligation. In consideration of this modification, the Company issued to CII
50,000 shares of its Common Stock and a warrant to purchase 25,000 additional
shares at $5.75 per share immediately prior to the closing of the Company's
initial public offering. In addition, the Company may, at its option, extend the
period permitting reduced royalty payments for an additional two years and
receive another $300,000 credit against the royalty obligation by issuing to CII
an additional 50,000 shares of Common Stock and warrants to purchase an
additional 25,000 shares exercisable at $5.75 per share. Under theagreement, if
the Company relocates its business outside the State of Connecticut, among other
things, the
F-15
<PAGE>
Company must grant CII a nonexclusive right to all existing and future patents
pertaining to the Sponsored Products. CII also may exercise a nonexclusive,
worldwide and royalty-free license to manufacture, use and sell the Sponsored
Products and to use all patent and trademark rights, technical information and
know-how relating to the Sponsored Products in the event the Company defaults
under the agreement.
10. DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan for substantially all of its
employees. Employees can contribute to the plan, on a pre tax basis, a
percentage of their qualifying compensation up to the legal limits allowed. The
Company contributions matches 25% of employee contributions up to $2000. During
1998, the Company contributed $1,971 to this plan.
11. COMMITMENTS AND CONTINGENCIES
During 1997, the Company entered into a new operating lease agreement for its
office and manufacturing facility which expires in February 2001. In addition to
the lease payments, the Company is obligated to pay its proportionate share of
the operating expenses of the facility.
Future minimum lease payments as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $187,500
2000 187,500
2001 15,625
-----------
$390,625
===========
</TABLE>
Rent expense for the years ended December 31, 1998 and 1997 approximated
$187,500 and $177,000 respectively.
In October 1998 the Company announced that it is conducting an investigation to
determine the extent to which it has been defrauded by its former payroll
company. The payroll company, KPM, Inc., of Brookfield, Connecticut, did
business under the names Payroll Express and Compusystems. Based upon the
Company's preliminary investigation, the Company believes that KPM
misappropriated Company funds which KPM was
required to pay to the Internal Revenue Service with respect to Company
employment taxes. As part of its investigation, the Company has discovered that
copies of the tax returns provided by KPM to the Company differ materially from
the actual returns which KPM filed on the Company's behalf with the IRS. KPM was
engaged as the Company's payroll service from the late 1980's until August 1998.
KPM filed for bankruptcy in July 1998.
The Company understands from published reports that KPM may have similarly
misappropriated funds from a number of other KPM customers and that IRS Criminal
Investigation Division and the office of the United States Attorney are
currently investigating KPM.
Under the Internal Revenue Code, the Company is liable for the payment of these
unpaid taxes as well as interest and penalties assessed, if any. The Company has
calculated these unpaid taxes to approximate $1,000,000 exclusive of interest
and penalties. The Company anticipates that it will be able to negotiate a
settlement with the Internal Revenue Service not to exceed $150,000 and
therefore have recorded this amount in Accrued Expenses and Selling, general and
administrative expenses in the accompanying 1998 financial statements.
The Company believes that this tax liability may have a material and adverse
affect on the Company's business, its financial condition and on the results of
its operations. The Company has taken the following actions; (a) filed a claim
in the KPM bankruptcy proceedings; (b) filed a claim under the Company's
insurance policy; the claim was denied; and (c) entered into discussion with the
Internal Revenue Service regarding a compromise of the Company's liability for
these employment taxes. In addition, the Company may need to use its available
cash and future revenues to liquidate its tax liability.
F-16
<PAGE>
The Company is continuing to investigate this matter and expects to cooperate
fully with the ongoing IRS and United States Attorney investigations of KPM.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The matter discussed above raises substantial
doubt about the Company's ability to continue as a going concern.
12. QUATERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
1998
Accumulated Deficit-
Beginning of Period $(22,508) $(22,798) $(23,080) $(22,964)
Accumulated Deficit-
End of Period (22,798) (23,080) (22,964) (22,961)
Stockholders' Equity (442) 1,553 1,708 1,780
Net Income (Loss) (290) (282) 116 3
Net Income (Loss) per
Share $ (0.04) $ (0.03) $ -- $ --
1997
Accumulated Deficit-
Beginning of Period $(20,265) $(20,862) $(21,806) $(22,149)
Accumulated Deficit-
End of Period (20,862) (21,806) (22,149) (22,508)
Stockholders' Equity 1,215 271 72 (369)
Net Loss (597) (944) (343) (359)
Net Loss per Share $ (0.10) $ (0.15) $ (0.05) $ (0.06)
</TABLE>
F-17
<PAGE>
Appendix E
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- --------- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- --------- SECURITIES EXCHANGE ACT OF 1934)
For the transition period from___________ to ____________
Commission File Number 1-14160
HelpMate Robotics Inc.
(Exact name of small business issuer as
specified in its charter)
CONNECTICUT 06-1110906
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
SHELTER ROCK LANE; DANBURY, CONNECTICUT; 06810
(Address of principal executive offices)
(203) 798-8988
--------------------------
(Issuer's telephone number)
----------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No__
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes __ No__
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the registrant's common stock as of October
15, 1999 is 14,372,152 shares.
Transitional Small Business Disclosure Format (Check One) Yes____ No X
<PAGE>
HELPMATE ROBOTICS INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<S> <C>
Condensed Balance Sheet as of September 30, 1999 (unaudited) 3
Condensed Statements of Operations for the three months
ended September 30, 1999 and 1998 (unaudited) 4
Condensed Statements of Operations for the nine months
ended September 30, 1999 and 1998 (unaudited) 5
Condensed Statement of Stockholders' Equity
as of September 30, 1999 (unaudited) 6
Condensed Statement of Cash Flows for the nine months
ended September 30, 1999 and 1998 (unaudited) 7
Notes to Condensed Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE 16
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HelpMate Robotics Inc.
Condensed
Balance Sheet (Unaudited)
September 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 399,025
Accounts receivable, net of allowance for doubtful accounts of $50,000 239,498
Inventory, net of reserve for obsolescence of $170,000 576,881
-------------
Total current assets 1,215,404
Installation costs, net of accumulated depreciation of $660,712 30,435
Equipment leased to others, net of accumulated depreciation of $1,017,644 706,863
Property and equipment, net of accumulated depreciation of $911,005 271,298
Deposits 113,189
-------------
$2,337,189
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 121,428
Accrued expenses 382,986
Accrued employee benefits 115,516
Notes payable 98,086
Deferred revenue 96,890
-------------
Total current liabilities $ 814,906
-------------
Stockholders' equity:
Common stock, no par value; 40,000,000 shares authorized; 14,372,152 shares issued
and outstanding 19,602,994
Capital surplus 5,232,012
Accumulated deficit (23,312,723)
-------------
Total stockholders' equity 1,522,283
-------------
$2,337,189
-------------
-------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
HelpMate Robotics Inc.
Statements of Operations (Unaudited)
Condensed
Three months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Three months ended September 30,
1999 1998
---- ----
<S> <C> <C>
Revenues:
Sales revenues $ 19,015 $ 681,279
Rental revenues 545,881 746,212
Research and development contracts -- 45,268
------------ ------------
Total revenues 564,896 1,472,759
------------ ------------
Cost of revenues:
Cost of sales 28,321 351,676
Cost of rental revenues 333,002 436,635
Cost of research and development contracts -- 65,330
------------ ------------
Total costs of revenues 361,323 853,641
------------ ------------
Gross profit 203,573 619,118
Selling, general and administrative expenses 474,204 530,300
------------ ------------
Operating (loss) income (270,631) 88,818
Other income (expense):
Interest income 7,836 5,473
Interest expense (8,509) (28,428)
Other income 12,131 --
------------ ------------
Net (loss) income before extraordinary item (259,173) 65,863
Extraordinary item-vendor forgiveness of debt (Note 6) -- 49,900
============ ============
Net (loss) income $ (259,173) $ 115,763
============ ============
Basic and diluted per share amounts:
(Loss) income before extraordinary item $ (.02) $ --
Extraordinary item -- --
------------ ------------
Basic and diluted loss per share $ (.02) $ --
============ ============
Weighted average number of shares of common stock outstanding 14,296,629 13,770,530
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
HelpMate Robotics Inc.
Statements of Operations (Unaudited)
Condensed
Nine months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
---- ----
<S> <C> <C>
Revenues:
Sales revenues $ 519,127 $ 784,096
Rental revenues 1,806,886 2,177,561
Research and development contracts -- 271,183
------------ ------------
Total revenues 2,326,013 3,232,840
------------ ------------
Cost of revenues:
Cost of sales 190,682 402,758
Cost of rental revenues 1,107,068 1,408,871
Cost of research and development contracts -- 291,245
------------ ------------
Total costs of revenues 1,297,750 2,102,874
------------ ------------
Gross profit 1,028,263 1,129,966
Selling, general and administrative expenses 1,372,530 1,608,388
------------ ------------
Operating loss (344,267) (478,422)
Other income (expense):
Interest income 21,897 23,829
Interest expense (41,183) (159,458)
Other income 12,131 19,755
------------ ------------
Net loss before extraordinary item (351,422) (456,169)
Extraordinary item-vendor forgiveness of debt (Note 6) -- 138,127
------------ ------------
Net loss $ (351,422) $ (456,256)
============ ============
Basic and diluted per share amounts:
Loss before extraordinary item $ (.03) $ (.05)
Extraordinary item -- .01
------------ ------------
Basic and diluted loss per share $ (.03) $ (.04)
============ ============
Weighted average number of shares of common stock outstanding 14,276,238 10,623,564
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
HelpMate Robotics Inc.
Condensed
Statement of Stockholders' Equity (Unaudited)
September 30, 1999
<TABLE>
<CAPTION>
Accumulated
Common Stock Capital Surplus Deficit Total
-------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ 19,509,049 $ 5,232,012 $(22,961,301) $ 1,779,760
Conversion of accrued expenses to common stock 64,888 -- -- 64,888
Exercise of stock options 29,057 -- -- 29,057
Net loss -- -- (351,422) (351,422)
------------ ------------ ------------ ------------
Balance on September 30, 1999 $ 19,602,994 $ 5,232,012 $(23,312,723) $ 1,522,283
============ ============ ============ ============
</TABLE>
SEE ACCOMPANY NOTES
6
<PAGE>
HelpMate Robotics Inc.
Statements of Cash Flows (Unaudited)
Condensed
Nine months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (351,422) $ (456,169)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation 422,471 644,419
Vendor forgiveness of debt -- (138,127)
Changes in operating accounts:
Decrease in accounts receivable 563,364 10,922
(Increase) decrease in inventory (180,906) 496,566
Decrease (increase) in deposits 16,971 (32,411)
(Decrease) increase in accounts payable and accrued expenses (167,728) 78,559
Decrease in deferred revenue (170,764) (218,695)
Increase in customer advances -- --
----------- -----------
Net cash provided by operating activities 131,986 385,064
----------- -----------
INVESTING ACTIVITIES
Installation costs (35,649) (224,996)
Equipment leased to others 154,769 (351,638)
Purchase of property and equipment (30,156) (5,054)
----------- -----------
Net cash provided by (used in) investing activities 88,964 (581,688)
----------- -----------
FINANCING ACTIVITIES
Repayments of notes payable (291,361) (375,902)
Proceeds from exercise of stock options 29,057 --
Proceeds from issuance of notes -- 222,000
----------- -----------
Net cash used in financing activities (262,304) (153,902)
----------- -----------
Net decrease in cash and cash equivalents (41,354) (350,526)
Cash and cash equivalents at beginning of period 440,379 807,278
----------- -----------
Cash and cash equivalents at end of period $ 399,025 $ 456,753
=========== ===========
Supplemental non-cash financing activities:
Conversion of accrued expenses to common stock $ 64,888 $ 2,475,793
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
HelpMate Robotics Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1999
BASIS OF PRESENTATION
HelpMate Robotics Inc. ("HelpMate", "HRI", or the "Company"), was incorporated
in May 1984. The Company is primarily engaged in the design, manufacture and
sale of the Company's flagship product, the HelpMate-Registered Trademark-
robotics courier system, a trackless robotic courier used primarily in the
healthcare industry to transport materials. The Company derives revenue
primarily from rentals and sales of HelpMate robots. The Company also sells
robotic components such as LabMate, LightRanger and BiSight and performs
research and development contracts.
Historically, the Company has been dependent upon sources other than operations
to finance its working capital requirements. These sources include loans and/or
investments from stockholders and their affiliates, private placements of its
debt and equity securities.
The Company announced on October 15, 1999 that it has agreed to sell
substantially all of its assets to Pyxis Corporation, a subsidiary of Cardinal
Health, Inc. of Dublin, Ohio ("Pyxis"). In consideration for the sale, the
Company will receive $12.5 million in cash and Pyxis will assume certain of the
Company's liabilities. The cash purchase price is subject to certain closing and
post-closing adjustments including required payments to third parties. Moreover,
$1.25 million of the cash purchase price will be held in escrow for a period of
approximately two years and would be available to settle potential
indemnification claims.
Below is a pro forma balance sheet reflecting the transaction as if it had
closed as of September 30, 1999.
8
<PAGE>
HelpMate Robotics Inc.
Pro Forma Balance Sheet
As of September 30, 1999
<TABLE>
<CAPTION>
Pro forma
Historical Adjustments Pro Forma
----------- --------------- -------------
<S> <C> <C> <C>
ASSETS
Current Assets:
$(399,025)
Cash $399,025 11,050,000 $11,050,000
Accounts receivable, net of allowance for
doubtful accounts 239,498 (239,498) -
Inventory, net of reserve for obsolescence 576,881 (576,881) -
--------------- -------------- --------------
Total current assets 1,215,404 9,834,596 11,050,000
Property and equipment, net of accumulated
depreciation 1,008,596 (1,008,596) -
Deposits 113,189 (113,189) -
Cash in escrow - 1,250,000 1,250.000
--------------- -------------- --------------
$2,337,189 $9,962,811 $12,300,000
=============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $121,428 $ (95,059) $ 26,369
Accrued expenses 498,502 550,356 1,048,858
Notes payable 98,086 - 98,086
Deferred revenue 96,890 (14,669) 82,221
--------------- -------------- --------------
Total current liabilities 814,906 440,628 1,255,534
Stockholders' equity 1,522,283 9,522,183 11,044.466
--------------- -------------- --------------
$2,337,189 $9,962,811 $12,300,000
=============== ============== ==============
</TABLE>
The closing of the transaction with Pyxis is subject to the approval of the
Company's shareholders and to other customary closing conditions. The Company
anticipates that the transaction will close prior to the end of its fourth
quarter ending December 31, 1999. The Company also anticipates distributing a
substantial portion of the closing proceeds during the first quarter of the
fiscal year 2000.
If the sale to Pyxis closes, the Company's management intends to pursue a
business plan aimed at effecting a business combination with an operating
business. Any such business combination would depend on the availability of
attractive candidates and the Company's ability to consummate such a business
combination. To date, the Company has not identified any such candidate. The
Company does not have any immediate plans to dissolve the Company if the sale of
substantially all of its assets to Pyxis closes and any such dissolution would
require the prior approval of the Company's shareholders.
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The terms and conditions of the proposed sale to Pyxis are contained in the
Asset Purchase Agreement, a copy of which has been filed as Exhibit 10.83 to the
Company's Current Report on Form 8-K dated October 15, 1999, and which is
incorporated herein by reference in its entirety. The description of the terms
and conditions of the proposed sale to Pyxis and of the Asset Purchase Agreement
is qualified in its entirety by, and made subject to, the more complete
information set forth in that Exhibit.
In light of its agreement with Pyxis, the Company is not seeking any type of
financing or sale alternatives.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Rule 310 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting only of normal
recurring accruals, considered necessary for a fair presentation have been
included in the accompanying unaudited financial statements. Operating results
for the nine month period ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the full year ending December
31, 1999. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for the
year ended December 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Company develops, manufacturers and markets mobile robotic systems, which
are distinguished by their ability to navigate autonomously without the need for
fixed tracks or guide wires. The Company accomplishes this by employing state of
the art sensor technology, wireless radio and proprietary software to the
guidance of battery-powered vehicles of its own design. So equipped, these
autonomous vehicles can navigate from point to point, avoid stationary and
moving obstacles (including people), make almost instantaneous stops when
necessary, summon elevators to travel between floors, announce their arrival at
destinations, signal closed doors to open, and maintain communications with a
centrally located computer.
The Company also continues to sell, on a limited basis, components of its
autonomous mobile robotics technology to universities and other research
facilities, and has licensed some of its technologies for use in floor cleaning
and automated prescription filling applications. The Company also engages in
research and development contracts in the area of mobile robotics technology.
AGREEMENT WITH PYXIS
The Company announced on October 15, 1999 that it has agreed to sell
substantially all of its assets to Pyxis Corporation, a subsidiary of Cardinal
Health, Inc. of Dublin, Ohio ("Pyxis"). In consideration for the sale, the
Company will receive $12.5 million in cash and Pyxis will assume certain of the
Company's liabilities. The cash purchase price is subject to certain closing and
post-closing adjustments including required payments to third parties. Moreover,
$1.25 million of the cash purchase price will be held in escrow for a period of
approximately two years and would be available to settle potential
indemnification claims.
The closing of the transaction with Pyxis is subject to the approval of the
Company's shareholders and to other customary closing conditions. The Company
anticipates that the transaction will close prior to the end of its fourth
quarter ending December 31, 1999. The Company also anticipates distributing a
substantial portion of the closing proceeds during the first quarter of the
fiscal year 2000.
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If the sale to Pyxis closes, the Company's management intends to pursue a
business plan aimed at effecting a business combination with an operating
business. Any such business combination would depend on the availability of
attractive candidates and the Company's ability to consummate such a business
combination. To date, the Company has not identified any such candidate. The
Company does not have any immediate plans to dissolve the Company if the sale of
substantially all of its assets to Pyxis closes and any such dissolution would
require the prior approval of the Company's shareholders.
The terms and conditions of the proposed sale to Pyxis are contained in the
Asset Purchase Agreement, a copy of which has been filed as Exhibit 10.83 to the
Company's Current Report on Form 8-K dated October 15, 1999, and which is
incorporated herein by reference in its entirety. The description of the terms
and conditions of the proposed sale to Pyxis and of the Asset Purchase Agreement
is qualified in its entirety by, and made subject to, the more complete
information set forth in that Exhibit.
In light of its agreement with Pyxis, the Company is not seeking any type of
financing or sale alternatives.
LIQUIDITY AND CAPITAL RESOURCES
The remaining backlog at September 30, 1999 consists of approximately $150,000
of annual rental revenues, one half of which should become operational by year
end and the remainder in the first quarter of next year. At that point, the
Company expects to have 64 robots on rental in its US customer base, providing a
stream of on-going revenues.
As a result of the termination of the Otis Elevator Company ("Otis") agreement,
the Company has received seven robots from Otis during the first three quarters
of 1999 at a cost of $1 each. In addition, during the third and fourth quarters
of 1999, the Company has repurchased nine robots, which are currently rented to
hospitals, from HTLP for an aggregate of $81,000. Assuming these rentals
continue, the Company estimates that these robots would generate approximately
$100,000 in rental revenue in 1999. Also, the Company believes it has in
inventory most of the parts necessary to perform routine maintenance and repairs
on its rental robots in 1999.
Although the Company is operating at below a cash break-even level, management
believes that at the Company's current level of operations, it will have
sufficient cash to maintain operations through year end. In the event the
proposed sale of the Company's assets to Pyxis closes, as described above, the
Company would have sufficient cash to satisfy its liquidity needs for all of the
fiscal year ending December 31, 2000. However, in the event the transaction with
Pyxis fails to close as contemplated, the Company anticipates that it would run
out of cash sometime during January 2000. Although the Company would resume
the pursuit of third party financing, management believes the Company would have
little realistic prospect for obtaining immediate financing to carry on the
Company's business or operations. Accordingly, management believes that the
Company would be left with little practical alternative but to consider filing
for protection under the federal bankruptcy laws.
In October 1998, the Company announced an investigation to determine the extent
to which KPM Inc. ("KPM"), the Company's former payroll service, misappropriated
Company funds which KPM was required to pay to the IRS with respect to Company
employment taxes. Under the Internal Revenue Code, the Company was liable for
the payment of these unpaid taxes, as well as interest and penalties assessed,
if any. The Company had initially estimated these unpaid taxes to be
approximately $1,000,000 exclusive of interest and penalties.
The Company announced on August 26, 1999 that it reached a settlement with the
Internal Revenue Service (the "IRS") regarding claims by the IRS for unpaid
payroll taxes arising out of the apparent misappropriation of funds by KPM. The
Company paid $100,067, including interest, to the Internal Revenue Service in
full payment of the IRS claims. In addition, the Company agreed with the IRS to
forego the use of $2,710,432 of net operating loss carryforwards.
At December 31, 1998, the Company had estimated that it could settle the IRS
claims for approximately $150,000 and this amount was included as part of
accrued expenses and selling, general
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and administrative expenses in the 1998 financial statements. The estimate
exceeds the agreed to payment by $50,000. This excess amount was credited to
selling, general and administrative expenses in the Company's financial
statements in the third quarter ended September 30, 1999.
RESULTS OF OPERATIONS
REVENUES
Total revenue before research and development contracts decreased by $862,595 or
60% from the three month period ended September 30, 1998 compared to the three
month period ended September 30, 1999. Rental revenues decreased by $200,331 or
27%; sales revenues decreased by $662,264 or 97%.
Total revenues decreased by $635,644 or 21% from the nine month period ended
September 30, 1998 compared to the nine month period ended September 30, 1999.
Rental revenues decreased by $370,675 or 17% and sales revenues decreased by
$264,969 or 34%.
Sales revenue in the three months ended September 30, 1999 included no robot
sales compared to four sales in 1998. The decrease in rental revenues for both
the three and nine months ended September 30, 1999 reflects the sale of three
rental robots in late 1998 and the sale of three robots in the first quarter of
1999, coupled with the net return of twelve robots during the nine months ended
September 30, 1999. The total rental fleet at September 30, 1999 stands at 60
units.
The Company also earned revenue from research and development contracts of
$45,268 and $271,183 for the three and nine months ended September 30, 1998.
There were no research and development contracts in process in the three and
nine months ended September 30, 1999.
COST OF REVENUES
Cost of revenues before research and development costs decreased by $426,988 or
54% from the three month period ended September 30, 1998 compared to the three
month period ended September 30, 1999. Cost of revenues decreased by $513,879 or
28% from the nine months ended September 30, 1998 compared to the nine months
ended September 30, 1999. These changes in cost of revenue reflect the changes
in sales and rental revenue discussed above.
GROSS PROFIT
Gross profit decreased by 67% or $415,545 from the three months ended September
30, 1998 compared to the three months ended September 30, 1999. Gross profit
decreased by 9% or $101,703 from the nine months ended September 30, 1998
compared to the nine months ended September 30, 1999. The decrease in gross
profit percentage and dollars reflects no robot sales and reduced component
product sales during the quarter ended September 30, 1999 and the fact that six
of the Company's rental units were returned during that quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative Expenses decreased by $56,096 or 11% from
the three months ended September 30, 1998 compared to the three months ended
September 30, 1999. Selling, General and Administrative Expenses decreased by
$235,858 or 15% from the nine months ended September 30, 1998 compared to the
nine months ended September 30, 1999. The decrease reflects the Company's
ongoing efforts to reduce costs.
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INTEREST EXPENSE, INTEREST INCOME AND OTHER INCOME
Interest expense decreased for both the three month and nine month periods
ending September 30, 1999 as compared to the same period ending September 30,
1998. The decrease reflects the reduction in financing obligations.
Vendor forgiveness of debt reflects the savings the Company realized when
certain vendors agreed to take less than the amount owed in 1998.
NET INCOME/LOSS
The Company incurred a net loss from continuing operations of $259,173 compared
to net income of $115,763 for the three month periods ending September 30, 1999
and 1998, respectively, and incurred a net loss from operations of $351,422 and
$456,169 for the nine month periods ending September 30, 1999 and 1998,
respectively. These losses reflect the lower gross profit described above and
because the Company has not achieved the volume of sales and rentals of HelpMate
robots required to cover the overhead expenses associated with the
commercialization of its HelpMate systems. Although the decrease in staffing and
sales and marketing expenses have reduced losses in fiscal 1998 and the first
nine months of 1999, the Company anticipates that such losses will continue
until the volume of sales and rentals of HelpMate robots necessary to cover
overhead expenses is achieved. As noted above, the overall profitability and
cash flow of the Company is highly dependent upon its mix of robot rentals and
robot sales (i.e., more robot rentals than sales results in larger losses and a
quicker depletion of cash).
NET INCOME/LOSS PER SHARE
Loss per share of common stock for the three months ended September 30, 1999 was
$.02 and for 1998 was $.00. Loss per share of common stock for the nine months
ended September 30, 1999 and 1998 was $.03 and $.04, respectively. Basic and
diluted earnings (loss) per common share is computed according to SFAS 128. It
is based on the weighted average number of common shares and common stock
equivalent shares outstanding during the period. Shares from the assumed
exercise of options and warrants granted by the Company have been included in
the computations of earnings per share for all periods unless their inclusion
would be antidilutive.
OTHER
For the foreseeable future, the Company does not anticipate paying dividends and
the Company anticipates retaining any earnings to fund its operations. See
discussion of proposed sale of substantially all the Company's assets as
discussed under the heading "Agreement with Pyxis."
INFLATION
The Company does not believe that the relatively moderate levels of inflation
which have been experienced in the Untied States has had or will have a
significant effect on its revenues or operations.
YEAR 2000 READINESS
The Year 2000 issue affects computer and information technology ("IT") systems,
as well as non-IT systems which include embedded technology such as
micro-processors and micro-chips that have date sensitive programs that may not
properly recognize the year 2000. Systems that do not properly recognize such
information could generate inaccurate date or cause a system to fail, resulting
in business interruption. The Company is currently implementing a plan to
provide measured assurances that its computer and IT-systems and non-IT systems,
including analytical instruments and equipment, and those of third parties which
have a material relationship with the Company are or will be compliant.
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The Company has completed testing of the HelpMate robotic courier system, and
determined that all components of the system are year 2000 compliant. The system
components tested consist of the HelpMate robot, HelpMate Elevator Interface,
HelpMate Monitor, and the HelpMate Supervisor. All installed versions of
HelpMate system software have been verified as compliant, so no action will be
necessary in the field.
Inventory and assessment of internal IT and non-IT systems are now complete. All
critical IT systems are now compliant. The Company's network servers and all
server based software, all accounting related workstations and all accounting
software have been tested and necessary upgrades have been applied to insure Y2K
compliance of these systems. All other workstations and software have been
tested and the Company has completed the installation of all necessary patches
or upgrades. All applicable non-IT systems have been tested and confirmed as
compliant. The non-IT systems, which were tested, are the Company's telephone
and voice messaging system and perimeter security system. Finally, all
analytical instruments required for manufacture and repair of the HelpMate
system have been verified as being compliant as well.
In February of 1999, the Company sent Y2K compliance surveys to all of its
customers, key vendors and suppliers. In this survey the Company requested
status of compliance awareness, assessment, renovation, validation, and
implementation for internal systems and infrastructure and for their key
vendors. All of the Company's key vendors and suppliers have responded and all
are either currently compliant or will be fully compliant prior to December 31,
1999. Approximately fifty percent of the Company's customers responded to our
initial survey request. In May of 1999, the Company sent a second request to the
remaining customers and have received responses from all of them. All customers
who have responded expect to have all critical systems compliant prior to
December 31, 1999. The Company will continue to monitor the progress of our
customers whose critical systems are not yet compliant.
Although the Company has taken steps to address the year 2000 issue, there can
be no assurance that the failure of the Company and/or its material third
parties to timely attain year 2000 compliance or that the failures and/or the
impacts of broader compliance failures by telephone, mail, data transfer or
other utility or general service providers or government or private entities
will not have a material adverse effect on the Company. Further, based on the
information available, the Company cannot conclude that any failure of the
Company or third parties to achieve Year 2000 compliance will not adversely
effect the Company.
Although all of the Company's products and internal systems have been tested and
confirmed as being Y2K compliant, the Company cannot assure that all of its
material third parties will attain Y2K compliance. The Company believes that in
the worst case delivery of manufacturing supplies may be delayed. Also, as the
Company has no control over utility services, the Company cannot assure that
these critical services will function without interruption.
FORWARD LOOKING STATEMENTS
Statements made in this report regarding (a) the projection of revenues, income,
earning per share, capital expenditures, dividends or other financial items, (b)
the plans and objectives of management for the Company's future operations, (c)
the future economic performance of the Company, and (d) statements regarding the
assumptions underlying or relating to the foregoing items are forward-looking
statements. Forward-looking statements are contained in this report, including
under the sections entitled "Basis of Presentation"; "Management's Discussion
and Analysis"; -- Agreement with Pyxis -- Liquidity and Capital Resources ---
Net Losses; -- Other - and "Year 2000 Readiness." There are important factors
that could cause the actual results to differ materially from those in the
forward-looking statements. These important factors include the following: (a)
if the mix of robot rentals versus sales changes; (b) if there are substantial
returns of robots currently on rental or if the Company is unable to place
returned robots with new customers; (c) if there is a substantial reduction in
the aggregate number of hours for which robots are rented; (d) if existing
orders in backlog are canceled; (e) if the Company's own order/installation
forecast changes; (f) if the Company is unable to purchase the robots from HTLP;
(g) if the Company is unable to sustain its current level of operations;(h) if
the Company's financial condition negatively impacts the Company's reputation in
the marketplace and consequently negatively impacts order receipts; (i) if the
Company is unable to complete the sale of substantially all of its assets to
Pyxis; (j) if customers or vendors have year 2000 issues which adversely affect
the Company; (k) if the Company is unable to effect a business combination with
an operating company if the transaction with Pyxis closes; and (l) if the
Company's agreement with Pyxis is terminated under certain circumstances.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITs
Asset Purchase Agreement between the Company and Pyxis Corporation
dated October 14, 1999, incorporated by reference to Exhibit 10.83 of
the Company's current report on Form 8-K dated October 15, 1999.
(B) REPORTS ON FORM 8-K
A report on Form 8-K dated August 26, 1999 was filed with the SEC
reporting the Company's settlement with the Internal Revenue Service
(the "IRS') regarding claims by the IRS for unpaid payroll taxes
arising out of the apparent misappropriation of funds by KPM Inc. of
Brookfield, CT
A report on Form 8-K dated October 15, 1999 was filed with the SEC
reporting upon an agreement to sell the Company's assets to Pyxis
Corporation.
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SIGNATURE
In accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned , thereunto duly
authorized.
HelpMate Robotics Inc.
Date: December 14, 1999 /s/ Joseph F. Engelberger
--------------------------
Joseph F. Engelberger
Chairman ,Chief Executive Officer
and Chief Financial Officer
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PROXY
HELPMATE ROBOTICS INC.
22 Shelter Rock Lane, Danbury, Connecticut 06810
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON December 30, 1999
The undersigned stockholder hereby appoints JOSEPH F. ENGELBERGER and FRED T.
CORDANO, and each of them, with full power of substitution, as proxies to
vote all shares which the undersigned is entitled to vote at the Special
Meeting of HelpMate Robotics Inc. (the "Company") to be held at the offices
of the Company, 22 Shelter Rock Lane, Danbury, Connecticut 06810 on Thursday,
December 30, 1999 at 10:00 a.m. or any adjournment or postponement thereof,
and directs said proxies to vote as instructed on the matters set forth below
AND OTHERWISE AT THEIR DISCRETION.
UNLESS OTHERWISE INDICATED BELOW, THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED "FOR" PROPOSAL ONE.
[Continued on reverse side - please complete and sign on back]
Proposal One. To approve the sale for cash (the "PROPOSED SALE") to Pyxis
Corporation (the "BUYER") of substantially all of the assets, and the
assumption by Buyer of specified liabilities, of the Company pursuant to the
Asset Purchase Agreement between the Company and the Buyer dated as of
October 14, 1999, the full text of which is attached as Appendix A to the
accompanying proxy statement.
- ----------------------- ------------------------ --------------------------
/_/ FOR /_/ AGAINST /_/ ABSTAIN
- ----------------------- ------------------------ --------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL ONE.
Receipt of a copy of the Notice of the Special Meeting and the accompanying
Proxy Statement is hereby acknowledged. This proxy revokes all prior proxies
given by the undersigned.
----------------------------
Signature
----------------------------
Signature, if held jointly
----------------------------
Title
, 1999
---------------- ---
Date
IMPORTANT - PLEASE DATE, SIGN AND RETURN PROMPTLY.
Note: When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, or guardian, please give full title
as such. If a corporation, please sign in full corporate name by president or
other authorized officer. If a partnership, please sign in partnership name by
an authorized person.
