<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): March 31, 1997
CARDIOTECH INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
000-28034
(Commission
File Number)
Massachusetts 04-3186647
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(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
11 State Street
Woburn, MA 01801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 933-4772
N/A
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(Former name or former address, if changed since last report.)
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Item 5. Other Events
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Pursuant to a Note Purchase Agreement dated as of March 31, 1998 between
the Company and Dresdner Kleinwort Benson Private Equity Partners LP ("DKB"),
the Company issued and sold to DKB $1,660,000 principal amount of 7% Convertible
Senior Notes due 2003 (the "Notes"). The Company shall issue and sell to DKB up
to an additional $840,000 principal amount of the Notes if the Company achieves
certain milestones. The Notes will accrue interest from the closing date at a
rate of 7.0% per annum, payable quarterly in cash and/or additional Notes, at
the option of DKB. The Notes will rank senior to all other securities of the
Company upon liquidation. DKB may convert the Notes, in whole or in part, plus
accrued interest, into shares of the Company's Common Stock at the conversion
price at any time prior to maturity, upon ten days notice. The conversion price
has been set at $1.995 and is equal to 105% of the average closing price of the
Common Stock on the 10 trading days prior to March 6, 1998 (the date the
commitment letter was signed by the Company). The conversion price is subject to
a weighted average anti-dilution adjustment.
The Notes are redeemable in cash prior to maturity, in whole or in part, at
the Company's option. Upon the occurrence of a change of control, DKB may
require that the company repurchase the Notes. At maturity and under certain
conditions, the Company may repay the Notes, plus accrued interest, by
converting them, in whole, into shares of Common Stock at the conversion price.
854,582 shares of Common Stock may be issued to DKB pursuant to the conversion,
redemption or repayment of the Notes. The balance of any amounts due will be
paid in cash, based upon the market price of the shares of Common Stock not
issued.
The Notes are secured by a pledge of all of the capital stock of the
Company's sole subsidiary, CardioTech International Limited ("CTI Ltd."), and by
a $2,000,000 life insurance policy obtained by the Company on the life of
Michael Szycher, Ph. D.
Item 7. Exhibits
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The following exhibits are filed as part of this report of Form 8-K
pursuant to Item 601 of Regulation S-K.
Exhibit 99.1 - Note Purchase Agreement dated as of March 31, 1998 between
the Company and DKB
Exhibit 99.2 - 7% Convertible Senior Note dated as of March 31, 1998
between the Company and DKB
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Item 9. Sale of Equity Securities Pursuant to Regulation S.
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Transaction with Freemedic PLC
(a) Securities Sold. Pursuant to a Loan and Option Agreement dated April 1,
1998 by and among the Company, CTI Ltd. and the Royal Free Hospital School
of Medicine and Freemedic PLC (together with its affiliates, "Freemedic")
Freemedic, CTI Ltd. borrowed (pound sterling)252,942 from Freemedic (the
"Loan"). Interest and fees of up to approximately (pound sterling)79,044
may accrue on the Loan during its two year term (assuming no default under,
or extension of, the Loan). The Loan in convertible, at the Company's or
Freemedic's option, into Common Stock. See "Terms of Conversion or
Exercise" below.
(b) Underwriters and Other Purchasers. No underwriters were involved. The
securities were sold only to Freemedic.
(c) Consideration. The Company has translated the aggregate amount due under
the Loan, (pound sterling)331,986, to $557,504, using a March 30, 1998
exchange rate of 1.6793 dollars per sterling pound. There were no
underwriting discounts or commissions.
(d) Exemption from Registration Claimed. The Company claimed exemption from
registration requirements of the Securities Act of 1933, as amended (the
"Act"), pursuant to Rule 903 of Regulation S promulgated under the Act. In
claiming this exemption, the Company relied on certain facts, including
without limitation, the following: that the offer and sale were made in an
offshore transaction; that no directed selling efforts were made in the
United States by the Company, a distributor, any of their respective
affiliates, or any person acting on behalf of the foregoing; that the
Company is a reporting issuer; that offering restrictions were implemented;
and that the sale was not made to a U.S. person or for the account or
benefit of a U.S. person.
(e) Terms of Conversion or Exercise. The Loan is convertible, at Freemedic's
option, into Common Stock of the Company at $3.70 per share, from April 1,
1998 until March 20, 2000. During this period, the Loan is also
convertible, at the Company's option, into Common Stock of the Company at
$3.70 per share, provided that the market price for the Company's Common
Stock exceeds $3.70 from the day that the Company gives notice of such
conversion until seven business days thereafter (the date on which the
Common Stock converted).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
CardioTech International, Inc. has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: April 15, 1998 CARDIOTECH INTERNATIONAL, INC.
By: /s/John E. Mattern
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Chief Operating Officer and
Chief Financial Officer
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EXHIBIT 99.1
NOTE PURCHASE AGREEMENT
dated as of March 31, 1998
between
CARDIOTECH INTERNATIONAL, INC.
(the "Company"),
and
THE PURCHASERS NAMED HEREIN
(the "Purchasers")
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SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule I Purchasers
Schedule 1.2 Use of Proceeds
Schedule 2.1 Jurisdictions
Schedule 2.2 Conflicts
Schedule 2.3 Consents
Schedule 2.4(b) Commitments to Issue Securities
Schedule 2.4(c) - Encumbrances on Securities
Schedule 2.4(g) - Subsidiaries
Schedule 2.5 Financial Information
Schedule 2.6 Liabilities
Schedule 2.7 Changes
Schedule 2.8 Encumbrances
Schedule 2.9 Leased Real Property
Schedule 2.10 Leased Personal Property
Schedule 2.11 Intellectual Property
Schedule 2.12 Material Agreements
Schedule 2.13 Litigation and Other Proceedings
Schedule 2.14(a) Compliance with Laws
Schedule 2.14(b) Permits
Schedule 2.15 Taxes
Schedule 2.16 Directors, Officers and Employees
Schedule 2.17 Employee Plans
Schedule 2.18 Related Party Transactions
Schedule 2.18(b) Guarantees
Schedule 2.18(c) Perquisites
Schedule 2.21 Brokers
Schedule 2.22 Insurance
Schedule 2.23 Environmental
Schedule 2.25 Research, Development, Merger and Licensing Arrangements
Schedule 8.2 Insurance
Exhibit A Definitions
</TABLE>
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NOTE PURCHASE AGREEMENT dated as of March
31, 1998, among CARDIOTECH INTERNATIONAL, INC., a
Massachusetts corporation (the "Company"), and THE
PURCHASERS LISTED ON SCHEDULE I HERETO (the
"Purchasers," which expression shall include all
transferees pursuant to Section 9.4 hereof).
The Company is in the business of synthesizing, designing, developing,
manufacturing and marketing small bore vascular grafts and medical-grade
polymers for other implantable medical devices and biomaterial applications (the
"Business"). The Company desires to raise up to $2,500,000 in financing, and the
Purchasers are willing to purchase senior notes to be issued by the Company,
convertible into shares of the Company's common stock, all on the terms and
subject to the conditions set forth herein. Capitalized terms used and not
otherwise defined in this Agreement have the meanings ascribed to them in
Exhibit A hereto or in the other locations of this Agreement specified therein.
ACCORDINGLY, in consideration of the foregoing and the covenants,
agreements, representations and warranties contained in this Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the parties, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES
I.1 Closing.
(a) At the initial Closing (the "Initial Closing") the Company shall
issue and sell to the Purchaser, and the Purchaser shall purchase from the
Company, $1,660,000 aggregate principal amount of Notes. The Initial Closing
with respect to the issuance and sale of Notes pursuant to this Section 1.1(a),
and the consummation of the related transactions contemplated hereby (other than
as provided in Section 1.1(b) below), shall, subject to the satisfaction or
waiver of the applicable conditions set forth in Article IV, take place on the
date hereof (the "Initial Closing Date").
(b) At each Closing after the Initial Closing, the Company shall issue
and sell to the Purchaser, and the Purchaser shall purchase from the Company, an
aggregate principal amount of Notes as set forth below, subject to the
satisfaction or waiver of the terms and conditions corresponding thereto:
(i) $500,000 aggregate principal amount of Notes, if an
unqualified, definitive CE Mark for the Company's Vasculink Vascular Access
Graft shall have been issued in favor of the Company or its Subsidiary;
<PAGE>
(ii) $500,000 aggregate principal amount of Notes, if the Company
or its Subsidiary shall have executed binding agreements with three
research sites (in addition to Freemedic PLC) for clinical trials of the
Company's MyoLink Peripheral Graft, which agreements are in form and
substance reasonably satisfactory to the holders of a majority of the then
outstanding aggregate principal amount of the Note; and
(iii) $840,000 aggregate principal amount of Notes, if the
Company shall have consummated a strategic alliance, acquisition or merger
which has been approved by the holders of a majority of the then
outstanding aggregate principal amount of the Notes (in their sole
discretion);
provided, however, that the Purchaser shall not be obligated to purchase from
the Company any Notes pursuant to this Section 1.1(b), either (x) if an Event of
Default (as defined in the Notes) has occurred and is continuing or (y) after
September 30, 1998; and provided further that, in any event, the Purchaser shall
not be obligated to purchase, in the aggregate, from the Company pursuant to
this Section 1.1(b) an aggregate principal amount of Notes in excess of
$840,000. Any Closing hereunder with respect to the issuance and sale of Notes
pursuant to clause (i), (ii) or (iii) of this Section 1.1(b) shall be subject to
the satisfaction or waiver of the applicable conditions set forth in such clause
(i), (ii) or (iii), and to the delivery by the Company to the Purchaser of an
SBA Letter (and accompanying forms as required therein), and shall take place on
the date which is 5 Business Days after such satisfaction or waiver. Any Notes
issued pursuant to this Section 1.1(b) shall be identical in form (other than
the principal amount and date of issuance) as the Notes issued pursuant to
Section 1.1(a).
(c) The closings with respect to the issuance and sale of the Notes
pursuant to either Section 1.1(a) or Section 1.1(b) (each, a "Closing") shall
take place at the offices of O'Sullivan Graev & Karabell, LLP, 30 Rockefeller
Plaza, New York, New York or via facsimile. At each Closing, the Company shall
deliver to the Purchaser one or more certificates representing the Notes being
purchased by the Purchaser at such Closing, registered in the name of the
Purchaser, against receipt of the purchase price therefor. The purchase price
for any Notes purchased hereunder shall be equal to the aggregate principal
amount of any such Notes being purchased. Such purchase price shall be payable
by wire transfer of immediately available funds to the Company (or by such
payment to a bank and account number previously notified by the Company in
writing to the Purchaser).
I.2 Use of Proceeds.
The proceeds received by the Company from the sale of the Purchased Notes
shall be used by the Company solely for (i) research and development related to
the Business, (ii) the payment of fees and expenses (including the Commitment
Fees and the Fees and Expenses) incurred in connection with the consummation of
this transaction and (iii) working capital needs, each as described in the
detailed analysis of the use of proceeds attached as Schedule 1.2.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
The Company represents and warrants to the Purchasers that:
II.1 Organization, Power, Authority and Good Standing.
The Company and each of its Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on its business as presently
conducted and as presently proposed to be conducted. The Company and each of its
Subsidiaries is duly qualified and in good standing to transact business as a
foreign Person in the respective jurisdictions set forth on Schedule 2.1, which
constitute all the jurisdictions in which the character of the property owned,
leased or operated by the Company and each of its Subsidiaries or the nature of
the business or activities conducted by the Company and each of its Subsidiaries
makes such qualification necessary and where the failure to so qualify would
have a material adverse effect on the business, operations or financial
condition of the Company. The Purchasers have been furnished with true, correct
and complete copies of the Articles of Incorporation and Bylaws of the Company
and each of its Subsidiaries, in each case as amended and in effect on the date
hereof. The Company has never engaged in any businesses other than the Business.
II.2 Authorization, Execution, Enforceability; No Conflicts.
(a) The Company has all requisite corporate power and authority to
execute and deliver and perform its obligations under the Documents to which it
is a party and to consummate the transactions contemplated by such Documents.
The Company's execution and delivery of, and performance of its obligations
under, the Documents to which the Company is a party have been duly and validly
authorized by all requisite action on the part of the Company, and each such
Document constitutes, or upon its execution and delivery will constitute, a
valid and binding obligation of the Company enforceable in accordance with its
terms.
(b) The authorization, issuance, sale and delivery of the Purchased
Notes and the Reserved Common Shares, and the reservation of the Reserved Common
Shares, have been duly and validly authorized by all requisite corporate action
on the part of the Company. Upon their issuance, the Purchased Notes and the
Reserved Common Shares (assuming the issuance of the Reserved Common Shares in
accordance with the applicable terms of the Purchased Notes), will be duly and
validly issued and outstanding, fully paid and nonassessable, and not subject to
any preemptive rights, rights of first refusal or other similar rights of the
stockholders of the Company. The Company's Board of Directors has approved the
Purchaser's acquisition of the Purchased Notes and the Reserved Common Shares
for all purposes of Chapter 110F of the Massachusetts General Laws.
(c) Except as set forth on Schedule 2.2 and relying on the accuracy of
the representations of the Purchasers contained in Section 3.2, the Company's
execution and delivery
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of, and performance of its obligations under, the Documents to which it is a
party, and the consummation of the transactions contemplated thereby, including
the authorization, issuance, sale and delivery, of the Purchased Notes (and upon
conversion thereof, the Reserved Common Shares), will not (i) violate any Legal
Requirement applicable to the Company or any of its Subsidiaries or any of their
properties or assets or (ii) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute (with due notice or lapse of
time, or both) a default or give rise to any right of termination, cancellation
or acceleration, under any provision of the Fundamental Documents of the Company
or any of its Subsidiaries or any Material Agreement or Permit to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries or its assets or properties are or may be bound or (iii) result
in the creation of any Encumbrance upon any of the properties or assets of the
Company or any of its Subsidiaries.
II.3 Consents.
Except for the filing of any notice subsequent to the Initial Closing that
may be required under applicable state and/or federal securities laws, or as set
forth on Schedule 2.3, no consent of any Person and no consent, approval or
authorization of, or declaration to or filing with, any Governmental Authority
or self-regulatory organization is required for the valid authorization,
execution and delivery by the Company of any Document or for the consummation of
the transactions contemplated by the Documents or for the valid authorization,
issuance and delivery of the Purchased Notes or the valid authorization,
reservation, issuance and delivery of the Reserved Common Shares.
II.4 Capitalization and Equity Investment.
The authorized capital stock of the Company immediately upon the
consummation of the Initial Closing shall consist of:
(i) 20,000,000 duly authorized shares of Common Stock, of which:
(A) 4,272,916 shares shall be duly and validly issued and
outstanding, fully paid and nonassessable;
(B) 1,076,029 shares are duly and validly reserved for
issuance pursuant to options granted and to be granted (960,022 of which
are currently outstanding) to and held by the employees, directors or
independent contractors of the Company in the amounts set forth on Schedule
2.4;
(C) 150,676 shares shall be duly and validly reserved for
issuance upon the conversion of the debenture to be issued to Freemedic PLC
pursuant to the Loan and Option Agreement dated as of the date of this
Agreement, subject to adjustment in accordance with the terms thereof;
(D) 277,609 shares shall be duly and validly reserved for
issuance upon the conversion of the warrants previously issued by the
Company issued to the John
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<PAGE>
Hancock Mutual Life Insurance Corporation, subject to adjustment in
accordance with the terms thereof;
(E) 854,582 shares shall be duly and validly reserved for
issuance upon the conversion of the Purchased Notes, subject to adjustment
in accordance with the terms thereof; and
(F) 13,368,188 shares shall be unissued and not reserved for
issuance; and
(ii) 5,000,000 duly authorized shares of Preferred Stock, of
which none shall be issued.
(a) Schedule 2.4(b) hereto contains a list of all outstanding
warrants, options, agreements, convertible securities and other commitments
pursuant to which the Company is or may become obligated to issue, sell or
otherwise transfer any Securities of the Company, which list names all Persons
entitled to receive such Securities, indicates whether or not such Securities
are entitled to any anti-dilution or similar adjustments upon the issuance of
additional Securities of the Company or otherwise (other than due to stock
splits or the like) and sets forth the shares of capital stock and other
Securities required to be issued thereunder (calculated after giving effect to
all such anti-dilution and other similar adjustments resulting from the issuance
of the Purchased Shares). Except as contemplated by the Registration Rights
Agreement or as set forth on Schedule 2.4(c), no Person has any right to cause
the Company to effect the registration under the Securities Act of any shares of
Common Stock or other Securities of the Company.
(b) Except as set forth on Schedule 2.4(c) there are no preemptive
rights of first refusal or other similar rights to purchase or otherwise acquire
shares of capital stock or other Securities of the Company pursuant to any Legal
Requirement, any Fundamental Document of the Company or any agreement or
understanding to which the Company is a party or may be bound. Except as set
forth on Schedule 2.4(c) or as contemplated by the Documents and the Fundamental
Documents of the Company, there is no Encumbrance (such as a right of first
refusal, right of first offer, proxy, voting trust or voting agreement) with
respect to the sale or voting of any Securities of the Company (whether
outstanding or issuable upon the conversion, exchange or exercise of outstanding
Securities).
(c) Other than as required by the Articles of Incorporation there are
no obligations to redeem, repurchase or otherwise acquire shares of capital
stock or other Securities of the Company pursuant to any Legal Requirement, any
Fundamental Document of the Company or any agreement to which the Company is a
party or may be bound.
(d) All Securities issued by the Company have been either issued in
transactions in accordance with or exempt from registration under the Securities
Act and the rules and regulations promulgated thereunder and all applicable
state securities or "blue sky" laws, and the Company has not violated the
Securities Act or any applicable state securities or "blue sky" laws in
connection with the issuance of any such Securities.
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(e) The are no restrictions upon the voting rights associated with, or
the transfer of, any of the capital stock of the Company, except as provided by
(i) United States or state securities laws or (ii) the terms and provisions of
the Documents or as are disclosed in the SEC Reports.
(f) Except as set forth on Schedule 2.4(g), the Company does not have
any Subsidiaries, nor does it own any capital stock or other proprietary
interest, directly or indirectly, in any other Person.
II.5 Reports and Financial Information.
---------------------------------
(a) The Company has filed in a timely manner all reports required to
be filed by it with the SEC pursuant to the Exchange Act since June 12, 1996
including, without limitation, an Annual Report on Form 10-K for the year ended
March 31, 1997 and a Form 10-Q for the quarterly period ended December 31, 1997
(collectively and as amended to date, the "SEC Reports"), and has previously
furnished or made available to the Purchasers true and complete copies of all
SEC Reports. None of the SEC Reports or any Registration Statement, definitive
proxy statement and other documents filed by the Company with the SEC since June
12, 1996 (collectively, the "33 and 34 Act Reports"), as of their respective
dates (as amended through the date hereof), (i) contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or (ii) failed to
comply with the requirements of the Securities Act, the Exchange Act or the
respective rules and regulations of the SEC thereunder.
(b) Except as set forth on Schedule 2.5 attached hereto, the financial
statements contained in the 33 and 34 Act Reports and the unaudited balance
sheet of the Company as of December 31, 1997, and the related statements of
operations and statements of cash flows for the period then ended annexed hereto
(collectively, the "Financial Statements") (i) were in accordance with the books
and records of the Company, (ii) presented fairly the consolidated financial
condition and results of operations of the Corporation as of the dates and for
the periods indicated and (iii) were prepared in accordance with generally
accepted accounting principles consistently applied (except, in the case of
annual Financial Statements, as set forth in the notes thereto and subject, in
the case of unaudited interim Financial Statements, to normal year-end audit
adjustments, provided that such adjustments are not material individually or in
the aggregate).
(c) The Financial Statements complied, when filed, as to form in all
material respects with the applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto.
II.6 Absence of Undisclosed Liabilities.
----------------------------------
The Company and its Subsidiaries do not have, and the Company has no
reasonable grounds to know of, any Liabilities of the Company or any of its
Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute,
determinable or otherwise, other than:
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(i) Liabilities provided for in the balance sheet dated as of
December 31, 1997 filed in the SEC Reports;
(ii) liabilities disclosed on Schedule 2.6 attached hereto; and
(iii) other undisclosed liabilities incurred in the ordinary
course of business which, individually or in the aggregate, are not
material to the Company or any of its Subsidiaries, taken as a whole.
II.7 Absence of Changes.
------------------
Except as set forth on Schedule 2.7 attached hereto or otherwise disclosed
in the SEC Reports, since December 31, 1997, there has not been any (i) event or
condition which has had or could reasonably be expected to have a Material
Adverse Effect on the Company and its Subsidiaries, (ii) material deviation from
historical accounting and other practices, (iii) any material damage,
destruction or loss, whether or not covered by insurance, (iv) declaration or
payment of any dividend or other distribution on or with respect to the shares
of capital stock of the Company or Securities exercisable or exchangeable for,
or convertible into, capital stock of the Company, or any direct or indirect
redemption, purchase or other acquisition of any shares of capital stock or
other Securities of the Company, (v) except as in the ordinary course of
business consistent with past practice, increase in or prepayment of the
compensation paid, payable or to become payable by the Company or any of its
Subsidiaries to any of its directors, officers, employees, consultants or
agents, or the making of any bonus payment or similar arrangement to or with any
of them, (vi) any loan by the Company or any Subsidiary to any officer,
director, employee, consultant or shareholder, or any agreement or commitment
therefor (other than advances to such persons in the ordinary course of business
in connection with travel and travel related expenses), (vii) any entry by the
Company or any Subsidiary into any written employment agreement, or any
severance or termination agreement or arrangement with any officer, employee,
director or consultant, (viii) cancellation of indebtedness due to the Company
or any of its Subsidiaries from others, (ix) material Liability created or
incurred, or any transaction, contract or commitment entered into, by the
Company or any of its Subsidiaries, other than such items created or incurred in
the ordinary course of business and consistent with past practice, (x) material
change in the manner in which the Company or any of its Subsidiaries extends
discounts or credits to customers or otherwise deals with customers, (xi)
material change in the manner in which the Company or any of its Subsidiaries
markets its products or services or material increase or decrease in inventory
levels in excess of historical levels for comparable periods, (xii) waiver or
release of any material rights of the Company or any of its Subsidiaries, except
in the ordinary course of business and for fair value, or any lapse or other
loss of a material right of the Company or any of its Subsidiaries to use its
assets or conduct its business, (xiii) sale, transfer or other disposition of a
material portion of the assets of the Company or any of its Subsidiaries, except
in the ordinary course of business and for fair value, or scrapping of a
material portion of the assets of the Company or any of its Subsidiaries as
obsolete, (xiv) commitments for capital expenditures of the Company or any of
its Subsidiaries in excess of $50,000 in the aggregate, or (xv) material change
in the policies of the Company or any of its Subsidiaries with respect to the
payment of accounts payable or other current Liabilities or the
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collection of accounts receivable, including any acceleration or deferral of the
payment or collection thereof, as applicable.
II.8 Title to Assets, Properties and Rights.
--------------------------------------
Except as set forth on Schedule 2.8 hereto, each of the Company and its
Subsidiaries has good and marketable title to all properties, interests in
properties and assets, real, personal, intangible or mixed, used in the conduct
of its business, free and clear of all mortgages, judgments, claims, liens,
security interests, pledges, escrows, charges, restrictions or other
encumbrances of any kind or character whatsoever ("Encumbrances"), other than
Permitted Encumbrances.
II.9 Leased Real Property.
--------------------
(a) The Company and the Subsidiaries do not own any real property.
Schedule 2.9 contains a list and brief description of all of the real property
subject to one or more leases (the "Leased Real Property"), including the names
of the lessor and the lessee. Except as stated in Schedule 2.9, the Leased Real
Property constitutes all real properties used or occupied by the Company and the
Subsidiaries in the connection with the Business.
(b) Except as set forth on Schedule 2.9, with respect to the Leased
Real Property:
(i) to the Best Knowledge of the Company, no portion thereof is
subject to any pending condemnation Proceeding or Proceeding by any public
or quasi-public authority and, to the actual knowledge of the Company,
there is no threatened condemnation or Proceeding with respect thereto;
(ii) to the Best Knowledge of the Company, all buildings and
structures located on the Leased Real Property, as well as the operation
and maintenance thereof, comply in all material respects with all
applicable Legal Requirements;
(iii) no notice of any increase in the assessed valuation of the
Leased Real Property and no notice of any contemplated special assessment
has been received by the Company, or any Affiliate thereof and, to the
actual knowledge of the Company, there is no threatened increase in
assessed valuation or threatened special assessment pertaining to any of
the Leased Real Property;
(iv) there are no contracts, agreements, instruments, licenses,
commitments, leases or similar document, written or oral, to which the
Company or any Affiliate thereof is a party, granting to any one or more
Persons the right of use or occupancy of any portion of the parcels of the
Leased Real Property; and
(v) there are no Persons (other than the Company or its lessees
disclosed pursuant to clause (iv) above) in possession of the Leased Real
Property.
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II.10 Leased Personal Property.
------------------------
Schedule 2.10 contains a list of all leases involving aggregate lease
payments over the life of such lease in excess of $50,000 under which the
Company and the Subsidiaries is a lessee of or holds or operates any personal
property owned by any third Person, true, complete and correct copies (or, in
the case of oral leases, written descriptions) of which have been previously
furnished to the Purchasers.
II.11 Intellectual Property.
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(a) Except as set forth on Schedule 2.11:
(i) each of the Company and the Subsidiaries owns, has the right
to use, sell, license and dispose of, and has the right to bring actions
for the infringement of, all Intellectual Property Rights (as defined
below) necessary or required for the conduct of the business of the Company
and the Subsidiaries (collectively, the "Owned Requisite Rights"), other
than those Intellectual Property Rights for which the Company and the
Subsidiaries has a valid license, all of which to the extent they are
Material Agreements are listed on Schedule 2.11 (collectively, the
"Licensed Requisite Rights"; and together with the Owned Requisite Rights,
the "Requisite Rights"), and such rights to use, sell, license, dispose of
and bring actions are exclusive with respect to the Owned Requisite Rights;
(ii) the Requisite Rights of the Company and the Subsidiaries,
all of which are listed on Schedule 2.11, are sufficient for the conduct of
the business of the Company and the Subsidiaries as currently conducted and
proposed to be conducted;
(iii) the Company and the Subsidiaries either own or have made
timely and proper application for issuance of letters patent in the United
States, the United Kingdom and the European Community for all significant
patentable inventions included within the Owned Requisite Rights;
(iv) to the Best Knowledge of the Company, PolyMedica Industries,
Inc. either owns or has made timely and proper application for issuance of
letters patent in the United States, the United Kingdom and the European
Community for all significant patentable inventions included within the
Licensed Requisite Rights;
(v) Polymedica Industries, Inc. ("Polymedica") has represented
to the Company that no consent of Thermedics, Inc. ("Thermedics") is or was
required in connection with the grant of the license set forth in the
Amended and Restated License Agreement dated as of May 9, 1996 between
PolyMedica and the Company and, to the extent such consent was needed,
Polymedica has agreed either to obtain such consent or to assign to the
Company joint interest in the jointly owned patents that are subject to
such license. If such joint interest is granted, no consent of Thermedics
is required;
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<PAGE>
(vi) there are no royalties, honoraria, fees or other payments
payable by the Company and the Subsidiaries to any Person by reason of the
ownership, use, sale or disposition of the Requisite Rights;
(vii) no activity, service or procedure currently conducted or
proposed to be conducted by the Company and the Subsidiaries violates any
contract, instrument, license, commitment, lease or similar document of the
Company and the Subsidiaries with any third Person relating to any
Intellectual Property Rights;
(viii) the Company and the Subsidiaries have taken reasonable and
practicable steps (including, without limitation, entering into
confidentiality and nondisclosure agreements with all officers and
employees of and consultants to the Company and the Subsidiaries and other
Persons with access to or knowledge of Confidential or Proprietary
Information) designed to safeguard and maintain (i) the secrecy and
confidentiality of Confidential or Proprietary Information and (ii) the
proprietary rights of the Company and the Subsidiaries in all of its Owned
Requisite Rights;
(ix) to the Best Knowledge of the Company, the Company and the
Subsidiaries have not interfered with, infringed upon, misappropriated or
otherwise come into conflict with any Intellectual Property Rights of any
Person or committed any acts of unfair competition, and the Company and the
Subsidiaries have not received from any Person in the past five years (or
since its inception, if shorter) any notice, charge, complaint, claim or
assertion thereof, and no such claim is impliedly threatened by an offer to
license from another Person under a claim of use to the extent any of the
foregoing would have a Material Adverse Effect; and
(x) the Company and the Subsidiaries have not sent to any
Person in the past five years (or since its inception, if shorter), or
otherwise communicated to any Person, any notice, charge, complaint, claim
or other assertion of any present, impending or threatened infringement by
or misappropriation of, or other conflict with, any Intellectual Property
Rights of the Company and the Subsidiaries by such other Person or any acts
of unfair competition by such other Person, nor, to the Best Knowledge of
the Company, is any such infringement, misappropriation, conflict or act of
unfair competition occurring or threatened to the extent any of the
foregoing would have a Material Adverse Effect.
(b) Schedule 2.11 contains a true and complete list of all
applications, filings and other formal actions made or taken by the Company and
the Subsidiaries pursuant to applicable Legal Requirements to perfect or protect
its interest in its Intellectual Property Rights, including all patents, patent
applications, trademarks, trademark applications, service marks and service mark
applications. The Company has made timely and proper payments of all
registration and maintenance fees to the U.S. Patent Trademark Office and the
European Patent Office with respect to its patents and patent applications which
are Owned Requisite Rights. To the Best Knowledge of the Company, the owner of
each patent and patent application which is a Licensed Requisite Right has made
timely and proper payments of all registration and maintenance fees to
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<PAGE>
the U.S. Patent and Trademark Office and the European Patent Office with respect
to such Licensed Requisite Rights.
II.12 Material Agreements.
-------------------
(a) Schedule 2.12 contains a true and complete list of all written and
oral contracts, agreements, instruments and other understandings and commitments
to which each of the Company and the Subsidiaries is a party and (x) which were
entered into or made outside the ordinary course of business or (y) which were
entered into or made in the ordinary course of business and are described in
clauses (i) through (xv) of this Section 2.12 (all such contracts, agreements,
instruments and other understandings and commitments, together with those listed
on Schedules 2.4, 2.9, 2.10, 2.11, 2.17, 2.18 and 2.22, being collectively
called "Material Agreements" herein). Except as set forth on Schedule 2.12,
neither the Company nor any of the Subsidiaries is a party to any of the
following, whether written or oral:
(i) continuing contract for future research, development,
services or sales (excluding purchase orders entered into in the ordinary
course of business which are to be completed within three months of
entering into such purchase orders) which is not immediately terminable by
the Company or the Subsidiaries without cost or other Liability at or at
any time after the Initial Closing in each case in excess of $25,000 per
annum;
(ii) continuing contract for the future purchase of products,
material, supplies, equipment or services (excluding purchase orders
entered into in the ordinary course of business which are to be completed
within three months of entering into such purchase orders) which is not
immediately terminable by the Company or the Subsidiaries without cost,
forfeiture or other Liability at or at any time after the Initial Closing
in each case in excess of $25,000 per annum;
(iii) distributorship, dealer, sales, advertising, agency,
manufacturer's representative or other contract relating to the payment of
a commission in each case in excess of $25,000 per annum;
(iv) collective bargaining agreement or other contract with or
commitment to any labor union or proposed labor union;
(v) contract or commitment for the employment of any officer,
employee or consultant or any other type of contract or understanding with
any officer, employee or consultant, including any agreement or
understanding relating to severance payments, in each case in excess of
$25,000 per annum;
(vi) indenture, mortgage, promissory note, loan agreement, pledge
agreement, guarantee or other agreement or commitment for the borrowing of
money, for a line of credit or for a leasing transaction of a type required
to be capitalized in accordance with Statement of Financial Accounting
Standards No. 13 of the Financial Accounting Standards Board in each case
in excess of $25,000 per annum;
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<PAGE>
(vii) contract or commitment for charitable contributions in
each case in excess of $25,000 per annum;
(viii) contract or commitment for capital expenditures in each
case in excess of $25,000 per annum;
(ix) agreement or arrangement for the sale of any tangible or
intangible assets, properties or rights or services or products other than
the sale thereof in the ordinary course of business at normal profit
margins or otherwise material to the Business;
(x) contract with respect to the lending or investing of funds in
each case in excess of $25,000 per annum;
(xi) contract or indemnification with respect to any form of
intangible property, including any Intellectual Property Rights or
Confidential and Proprietary Information (except prepackaged software used
in the ordinary course) in each case in excess of $25,000 per annum or
otherwise material to the Business;
(xii) contract which restricts the Company or any of the
Subsidiaries from engaging in any aspect of their businesses anywhere in
the world;
(xiii) contract or group of related contracts with the same
Person (excluding purchase orders entered into in the ordinary course of
business which are to be completed within three months of entering into
such purchase orders) for the purchase or sale of services or products
under which the undelivered balance thereof has a selling price in each
case in excess of $25,000 per annum;
(xiv) agreement for the acquisition or disposition of a Person
or a division of a Person made within the preceding 5 years (whether or not
such acquisition or disposition was consummated) in each case in excess of
$25,000 per annum; or
(xv) other contract material to the business of the Company or
any of the Subsidiaries including any agreements, instruments, commitments,
plans or arrangements, a copy of which would be required to be filed with
the SEC as an exhibit to a registration statement on Form S-1 if the
Company were registering securities under the Securities Act on the date
hereof.
(b) Except as disclosed in Schedule 2.12, all Material Agreements are
in full force and effect, constitute legal, valid and binding obligations of the
respective parties thereto, and are enforceable in accordance with their
respective terms. Each of the Company and the Subsidiaries have in all material
respects performed all of the obligations required to be performed by each of
them to date pursuant to the Material Agreements, and there exists no material
default, or any event which upon the giving of notice or the passage of time, or
both, would give rise to a claim of a material default in the performance by the
Company and the Subsidiaries or, to the Best Knowledge of the Company, any other
party to any of the Material Agreements. The Purchasers have been furnished
with true, complete and correct copies of all Material Agreements.
-12-
<PAGE>
II.13 Litigation and Other Proceedings.
--------------------------------
Except as set forth on Schedule 2.13, there are no (i) Proceedings pending
or, to the Best Knowledge of the Company, threatened against or involving the
Company or any of the Subsidiaries, whether at law or in equity, whether civil
or criminal in nature or by or before any Governmental Authority, nor to the
Best Knowledge of the Company does there exist any basis therefor or (ii) Orders
of any Governmental Authority with respect to or involving the Company or any of
the Subsidiaries.
II.14 Compliance with Laws.
--------------------
(a) Except as disclosed on Schedule 2.14(a), the Company and each of
the Subsidiaries (i) has complied in all material respects with, and is in
compliance with, in all respects all Legal Requirements applicable to it and its
business (including those administered by the FDA) and (ii) has all material
federal, state, local and foreign governmental licenses and permits
(collectively, "Permits") used or necessary in the conduct of its business.
Such Permits are in full force and effect, no violations with respect to any
thereof have occurred or are or have been recorded, no Proceeding is pending or,
to the Best Knowledge of the Company, threatened to revoke or limit any thereof.
Schedule 2.14(b) contains a true, correct and complete list of (A) all such
Permits and (B) all Orders under which the Company and the Subsidiaries is
operating or bound. To the Best Knowledge of the Company, there is no proposed
change in any applicable Legal Requirement which would require the Company or
any of the Subsidiaries to obtain any Permits not set forth on Schedule 2.14(b)
in order to conduct the business of the Company and the Subsidiaries as each is
presently conducted and as presently proposed to be conducted. None of such
Permits or Orders shall be adversely affected as a result of the Company's
execution and delivery of, or the performance of its obligations under, any
Document to which it is a party, or the consummation of the transactions
contemplated thereby. The Company, after due inquiry, is not aware of any
proposed Legal Requirement which would prohibit or restrict the Company or any
of the Subsidiaries from, or otherwise materially adversely affect the Company
or any of the Subsidiaries in, conducting each of their businesses in any
jurisdiction in which each is now conducting business or which it proposes to
conduct business.
(b) All products of the Company and each Subsidiary, where required,
are being marketed under a valid premarket notification clearance or a premarket
approval of the FDA or a CE Mark of the EC and such products comply in all
material respects with all Legal Requirements promulgated by the FDA, by the EC
and by each other Governmental Authority having jurisdiction over each product.
(c) To the Best Knowledge of the Company, there is no false
information or significant omission in any products application or product-
related submission by the Company or any Subsidiary to the FDA, the EC or each
other Governmental Authority having jurisdiction over its products.
(d) All preclinical and clinical studies conducted by the Company and
each Subsidiary have been conducted in accordance with recognized good clinical
and good laboratory practices in compliance with all applicable Legal
Requirements. The Company is not
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<PAGE>
aware of any facts which are reasonably likely to cause the denial, withdrawal,
recall or suspension of any products sold or intended to be sold by the Company
or any Subsidiary, or a change in the marketing classification or labeling of
any such products, or a termination or suspension of marketing of any such
products. None of the products manufactured, marketed or sold by the Company or
any Subsidiary has been recalled or subject to a field notification (whether
voluntarily or otherwise), and neither the Company nor any Subsidiary has
received notice (whether completed or pending of any proceeding seeking recall,
suspension or seizure of any products sold or proposed to be sold by any of
them).
(e) The Company and each Subsidiary has obtained all necessary
regulatory approvals from any foreign regulatory agencies related to the
products distributed and sold by them. The Company has no knowledge of any acts
that furnish a reasonable basis for a Warning Letter, Section 305 Notice, or
other similar communication from the FDA, and there have been no recalls, field
notifications, safety alerts (whether voluntary or otherwise) or seizures
requested or threatened, related to the Company or any Subsidiary.
II.15 Taxes.
-----
(a) Except as disclosed on Schedule 2.15, (a) the Company and each
other Person included in any consolidated or combined Tax Return and part of an
affiliated group, within the meaning of Section 1504 of the Code, of which the
Company and each Subsidiary is or has been a member has filed all returns,
declarations of estimated tax, tax reports, information returns and statements
(collectively, the "Returns") required to be filed by it (other than those for
which extensions have been granted and have not expired) relating to any Taxes
(as defined below); (b) as of the time of filing, the Returns were complete and
correct in all material respects and all Taxes shown on the Returns have been
paid; (c) the Company and each Subsidiary has timely paid or made provisions for
all Taxes payable for any period that ended on or before the Initial Closing
Date and for any period that began on or before the Initial Closing Date and
ends after the Initial Closing Date, to the extent such Taxes are attributable
to the portion of any such period ending on the Initial Closing Date; (d) the
Company and each Subsidiary is not delinquent in the payment of any Taxes nor
has it requested any extension of time within which to file any Return, which
Return has not since been filed; (e) there are no pending tax audits of any
Returns of the Company or any Subsidiary, and neither the Company nor any
Subsidiary has received notice of any pending tax audits of any Returns of the
Company or any Subsidiary; (f) no tax liens have been filed and no deficiency or
addition to Taxes, interest or penalties for any Taxes have been proposed,
asserted or assessed in writing against the Company or any Subsidiary; (g)
neither the Company nor any Subsidiary has granted any extension of the statute
of limitations applicable to any Return or other Tax claim with respect to any
of its respective income, properties or operations or any Subsidiary; (h)
neither the Company nor any Subsidiary has been a personal holding company
within the meaning of Section 542 of the Code; (i) neither the Company nor any
Subsidiary has made any election under Section 341(f) of the Code; (j) neither
the Company nor any Subsidiary is currently, nor has they ever been, a "United
States real property holding corporation" as such term is defined in Section 897
of the Code; (k) the Company and the Subsidiaries and their respective
predecessors have complied in all material respects with all applicable Legal
Requirements relating to the payment and withholding of Taxes (including sales
and use Taxes, and amounts required by law to be withheld and paid from
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<PAGE>
the wages or salaries of employees), and neither the Company nor any Subsidiary
is liable for any Taxes for failure to comply with any such Legal Requirement;
(l) neither the Company nor any Subsidiary is and has never been a party to any
Tax sharing agreement; and (m) neither the Company nor any Subsidiary has agreed
to, is not required to, and will not be obligated to, make any adjustments
either on, before or after the Initial Closing Date, to its existing tax
accounting method by reason of Section 481 of the Code, or due to a
determination by the Board of Directors of the Company (acting on the advice of
the Company's accountant, as the case may be) that any existing method of
accounting is not permissible or appropriate, and the Internal Revenue Service
has not proposed any such adjustments or changes in the Company's accounting
method. Neither the Company nor any Subsidiary has taken any action, or omitted
to take any action, which has resulted in, or would reasonably be expected to
result in, any "CardioTech-Caused Taxes", as such term is defined in the Tax
Matters Agreement dated as of May __, 1996 between PolyMedica Industries, Inc.
and the Company.
II.16 Directors, Officers and Employees.
---------------------------------
(a) Schedule 2.16 sets forth a list of all directors and executive
officers of the Company and the Subsidiaries as of the date hereof, together
with their respective titles (if any), their current base salary and bonus
compensation and the respective dates on which they commenced employment. To
the extent any such employee is on a leave of absence, Schedule 2.16 indicates
the nature of such leave of absence and such employee's anticipated date of
return to active employment. Except as disclosed on Schedule 2.16, to the Best
Knowledge of the Company, none of the employees listed on Schedule 2.16 has any
plans or intends to terminate his or their employment or engagement with the
Company or the Subsidiaries.
(b) Except as set forth on Schedule 2.16:
-------------
(i) the Company and each Subsidiary has complied in all material
respects, and is in compliance, in all material respects with all
applicable Legal Requirements regarding labor, employment and employment
practices, terms and conditions of employment and wages and hours,
including provisions thereof relating to equal opportunity, collective
bargaining and the payment of social security and other Taxes;
(ii) there is no unfair labor practice complaint against the
Company or any Subsidiary pending before the National Labor Relations Board
or any other Governmental Authority;
(iii) the Company and the Subsidiaries generally enjoy good
relations with all of their employees, and there is no labor strike,
dispute or grievance, slowdown or stoppage actually pending or, to the Best
Knowledge of the Company, threatened against or involving the Company or
any of the Subsidiaries;
(iv) neither the Company nor any Subsidiary is a party to or
bound by any collective bargaining agreement, union contract or singular
agreement, no such agreement is currently being negotiated by the Company
or any Subsidiary, no labor union has taken any action with respect to
organizing employees of the Company or any Subsidiary and no representation
question exists with respect to any such employees; and
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<PAGE>
(v) neither the Company nor any Subsidiary is a party to or bound
by any agreement for the leasing of employees by the Company Subsidiaries
and under any obligation to assume any collective bargaining agreement,
union contract or singular agreement with respect to any such leased
employees.
(c) The Company's execution and delivery of, and performance of its
obligations under, the Documents to which it is a party, and the consummation of
the transactions contemplated thereby, will not (i) result in any payment
(including, without limitation, severance, unemployment compensation, "golden
parachute", bonus or otherwise) becoming due from the Company to any director,
officer or employee of the Company, (ii) increase any such benefits otherwise
payable, or (iii) result in the acceleration of the time of payment or vesting
of any such benefits.
II.17 ERISA Plans and Contracts.
-------------------------
(a) Schedule 2.17 hereto contains a true and complete list of all
Employee Plans. All Employee Plans have been operated and administered in
compliance in all material respects with ERISA, the Code and other applicable
Legal Requirements.
(b) Except as set forth in Schedule 2.17:
-------------
(i) each Employee Plan, if intended to be "qualified" within the
meaning of Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified and the related trusts are exempt from
tax under Section 501(a) of the Code, and to the Best Knowledge of the
Company, nothing has occurred that has or could reasonably be expected to
affect adversely such qualification or exemption;
(ii) neither the Company nor any of its ERISA Affiliates, nor to
the Best Knowledge of the Company and its ERISA Affiliates, any other
"disqualified person" or "party in interest" (as such terms are defined in
Section 4975 of the Code and Section 3(14) of ERISA, respectively) with
respect to an Employee Plan has breached the fiduciary rules of ERISA or
engaged in a prohibited transaction that could subject the Company or any
of its ERISA Affiliates to any tax or penalty imposed under Section 4975 of
the Code or Section 502(i), (j) or (l) or ERISA;
(iii) all required or declared Company contributions (or premium
payments) to (or in respect of) all Employee Plans have been properly made
when due, and the Company has timely deposited all amounts withheld from
employees for pension, welfare or other benefits into the appropriate trust
or accounts;
(iv) no proceedings (other than routine claims for benefits) are
pending, or to the Best Knowledge of the Company, threatened, with respect
to or involving any Employee Plan;
(v) except as may be required under Legal Requirements of general
application, none of the Employee Plans obligate the Company or any of the
Subsidiaries to provide any employee or former employee, or their spouses,
family member or
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<PAGE>
beneficiaries, any post-employment or post-retirement health or life
insurance, accident or other "welfare-type" benefits;
(vi) each Employee Plan that is a "group health plan" with the
meaning of Section 5000 of the Code has been maintained in compliance with
Section 4980B of the Code and Title I, Subtitle B, Part 6 of ERISA and no
tax payable on account of Section 4980B of the Code has been or is expected
to be incurred;
(vii) all reporting and disclosure obligations imposed under
ERISA and the Code have been satisfied with respect to each Employee Plan;
and
(viii) no benefit or amount payable or which may become payable
by the Company or its ERISA Affiliates pursuant to any Employee Plan,
agreement or contract with any employee, shall constitute an "excess
parachute payment," within the meaning of Section 280G of the Code, which
is or may be subject to the imposition of an excise tax under Section 4999
of the Code or which would not be deductible by reason of Section 280G of
the Code.
(c) Neither the Company nor any of its ERISA Affiliates is or has ever
maintained or been obligated to contribute a "multiple employer plan" (as
defined in Section 413 of the Code), a "multiemployer plan" (as defined in
Section 3 (37) of ERISA) or a "defined benefit pension plan" (as defined in
Section 3(35) of ERISA).
(d) The Company has provided the Purchasers with true and complete
copies of all documents pursuant to which each Employee Plan is maintained and
administered, the two most recent annual reports (Form 5500 and attachment) and
financial statements therefore, all governmental rulings, determination, and
opinions (and pending requests therefor), and the most recent valuation of the
present and future obligations under each Employee Plan that provides post
retirement or post-employment health and life insurance and accident or other
"welfare type" benefits.
(e) No employee of the Company or its ERISA Affiliates is a "leased
employee" (as defined in Section 414(n) of the Code) with respect to any client
of the Company or its ERISA Affiliates.
II.18 Related Party Transactions.
--------------------------
Except as set forth in Schedule 2.18(a) attached hereto, and, except for
reasonable compensation to regular employees of the Company and any Affiliate
for services rendered in the ordinary course of business, no current or former
Affiliate of the Company or any "Associate" (as defined in the rules and
regulations promulgated under the Exchange Act) thereof, is presently, or during
the last three fiscal years (or since inception, if shorter) has been, (i) a
party to any agreement or transaction with the Company or any of its
Subsidiaries (including, but not limited to, any contract, agreement or other
arrangement providing for the furnishing of services by, or rental of real or
personal property from, or otherwise requiring payments to, any such Affiliate
or Associate) or (ii) the direct or indirect owner of an interest in any Person
which is a present or potential competitor, supplier or customer of the Company
or any its Subsidiaries
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<PAGE>
(other than non-affiliated holdings in publicly held companies), nor does any
such Person receive income from any source other than the Company which relates
to the business of, or should properly accrue to, the Company. Except as set
forth on Schedule 2.18(b), the Company and each of its Subsidiaries is not a
guarantor or otherwise liable for any actual or potential Liability or
obligation, whether direct or indirect, of any of its Affiliates. Except as set
forth on Schedule 2.18, the Company and each of its Subsidiaries does not (i)
own or operate any vehicles, boats, aircraft, apartments or other residential or
recreational properties or facilities for executive, administrative or sales
purposes or (ii) own or pay for any social club memberships, whether or not for
the benefit of the Company, its Subsidiaries and/or any of their executives.
II.19 Conflicts of Interest.
---------------------
(a) Neither the Company, the Subsidiaries nor any executive officer
acting on behalf of the Company or any of the Subsidiaries has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, or official
or employee of any Governmental Authority or other Person who was, is, or may be
in a position to help or hinder the business of the Company or any of the
Subsidiaries (or assist in connection with any actual or proposed transaction)
that (i) might subject the Company or any of the Subsidiaries to any damage or
penalty in any Proceeding, (ii) if not given in the past, would have resulted in
a Material Adverse Effect on the Company and the Subsidiaries, or (iii) if not
continued in the future, could reasonably be expected to have a Material Adverse
Effect.
(b) Neither the Company nor any of the Subsidiaries has taken any
action which would cause it to be in violation of the Foreign Corrupt Practices
Act of 1977, as amended, or any rules and regulations thereunder. There is not
now, and there has never been, any employment by the Company and the
Subsidiaries of, or beneficial ownership in the Company by, any governmental or
political official in any country in the world.
II.20 Private Sale.
------------
Assuming the accuracy of the representations of the Purchasers in Section
3.2, the offering, sale, and issuance of the Purchased Notes and the Reserved
Common Shares, as the case may be, will be exempt from registration under the
Securities Act and applicable state securities laws and the rules and
regulations promulgated thereunder. Neither the Company nor any Person
authorized or employed by the Company as agent, broker, dealer or otherwise in
connection with the offering, sale or issuance of the Purchased Notes has
offered the same for sale to, or solicited any offers to buy the same from, or
otherwise approached or negotiated with respect thereto, any Person or Persons
other than the Purchasers.
II.21 Brokers.
-------
Except as set forth on Schedule 2.21 attached hereto, neither the Company
nor any of its officers, directors, stockholders or employees (or any Affiliate
of the foregoing) has employed any broker or finder or incurred any actual or
potential Liability or obligation, whether direct or
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<PAGE>
indirect, for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated by this Agreement.
II.22 Insurance.
---------
Schedule 2.22 hereto lists and briefly describes each insurance policy
maintained by the Company and the Subsidiaries with respect to the properties,
assets and business of the Company and the Subsidiaries (the "Insurance
Policies"). All of such Insurance Policies are in full force and effect, and
neither the Company nor any of the Subsidiaries is in default in any material
respect with respect to its obligations under any of such insurance policies and
has not received any notification of cancellation of any of such Insurance
Policies and has no claim outstanding which could be expected to cause a
material increase in the insurance rates. To the Best Knowledge of the Company,
no facts or circumstances exist that would relieve any insurer under any such
policies of their obligations to satisfy in full any claim of the Company
thereunder. The Company has not received any notice that (i) any of such
policies has been or will be canceled or terminated or will not be renewed on
substantially the same terms as are now in effect or (ii) the premium on any of
such policies will be materially increased on the renewal thereof. The Company
maintains insurance for its benefit in amounts and against all risks that are
normal and customary for Persons operating similar properties and businesses
under policies in effect and issued by insurers of recognized responsibility.
II.23 Environmental Matters.
---------------------
(a) Neither the Company, the Subsidiaries nor any of their past owned
or leased real properties or operations, are subject to or the subject of, any
Proceeding, Order, settlement, or other contract arising under Environmental and
Safety Requirements, nor, to the Best Knowledge of the Company, has any
investigation been commenced or is any Proceeding threatened against the Company
or any of the Subsidiaries under the Environmental and Safety Requirements with
regard to the Business.
(b) Except as set forth on Schedule 2.23, neither the Company nor any
of the Subsidiaries have received any written notice, report or other
information regarding any actual or alleged violation of any Environmental and
Safety Requirement, or any Liabilities or potential Liabilities, including any
investigatory, remedial or corrective obligations, relating to the Business or
the Leased Real Property and arising under any Environmental and Safety
Requirement.
(c) Schedule 2.23 sets forth a complete and accurate list of all real
estate previously owned or operated by the Company and the Subsidiaries. Except
as set forth on Schedule 2.23, to the Best Knowledge of the Company none of the
following exists, nor has ever existed, at any of the Leased Real Property or
any other real property previously owned or operated by the Company: (1)
underground storage tanks, (2) asbestos-containing material in any form or
condition, (3) materials or equipment containing polychlorinated biphenyls or
(4) landfills, surface impoundments or disposal areas.
(d) With respect to the Business, neither the Company nor any of the
Subsidiaries has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled or
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released any substance, or owned or operated any real property (and no such real
property is contaminated by any such substance) in a manner that has given or
could reasonably be expected to give rise to Liabilities pursuant to any
Environmental and Safety Requirement, including any Liability for response
costs, corrective action costs, personal injury, property damage, natural
resources damage or attorney fees, or any investigative, corrective or remedial
obligations.
(e) No facts, events or conditions relating to the past or present
real properties or operations of the Company and the Subsidiaries or the
Business will prevent continued compliance by the Business with any
Environmental and Safety Requirement, give rise to any investigatory, remedial
or corrective obligations pursuant to any Environmental and Safety Requirement,
including, without limitation, any relating to on-site or off-site releases or
threatened releases of materials, substances or wastes, personal injury,
property damage or natural resources damage.
(f) The Company has provided the Purchasers with correct and complete
copies of all reports and studies within the possession or control of the
Company and the Subsidiaries with respect to past or present environmental
conditions or events at any of the Leased Real Property or any other real
property previously owned or operated by the Company.
II.24 Disclosure.
----------
(a) Neither this Agreement nor any of the Schedules or Exhibits, nor,
to the Best Knowledge of the Company, any other written material delivered to
any of the Purchasers, when taken together, contains any untrue statement of a
material fact or omits a material fact necessary to make the statements
contained herein and therein, in light of the circumstances in which they were
made, not misleading. To the Best Knowledge of the Company, there is no fact,
circumstance or condition which has had or could reasonably be expected to have
a Material Adverse Effect on the Company and the Subsidiaries, taken as a whole
which has not been set forth in this Agreement or in the Schedules or the
Exhibits. Except for the provisions of the Documents, neither the Company nor
any of the Subsidiaries is obligated under any contract or agreement or subject
to any restriction set forth in its Fundamental Documents which has or could
reasonably be expected to have a Material Adverse Effect on the Company and the
Subsidiaries, taken as a whole.
(b) Set forth as Schedule 2.24 is a complete and accurate list of each
Person which has engaged in, or which has substantively discussed engagement in,
research, development, merger or licensing arrangements involving the Company or
its Subsidiaries and their respective products during the six-month period prior
to the date hereof.
II.25 Listing.
-------
The Company has obtained the approval of the American Stock Exchange for
the listing of 854,582 Reserved Common Shares and such 854,582 Reserved Common
Shares are currently listed on such exchange.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE PURCHASER
Each Purchaser represents and warrants to the Company as to itself
severally, and not jointly as to any other Purchaser, as follows:
III.1 Authorization of the Documents.
------------------------------
Such Purchaser has all requisite power and authority to execute, deliver
and perform the Documents to which it is a party and the transactions
contemplated thereby, and the execution, delivery and performance by such
Purchaser of the Documents to which it is a party have been duly and validly
authorized by all requisite action by such Purchaser and each such Document
constitutes or upon execution and delivery will constitute a valid and binding
obligation of such Purchaser enforceable against each Purchaser in accordance
with its terms.
III.2 Investment Representations.
--------------------------
(a) Such Purchaser is acquiring the Purchased Notes hereunder and, in
the event that such Purchaser should acquire any Reserved Common Shares which
are not registered under the Securities Act, will be acquiring such Reserved
Common Shares, for its own account, for investment and not with a view to the
distribution or resale thereof in violation of the Securities Act or applicable
state securities laws.
(b) Such Purchaser understands that (i) the Purchased Notes have not
been, and (if acquired) the Reserved Common Shares will not be, registered under
the Securities Act or applicable state securities laws and have been issued by
the Company in a transaction exempt from the registration requirements of the
Securities Act and applicable state securities laws and (ii) the Purchased
Notes, and if acquired, the Reserved Common Shares must be held by such
Purchaser indefinitely unless a subsequent disposition thereof is registered
under the Securities Act and applicable state securities laws or is exempt from
registration.
(c) Such Purchaser further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to such
Purchaser) promulgated under the Securities Act depends on the satisfaction of
various conditions, and that, if applicable, Rule 144 may only afford the basis
for sales of Securities acquired hereunder only in limited amounts.
(d) Such Purchaser has not employed any broker or finder in connection
with the transactions contemplated by this Agreement.
(e) Such Purchaser is an "accredited investor" (as defined in Rule
501(a) of Regulation D promulgated under the Securities Act). Each Purchaser or
his representative during the course of this transaction and prior to the
purchase of the Notes, has had the opportunity to obtain any additional
information, documents, records and books relating to the Company, its business,
and an investment in the Securities and the Company has made available to such
Purchaser or its representatives all agreements, documents, records and books
that such Purchaser has requested relating to the Company, its business and an
investment in the Securities
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which may be acquired by such Purchaser hereunder. Such Purchaser has had an
opportunity to ask questions of, and receive answers from, a person or persons
acting on behalf of the Company, concerning the terms and conditions of this
investment, and answers have been provided to all of such questions to the full
satisfaction of such Purchaser. Such Purchaser has such knowledge and experience
in financial and business matters that it is capable of evaluating the risks and
merits of this investment. The Purchaser's financial condition and investments
are such that it is in a financial position to hold the Notes for an indefinite
period of time and to bear the economic risk of, and withstand a complete loss
of, such Notes. Such Purchaser's representations in this subsection shall in no
way limit the enforceability of any representations made by the Company in any
of the Documents to which it is a party except that made clause (a) of the last
sentence of Section 2.2 hereof.
(f) The state in which any offer to purchase shares hereunder was
made to or accepted by such Purchaser is the state shown as such Purchaser's
address on Schedule I hereto.
(g) Such Purchaser is not a person which itself is, or would cause
the Company to be, disqualified pursuant to Rule 262 promulgated under the
Securities Act.
(h) Such Purchaser was not formed for the purpose of investing in the
Securities which may be acquired hereunder.
ARTICLE IV
CONDITIONS TO INITIAL CLOSING
The obligation of each Purchaser to purchase and pay for the Purchased
Notes hereunder at the Initial Closing, is subject to the satisfaction of the
following conditions precedent (unless waived by such Purchaser).
IV.1 All Proceedings to Be Satisfactory.
All corporate and other proceedings to be taken and all waivers, consents,
approvals, qualifications and registrations required to be obtained or effected
in connection with the execution, delivery and performance of this Agreement
and the other Documents and the transactions contemplated hereby and thereby
(including those disclosed on Schedule 2.2) shall have been taken, obtained or
effected (except for the filing of any notice subsequent to the Initial Closing
that may be required under applicable Federal or state securities laws, which
notice shall be filed on a timely basis following the Initial Closing as so
required), and all documents incident thereto shall be reasonably satisfactory
in form and substance to the Purchasers. The Purchasers shall have received all
such originals or certified or other copies of such documents as have been
reasonably requested by them.
IV.2 Performance.
The Company shall have performed and complied in all material respects
with all agreements and conditions contained in the Documents required to be
performed or complied
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with by it prior to or at the Initial Closing and shall have certified to such
effect to such Purchaser in writing.
IV.3 Documents.
---------
Each Document shall have been duly authorized, executed and delivered by
the Company and the other parties thereto (other than the Purchasers) and shall
be in full force and effect and enforceable against the Company and such parties
in accordance with their respective terms.
IV.4 Issuance of the Purchased Notes; Reservation of Reserved Common Shares.
----------------------------------------------------------------------
(a) The Company shall have duly issued and delivered to the
Purchasers the Purchased Notes being purchased by the Purchasers at the Initial
Closing.
(b) The Company shall have reserved the Reserved Common Shares for
issuance upon conversion of the Purchased Notes.
IV.5 Key Person Life Insurance.
-------------------------
The Company shall have obtained a life insurance policy on the life of
Michael Szycher, which policy shall be in form and substance reasonably
satisfactory to the Purchasers and shall provide benefits payable of at least
$2,000,000 upon the death of the insured, and the Purchasers shall be the named
beneficiary thereof.
IV.6 Opinion of Counsel.
------------------
Mintz Levin Cohn Ferris Glovsky and Popeo PC, counsel to the Company,
shall have delivered its opinion addressed to the Purchasers, dated as of the
Initial Closing Date.
IV.7 Supporting Documents.
--------------------
The Purchasers shall have received copies of the following supporting
documents (in form and substance reasonably satisfactory to the Purchasers) for
the Company and its Subsidiaries:
(i) certificates of the Secretary of the Commonwealth of
Massachusetts or other state, or equivalent office in any other country, as
applicable, dated as of a date no more than one week prior to the Initial
Closing as to the due incorporation or organization and good standing of
the Company or Subsidiary and listing all documents of the Company or
Subsidiary on file with said Secretary;
(ii) a telegram, telex or other acceptable method of
confirmation from said Secretary or other office, as applicable, as of the
close of business on the next Business Day preceding the date of the
Initial Closing as to the continued good standing of the Company or
Subsidiary;
(iii) a certificate of the Secretary or an Assistant Secretary
of the Company and each Subsidiary, dated as of the date of the Initial
Closing and certifying:
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(1) that attached thereto is a true, correct and complete copy of each of
the Articles of Incorporation and Bylaws as in effect on the date of such
certification (each of which shall be in form and substance satisfactory to
such Purchaser); (2) that attached thereto is a true, correct and complete
copy of all resolutions adopted by the Board of Directors (and any
committees thereof) of the Company authorizing the execution, delivery and
performance of the Documents and the issuance, sale, and delivery of the
Purchased Shares, and that all such resolutions are still in full force and
effect; (3) that the Articles of Incorporation have not been amended since
the date of the last amendment referred to in the certificate delivered
pursuant to clause (i) above; and (4) the incumbency and specimen signature
of all officers of the Company executing the Documents, the stock
certificates representing the Purchased Shares, and any certificate or
instrument furnished pursuant hereto, and a certification by another
officer of the Company as to the incumbency and signature of the officer
signing the certificate referred to in this clause (iii); and
(iv) such additional supporting documents and other information
with respect to the operations and affairs of the Company and its
Subsidiaries as the Purchaser may reasonably request.
IV.8 Fees and Expenses.
-----------------
The Company shall have paid the Purchaser the Fees and Expenses and the
Commitment Fee which the Purchaser requires to be paid at the Initial Closing.
IV.9 Board of Directors.
------------------
The Board of Directors of the Corporation shall include Jonathan S.
Walker.
IV.10 Listing.
-------
The Company shall have applied for and received approval by the American
Stock Exchange for the listing of 854,582 Reserved Common Shares, and such
854,582 Reserved Common Shares shall have been listed.
IV.11 Agreement with Contract Research Organization.
---------------------------------------------
The Company shall have entered into an agreement with Medical Device
Consultants, Inc. ("MDCI") (or another contract research organization reasonably
acceptable to the Purchasers), which agreement shall be in form and substance
reasonably acceptable to the Purchasers, pursuant to which MDCI (or such other
contract research organization) shall have agreed to undertake a clinical
testing program and organize certain research on behalf of the Company, and such
agreement shall be in full force and effect and no default shall have occurred
and be continuing thereunder.
IV.12 Agreement with the Royal Free Hospital School of Medicine.
---------------------------------------------------------
The Company shall have entered into an agreement with The Royal Free
Hospital School of Medicine (the "Royal Free"), which agreement shall be in form
and substance reasonably
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acceptable to the Purchasers, pursuant to which the Royal Free shall have agreed
to undertake (i) phase 1 clinical trials in respect of the Company's patented
and marketed biomaterial Chronoflex peripheral vascular grafts in accordance
with certain specifications; and (ii) the evaluation and clinical investigation
of an endothelially seeded Chronoflex peripheral vascular graft and such
agreement shall be in full force and effect and no default shall have occurred
and be continuing thereunder.
IV.13 Conditions to Obligation of Company.
-----------------------------------
The obligations of the Company to sell the Purchased Notes to the
Purchasers at the Initial Closing are subject to the satisfaction of the
following conditions:
(a) Documents. Each of the Purchasers shall have delivered to the
Company the consideration set forth in Section 1.1(b);
(b) The Purchasers shall have entered into the Documents to which
they are parties and such agreements shall be in full force and effect.
(c) Representations and Warranties. The representations and
warranties of the Purchasers made herein shall be true, correct and complete in
all respects on and as of the Initial Closing Date with the same force and
effect as if they had been made on and as of the Initial Closing Date.
(d) No Order Pending. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by this Agreement.
(e) No Law Prohibiting or Restricting such Sale. There shall not be
in effect any law, rule or regulation prohibiting or restricting such sale, or
requiring any consent or approval of any person which shall not have been
obtained to issue the Notes (except as otherwise provided in this Agreement).
ARTICLE V
INDEMNIFICATION
V.1 Survival of Representations, Warranties, Agreements and Covenants, Etc.
----------------------------------------------------------------------
All statements contained in any Document other than this Agreement or any
closing certificate delivered by the Company or the Purchasers, pursuant to this
Agreement or in connection with the transactions contemplated by this Agreement
(each, a "Closing Certificate") shall constitute representations and warranties
by the Company, or the Purchasers, as applicable, under this Agreement.
Notwithstanding any investigation made at any time by or on behalf of any party
hereto, all representations and warranties contained in this Agreement or made
in writing by or on behalf of the Company, or the Purchasers, in connection with
the transactions contemplated by this Agreement shall survive the Initial
Closing until the expiration of three years following the Initial Closing Date
except that (i) those contained in Sections 2.1, 2.2 and 2.3 shall survive
indefinitely, (ii) those contained in Section 2.5 shall expire eighteen months
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following the Initial Closing Date, (iii) those contained in Section 2.23 shall
expire on the sixth anniversary of the Initial Closing Date and (iv) those
contained in Section 2.15 and Section 3.2 shall expire upon the thirtieth day
after the expiration of the applicable statute of limitations (taking into
account any waivers or extensions thereof). Notwithstanding the preceding
sentence, any representation or warranty in respect of which indemnity may be
sought under this Agreement shall survive the time at which it would otherwise
terminate pursuant to the preceding sentence if notice of the inaccuracy thereof
giving rise to such right of indemnity shall have been given to the party
against whom such indemnity may be sought prior to such time. All agreements and
covenants contained in the Documents shall survive the Initial Closing Date
indefinitely.
V.2 Indemnification.
---------------
(a) In addition to all other rights and remedies available to the
Purchasers, the Company shall indemnify, defend and hold harmless the Purchasers
and their Affiliates and their respective partners, officers, directors,
employees, agents and representatives, successor and permitted assigns
(collectively, the "Purchaser Representatives"; and together with such
Purchaser, the "Purchaser Indemnified Persons") against all Losses, and, subject
to Section 5.2(b), none of the Purchaser Indemnified Persons shall be liable to
the Company or any other stockholder of the Company for or with respect to any
and all Losses, together with all costs and expenses (including reasonable legal
and accounting fees and expenses) related thereto or incurred in enforcing this
Article V, (i) arising from the untruth, inaccuracy or breach of any of the
representations or warranties of the Company contained in any Document or
Closing Certificate or any facts or circumstances constituting any such untruth,
inaccuracy or breach to the extent any such representation or warranty survives
under Section 5.1 hereof, (ii) arising from the breach of any covenant or
agreement of the Company contained in any Document or Closing Certificate or any
facts or circumstances constituting such breach, or (iii) arising from any Claim
(whenever made) resulting from or caused by any transaction, status, event,
condition, occurrence or situation relating to, arising out of or in connection
with (A) the status of, or conduct of the business and affairs of, the Company,
(B) the execution, delivery, enforcement, performance or consummation of this
Agreement and the other Documents and the related documents and agreements
contemplated hereby and thereby or (C) any actions taken by or omitted to be
taken by any of the Purchaser Indemnified Persons in connection with this
Agreement and the other Documents or the related documents and agreements
contemplated hereby and thereby. Notwithstanding the foregoing, upon judicial
determination, which is final and no longer appealable, to the extent that the
act or omission giving rise to the indemnification pursuant to clause (iii) of
Section 5.2(a) primarily resulted out of or was primarily based upon the
indemnified party's gross negligence, fraud or willful misconduct, the Company
shall not be responsible for any Losses sought to be indemnified in connection
therewith, and the Company shall be entitled to recover from the indemnified
party all amounts previously paid in full or partial satisfaction of such
indemnity, together with all costs and expenses of the Company reasonably
incurred in effecting such recovery, if any.
(b) In addition all other rights and remedies available to the
Company, each Purchaser shall indemnify, defend and hold harmless the Company
and its officers, directors, employees, agents and representatives
(collectively, the "Company Indemnified Persons")
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<PAGE>
against all Losses, together with all reasonable out-of-pocket costs and
expenses (including reasonable legal and accounting fees and expenses) related
thereto or incurred in enforcing this Article V, (i) arising from the untruth,
inaccuracy or breach of any of the representations or warranties of such
Purchaser contained in any Document or Closing Certificate or any facts or
circumstances constituting such untruth, inaccuracy or breach to the extent any
such representation or warranty survives under Section 5.1 hereof or (ii)
arising from the breach of any covenant or agreement of such Purchaser contained
in any Document or Closing Certificate or any facts or circumstances
constituting such breach. Notwithstanding the foregoing, the Company hereby
agrees that (i) none of such Purchaser, its Affiliates or the Purchaser
Representatives shall be responsible for any Losses sought to be indemnified
hereunder in connection with the execution, delivery, enforcement, performance
or consummation of the Documents or the transactions contemplated thereby
(collectively, the "Transactions") except to the extent a judicial
determination, which is final and no longer appealable, shall have been made
that such Losses primarily resulted from the willful misconduct or gross
negligence of such Purchaser, its Affiliates or the Purchaser Representatives,
(ii) the Company will not make, and the Company will cause its Affiliates not to
make, any Claim against such Purchaser, its Affiliates or the Purchaser
Representatives, for any special, indirect or consequential Losses in respect of
any breach or wrongful conduct (whether the Claim therefore is based on
contract, tort or duty imposed by law) in connection with, arising out of or in
any way related to, the Transactions and (iii) the Company hereby waives,
releases and agrees not to sue upon, and agrees to cause its Affiliates not to
sue upon, any such Claim for any such Losses, whether or not accrued and whether
or not known or suspected to exist in any such Person's favor.
(c) If for any reason the indemnity provided for in this Section is
unavailable to any Indemnified Person or is insufficient to hold each such
Indemnified Person harmless from all such Losses arising with respect to the
transactions contemplated by this Agreement, then the Indemnifying Persons shall
contribute to the amount paid or payable for such Losses in such proportion as
is appropriate to reflect not only the relative benefits received by the
Indemnifying Persons on the one hand and such Indemnified Person on the other
but also the relative fault of the Indemnifying Persons and the Indemnified
Person as well as any relevant equitable considerations. In addition, the
Indemnifying Persons shall reimburse any Indemnified Person upon demand for all
reasonable expenses (including legal counsel fees) incurred by such Indemnified
Person in connection with investigating, preparing for or defending any such
action or claim. The indemnity, contribution and expenses reimbursement
obligations that the Indemnifying Persons have under this Article V shall be in
addition to any Liability that the Indemnifying Persons may otherwise have. The
Indemnifying Persons further agree that the indemnification and reimbursement
commitments set forth in this Agreement shall apply whether or not the
Indemnified Person is a formal party to any such Claim.
(d) Any indemnification of an Indemnified Person by Indemnifying
Persons pursuant to this Section shall be effected by wire transfer of
immediately available funds from the Indemnifying Persons to an account
designated by the Indemnified Person within 15 days after the determination
thereof.
(e) In case any proceeding (including any governmental investigation)
shall be instituted by a third party involving any person in respect of which
indemnity may be sought
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<PAGE>
pursuant to this Section, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
party") in writing of the occurrence of the facts and circumstances giving rise
to such claim. The failure of any person to deliver the notice required by this
Section 5.2(e) shall not in any way affect the indemnifying party's
indemnification obligation hereunder except and only to the extent that the
indemnifying party is actually prejudiced thereby. In case any such proceeding
shall be brought against any indemnified party by any such third party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and expenses of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel or pay its own expenses.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred the
fees and expenses of the counsel retained by the indemnified party in the event
(i) the indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel or (ii) the named parties to any such
proceedings (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. The indemnifying party shall not be liable for any consent to the
entry of judgment or settlement of any proceeding effected without its written
consent, not unreasonably withheld. Any such consent or settlement shall
include, as an unconditional term thereof, the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or litigation. If the indemnifying party agrees in writing to any
such consent or settlement, or if there be a final judgment of the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such consent, settlement or judgment.
ARTICLE VI
TRANSFER OF SECURITIES
VI.1 Restriction on Transfer.
-----------------------
The Restricted Securities shall not be Transferred except upon the
conditions specified in this Article VI, which conditions are intended to insure
compliance with the provisions of the Securities Act in respect of the transfer
thereof.
VI.2 Restrictive Legends.
-------------------
Each certificate evidencing the Restricted Securities and each certificate
for any such securities issued to subsequent transferees of any such certificate
shall (unless otherwise permitted by the provisions of Section 6.3 hereof) be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THESE
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SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR APPLICABLE
STATE BLUE SKY LAWS. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS
SUBJECT TO THE CONDITIONS SPECIFIED IN THE NOTE PURCHASE AGREEMENT
DATED AS OF MARCH 31, 1998, AMONG THE ISSUER HEREOF AND CERTAIN OTHER
SIGNATORIES THERETO, AND NO TRANSFER OF THESE SECURITIES SHALL BE
VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES
OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE
BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
ISSUER HEREOF."
VI.3 Notice of Transfer.
------------------
(a) The holder of any Restricted Securities, by acceptance thereof
agrees, prior to any Transfer of any Restricted Securities, to give written
notice to the Company of such holder's intention to effect such transfer and to
comply in all other respects with the provisions of this Section 6.3. Each such
notice shall describe the manner and circumstances of the proposed Transfer and,
if requested by the Company, shall be accompanied by (i) the written opinion,
addressed to the Company, of counsel for the holder of Restricted Securities, as
to whether in the opinion of such counsel (which opinion and counsel shall be
reasonably satisfactory to the Company) such proposed Transfer does not involve
a transaction requiring registration of such Restricted Securities under the
Securities Act; provided, however, that no such opinion shall be required in
connection with a Transfer pursuant to Rule 144 (as amended from time to time)
promulgated under the Securities Act (or successor rules thereto), provided,
that the Company, shall be provided with customary written representations
relating to such transaction reasonably satisfactory to counsel for the Company.
(b) If in the opinion of such counsel the proposed Transfer of
Restricted Securities may be effected without registration under the Securities
Act, the holder of Restricted Securities shall thereupon be entitled to Transfer
the Restricted Securities in accordance with the terms of the notice delivered
by it to the Company.
(c) Each certificate or other instrument evidencing the securities
issued upon the Transfer of any Restricted Securities (and each certificate or
other instrument evidencing any untransferred balance of such securities) shall
bear the legend set forth in Section 6.2 hereof unless (i) in the opinion of
such counsel registration of future Transfer is not required by the applicable
provisions of the Securities Act or (ii) the Company shall have waived the
requirement of such legends; provided, however, that such legend shall not be
required on any certificate or other instrument evidencing the securities issued
upon such Transfer in the event such Transfer shall be made in compliance with
the requirements of Rule 144 (as amended from time to time) promulgated under
the Securities Act (or successor rule thereto) unless such Transfer is made to
an Affiliate of the Company. Whenever any Security held by a Purchaser is no
longer a Restricted Security, such Purchaser shall be entitled to receive from
the Company,
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without expense to such Purchaser, a new certificate evidencing such Security
not bearing the legend set forth in Section 6.2 hereof.
(d) The holder of Restricted Securities shall not Transfer such
Restricted Securities until such opinion of counsel has been given (unless
waived by the Company) or until registration of the Restricted Shares involved
in the above-mentioned request has become effective under the Securities Act.
VI.4 Transfer Pursuant to Rule 144.
-----------------------------
The Company agrees to use its best efforts to provide to the holders of the
Restricted Securities (and upon a holder's request to any prospective Purchaser
designated by a holder) the financial and other information specified in Rule
144 under the Securities Act and to take any other action or to execute any
certificates necessary to permit a transfer by any holder of Restricted
Securities to qualify for the exemption set forth in Rule 144.
ARTICLE VII
INFORMATION RIGHTS
VII.1 Access to Records.
-----------------
(a) The Company shall afford to each Significant Holder and its
employees, counsel and other authorized representatives, during normal business
hours, reasonable access, upon reasonable advance notice, to all of the books,
records and properties of the Company and its Subsidiaries and to all officers
and employees of the Company and its Subsidiaries. The Company will instruct its
independent public accountants to discuss such aspects of the financial
condition of the Company with any Purchaser and its representatives as such
Purchaser may reasonably request, and to permit such Purchaser and its
representatives to inspect, copy and make extracts from such financial
statements, analyses, work papers and other documents and information (including
electronically stored documents and information) prepared by such accountants
with respect to the Company as such holder may reasonably request. All costs and
expenses incurred by such Purchaser and its representatives in connection with
exercising such rights of access shall be borne by such Persons, and all out-of-
pocket costs and expenses incurred by the Company in complying with any
extraordinary requests by such Purchaser and its representatives in connection
with exercising such access rights shall be borne by such Purchaser.
(b) Each Purchaser shall use its reasonable efforts to maintain the
confidentiality of any confidential and proprietary information obtained by it
under this Section 7.1 and shall not use, or permit the use of, any of such
confidential and proprietary information in its business or the business of any
company in which it may have an ownership interest or in any manner or for any
other purpose except as contemplated hereby; provided, however, that the
foregoing shall in no way limit or otherwise restrict the ability of any
Purchaser or such authorized representatives to disclose any such information
concerning the Company which it may be required to disclose (i) to its partners
or limited partners to the extent required to satisfy its fiduciary obligations
to such persons or (ii) otherwise pursuant to or as required by law.
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(c) As used herein, "Significant Holder" means, and includes, any
Purchaser who, at the time in question, shall own, together with its Affiliates,
at least 5% of the outstanding Common Equivalents at the time in question.
VII.2 Financial Reports.
The Company shall furnish each Significant Holder with the following:
(a) Default Notice. As soon as possible and in any event within two
days after the occurrence of each Default, a statement of the chief financial
officer or treasurer of the Company setting forth the nature of such Default and
the action that the Company has taken and proposes to take with respect thereto.
(b) Quarterly Financials. As soon as available and in any event
within 45 days after the end of each of the first three quarters of each Fiscal
Year, (x) unaudited consolidated and consolidating balance sheets of the Company
and its Subsidiaries as of the end of such quarter and unaudited consolidated
and consolidating statements of operations, an unaudited consolidated statement
of cash flows and statement of stockholders equity of the Company and its
consolidated Subsidiaries for the period commencing at the end of the previous
fiscal quarter and ending with the end of such fiscal quarter and (y) unaudited
consolidated and consolidating statements of operations, an unaudited
consolidated statement of cash flows and statement of stockholders equity of the
Company and its Subsidiaries for the period commencing at the end of the
previous Fiscal Year and ending with the end of such quarter, setting forth in
each case in comparative form the corresponding figures for the corresponding
period of the preceding Fiscal Year, all in reasonable detail and duly certified
(subject to normal yearend adjustments, provided that such adjustments are not
material individually or in the aggregate) by the chief financial officer or
treasurer of the Company as having been prepared in accordance with GAAP
consistent with those applied in the most recent annual audit, together with (i)
a certificate of said officer stating that such officer has obtained no
knowledge that a Default has occurred and is continuing or, if a Default has
occurred and is continuing, a statement as to the nature thereof and the action
that the Company has taken and proposes to take with respect thereto, (ii) a
schedule in form reasonably satisfactory to the Purchaser of the computations
used by the Company in determining compliance with the covenant set forth in
Section 8.5(n), (iii) a schedule showing all expenditures of a capital nature in
excess of $50,000 individually during such Fiscal Year, (iv) a summary report
prepared by such officer, in form reasonably satisfactory to the Purchaser,
comparing the information in such quarterly financial statements to the Business
Plan for the Fiscal Year in which such quarter occurs, and (v) a statement that
such financial statements have been prepared in accordance with GAAP
consistently applied, or in the event of any change from GAAP in the accounting
principles used in the preparation of such financial statements, a statement of
reconciliation conforming such financial statements to GAAP.
(c) Annual Financials. As soon as available and in any event within
90 days after the end of each Fiscal Year, a copy of the annual audit report for
such year for the Company and its Subsidiaries, including therein consolidated
balance sheets of the Company and its Subsidiaries as of the end of such Fiscal
Year and consolidated statements of operations, consolidated statements of cash
flows and statements of stockholders equity of the Company and its consolidated
Subsidiaries for such Fiscal Year, in each case reported on without
qualification
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arising out of the scope of the audit by independent public accountants of
nationally recognized standing and without a "going concern" paragraph, together
with (i) a certificate of such accounting firm to the Purchaser stating that in
the course of the regular audit of the business of the Company and its
Subsidiaries, which audit was conducted by such accounting firm in accordance
with generally accepted auditing standards, such accounting firm has obtained no
knowledge that a Default has occurred and is continuing, or if, in the opinion
of such accounting firm, a Default has occurred and is continuing, a statement
as to the nature thereof, (ii) a schedule in form reasonably satisfactory to the
Purchaser of the computations used by the Company and confirmed by such
accountants to be correct in determining, as of the end of such Fiscal Year,
compliance with covenant set forth in Section 8.5(n), (iii) a certificate of the
chief financial officer or treasurer of the Company stating that such officer
has obtained no knowledge that a Default has occurred and is continuing or, if a
default has occurred and is continuing, a statement as to the nature thereof and
the action that the Company has taken and proposes to take with respect thereto,
(iv) a schedule showing all expenditures of a capital nature in excess of
$50,000 individually during such Fiscal Year, (v) a report prepared by such
officer, in form reasonably satisfactory to the Purchaser, comparing the
information in such annual financial statements to the Business Plan for the
applicable Fiscal Year and (vi) in the event of any change from GAAP in the
generally accepted accounting principles used in the preparation of such
financial statements, a statement of reconciliation conforming such financial
statements to GAAP.
(d) Annual Business Plans. As soon as available and in any event no
later than 30 days from the end of each Fiscal Year, the Business Plan prepared
by management of the Company.
(e) Material Notices, etc. Promptly upon delivery thereof, copies of
all notices, filings, requests and other documents (i) delivered by or to the
Company under or pursuant to any Material Agreement, in either case regarding or
related to any breach by any party thereto of a material term thereof or any
default by any party thereto thereunder; and (ii) delivered by the Company to
the FDA or the EC or by the FDA or the EC to the Company to the extent such
documents are material to the Business. Promptly following its receipt of notice
of the commencement of any action, suit, claim, legal or administrative or
arbitration proceeding or investigation, any of which would reasonably be
expected, on the basis of current economic conditions and other facts and
circumstances known to the Company at the time, to have a Material Adverse
Effect, the Company shall deliver a written notice to each Purchaser describing
in reasonable detail such proceeding.
(f) Revenue Agent Reports. Within 15 days after receipt, copies of
all Revenue Agent Reports (Internal Revenue Service Form 886A or any successor
form prescribed by the Internal Revenue Service), that propose, determine or
otherwise set forth positive adjustments to the Federal income tax liability of
the affiliated group (within the meaning of Section 1504(a)(1) of the Internal
Revenue Code) of which the Company is a member aggregating $50,000 or more.
(g) Documents to Stockholders; SEC Filings. Copies of all financial
statements, reports, press releases, notices, proxy statements and other
documents sent by the Company to its stockholders generally or released to the
public and copies of all filings by the Company with the SEC or any securities
exchange.
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(h) Accountants Reports. Upon the request of the Purchaser, copies
of all reports prepared for or delivered to the management or Board of Directors
of the Company (or any committee of the Board of Directors) by its accountants.
(i) Other Information. Such other information respecting the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any of its Subsidiaries as any
Significant Holder may from time to time reasonably request.
ARTICLE VIII
ADDITIONAL AGREEMENTS OF THE CORPORATION
VIII.1 Compliance.
The Company and the Subsidiaries (a) in carrying out their businesses shall
comply in all material respects with Legal Requirements of any Governmental
Authority applicable to it, its business and the ownership of its assets,
(including (x) obtaining all premarket notification clearances and premarket
approvals of the FDA and CE Marks of the EC when required prior to introducing
new products or modifying existing products and (y) filing all 33 Act and 34 Act
Reports in the forms and at the times required by the Securities Act and the
Exchange Act), and (b) shall obtain and maintain in full force and effect all
Federal, state, local and foreign governmental licenses and permits material to
and necessary in the conduct of its business and such licenses and permits shall
be maintained, in full force and effect.
VIII.2 Insurance.
(a) All the insurable properties of the Company and the Subsidiaries
shall be insured for the benefit of the Company and its Subsidiaries in the full
amounts required to protect the Company and its Subsidiaries against all risks
usually insured against by Persons operating similar properties in the
localities in which such properties are located under policies in effect and
issued by national insurers of recognized responsibility.
(b) The Company shall use its best efforts to maintain the key-person
life insurance policy referred to in Section 4.5 hereof for Michael Szycher in
the amount of $2,000,000.
(c) The Company shall maintain the other insurance coverage specified
on Schedule 8.2 hereto including product liability, directors' and officers'
liability.
VIII.3 Election of Directors.
(a) As long as the Purchased Notes are outstanding, (i) in connection
with any annual meeting, special meeting or written consent of the stockholders
of the Company with respect to the election of any director, the Company and its
board of directors shall nominate and recommend to the Company's stockholder's
that a designee of the holders of a majority of the then outstanding principal
amount of the Notes (the "Requisite Holders") be elected as a director of the
Company (unless an individual previously designated by the Requisite Holders
will
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otherwise continue as a director of the Company following such meeting or
consent), and the Company shall use its best efforts to obtain such designee's
election and (ii) in connection with the filling of any vacancy on the board of
directors by such directors as a result of the death, resignation or replacement
of an individual previously designated by the Requisite Holders, the Company and
its board of directors shall appoint another individual designated by Requisite
Holders. The individual designated to be a director of the Company pursuant to
Section 4.9 or this Section 8.3 is hereinafter referred to a the "Designated
Director".
(b) The Designated Director shall be a member of (i) a three member
Board Nominations Committee, which will be formed to consider and recommend
nominees to the Board of Directors, and (ii) the Compensation Committee of the
Board of Directors.
(c) Within three months of the Initial Closing Date, the Company will
form an Executive Committee within the Board of Directors comprised of at least
three, but no more than four, persons, which such committee will make
recommendations to the Board of Directors on matters of corporate strategy. The
Designated Director shall be a member of the Executive Committee.
VIII.4 Affirmative Covenants.
The Company shall, and shall cause its Subsidiaries, as applicable, to
observe and perform the following:
(a) Proceeds. The Company shall use the proceeds of the sale of the
Purchased Notes solely in the manner described in this Agreement.
(b) Payment of Taxes, etc. The Company shall pay and discharge, and
cause each of its Subsidiaries to pay and discharge, before the same shall
become delinquent, (i) all amounts of taxes, assessments and governmental
charges or levies imposed upon it or upon its property and (ii) all lawful
claims that, if unpaid, could reasonably be expected by law to become an
Encumbrance upon its property; provided, however, that neither the Company nor
any of its Subsidiaries shall be required to pay or discharge any such tax,
assessment, charge or claim (y) that is being contested in good faith and by
proper proceedings and as to which appropriate reserves are being maintained or
(z) the non-payment or non-discharge of which could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
(c) Preservation of Corporate Existence, etc. The Company shall
preserve and maintain, and cause each of its Subsidiaries to preserve and
maintain, its corporate existence; provided, however, that any Subsidiary may
merge or consolidate with any other Subsidiary or the Company. The Company shall
preserve and maintain, and cause each of its Subsidiaries to preserve and
maintain, its rights (charter and statutory), and all material permits,
licenses, approvals, privileges and franchises necessary or desirable in the
normal conduct of its business, except any thereof the non-preservation or non-
maintenance of which could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
(d) Keeping of Books. The Company shall keep, and cause each of its
Subsidiaries to keep, proper books of record and account, in which entries which
are full and
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correct in all material respects shall be made of all financial transactions and
the assets and business of the Company and each such Subsidiary in accordance
with GAAP.
(e) Maintenance of Properties, etc. The Company shall maintain and
preserve, and cause each of its Subsidiaries to maintain and preserve, all of
its properties that are reasonably required in the conduct of its business in
good working order and condition, ordinary wear, tear and depletion excepted,
except any thereof the non-maintenance or non-preservation of which could not
reasonably be expected to have a Material Adverse Effect.
(f) Transactions with Affiliates. The Company shall conduct, and
cause each of its Subsidiaries to conduct, all transactions otherwise permitted
under the Documents with any of their Affiliates on terms that are fair and
reasonable and no less favorable to the Company or such Subsidiary than it would
obtain in a comparable arm's-length transaction with a Person not an Affiliate.
(g) Share Listings. The Company shall maintain its listing of Common
Stock on the American Stock Exchange, the Nasdaq National Market System or such
other national securities exchange which is acceptable to the Purchasers.
(h) Nature of Business. The Company will not, and will cause its
Subsidiaries not to, conduct any business or operations other than the Business
or activities reasonably related to the Business or form or acquire any
Subsidiary.
(i) ERISA. The Company shall, and shall cause each of its
Subsidiaries and ERISA Affiliates to, (a) comply in all material respects with
the provisions of ERISA applicable to any Employee Plan maintained by the
Company, and their ERISA Affiliates, (b) not engage in any transaction in
connection with which any Company or ERISA Affiliate could be subject to a civil
penalty assessed pursuant to Sections 502(i) or 502(l) of ERISA or a Tax imposed
by Section 4975 of the Code, (c) not terminate or withdraw from any Employee
Plan which could result in any material liability to the Company or any ERISA
Affiliate, or any other Person, including the Pension Benefit Guaranty
Corporation ("PBGC"), (d) not incur any material Liability to the PBGC on
account of a termination of a Plan pursuant to Section 4064 of ERISA, or (e)
make full payment when due of all amounts which, under the provisions of any
Employee Plan, any Company or ERISA Affiliate is required to pay as a
contribution thereto. The Company or their designee shall, and shall cause each
of their ERISA Affiliates to, (i) not permit to exist any accumulated funding
deficiency, whether or not waived, with respect to any Plan, if in any such
case, such penalty or tax or such liability, or the existence of such
deficiency, as the case may be, could have a Material Adverse Effect on the
Company or any ERISA Affiliate, and (ii) furnish to each Purchaser, as soon as
possible, and in any event within ten (10) days after any officer of the Company
knows or has reason to know of any of the following events, written notice of
the same: (A) the occurrence or expected occurrence of any ERISA Event (such
notice to be accompanied by a certificate of the chief financial officer of the
Company setting forth the details thereof and the action that the Company or
such ERISA Affiliate proposes to take with respect thereto).
(j) Compliance with Environmental and Safety Requirements. The
Company shall comply, and cause each of its Subsidiaries and all lessees and
other Persons operating or
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occupying its properties to comply with all applicable Environmental and Safety
Requirements; and conduct, and cause each of its Subsidiaries to conduct, any
investigation, study, sampling and testing, and undertake any cleanup, removal,
remedial or other action necessary to remove and clean up all Hazardous
Materials from any of its properties, in accordance with the requirements of all
Environmental and Safety Requirements; provided, however, that neither the
Company, nor any of its Subsidiaries shall be required to undertake any such
cleanup, removal, remedial or other action to the extent that its obligation to
do so is being contested in good faith and by proper proceedings and appropriate
reserves are being maintained with respect to such circumstances.
(k) Continuity of Agreements.
(i) The Company shall perform and observe all of the terms and
provisions of each Material Agreement to be performed or observed by it,
maintain each such Material Agreement in full force and effect, and enforce
such Material Agreement in accordance with its terms, except where the
failure to so comply, perform, observe, maintain or enforce could not
reasonably be expected to have a Material Adverse Effect.
(ii) The Company shall perform and observe all of the terms and
provisions of each Employment Agreement to be performed and observed by it,
maintain each such Employment Agreement in full force and effect, and
enforce each such Employment Agreement in accordance with its terms.
(l) New Developments. The Company shall cause all technological
developments, patentable or unpatentable inventions, discoveries or improvements
by the Company's or any Subsidiary's employees or consultants to be documented
in accordance with industry practice and, where possible and appropriate, to
file and prosecute United States and foreign patent, copyright, trademark, mask
work or other Intellectual Property Right applications relating to and
protecting the such developments, inventions, discoveries or improvements on
behalf of the Company or any Subsidiary; provided that the Company shall not
file any such patent application without the prior written approval of the
Requisite Holders, which consent shall not be unreasonably withheld.
(m) The Company will use its best efforts to hire within three (3)
months of the Initial Closing Date, and shall hire by the date which is five (5)
months after the Initial Closing Date a specialist in the field of medical
device regulatory affairs to manage regulatory issues for the Company. The
Company will also use its best efforts to hire within three (3) months of the
Initial Closing Date a business development professional to manage and implement
corporate development for the Company, in each case acceptable to the
Purchasers.
VIII.5 Negative Covenants.
As long as the Purchasers hold Notes with an aggregate principal amount of
at least 10% of the cumulative amount of Notes issued pursuant to this
Agreement, the Company shall not, without the prior written consent of the
Requisite Holders:
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(a) Encumbrances, etc. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to exist, any
Encumbrance on or with respect to any of its properties of any character
(including accounts) whether now owned or hereafter acquired, or sign or file or
suffer to exist, or permit any of its Subsidiaries to sign or file or suffer to
exist, under the Uniform Commercial Code of any jurisdiction, a financing
statement that names the Company or any of its Subsidiaries as debtor, or sign
or suffer to exist, or permit any of its Subsidiaries to sign or suffer to
exist, any security agreement authorizing any secured party thereunder to file
such financing statement, or assign, or permit any of its Subsidiaries to
assign, any accounts or other right to receive income, excluding, however, from
the operation of the foregoing restrictions, Permitted Encumbrances.
(b) Debt. Create, incur, assume or suffer to exist, or permit any of
its Subsidiaries to create, incur, assume or suffer to exist, any Debt other
than in the case of the Company:
(i) the Purchased Notes;
(ii) the Debenture dated on or about April 3,1998 between the
Company's Subsidiary and Freemedic PLC executed in connection with the Loan
and Option Agreement dated as of the date hereof among the Company, the
Company's Subsidiary and Freemedic PLC;
(iii) Capitalized Leases not to exceed $150,000 in the
aggregate;
(iv) Debt secured by Purchase Money Encumbrances; and
(v) additional Debt not to exceed $150,000 in the aggregate.
(c) Mergers, etc. Merge into or consolidate with any Person or permit
any Person to merge into it, or permit any of its Subsidiaries to do so, except
that any Subsidiary of the Company may merge into or consolidate with the
Company and any other Subsidiary of the Company provided that, in the case of
any such merger or consolidation, the Person formed by such merger or
consolidation shall be a wholly owned Subsidiary of the Company.
(d) Sale of Assets, etc. Make, or permit any of its Subsidiaries to
make, any Asset Sale unless (A) the Company or Subsidiary receives consideration
at the time of such Asset Sale at least equal to the fair market value (as
determined in good faith by the Board of Directors of the Company, including as
to the value of all noncash consideration and evidenced by a resolution of the
Board of Directors) of the assets or Securities issued or sold or otherwise
disposed of and (B) in the case of any Asset Sale involving Net Cash Proceeds
(whether in cash or property) in excess of $100,000 or involving assets or
Securities with a fair market value in excess of $100,000, at least 85% of the
consideration theretofore received by the Company or such Subsidiary is in the
form of cash; provided, however, that for the purposes of this covenant, the
following are deemed to be cash: (1) any liabilities (as shown on the Company's
or such Subsidiary's most recent balance sheet or in the notes thereto) of the
Company or such Subsidiary that are assumed by the transferee in connection with
the Asset Sale (other than liabilities that are incurred in connection with or
in anticipation of such Asset Sale); and (2) securities received by
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the Company or such Subsidiary from such transferee that are immediately
converted into cash by the Company or such Subsidiary.
(e) Investments in Other Persons. Make, or permit any of its
Subsidiaries to make, any Investments, other than Investments in which the
consideration (in cash, securities or otherwise) to be paid by the Company and
its Subsidiaries is less than $50,000; provided, that for the purposes of this
covenant, the value of any liabilities assumed by the Company or its
Subsidiaries in connection with any such Investment shall be included in the
calculation of such consideration paid.
(f) Expenditures.
------------
(i) Make or permit any of its Subsidiaries to make, any capital
expenditure (in one or a series of related transactions) in excess of
$50,000.
(ii) Make, or permit any of Subsidiaries to make, any expenditure
to any third party for services (in one or a series of related
transactions) in excess of $100,000, other than expenditures for services
to the Company or its Subsidiaries in the ordinary course of business.
(g) Restricted Payments. Declare or pay any dividends, purchase,
redeem, retire, defease or otherwise acquire for value any of its capital stock
or any warrants, rights or options to acquire such capital stock, now or
hereafter outstanding, return any capital to its stockholders as such, make any
distribution of assets, capital stock, warrants, rights, options, obligations or
securities to its stockholders as such, or permit any of its Subsidiaries to do
any of the foregoing or permit any of its Subsidiaries to purchase, redeem,
retire, defease or otherwise acquire for value any capital stock of the Company
or any warrants, rights or options to acquire such capital stock or to issue or
sell any capital stock or any warrants, rights or options to acquire such
capital stock, except that, any Subsidiary of the Company may declare and pay
dividends to the Company.
(h) Limitation on Ranking of Future Indebtedness. Directly or
indirectly, incur, create or suffer to exist any Debt which is senior or
superior in right of payment (to any extent) to the Purchased Notes.
(i) Charter Amendments. Amend its Articles of Incorporation or any
material provision of its By-Laws in a manner that would adversely affect the
rights of the holders of the Notes.
(j) Issuance of Superior Capital Stock or Other Equity Interests.
Authorize, create, or issue any (i) equity securities of the Company having
rights, preferences or priorities (including dividend and liquidation
preferences) equal to or superior to the Common Stock (it being understood that
the Company may issue Common Stock) or (ii) bonds, debentures, notes or other
obligations convertible into or exchangeable for or having option rights to
purchase, any shares of stock of the Company having rights, preferences or
priorities (including dividend and liquidation preferences) equal to or superior
to the Common Stock or the Purchased Notes. Permit any Subsidiary to authorize
or create any capital stock or issue any capital stock
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(including any options or warrants convertible into capital stock) to any person
other than the Company or another Subsidiary.
(k) Inconsistent Agreements. The Company will not, and will cause
its Subsidiaries not to, enter into any material agreement containing any
provision which would be violated or breached by the exercise or performance by
the Company of any of its rights or obligations under any Document.
(l) Agreements. Enter into, or permit any Subsidiary to enter into,
any agreement or commitment or otherwise become bound or obligated to do or
perform any of the foregoing actions.
(m) Creation of Subsidiaries; Maintenance of Ownership in
Subsidiaries. Create any Subsidiary or sell or otherwise dispose of any shares
of capital stock of any Subsidiary, except to another Subsidiary, or permit any
Subsidiary to issue, sell or otherwise dispose of any shares or rights to
acquire any of its capital stock or the capital stock of any Subsidiary, except
to the Company or another Subsidiary; provided, however, that the Company may
liquidate, merge or consolidate any Subsidiary or Subsidiaries into or with
itself, provided that the Company is the surviving entity, or into or with
another Subsidiary or Subsidiaries, or the Company may sell all or a portion of
any Subsidiary to the Company or any other Subsidiary, provided that after
giving effect to the transaction, the Subsidiary continues to remain a member of
the Company's "consolidated group" for tax and accounting purposes.
(n) Net Worth. At any time, the (i) consolidated stockholders' equity
of the Company and its Subsidiaries as of such time plus (ii) the aggregate
principal amount of the Notes issued on the Initial Closing Date pursuant to
this Agreement (to the extent outstanding as of such time and not converted or
redeemed as of such time) shall not be less than $750,000, as determined in
accordance with GAAP.
ARTICLE IX
|
MISCELLANEOUS
IX.1 Fees.
----
(a) The Company will pay, and hold the Purchasers harmless against all
Liability for the payment of, (i) all reasonable costs and other expenses
incurred from time to time by the Company in connection with the Company's
performance of and compliance with all agreements and conditions contained
herein on its part to be performed or complied with (including the reasonable
costs and expenses of counsel incurred in connection with the review and
preparation of the Documents), (ii) a closing fee equal to $37,500, (iii) the
actual, out-of-pocket costs and expenses incurred by the Purchasers at or prior
to closing in connection with the transactions contemplated hereby, including
fees and charges of O'Sullivan Graev & Karabell, LLP (counsel to the Purchasers)
and Boston Biomedical (consultant to the Purchasers), in connection with the
purchase and ownership of the Purchased Notes, (iv) the reasonable costs and
expenses (including fees and expenses of counsel) incurred by the Purchasers in
connection with any amendment or waiver of, or enforcement of, any Document
relating to the transactions
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contemplated hereby, and (v) the reasonable fees and expenses incurred by the
Purchasers in any filing with any Governmental Authority with respect to its
investment in the Company or in any other filing with any Governmental Authority
with respect to the Company that mentions the Purchasers (the amounts referred
to in clauses (ii)-(v), collectively, the "Fees and Expenses"). In addition, in
connection with the Initial Closing, the Company shall pay the Purchaser a
commitment fee equal to $2,500 (the "Commitment Fee") in respect of the
Company's commitment to purchase additional Notes pursuant to Section 1.1(b)
(subject to the conditions described therein).
(b) The Company further agrees that it will pay, and will hold the
Purchasers harmless from, any and all Liability with respect to any stamp or
similar taxes which may be determined to be payable in connection with the
execution and delivery and performance of the Documents or any modification,
amendment or alteration of the terms or provisions of the Documents, and that it
will similarly pay and hold the Purchasers harmless from all issue taxes in
respect of the issuance of the Reserved Common Shares to the Purchasers.
IX.2 Further Assurances.
------------------
The Company shall duly execute and deliver, or cause to be duly executed
and delivered, at its own cost and expense, such further instruments and
documents and to take all such action, in each case as may be necessary or
proper in the reasonable judgment of the Purchasers to carry out the provisions
and purposes of the Agreement and the other Documents.
IX.3 Remedies.
--------
In case any one or more of the representations, warranties, covenants
and/or agreements set forth in this Agreement shall have been breached by the
Company, the Purchasers may proceed to protect and enforce its or their rights
either by suit in equity and/or by action at law, including an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Agreement.
IX.4 Successors and Assigns.
----------------------
This Agreement shall bind and inure to the benefit of the Company and the
Purchasers and their respective successors, transferees, assigns, heirs and
personal representatives. Upon any Transfer of the Purchased Notes or the
Reserved Common Shares, the transferee shall be bound by, and entitled to the
benefits of, this Agreement with respect to such transferred shares in the same
manner as the transferring Purchaser.
IX.5 Entire Agreement.
----------------
This Agreement and the other writings referred to herein or delivered
pursuant hereto which form a part hereof contain the entire agreement among the
parties with respect to the subject matter hereof and thereof and supersede all
prior and contemporaneous arrangements or understandings with respect thereto.
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IX.6 Notices.
All notices and other communications delivered hereunder (whether or not
required to be delivered hereunder) shall be deemed to be sufficient and duly
given if contained in a written instrument (a) personally delivered, (b) sent by
telecopier, (c) sent by nationally-recognized overnight courier guaranteeing
next Business Day delivery or (d) sent by first class registered or certified
mail, postage prepaid, return receipt requested, in each case addressed as
follows:
(i) if to the Company, to:
CardioTech International, Inc.
11 State Street
Woburn, Massachusetts 01801
Telephone: (781) 933-4772
Telecopier: (781) 933-3933
Attention: John Mattern, Chief Financial Officer;
with a copy to:
Mintz Levin Cohn Ferris Glovsky and Popeo PC
One Financial Center
Boston, Massachusetts 02111
Telephone: (617) 542-6000
Telecopier: (617) 542-2241
Attention: Michael Fantozzi, Esq.;
(ii) if to a Purchaser, to him, her or it at his, her or its
address set forth on Schedule I attached hereto;
with a copy to:
Dresdner Kleinwort Benson Private Equity Partners LP
75 Wall Street, 24th Floor
New York, NY 10005
Telephone: (212) 429-3080
Telecopier: (212) 429-3219
Attention: Christopher Hammond
and with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, NY 10112
Telephone: (212) 408-2400
Telecopier: (212) 408-2420
Attention: Harvey M. Eisenberg, Esq.
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or to such other address as the party to whom such notice or other communication
is to be given may have furnished to each other party in writing in accordance
herewith. Any such notice or communication shall be deemed to have been received
(i) when delivered, if personally delivered, (ii) when sent, if sent by telecopy
on a Business Day (or, if not sent on a Business Day, on the next Business Day
after the date sent by telecopy), (iii) on the next Business Day after dispatch,
if sent by nationally recognized, overnight courier guaranteeing next Business
Day delivery, and (iv) on the fifth Business Day following the date on which the
piece of mail containing such communication is posted, if sent by mail.
IX.7 Amendments, Modifications and Waivers.
-------------------------------------
The terms and provisions of this Agreement may not be modified or amended,
nor may any of the provisions hereof be waived, temporarily or permanently,
except pursuant to a written instrument executed by the Company and the holders
of a majority of the aggregate principal amount of Purchased Notes issued
pursuant to this Agreement and held by the Purchasers.
IX.8 Governing Law; Waiver of Jury Trial.
-----------------------------------
(a) All questions concerning the construction, interpretation and
validity of this Agreement shall be governed by and construed and enforced in
accordance with the domestic laws of the State of New York, without giving
effect to any choice or conflict of law provision or rule (whether in the State
of New York or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York. In furtherance of the
foregoing, the internal law of the State of New York will control the
interpretation and construction of this Agreement, even if under such
jurisdiction's choice of law or conflict of law analysis, the substantive law of
some other jurisdiction would ordinarily or necessarily apply.
(b) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE LAWS TO APPLY (RATHER THAN
ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO
ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS
RELATED HERETO.
IX.9 No Third Party Reliance.
-----------------------
Anything contained herein to the contrary notwithstanding, the
representations and warranties of the Company contained in this Agreement (a)
are being given by the Company as an inducement to the Purchasers to enter into
this Agreement and the other Documents (and the Company acknowledges that the
Purchasers have expressly relied thereon) and (b) are solely for the benefit of
the Purchasers. Accordingly, no third party (including, without limitation, any
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holder of capital stock of the Company) or anyone acting on behalf of any
thereof other than the Purchasers or the Purchaser Representatives, and each of
them, shall be a third party or other beneficiary of such representations and
warranties and no such third party shall have any rights of contribution against
the Purchasers or the Company with respect to such representations or warranties
or any matter subject to or resulting in indemnification under this Agreement or
otherwise.
IX.10 Extension; Waiver.
-----------------
At any time after the Initial Closing, the parties may (a) extend the time
for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant to this
Agreement and (c) waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party, and any such waiver shall not operate or be
construed as a waiver of any subsequent breach by the other party.
IX.11 Severability.
------------
It is the desire and intent of the parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the law and public
policies applied in each jurisdiction in which enforcement is sought.
Accordingly, in the event that any provision of this Agreement would be held in
any jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
IX.12 Independence of Agreements, Covenants, Representations and Warranties.
---------------------------------------------------------------------
All agreements and covenants hereunder shall be given independent effect so
that if a certain action or condition constitutes a default under a certain
agreement or covenant, the fact that such action or condition is permitted by
another agreement or covenant shall not affect the occurrence of such default,
unless expressly permitted under an exception to such initial covenant. In
addition, all representations and warranties hereunder shall be given
independent effect so that if a particular representation or warranty proves to
be incorrect or is breached, the fact that another representation or warranty
concerning the same or similar subject matter is correct or is not breached will
not affect the incorrectness of or a breach of a representation and warranty
hereunder. The exhibits and schedules attached hereto are hereby made part of
this Agreement in all respects. Any disclosure made in any Schedule to this
Agreement which should, based on the substance of such disclosure, be applicable
to another Schedule to this Agreement shall be deemed to be made with respect to
such other Schedule regardless of whether or not a specific reference is made
thereto; provided, that the description of such item on a
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Schedule is such that the Purchasers could reasonably be expected to ascertain
that such disclosure would relate to such other provision of this Agreement.
IX.13 Exchanges; Lost, Stolen or Mutilated Certificates.
-------------------------------------------------
Upon surrender by any Purchaser to the Company of any certificate
representing Securities, the Company at its expense shall issue in exchange
therefor, and deliver to such Purchaser, a new certificate or certificates
representing such shares, in such denominations as may be requested in writing
by such Purchaser. Every certificate representing Securities surrendered for
registration shall be duly endorsed. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
certificate representing any Securities purchased or acquired by a Purchaser,
any such loss, theft or destruction, upon delivery of any indemnity agreement
reasonably satisfactory to the Company, or in case of any such mutilation, upon
surrender and cancellation of such certificate, the Company at its expense will
issue and deliver to such Purchaser a new certificate for such Securities of
like tenor and in the same amount and name, in lieu of such lost, stolen or
mutilated certificate.
IX.14 Rules of Construction.
---------------------
The term "this Agreement" means this agreement together with all schedules
and exhibits hereto, as the same may from time to time be amended, modified,
supplemented or restated in accordance with the terms hereof. In this Agreement,
the term "Best Knowledge" of any Person means (i) actual knowledge of such
Person (including the actual knowledge of the executive officers and directors
of such Person) and (ii) that knowledge which could have been acquired by such
Person after making such due inquiry and exercising such due diligence as a
prudent businessperson would have made or exercised in the management of his or
her business affairs, including due inquiry of those key employees and
professionals of such Person who could reasonably be expected to have actual
knowledge of the matters in question. The use in this Agreement of the term
"including" means "including, without limitation." The words "herein," "hereof,"
"hereunder" and other words of similar import refer to this Agreement as a
whole, including the schedules and exhibits, as the same may from time to time
be amended, modified, supplemented or restated, and not to any particular
section, subsection, paragraph, subparagraph or clause contained in this
Agreement. All references to sections, schedules and exhibits mean the sections
of this Agreement and the schedules and exhibits attached to this Agreement,
except where otherwise stated. The title of and the section and paragraph
headings in this Agreement are for convenience of reference only and shall not
govern or affect the interpretation of any of the terms or provisions of this
Agreement. The use herein of the masculine, feminine or neuter forms shall also
denote the other forms, as in each case the context may require or permit. Where
specific language is used to clarify by example a general statement contained
herein, such specific language shall not be deemed to modify, limit or restrict
in any manner the construction of the general statement to which it relates. The
language used in this Agreement has been chosen by the parties to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
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IX.15 Public Announcements.
--------------------
The Company shall not use any Purchaser's name or refer to any Purchaser
directly or indirectly in connection with such Purchaser's relationship with the
Company in any advertisement, news release or professional or trade publication,
or in any other manner, unless otherwise required by law or with such
Purchaser's prior consent. Each party agrees not to issue any press releases or
other public statements regarding the proposed or completed transactions among
them without the prior review and approval of the other parties, which will not
be unreasonably withheld, except for (i) any disclosures required pursuant to
Legal Requirements or stock exchange requirements or (ii) any tombstone and
other promotional materials relating to the transaction contemplated hereby
which may be produced or distributed by Dresdner Kleinwort Benson Private Equity
Partners LP. Notwithstanding the foregoing, the parties acknowledge that the
Company will file this Agreement as an exhibit, and disclose the transactions
contemplated by this Agreement, in its reports filed pursuant to the Exchange
Act.
IX.16 Counterparts; Facsimile Signatures.
----------------------------------
This Agreement may be executed in any number of counterparts, and each such
counterpart hereof shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement. Facsimile counterpart
signatures to this Agreement shall be acceptable and binding.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Note
Purchase Agreement as of the date first above written.
CARDIOTECH INTERNATIONAL, INC.
By: /s/ Michael Szycher, Ph.D.
--------------------------
Name: Michael Szycher, Ph.D.
Title: CEO
Purchasers:
DRESDNER KLEINWORT BENSON
PRIVATE EQUITY PARTNERS LP
By: Dresdner Kleinwort Benson
Private Equity Managers LLC,
its general partner
By: /s/ Jonathan Walker
-------------------
Name: Jonathan Walker
Title: Authorized Person
<PAGE>
SCHEDULE I
Purchasers
----------
Dresdner Kleinwort Benson
Private Equity Partners LP
75 Wall Street, 24th Floor
New York, NY 10025
Telephone: (212) 429-3207
Telecopier: (212) 429-3139
Attention: Jonathan S. Walker
EXHIBIT A
DEFINED TERMS
-------------
"Affiliate" means (i) with respect to any individual, (A) a spouse,
parent, sibling, descendant, step-child, niece or nephew of such individual and
(B) any trust or family partnership whose beneficiaries shall solely be such
individual and/or such individual's spouse and/or any Person related by blood or
adoption to such individual or such individual's spouse, (ii) with respect to
any Person which is not an individual, any other Person that, directly or
indirectly through one or more intermediaries Controls, is Controlled by, or is
under common Control with, such Person and/or one or more Affiliates thereof
and, without limiting the generality of the foregoing, with respect to the
Purchaser includes (x) the ultimate parent corporation of the Purchaser and (y)
a corporation, a general partnership, a limited partnership or limited liability
corporation, in which all the beneficial interests of any of the foregoing
entities is owned directly or indirectly by one or more present or former
employees or executives of the Purchaser or their respective Affiliates. As used
in this definition, the term "control" means the possession, directly or
indirectly, of the power to direct the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Articles of Incorporation" means the Articles of Incorporation of the
Company, as amended and restated and in effect at the time in question.
"Asset Sale" means, with respect to any Person, (i) the sale, lease,
conveyance or other disposition of assets (including by way of a sale-and-
leaseback) of such Person or (ii) the issuance or sale of Securities of any such
Person, in the case of either clause (i) or (ii) above, whether in a single
transaction or a series of related transactions.
"Best Knowledge" has the meaning set forth in Section 9.14 hereof.
"Business" has the meaning set forth in the Preamble to this
Agreement.
"Business Day" means any day that is not a Saturday, Sunday, legal
holiday or other day on which banks are required to be closed in New York, New
York.
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"Business Plan" means the annual business plan of the Company
(including an annual budget and projected balance sheets, statements of
operations and statements and cash flow statements on a monthly basis) for each
Fiscal Year.
"Bylaws" means the bylaws of the Company, as amended and in effect at
the time in question.
"Capitalized Leases" means all leases that have been or should be, in
accordance with GAAP, recorded as capitalized leases.
"CE Mark" means the sign of conformity with Directive 93/42/EEC-
Medical Devices.
"Claim" means any claim, demand, assessment, judgment, order, decree,
action, cause of action, litigation, suit, investigation or other Proceeding.
"Closing" has the meaning set forth in Section 1.1(c) hereof.
"Closing Certificate" has the meaning set forth in Section 5.1 hereof.
"Code" means the Internal Revenue Code of 1986, as amended, or any
similar Federal law then in force, and the rules and regulations promulgated
thereunder, all as the same may from time to time be in effect.
"Commitment Fee" has the meaning set forth in Section 9.1 hereof.
"Common Equivalents" means a share of Common Stock or the right to
acquire, whether or not immediately exercisable, one share of Common Stock
pursuant to a Purchased Note.
"Common Stock" means the common stock, $.01 par value, of the Company.
"Company" has the meaning set forth in the caption to this Agreement.
"Company Indemnified Persons" has the meaning set forth in Section
5.2(b) hereof.
"Confidential and Proprietary Information" means information that is
not generally known to the public and that is used, developed or obtained by the
Company and/or its Subsidiaries, or by their clients or customers and disclosed
to the Company and/or its Subsidiaries, in connection with its or their
business, including, but not limited to, (i) information, observations,
procedures and data obtained by the Company and/or its Subsidiaries concerning
the business or affairs of the Company and/or its Subsidiaries or any of their
clients or customers, (ii) products or services, (iii) costs and pricing
structures, (iv) analyses, (v) drawings, photographs and reports, (vi) computer
software, including operating systems, applications and program listings, (vii)
flow charts, manuals and documentation, (viii) databases, (ix) accounting and
business methods, (x) inventions, devices, new developments, methods and
processes, whether patentable or unpatentable and whether or not reduced to
practice, (xi)
A-2
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customers and customer lists, (xii) other copyrightable works, (xiii) all
production methods, processes, technology and trade secrets, and (xiv) all
similar and related information in whatever form.
"Debt" of any Person means, without duplication, (a) all indebtedness
of such Person for borrowed money, (b) all Liabilities of such Person for the
deferred purchase price of property or services (other than trade payables not
overdue by more than 90 days incurred in the ordinary course of such Person's
business), (c) all Liabilities of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all Liabilities of such Person
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (e) all Liabilities,
contingent or otherwise, of such person under acceptance, letter of credit or
similar facilities, (f) all Liabilities of such Person to purchase, redeem,
retire, defease or otherwise make any payment in respect of any capital stock of
or other ownership or profit interest in such Person or any other Person or any
warrants, rights or options to acquire such capital stock, (g) all Liabilities
of such Person in respect of Hedge Agreements, (h) the present value (using a
discount rate equal to the prime rate of Dresdner Bank in effect as of the time
of any such calculation) of all Liabilities of such Person as lessee under
operating leases with a remaining term of one year of less (or that are not
otherwise Capitalized Leases), (i) all Debt of others referred to in clauses (a)
through (h) above or clause (j) below guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly by such
Person through an agreement (A) to pay or purchase such Debt or to advance or
supply funds for the payment or purchase of such Debt, (B) to purchase, sell or
lease (as lessee or lessor) property, or to purchase or sell services, primarily
for the purpose of enabling the debtor to make payment of such Debt or to assure
the holder of such Debt against loss, (C) to supply funds to or in any other
manner invest in the debtor (including any agreement to pay for property or
services irrespective of whether such property is received or such services are
rendered) or (D) otherwise to assure a creditor against loss, and (j) all Debt
referred to in clauses (a) through (i) above of another Person secured by (or
for which the holder of such Debt has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property (including accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Debt.
"Default" means any event of default with respect to any Debt or
Material Agreement of the Company or its Subsidiaries or any event or condition
which, after notice or lapse of time or both, would become an event of default
with respect to any Debt or Material Agreement of the Company or its
Subsidiaries.
"Designated Director" has the meaning set forth in Section 8.3(a)
hereof.
"Documents" means this Agreement, the Purchased Notes, the Security
and Pledge Agreement, the Employment Agreements, the Registration Rights
Agreement and the SBA Letter and all other agreements, instruments and other
documents delivered at the Initial Closing.
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"EC" means the European Community.
"Employee Plans" means any current or previously terminated "employee
benefit plan" (as defined in Section 3(3) of ERISA) as well as any other plan,
program or arrangement involving direct and indirect compensation or benefits,
in each case, under which the Company or any ERISA Affiliate of the Company has
any present or future obligations or Liability on behalf of its employees or
former employees, contractual employees or their dependents or beneficiaries.
"Employment Agreements" means each of (i) the Employment Agreement
dated as of March 26, 1998 between the Company and Michael Szycher, (ii) the
Employment Agreement dated as of March 26, 1998 between the Company and John
Mattern and (iii) the Employment Agreement dated as of March 24, 1998 between
the Company and Alan Edwards, in each case including the agreements attached as
exhibits thereto.
"Encumbrance" has the meaning set forth in Section 2.8 hereof.
"Environmental and Safety Requirements" means all Legal Requirements,
contractual obligations and all common law concerning public health and safety,
worker health and safety, and pollution or protection of the environment,
including, without limitation, all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, including but not limited to, the Solid Waste
Disposal Act, as amended, 42 U.S.C. (S)(S)6901, et seq., the Clean Air Act, as
amended, 42 U.S.C. (S)(S)7401, et seq. the Federal Water Pollution Control Act,
as amended, 33 U.S.C. (S)(S)1251, et seq., the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. (S)(S)11001, et seq., the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C.
(S)(S)9601, et seq., the Hazardous Materials Transportation Uniform Safety Act,
as amended, 49 U.S.C. (S)(S)1804, et seq., the Occupational Safety and Health
Act of 1970, and the regulations promulgated thereunder.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, or any similar Federal law in force, and the rules and regulations
promulgated thereunder, all as the same may be amended.
"ERISA Affiliate" means, with respect to any Person, any entity that
is a member of a "controlled group of corporations" with, or is under "common
control" with, or is a member of the same "affiliated service group" with such
Person as defined in Sections 414(b), 414(c), 414(m) or 414(o) of the Code.
"ERISA Event" means (i) (x) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, with respect to any Plan unless the
30-day notice requirement with respect to such event (or the penalty for failure
to provide such notice) has been
A-4
<PAGE>
waived by the PBGC; or (y) the requirements of subsection (1) of Section 4043(b)
of ERISA (without regard to subsection (2) of such Section) are met with a
contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and
an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c)
of ERISA is reasonably expected to occur with respect to such Plan within the
following 30 days; (ii) the application for a minimum funding waiver with
respect to a Plan; (iii) the provision by the administrator of any Plan of a
notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA
(including any such notice with respect to a plan amendment referred to in
Section 4041(e) of ERISA); (iv) the cessation of operations at a facility of any
Obligor or any Company ERISA Affiliate in the circumstances described in Section
4062(e) of ERISA; (v) the withdrawal by any Obligor or any Company ERISA
Affiliate from a Multiple Employer Plan during a plan year for which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; (vi) the
conditions for imposition of a lien under Section 302(f) of ERISA shall have
been met with respect to any Plan; (vii) the adoption of an amendment to a Plan
requiring the provision of security to such Plan, pursuant to Section 307 of
ERISA; or (viii) the institution by the PBGC of proceedings to terminate a Plan
pursuant to Section 4042 of ERISA, or the occurrence of any event or condition
described in Section 4042 of ERISA that could reasonably be expected to
constitute grounds for the termination of, or the appointment of a trustee to
administer, such Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute then in force, and the rules and regulations
promulgated thereunder, all as the same may from time to time be in effect.
"FDA" means the U.S. Food and Drug Administration.
"Fees and Expenses" has the meaning set forth in Section 9.1.
"Fiscal Year" means, with respect to the Company and its consolidated
Subsidiaries, the one-year period ending on March 31 of any year.
"Fundamental Documents" means the documents by which any Person (other
than an individual) establishes its legal existence or which govern its internal
affairs. The Fundamental Documents of the Company are the Articles of
Incorporation and Bylaws.
"GAAP" means United States generally accepted accounting principles.
"Governmental Authority" means any domestic or foreign government or
political subdivision thereof, whether on a federal, state or local level and
whether executive, legislative or judicial in nature, including any agency,
authority, board, bureau, commission, court, department or other instrumentality
thereof.
"Hazardous Materials" means (a) petroleum or petroleum products, by-
products or breakdown products, radioactive materials, asbestos-containing
materials, polychlorinated biphenyls and radon gas and (b) any other chemicals,
materials or substances designated,
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classified or regulated as hazardous or toxic or as a pollutant or contaminant
under any Environmental and Safety Requirements.
"Hedge Agreements" means interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements, currency
future or option contracts and other similar agreements.
"Indemnified Persons" means any of the Company Indemnified Persons or
any of the Purchaser Indemnified Persons, as the context may require.
"Indemnifying Persons" has the meaning set forth in Section 5.2(b)
hereof.
"Initial Closing" has the meaning set forth in Section 1.1(a) hereof.
"Initial Closing Date" has the meaning set forth in Section 1.1(a)
hereof.
"Insurance Policies" has the meaning set forth in Section 2.22 hereof.
"Intellectual Property Rights" means all industrial and intellectual
property rights, including, without limitation, patents, patent applications,
patent rights, trademarks, trademark applications, trade names, service marks,
service mark applications, copyrights, copyright applications, know-how, trade
secrets, proprietary processes and formulae, confidential information,
franchises, licenses, inventions, instructions, marketing materials, trade
dress, logos and designs and all documentation and media constituting,
describing or relating to the foregoing, including manuals, memoranda and
records.
"Investment" in any Person, means any loan or advance to such Person,
any purchase or other acquisition of any capital stock or other ownership or
profit interest, warrants, rights, options, liabilities or other securities of
such Person, any capital contribution to such Person or any other investment in
such Person, including any arrangement pursuant to which such Person incurs Debt
of the types referred to in clause (h) or (i) of the definition of Debt.
"Leased Real Property" has the meaning set forth in Section 2.9
hereof.
"Legal Requirements" means, as to any Person, all federal, state,
local or foreign laws, statutes, rules, regulations, ordinances, permits,
certificates, requirements, regulations, restrictions or Order of any
Governmental Authority applicable to such Person or any of its properties or
assets.
"Liability" means any liability or obligation, asserted or unasserted,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated and
whether due or to become due, regardless of when asserted.
"Licensed Requisite Rights" has the meaning set forth in Section
2.11(a) hereof.
"Loss" means any loss (including diminution in value of Securities),
Liability, demand, claim, action, cause of action, cost, damage, deficiency, Tax
(including any Taxes imposed with respect to any indemnity payments for any such
Loss), penalty, fine or expense,
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whether or not arising out of any Claims by or on behalf of any party to this
Agreement or any third party, including interest, penalties, reasonable
attorneys' fees and expenses and all amounts paid in investigation, defense or
settlement of any of the foregoing which any such party may suffer, sustain or
become subject to, as a result of, in connection with, relating or incidental to
or by virtue of any indemnifiable event or condition.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the business, condition (financial and otherwise),
operations, results of operations, prospects, assets (including levels of
working capital and components thereof), Liabilities and customer, vendor and
employee relationships of such Person.
"Material Agreements" has the meaning set forth in Section 2.12(a)
hereof.
"Net Cash Proceeds" means, with respect to any sale, lease, transfer
or other disposition of any asset or the sale or issuance of any Debt or
Securities or other ownership or profit interest, any securities convertible
into or exchangeable for Securities or other ownership or profit interest or any
warrants, rights, options or other securities to acquire Securities or other
ownership or profit interest by any Person, the aggregate amount of cash
received from time to time (whether as initial consideration or through payment
or disposition of deferred consideration) by or on behalf of such Person in
connection with such transaction after deducting therefrom only (without
duplication) (i) the reasonable and customary out-of-pocket expenses incurred by
the Company in connection therewith, including, but not limited to, brokerage
commissions, underwriting fees and discounts, legal fees, finder's fees and
other similar fees and commissions, (ii) the amount of taxes payable in
connection with or as a result of such transaction, (iii) the amount of any Debt
secured by a Encumbrance on such asset that, by the terms of such transaction is
required to be repaid in connection with such transaction and (iv) the provision
for cash reserves with respect to any liabilities associated with such assets,
in each case to the extent, but only to the extent, that the amounts so deducted
are properly attributable to such transaction or to the asset that is the
subject thereof.
"Notes" means the 7.0% Senior Convertible Notes to be issued by the
Company and purchased by the Purchasers pursuant to this Agreement.
"Order" means any judgment, writ, decree, injunction, order,
stipulation, compliance agreement or settlement agreement issued or imposed by,
or entered into with, a Governmental Authority.
"Owned Requisite Rights" has the meaning set forth in Section 2.11(a).
"Permits" has the meaning set forth in Section 2.14(a) hereof.
"Permitted Encumbrances" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceedings shall have
been commenced: (i) Encumbrances for taxes, assessments and governmental charges
or levies either (x) not yet due and payable or (y) being contested diligently
and in good faith by appropriate legal or administrative proceedings, and in any
such case in clause (x) and (y) as to which the Company shall have set aside an
appropriate reserve in accordance with GAAP; (ii) Encumbrances
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imposed by law, such as materialmen's, mechanics', carriers', workmen's and
repairmen's Encumbrances and other similar Encumbrances arising in the ordinary
course of business securing liabilities that either individually or when
aggregated with all other Permitted Encumbrances outstanding on any date of
determination, do not materially affect the use or value of the property to
which they relate; (iii) pledges or deposits to secure the performance of bids,
trade contracts (other than for borrowed money), leases, surety and appeal
bonds, performance bonds and other liabilities of a like nature incurred in the
ordinary course of business, to secure liabilities under worker's compensation
laws or similar legislation or to secure public or statutory liabilities; (iv)
easements, rights of way, defects and other encumbrances on title to real
property that do not materially adversely affect the use of such property for
its present purposes; (v) Purchase Money Encumbrances; and (vi) Encumbrances
arising in connection with Capitalized Leases (provided that no such Encumbrance
shall extend to or cover any assets other than the assets subject to such
Capitalized Leases).
"Person" shall be construed as broadly as possible and shall include
an individual, a partnership (including a limited liability partnership), a
corporation, an association, a joint stock company, a limited liability company,
a trust, a joint venture, an unincorporated organization and a Governmental
Authority.
"Proceeding" means any legal, administrative or arbitration action,
suit, complaint, charge, hearing, inquiry, investigation or proceeding.
"Purchase Money Encumbrances" means purchase money Encumbrances upon
or in real property or equipment acquired or held by the Company or any of its
Subsidiaries in the ordinary course of business to secure the purchase price of
such property or equipment or to secure Debt incurred solely for the purpose of
financing the acquisition of or construction on or improvement of any such
property or equipment to be subject to such Encumbrances, or Encumbrances
existing on any such property or equipment at the time of acquisition (other
than any such Encumbrances created in contemplation of such acquisition that do
not secure the purchase price), or extensions, renewals or replacements of any
of the foregoing for the same or a lesser amount; provided, however, that no
such Encumbrance shall extend to or cover any property other than the property
or equipment being acquired or constructed and any improvements thereon, and no
such extension, renewal or replacement shall extend to or cover any property not
theretofore subject to the Encumbrance being extended, renewed or replaced.
"Purchased Notes" means the aggregate principal amount of Notes
purchased, or purchasable, by the Purchasers pursuant to the terms of this
Agreement.
"Purchasers" has the meaning set forth in the caption to this
Agreement.
"Purchaser Indemnified Person" has the meaning set forth in Section
5.2(a) hereof.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the date hereof among the Company and the Purchasers.
A-8
<PAGE>
"Requisite Holders" has the meaning set forth in Section 8.3 hereof.
"Requisite Rights" has the meaning set forth in Section 2.11(a)
hereof.
"Reserved Common Shares" means the shares of Common Stock issuable
upon the conversion of the Purchased Notes.
"Restricted Securities" means the Purchased Notes and any shares of
capital stock received in respect of any thereof, in each case which have not
then been sold to the public pursuant to (a) registration under the Securities
Act or (b) Rule 144 (or similar or successor rule) promulgated under the
Securities Act.
"Restricted Shares" means the Reserved Common Shares that constitute
Restricted Securities.
"Returns" has the meaning set forth in Section 2.15 hereof.
"Royal Free" has the meaning set forth in Section 4.11 hereof.
"SBA Letter" means the letter dated the Initial Closing Date regarding
compliance with the Small Business Investment Act of 1958, as amended, and any
letter in substantially the same form dated the date upon which any other
Closing occurs, in each case, as executed and delivered by the Company to the
Purchasers.
"SEC" has the meaning set forth in Section 2.5 hereof.
"SEC Reports" has the meaning set forth in Section 2.5 hereof.
"Securities" means, with respect to any Person, such Person's
"securities" as defined in Section 2(1) of the Securities Act and includes such
Person's capital stock or other equity interests or any options, warrants or
other securities or rights that are directly or indirectly convertible into, or
exercisable or exchangeable for, such Person's capital stock or other equity
interests.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute then in force, and the rules and regulations of the
SEC promulgated thereunder, all as the same may from time to time be in effect.
"Security and Pledge Agreement" means the Security and Pledge
Agreement dated as of the date hereof between the Company and the Purchaser.
"Significant Holder" has the meaning set forth in Section 7.1 hereof.
"Subsidiary" means, at any time, with respect to any Person (the
"Subject Person"), (i) any Person of which either (x) more than 50% of the
shares of stock or other interests entitled to vote in the election of directors
or comparable Persons performing similar functions (excluding shares or other
interests entitled to vote only upon the failure to pay dividends thereon or
other contingencies) or (y) more than a 50% interest in the profits or capital
A-9
<PAGE>
of such Person, are at the time owned or controlled directly or indirectly by
the Subject Person or through one or more Subsidiaries of the Subject Person or
by the Subject Person and one or more Subsidiaries of the Subject Person, or
(ii) any Person whose assets, or portions thereof, are consolidated with the net
earnings of the Subject Person and are recorded on the books of the Subject
Person for financial reporting purposes in accordance with GAAP.
"Tax" means any Taxes and the term "Taxes" means, with respect to any
Person, (A) all income taxes (including any tax on or based upon net income, or
gross income, or income as specially defined, or earnings, or profits, or
selected items of income, earnings or profits) and all gross receipts, sales,
use, ad valorem, transfer, franchise, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property or windfall profits
taxes, alternative or add-on minimum taxes, customs duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any taxing
authority (domestic or foreign) on such Person and (B) any Liability for the
payment of any amount of the type described in the immediately preceding clause
(A) as a result of being a "transferee" (within the meaning of Section 6901 of
the Code or any other applicable Legal Requirement) of another Person or a
member of an affiliated or combined group.
"33 and 34 Act Reports" has the meaning set forth in Section 2.5
hereof.
"Transactions" has the meaning set forth in Section 5.2(b) hereof.
"Transfer" means any disposition of any shares or other units of
Restricted Securities.
A-10
<PAGE>
EXHIBIT 99.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT OR APPLICABLE STATE BLUE SKY LAWS.
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS
SPECIFIED IN THE NOTE PURCHASE AGREEMENT DATED AS OF MARCH 31, 1998, AMONG THE
ISSUER HEREOF AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
ISSUER HEREOF.
THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE IS SUBJECT TO
THE RIGHTS AND LIMITATIONS OF THE REGISTRATION RIGHTS AGREEMENT DATED AS OF
MARCH 31, 1998, AMONG THE ISSUER HEREOF AND CERTAIN OTHER SIGNATORIES THERETO.
CARDIOTECH INTERNATIONAL, INC.
------------------------------
7% Convertible Senior Note
New York, New York
March 31, 1998
$1,660,000
SECTION 1. General.
-------
(a) For value received, CARDIOTECH INTERNATIONAL INC., a
Massachusetts corporation (the "Company"), hereby promises to pay to the order
of DRESDNER KLEINWORT BENSON PRIVATE EQUITY PARTNERS LP or assigns (the
"Holder"), the principal sum of ONE MILLION SIX HUNDRED AND SIXTY THOUSAND
dollars ($1,660,000), on March 31, 2003 (the "Maturity Date"), and to pay
interest quarterly on June 30, September 30, December 30, and
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<PAGE>
March 30, (each an "Interest Payment Date") of each year, commencing with June
30, 1998, on said principal sum at the rate of seven percent (7%) per annum from
the most recent Interest Payment Date to which such interest on this Note has
been paid (or in the case of Additional Notes (as defined in Section 3 below),
the respective Interest Payment Date on which the same were issued), or unless
no interest has been paid on this Note, the date of this Note to, but not
including, the applicable Interest Payment Date, until (i) payment of said
principal sum has been made or duly provided for or (ii) conversion of this Note
to capital stock of the Company in accordance with the terms hereof.
(b) All payments hereunder shall be made (i) in such coin or
currency of the United States of America as at the time of payment shall be
legal tender therein for the payment of public and private debts, (ii) in the
case of payment on the Maturity Date of the principal sum of this Note (and
accrued and unpaid interest with respect thereto) by issuance of shares of
Common Stock in lieu of a cash payment, in accordance with, and to the extent
permitted by, Section 2 hereof or (iii) in the case of payments of interest on
this Note by issuance of Additional Notes in lieu of a cash payment (other than
upon maturity or redemption), in accordance with, and to the extent permitted
by, Section 3 hereof.
(c) Interest on this Note shall be calculated on the basis of a
360-day year, consisting of twelve 30-day months.
(d) The principal of and interest on this Note shall be payable
(i) in the case of payment in cash, by wire transfer of immediately available
funds to the account of the Holder as designated in writing by the Holder to the
Company or by certified or official bank check payable to the Holder mailed to
the Holder at the address of the Holder as set forth on the records of the
Company or such other address as shall be designated in writing by the Holder to
the Company, (ii) in the case of payment of the principal sum of this Note (and
accrued and unpaid interest with respect thereto) in accordance with Section 2
hereof, by issuance of shares of Common Stock of the Company by delivery of such
shares of Common Stock at the address of the Holder as set forth on the records
of the Company or such other address as shall be designated in writing by the
Holders to the Company, or (iii) payment of interest on this Note in accordance
with Section 3 hereof by issuance of Additional Notes,
2
<PAGE>
by delivery of such Additional Notes at the address of the Holder as set forth
on the records of the Company or such other address as shall be designated in
writing by the Holder to the Company. The foregoing designations by the Holder
of its address and account shall be made in writing not later than two (2)
Business Days prior to the applicable payment due date; provided that in the
absence of any such designation, the Company shall use the designations of the
Holder's address and account applicable to the immediately prior payment due
date.
(e) This Note shall, with respect to rights on liquidation,
dissolution and winding up, rank prior to all Securities of the Company.
(f) This Note is issued pursuant to the Note Purchase Agreement
dated as of March 31, 1998, among the Company and certain other signatories
thereto (the "Note Purchase Agreement"). Capitalized terms used herein but not
otherwise defined herein shall have the meanings assigned to such terms in the
Note Purchase Agreement. Payment and performance of this Note is being secured
pursuant to, and by, the collateral described in the Security and Pledge
Agreement dated as of March 31, 1998 between the Company and the Purchaser (as
defined therein). The Notes (other than any Additional Notes) will be issuable
in authorized denominations of $100,000 or any integral multiple of $5,000 in
excess thereof.
SECTION 2. Payment of Principal by Issuance of Common Shares.
-------------------------------------------------
(a) Subject to Section 2(b) hereof, on the Maturity Date the
Company may, at its option and in its sole discretion in lieu of payment in
whole or in part of the principal sum of this Note in cash, pay the principal
sum of this Note (and any accrued and unpaid interest with respect thereto) by
issuing on the Maturity Date to the holder of this Note that number of fully
paid and nonassessable shares of Common Stock equal to the quotient of (i) the
principal sum of this Note (plus any accrued and unpaid interest with respect
thereto), to the extent not being paid in cash on the Maturity Date, divided by
(ii) the Conversion Price, as last adjusted and then in effect. The Company
shall give written notice to the Holder of its intent to pay any such principal
amount (and any accrued and unpaid interest with respect thereto), in whole or
in part, in Common Stock not less than 15 Business Days nor more than 60
Business
3
<PAGE>
Days prior to the Maturity Date. Any such payment in Common Stock pursuant to
this Section 2(a) shall be deemed to be a conversion of this Note, and shall be
subject to Sections 5(b)(ii), (b)(iii), (b)(v), (d), (e) and (f) hereof (and,
for purposes of any such conversion, the Maturity Date shall be deemed to be a
Conversion Date).
(b) Notwithstanding Section 2(a) hereof, the Company shall not be
entitled to pay the principal sum of this Note (and any accrued and unpaid
interest with respect thereto) on the Maturity Date by the issuance of shares of
Common Stock if (i) the Market Price (as defined in Section 12 hereof) of the
Common Stock as calculated with respect to any Business Day during the 90-day
period ending on the Business Day immediately prior to the Maturity Date is less
than 150% of the Conversion Price in effect on such date, or (ii) the average
daily volume of trading in the Common Stock on the American Stock Exchange (the
"AMEX"), the NASDAQ National Market System, (or such other principal national
securities exchange on which the Common Stock is listed and traded), as
published by the AMEX (or such other exchange), with respect to the 30-Business
Day period ending on the Business Day immediately prior the Maturity Date is
less than 4,000 shares, or (iii) an Event of Default (as defined in Section 7
hereof) shall exist on the Maturity Date, or shall have occurred at any time
during the 180-day period ending on the date immediately prior to the Maturity
Date (regardless of whether such Event of Default no longer exists or has been
waived) or (iv) at any time the AMEX shall have removed the Common Stock from
listing pursuant to Section 1010 (or any successor provision) of the AMEX
Company Guide.
SECTION 3. Payment of Interest by Issuance of Additional Notes.
---------------------------------------------------
The Holder may, at its option and in its sole discretion in lieu of
receipt of interest in cash on this Note, elect to receive interest in whole or
in part on this Note (other than upon maturity or redemption) in additional
notes ("Additional Notes") in an aggregate principal amount equal to the amount
of such interest that would otherwise be payable in cash. The Holder shall give
irrevocable written notice to the Company of its election to receive such
interest, in whole or in part, in Additional Notes not less than 5 Business Days
nor more than 60 Business Days prior to the Interest Payment Date on which
Additional Notes will be issued, and if the Company receives such
4
<PAGE>
an election from the Holder during such period, the Company shall issue
Additional Notes to such Holder on the applicable Interest Payment Date in an
amount equal to the amount of such interest elected to be paid in the form of
Additional Notes that would otherwise be payable in cash on such Interest
Payment Date. Any such Additional Notes shall be subject to the same terms
(including the rate of interest from time to time payable thereon) as this Note,
except, as the case may be, with respect to the issuance date and aggregate
principal amount, and shall be entitled to the benefits of the Note Purchase
Agreement.
SECTION 4. Mandatory and Optional Redemption.
---------------------------------
(a) Any redemption effected pursuant to this Section 4 shall
occur at the following redemption prices (expressed in percentages of principal
amount) (the "Redemption Price"), in each case, plus accrued and unpaid interest
to the redemption date, payable solely in cash to the Holder.
If redeemed:
<TABLE>
<CAPTION>
Redemption
Year Percentage
---- ----------
<S> <C>
Prior to March 31, 1999 105%
On or after March 31, 1999 104%
and prior to March 31, 2000
On or after March 31, 2000 103%
and prior to March 31, 2001
On or after March 31, 2001 102%
and prior to March 31, 2002
On or after March 31, 2002 101%
And prior to March 31, 2003
</TABLE>
(b) In the event a Change of Control shall have occurred, the
Company shall be obligated to (at the option and sole discretion of the Holder)
(x) redeem this Note immediately, in whole or in part (at the option and sole
discretion of the Holder) at the then applicable Redemption Price, plus accrued
and unpaid interest to the redemption date, payable in cash, or (y) convert this
Note immediately, in whole or in part (at the option and sole discretion of the
Holder) into shares of Common Stock in accordance with Section 5 hereof.
5
<PAGE>
(c) This Note may be redeemed at the option of the Company, in whole
or in part (in a minimum aggregate principal amount of all Notes outstanding to
be redeemed of $200,000, or any multiple of $100,000 in excess thereof, measured
with respect to all Notes outstanding as of immediately prior to the Company's
delivery to the Holder of a Redemption Notice, as such term is defined below),
on any Business Day on or after the date of this Note. Notwithstanding the
immediately preceding sentence, the Company shall not have the right to redeem
this Note unless, simultaneously with the Company's election to redeem this
Note, the Company also elects to redeem on the Redemption Date (x) all or a
portion of the principal amount outstanding of each Note outstanding in the same
proportionate amount as the principal amount to be redeemed of this Note bears
to the principal amount outstanding of this Note, plus (y) accrued and unpaid
interest with respect thereto to the Redemption Date. The date established for
any redemption pursuant to this Section 4(c) is referred to herein as the
"Redemption Date".
(d) At least 15 Business Days but not more than 30 Business Days
prior to a Redemption Date for any redemption made pursuant to Section 4(c), the
Company shall provide written notice of such redemption (a "Redemption Notice")
to the Holder of this Note indicating that the Company shall redeem the Notes.
Such notice shall call upon the Holder to surrender to the Company on the
Redemption Date, at the place or places designated in such notice, the
certificate or certificates representing this Note and any other Notes held by
such Holder. Such surrendered certificate or certificates shall be canceled.
(e) The Redemption Notice shall also specify the principal amount of
this Note (and any other Notes held by the Holder) to be redeemed, the
Redemption Date, the Redemption Price, the place or places of payment, that
payment will be made upon presentation and surrender of this Note and any other
Notes, that interest accrued to the Redemption Date will be paid as specified in
said notice, that on and after said date interest thereon will cease to accrue.
Such Redemption Notice shall also state the current Conversion Price and the
date on which the right to convert the Notes or portions thereof into Common
Stock will expire.
(f) If a Redemption Notice has been given as above provided, the
principal amount of this Note specified in such Redemption Notice shall become
due and payable on the date
6
<PAGE>
and at the place stated in such notice at the Redemption Price provided in
Section 4(a) hereof, together with interest accrued to the Redemption Date, and
on and after said date (unless the Company shall default in the payment of this
Note at the Redemption Price, together with interest accrued to said date)
interest on the principal amount specified in the Redemption Notice shall cease
to accrue, and the Holder shall have no right in respect of such principal
amount except the right to receive the Redemption Price and unpaid interest to
Redemption Date. On presentation and surrender of the certificate for this Note
at a place of payment specified in the Redemption Notice, such principal amount
shall be paid and redeemed by the Company at the Redemption Price, together with
any interest accrued thereon to the Redemption Date and the Company shall issue
to the Holder a new Note in accordance with Section 8(a) with respect to the
unpaid principal amount. If any principal amount of this Note is called for
redemption but shall not be so paid upon surrender thereof for redemption, such
principal amount shall, until paid or duly provided for, bear interest from the
Redemption Date at the rate borne by this Note.
SECTION 5. Conversion.
-----------
(a) Generally. Subject to the provisions of this Section 5 and
Section 6, the Holder shall have the right, on any Business Day, at such
Holder's option, to convert any or all of the principal amount of this Note
(plus any accrued and unpaid interest with respect thereto), in whole or in
part, into fully paid and non-assessable shares of Common Stock. The conversion
price per share at which shares of Common Stock shall be issuable upon
conversion of this Note (the "Conversion Price") shall initially be equal to
$1.995, subject to adjustment from time to time pursuant to Section 6.
Notwithstanding any call for redemption pursuant to Section 4, the right to
convert shares so called for redemption shall terminate at the close of business
on the Business Day immediately preceding the Redemption Date unless the Company
shall default in making payment of the amount payable upon such redemption or in
making the exchange and payment of any amount payable upon such exchange.
(b) Exercise Procedure.
(i) In order to exercise the conversion privilege, the Holder
shall provide prior written notice of such exercise at least 10 Business Days
but not more then 60 Business
7
<PAGE>
Days prior to such conversion; provided that only one Business Day's prior
written notice shall be required if the Company has delivered a Notice of
Redemption to the Holder. The date established for any such conversion pursuant
to this Section 5 is referred to herein as the "Conversion Date." On or prior to
the Conversion Date, the Holder shall surrender this Note at the office of the
Company, with the notice of election to convert completed and signed. Unless the
shares issuable on conversion are to be issued in the same name as the name in
which this Note is registered, each share surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the Company,
duly executed by the Holder or the Holder's duly authorized attorney and an
amount sufficient to pay any transfer or similar tax. Each conversion shall be
deemed to have been effected immediately prior to the close of business on the
Conversion Date.
(ii) On the Conversion Date, the Company shall issue and shall
deliver to such Holder, or on the Holder's written order to the Holder's
transferee, a certificate or certificates for the whole number of shares of
Common Stock issuable upon the conversion of such shares in accordance with the
provisions of this Note and the Company shall issue the Holder a new Note in
accordance with Section 8(a) with respect to the unpaid, unconverted principal
amount of this Note.
(iii) The person in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder of record of the shares of Common
Stock represented thereby at such time on such date.
(iv) Each such conversion shall be into that number of shares of
Common Stock equal to the quotient of (x) the principal amount of this Note
surrendered for conversion (plus any accrued and unpaid interest with respect
thereto) divided by (y) the Conversion Price, as last adjusted and then in
effect; provided that any such conversion occurring on a date after receipt of a
Redemption Notice and on or prior to the redemption which is the subject of such
notice (or upon a Change of Control), shall be into that number of shares of
Common Stock equal to the quotient of (x) the Redemption Price which would be
applicable if this Note were redeemed, rather than converted, on the Conversion
Date (plus any accrued and unpaid interest with respect thereto) divided by (y)
the product of (1) the applicable
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<PAGE>
Redemption Conversion Factor set forth below corresponding to the date upon
which the Redemption Date (or the Change of Control) occurs and (2) the lesser
of the Conversion Price (as last adjusted and then in effect) and the Market
Price (determined as of the Conversion Date) of the Common Stock.
Redemption
Conversion
Year Factor
------ ------------------
On or prior to March 30, 2000 0.87
After March 30, 2000 and on or
prior to March 30, 2001 0.89
After March 30, 2001 and on or
prior to March 30, 2002 0.93
After March 30, 2001 and on or
prior to March 30, 2002 0.96
(v) All shares of Common Stock delivered upon conversion of
this Note will upon delivery be duly and validly issued and fully paid and non-
assessable, free of all liens and charges and not subject to any preemptive
rights. Upon the surrender of this Note, the principal amount of this Note
surrendered for conversion shall no longer be deemed to be outstanding and all
rights of a Holder with respect to the principal amount of this Note surrendered
for conversion shall immediately terminate except the right to receive the
Common Stock and other amounts, including any accrued and unpaid interest on
such principal amount of this Note, payable pursuant to this Section 5.
(c) Effect of Election.
(i) Upon delivery to the Company by the Holder of a notice
of election to convert, the right of the Company to redeem the principal amount
of this Note which is to be converted shall terminate, regardless of whether a
notice of redemption has been issued.
(ii) From and after the date of delivery of a notice of
election to convert, this Note shall participate equally and ratably with the
holders of shares of Common Stock in
9
<PAGE>
all dividends paid on the Common Stock as if this Note had been converted to
shares of Common Stock at the time of such delivery.
(d) Issuance of Shares.
(i) The Company covenants that it shall at all times
reserve and keep available, free from preemptive rights, such number of its
authorized but unissued shares of Common Stock as shall be required for the
purpose of effecting conversions of the Notes.
(ii) Prior to the delivery of any securities which the
Company shall be obligated to deliver upon conversion of the Notes, the Company
shall comply with all applicable federal and state laws and regulations, and all
rules of the AMEX (or such other national securities exchange upon which the
Common Stock is listed) which require action to be taken by the Company, and the
Company shall use its reasonable commercial efforts to assist the Holder in
complying with any such laws, regulations and rules. If the issuance of the
number of shares of Common Stock to be issued pursuant to the conversion of
principal of, premium (if any) or interest on this Note (and the other Notes to
be converted in connection therewith) would require the prior approval of the
stockholders of the Company in accordance with the rules of the AMEX (or, if the
Common Stock is not then listed on the AMEX, such other national securities
exchange upon which the Common Stock is listed), then the Company shall only be
obligated to issue such number of shares of Common Stock as would not require
such stockholder approval, and in lieu of issuance of the balance of such number
of shares of Common Stock otherwise issuable to the Holder, the Company shall
pay the Holder an amount in cash equal to the product of (x) the amount of such
balance of shares otherwise issuable to the Holder and (y) the Market Price
(determined as of the Conversion Date) of the Common Stock. It is understood
that as long as the Common Stock remains listed on the AMEX, the Company shall
only be obligated to issue 854,582 (as presently constituted and subject to
subsequent adjustments for stock splits, dividends reverse stock split and the
like) shares of Common Stock pursuant to the limitations set forth in the
preceding sentence, except to the extent such limitations are not applicable.
(e) Taxes on Conversion. The Company will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common
10
<PAGE>
Stock on conversion of any part of the principal amount of this Note pursuant
hereto; provided that the Company shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issue or delivery of
shares of Common Stock in a name other than that of the Holder to be converted
and no such issue or delivery shall be made unless and until the person
requesting such issue or delivery has paid to the Company the amount of any such
tax or has established, to the satisfaction of the Company, that such tax has
been paid.
(f) No Fractions of Common Stock to Be Issued. In connection
with the conversion of this Note (together with any other Notes to be converted
by the Holder), no fractions of shares of Common Stock shall be issued, but in
lieu thereof the Company shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied by
the Market Price (as defined in Section 12 hereof) determined as of the
Conversion Date. If more than one Note is surrendered for conversion by the same
Holder (or Affiliate of such Holder) at the same time, the number of full shares
of Common Stock issuable on conversion of the principal amount thereof (and
accrued and unpaid interest with respect thereto) surrendered for conversion
shall be computed on the basis of the total principal amounts of the Notes (and
accrued and unpaid interest with respect thereto) so surrendered.
SECTION 6. Anti-Dilution.
-------------
Except as otherwise provided in Section 6(n) below, the Conversion
Price shall be subject to adjustment from time to time as set forth in this
Section 6.
(a) Stock Dividends, Subdivisions and Combinations. If and
whenever the Company subsequent to the date hereof:
(i) declares a dividend upon, or makes any distribution in
respect of, any of its capital stock, payable in shares of Common Stock,
Convertible Securities or Stock Purchase Rights, or
(ii) subdivides its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(iii) combines its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
11
<PAGE>
then the Conversion Price shall be adjusted to that price determined by
multiplying the Conversion Price in effect immediately prior to such event by a
fraction (A) the numerator of which shall be the total number of outstanding
shares of Common Stock immediately prior to such event, and (B) the denominator
of which shall be the total number of outstanding shares of Common Stock
immediately after such event, treating as outstanding all shares of Common Stock
issuable upon conversions or exchanges of such Convertible Securities and
exercises of such Stock Purchase Rights.
(b) Issuance of Additional Shares of Common Stock. If and
whenever the Company subsequent to the date hereof shall issue or sell any
shares of Common Stock (except as otherwise provided in the last paragraph of
this Section 6(b)), for a consideration less than the greater of (x) the
Conversion Price and (y) the Market Price per share (determined, in each case,
as of the date specified in the next succeeding paragraph), the Conversion Price
upon each such issuance or sale shall be adjusted to the lower of the prices
calculated pursuant to the following clauses (i) and (ii) of this Section 6(b)
and shall be determined by:
(i) DIVIDING (A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Conversion Price in effect as of the date specified in the
next succeeding paragraph plus (2) the aggregate consideration, if any, received
by the Company upon such issue or sale, by (B) the total number of shares of
Common Stock outstanding immediately after such issue or sale; and
(ii) MULTIPLYING the Conversion Price in effect as of the date
specified in the next succeeding paragraph by a fraction the numerator of which
is (A) the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Market Price per share
of Common Stock immediately prior to such issue or sale plus (2) the aggregate
consideration, if any, received by the Company upon such issue or sale, divided
by (B) the total number of shares of Common Stock outstanding immediately after
such issue or sale, and the denominator of which is the Market Price per share
of Common Stock immediately prior to such issue or sale.
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For purposes of this Section 6(b), the date as of which the
Conversion Price and the date as of which the Market Price shall be determined
shall be the earlier of (i) the date on which the Company shall enter into a
firm contract for the issuance of such shares of Common Stock and (ii) the date
of actual issuance of such shares of Common Stock.
No adjustment of the Conversion Price shall be made under this
Section 6(b) upon the issuance of any shares of Common Stock which are (i)
distributed to holders of Common Stock pursuant to a stock dividend or
subdivision for which an adjustment is provided under Section 6(a) or (ii)
issued pursuant to the exercise of any Stock Purchase Rights or pursuant to the
conversion or exchange of any Convertible Securities to the extent that an
adjustment shall previously have been made upon the issuance of such Stock
Purchase Rights or Convertible Securities pursuant to Sections 6(a), (c) or (d).
(c) Issuance of Stock Purchase Rights. If and whenever the
Company subsequent to the date hereof shall issue or sell any Stock Purchase
Rights and the consideration per share for which shares of Common Stock may at
any time thereafter be issuable upon exercise thereof (or, in the case of Stock
Purchase Rights exercisable for the purchase of Convertible Securities, upon the
subsequent conversion or exchange of such Convertible Securities) shall be less
than the greater of (x) the Conversion Price and (y) the Market Price per share
(determined, in each case, as of the date specified in the next succeeding
paragraph), the Conversion Price upon each such issuance or sale shall be
adjusted as provided in Section 6(b) on the basis that the maximum number of
shares of Common Stock ever issuable upon exercise of such Stock Purchase Rights
(or upon conversion or exchange of such Convertible Securities following such
exercise) shall be deemed to have been issued as of the date of the
determination of the Conversion Price or the Market Price, as applicable,
specified in the next succeeding paragraph. No adjustment of the Conversion
Price shall be made under Section 6(b) upon the issuance of any shares of Common
Stock which are issued pursuant to the exercise, conversion or exchange of any
Stock Purchase Rights if any adjustment shall previously have been made upon the
issuance of any such Stock Purchase Rights as herein provided.
For the purposes of this Section 6(c), the date as of which the
Conversion Price and the date as of which the Market
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Price shall be determined shall be the earlier of (i) the date on which the
Company shall enter into a firm contract for the issuance of such Stock Purchase
Rights and (ii) the date of actual issuance of such Stock Purchase Rights.
(d) Issuance of Convertible Securities. If and whenever the
Company subsequent to the date hereof shall issue or sell any Convertible
Securities (except as otherwise provided in the last paragraph of this Section
6(d)) and the consideration per share for which shares of Common Stock may at
any time thereafter be issuable pursuant to the terms of such Convertible
Securities shall be less than the greater of (x) the Conversion Price and (y)
the Market Price per share (determined, in each case, as of the date specified
in the next succeeding paragraph), the Conversion Price upon each such issuance
or sale shall be adjusted as provided in Section 6(b) on the basis that the
maximum number of shares of Common Stock ever necessary to effect the conversion
or exchange of all such Convertible Securities shall be deemed to have been
issued as of the date of the determination of the Conversion Price or the Market
Price, as applicable, specified in the next succeeding paragraph.
For the purposes of this Section 6(d), the date as of which the
Conversion Price and the date as of which the Market Price shall be determined
shall be the earlier of (i) the date on which the Company shall enter into a
firm contract for the issuance of such Convertible Securities and (ii) the date
of actual issuance of such Convertible Securities.
No adjustment of the Conversion Price shall be made under this
Section 6(d) upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any Stock Purchase Rights to the extent that an
adjustment shall previously have been made upon the issuance of such Stock
Purchase Rights pursuant to Section 6(c).
(e) Minimum Adjustment. If any adjustment of the Conversion
Price pursuant to this Section 6 shall result in an adjustment of less than
$.0001, no such adjustment shall be made, but any such lesser adjustment shall
be carried forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments so carried forward,
shall amount to $.0001; provided that upon any adjustment of the Conversion
Price resulting from (i) the declaration of a dividend upon, or the making of
any distribution
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in respect of, any stock of the Company payable in Common Stock, Stock Purchase
Rights or Convertible Securities or (ii) the reclassification by subdivision,
combination or otherwise, of the Common Stock into a greater or smaller number
of shares, the foregoing figure of $.0001 per share (or such figure as last
adjusted) shall be proportionately adjusted, and provided, further, that upon
the conversion of this Note, the Company shall make all necessary adjustments
(to the nearest .0001 of a cent) not theretofore made to the Conversion Price up
to and including the date upon which this Note is converted.
(f) Readjustment of Conversion Price. Upon each change in (i)
the purchase price payable for any Stock Purchase Rights or Convertible
Securities referred to in Section 6(c) or (d), (ii) the consideration, if any,
payable upon exercise of such Stock Purchase Rights or upon the conversion or
exchange of such Convertible Securities or (iii) the number of shares of Common
Stock issuable upon the exercise of such Stock Purchase Rights or the rate at
which such Convertible Securities are convertible into or exchangeable for
shares of Common Stock, the Conversion Price in effect at the time of such event
shall forthwith be readjusted to the Conversion Price which would have been in
effect at such time had such Stock Purchase Rights or Convertible Securities
provided for such changed purchase price, consideration, number of shares of
Common Stock so issuable or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the expiration of any Stock Purchase
Rights not exercised or of any right to convert or exchange under any
Convertible Securities not exercised, the Conversion Price then in effect shall
forthwith be increased to the Conversion Price which would have been in effect
at the time of such expiration had such Stock Purchase Rights or Convertible
Securities never been issued. No readjustment of the Conversion Price pursuant
to this Section 6(f) shall (i) increase the Conversion Price by an amount in
excess of the adjustment originally made to the Conversion Price in respect of
the issue, sale or grant of the applicable Stock Purchase Rights or Convertible
Securities or (ii) require any adjustment to the amount paid or number of shares
of Common Stock received by any Person upon any conversion of this Note prior to
the date upon which such readjustment to the Conversion Price shall occur.
(g) Reorganization, Reclassification or Recapitalization of the
Company. If and whenever subsequent to the date hereof the Company shall effect
(i) any reorganization
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<PAGE>
or reclassification or recapitalization of the capital stock of the Company
(other than in the cases referred to in Section 6(a)), (ii) any consolidation or
merger of the Company with or into another Person, (iii) the sale, transfer or
other disposition of the property, assets or business of the Company as an
entirety or substantially as an entirety or (iv) any other transaction (or any
other event shall occur) as a result of which holders of Common Stock become
entitled to receive any shares of stock or other securities and/or property
(including, without limitation, cash, but excluding any cash dividend that is
paid out of the earnings or surplus of the Company legally available therefor)
with respect to or in exchange for the Common Stock of the Company, there shall
thereafter be deliverable upon the conversion of this Note or any portion
thereof (in lieu of or in addition to the Common Stock theretofore deliverable,
as appropriate) the highest number of shares of stock or other securities and/or
the greatest amount of property (including, without limitation, cash) to which
the holder of the number of shares of Common Stock which would otherwise have
been deliverable upon the conversion of this Note or any portion thereof at the
time would have been entitled upon such reorganization or reclassification or
recapitalization of capital stock, consolidation, merger, sale, transfer,
disposition or other transaction or upon the occurrence of such other event, and
at the same aggregate Conversion Price.
Prior to and as a condition of the consummation of any
transaction or event described in the preceding sentence, the Company shall make
equitable, written adjustments in the application of the provisions herein set
forth satisfactory to the Holder at the time outstanding so that the provisions
set forth herein shall thereafter be applicable, as nearly as possible, in
relation to any shares of stock or other securities or other property thereafter
deliverable upon conversion of this Note. Any such adjustment shall be made by
and set forth in a supplemental agreement of the Company and/or the successor
entity, as applicable, for the benefit of and in form and substance acceptable
to the Requisite Holders, which agreement shall bind each such entity and shall
be accompanied by a favorable opinion of the regular outside counsel to the
Company (or such other firm as is reasonably acceptable to the Requisite
Holders) as to the enforceability of such agreement and as to such other matters
as such Requisite Holders may reasonably request.
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<PAGE>
References in this Note to shares of Common Stock issuable upon
conversion of this Note shall be deemed to include shares of Common Stock and
shares (other than Common Stock) and any other securities of the Company
(including, without limitation, Preferred Shares) or of any other Person which
the Holder at any time shall be entitled to receive upon the conversion or
partial conversion of the Note, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in exchange for or
in replacement of Common Stock (or such other shares or securities).
(h) Other Dilutive Events. If any other transaction or event
(other than those explicitly referred to in this Section 6), including, without
limitation, distributions of property or assets of the Company or its affiliates
to Persons other than holders of Common Stock, shall occur as to which the other
provisions of this Section 6 are not strictly applicable but the failure to make
any adjustment to the Conversion Price or to any of the other terms of this Note
would not fairly protect the conversion rights and other rights represented by
this Note in accordance with the essential intent and principles hereof, then,
and as a condition to the consummation of any such transaction or event, and in
each such case, the Company shall appoint a firm of independent certified public
accountants of recognized national standing (which may be the regular auditors
of the Company), which shall give its opinion as to the adjustment, if any, on a
basis consistent with the essential intent and principles established in this
Section 6, necessary to preserve, without dilution, the rights represented by
this Note. The certificate of any such firm of accountants shall be conclusive
evidence of the correctness of any computation made under this Section 6. The
Company shall pay the fees and expenses of such firm of accountants in
connection with any such opinion. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder and shall make the adjustments
described therein.
(i) Determination of Consideration. For purposes of this Section
6, the consideration received or receivable by the Company for the issuance,
sale, grant or assumption of shares of Common Stock, Stock Purchase Rights or
Convertible Securities, irrespective of the accounting treatment of such
consideration, shall be valued and determined as follows:
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<PAGE>
(i) Cash Payment. In the case of cash, the net amount received
by the Company after deduction of any accrued interest or dividends, any
expenses paid or incurred and any underwriting commissions or concessions paid
or allowed by the Company in connection with such issue or sale.
(ii) Non-Cash Payment. In the case of consideration other than
cash, the Fair Value thereof or, if less, in the case of any security, the
Market Price of such security, if applicable (in any case as of the date
immediately preceding the issuance, sale or grant in question).
(iii) Certain Allocations. If shares of Common Stock, Stock
Purchase Rights and/or Convertible Securities are issued or sold together with
other securities or other assets of the Company for a consideration which covers
more than one of the foregoing categories of securities and assets, the
consideration received or receivable (computed as provided in clauses (i) and
(ii) of this Section 6(i)) shall be allocable to such shares of Common Stock,
Stock Purchase Rights and/or Convertible Securities as reasonably determined in
good faith by the Board of Directors of the Company (provided such allocation is
set forth in a written resolution and a certified copy thereof is furnished to
the Holder promptly (but in any event within 10 days) following its adoption).
(iv) Dividends in Securities. If the Company shall declare a
dividend or make any other distribution upon any stock of the Company payable in
shares of Common Stock, Convertible Securities or Stock Purchase Rights, such
shares of Common Stock, Convertible Securities or Stock Purchase Rights, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
(v) Stock Purchase Rights and Convertible Securities. The
consideration for which shares of Common Stock shall be deemed to be issued upon
the issuance or sale of any Stock Purchase Rights or Convertible Securities
shall be determined by dividing (A) the total consideration, if any, received by
the Company as consideration for the Stock Purchase Rights or the Convertible
Securities, as the case may be, plus the minimum aggregate amount of additional
consideration, if any, ever payable to the Company upon the exercise of such
Stock Purchase Rights or upon the conversion or exchange of such
18
<PAGE>
Convertible Securities, as the case may be, in each case after deducting any
accrued interest or dividends, any expenses paid or incurred and any
underwriting commissions or concessions paid or allowed by the Company in
connection with such issue or sale; by (B) the maximum number of shares of
Common Stock ever issuable upon the exercise of such Stock Purchase Rights or
upon the conversion or exchange of such Convertible Securities.
(vi) Merger, Consolidation or Sale of Assets. If any shares of
Common Stock, Convertible Securities or Stock Purchase Rights are issued in
connection with any merger or consolidation of which the Company is the
surviving corporation, the amount of consideration therefor shall be deemed to
be the Fair Value of such portion of the assets and business of the non-
surviving corporation as shall be attributable to such Common Stock, Convertible
Securities or Stock Purchase Rights, as the case may be. In the event of (a) any
merger or consolidation of which the Company is not the surviving corporation or
(b) the sale, transfer or other disposition of the property, assets or business
of the Company as an entirety or substantially as an entirety for stock or other
securities of any other Person, the Company shall be deemed to have issued the
number of shares of its Common Stock for stock or securities of the surviving
corporation or such other Person computed on the basis of the actual exchange
ratio on which the transaction was predicated and for a consideration equal to
the Fair Value on the date of such transaction of such stock or securities of
the surviving corporation or such other Person, and if any such calculation
results in adjustment of the Conversion Price, the determination of the number
of shares of Common Stock issuable upon conversion of this Note immediately
prior to such merger, consolidation or sale, for the purposes of Section 6(g),
shall be made after giving effect to such adjustment of the Conversion Price.
(j) Record Date. If the Company shall take a record of the
holders of the Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock, Convertible Securities
or Stock Purchase Rights or (ii) to subscribe for or purchase Common Stock,
Convertible Securities or Stock Purchase Rights, then all references in this
Section 6 to the date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of
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<PAGE>
subscription or purchase, as the case may be, shall be deemed to be references
to such record date.
(k) Shares Outstanding. The number of shares of Common Stock
deemed to be outstanding at any given time shall not include shares of Common
Stock held by the Company or any Subsidiary of the Company.
(l) Maximum Conversion Price. At no time shall the Conversion
Price exceed the initial Conversion Price set forth in Section 5(a) hereof
except as a result of an adjustment thereto pursuant to Section 6(a)(iii) or
6(g).
(m) Application. All subdivisions of this Section 6 are intended
to operate independently of one another. If a transaction or an event occurs
that requires the application of more than one subdivision, all applicable
subdivisions shall be given independent effect.
(n) No Adjustments Under Certain Circumstances. Anything herein
to the contrary notwithstanding, no adjustment to the Conversion Price shall be
made in the case of:
(i) any issuance of shares of Common Stock (or Other Securities)
upon the exercise in whole or part of principal, premium (if any) or interest in
this Note; or
(ii) (A) the granting by the Company of Stock Purchase Rights to
the officers, employees, directors and consultants of the Company or any
Subsidiary pursuant to any qualified or non-qualified stock option plan or
agreement, stock purchase plan or agreement, stock restriction agreement,
employee stock ownership plan (ESOP), consulting agreement, or such other
options, issuances, arrangements, agreements or plans approved by the Board of
Directors of the Company and (B) the issuance of shares of Common Stock pursuant
to the exercise of such Stock Purchase Rights; provided that the aggregate
number of shares of Common' Stock to which this clause (ii) shall apply shall
not exceed 1,061,029 (such number to be appropriately adjusted for stock splits,
stock dividends, combinations and similar events); or
(iii) up to _____________ shares of Common Stock issued after
March 30, 1998 (such number to be appropriately adjusted for stock splits, stock
dividends, combinations and similar events) (w) solely in consideration for the
acquisition
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(whether by merger or otherwise) by the Company of all or substantially all of
the capital stock or assets of any other entity or business organization, (x)
solely in consideration for the grant by or to the Company of marketing rights,
distribution rights, license rights or similar rights granted by or to the
Company in consideration of the exchange of proprietary technology, whether of
the Company or any other entity, (y) to equipment leasing companies in
connection with any equipment leasing arrangements to which the Company is a
party or (z) for working capital or other corporate purposes; provided that in
the case of each of clauses (w), (x), (y) or (z), such issuance has been
approved by a majority of the members of the Board of Directors.
(o) Waiver. In the event that the Requisite Holders consent in
writing to limit, or waive in its entirety, any anti-dilution adjustment to
which the holders of this Note or any other Note would otherwise be entitled
hereunder, the Company shall not be required to make any adjustment whatsoever
with respect to this Note or any other Note in excess of such limit or at all,
as the terms of such consent may dictate.
(p) Adjustments to Conversion Price. As promptly as practicable
(but in any event not later than five days) after the occurrence of any event
requiring any adjustment under this Section 6 to the Conversion Price (or to the
number or kind of securities or other property deliverable upon the conversion
of this Note), the Company shall, at its expense, mail to the Holder either (i)
an Officers' Certificate or (ii) a certificate signed by a firm of independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company), setting forth in reasonable detail the events
requiring the adjustment and the method by which such adjustment was calculated
and specifying the adjusted Conversion Price and the number of shares of Common
Stock issuable upon conversion of this Note after giving effect to such
adjustment. The certificate of any such firm of accountants shall be conclusive
evidence of the correctness of any computation made under this Section 6.
(q) Extraordinary Corporate Events. If and whenever the Company
subsequent to the date hereof shall propose to (i) pay any dividend payable in
stock to the holders of shares of Common Stock or to make any other distribution
to the holders of shares of Common Stock, (ii) offer to the holders of shares of
Common Stock rights to subscribe for or purchase any additional
21
<PAGE>
shares of any class of stock or any other rights or options or (iii) effect any
reclassification of the Common Stock (other than a reclassification involving
merely the subdivision or combination of outstanding shares of Common Stock),
(iv) engage in any reorganization or recapitalization or any consolidation or
merger (other than a merger in which no distribution of securities or other
property is to be made to holders of shares of Common Stock), (v) consummate any
sale, transfer or other disposition of its property, assets and business as an
entirety or substantially as an entirety, (vi) effect any other transaction
which might require an adjustment to the Conversion Price (or to the number or
kind of securities or other property deliverable upon the conversion of this
Note), including, without limitation, any transaction of the kind described in
Section 6(g) or (vii) commence or effect the liquidation, dissolution or winding
up of the Company, then, in each such case, the Company shall mail to the Holder
an Officers' Certificate giving notice of such proposed action, specifying (A)
the date on which the stock transfer books of the Company shall close, or a
record shall be taken, for determining the holders of Common Stock entitled to
receive such stock dividends or other distribution or such rights or options, or
the date on which such reclassification, reorganization, recapitalization,
consolidation, merger, sale, transfer, other disposition, transaction,
liquidation, dissolution or winding up shall take place or commence, as the case
may be, and (B) the date as of which it is expected that holders of Common Stock
of record shall be entitled to receive securities or other property deliverable
upon such action, if any such date is to be fixed. Such Officers' Certificate
shall be mailed in the case of any action covered by clause (i) or (ii) above,
at least 30 days prior to the record date for determining holders of Common
Stock for purposes of receiving such payment or offer, and, in any other case,
at least 30 days prior to the date upon which such action takes place and 20
days prior to any record date to determine holders of Common Stock entitled to
receive such securities or other property.
(r) Effect of Failure. Failure to give any certificate or notice, or
any defect in any certificate or notice required under this Section 6 shall not
affect the legality or validity of the adjustment of the Conversion Price or the
number of shares of Common Stock issuable upon conversion of this Note.
(s) Anti-dilution Provisions in Other Securities. If the Company
issues any Stock Purchase Rights or Convertible
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<PAGE>
Securities or other securities containing provisions protecting the holder or
holders thereof against dilution in any manner more favorable to such holder or
holders thereof than those set forth in this Note, such provisions (or any more
favorable portion thereof) shall be deemed to be incorporated herein as if fully
set forth in this Note and, to the extent inconsistent with any provision of
this Note, shall be deemed to be substituted therefor.
SECTION 7. Events of Default.
(a) In case one or more of the following events (each of which is
an "Event of Default"; whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree, or order of any court or any order, rule or
regulation of any administrative or governmental body) shall have occurred and
be continuing:
(i) default in the payment of any interest upon this Note or any
other Note as and when the same shall become due and payable, and continuance of
such default for a period of five (5) days; or
(ii) default in the payment of all or any part of the principal, or
any premium, on this Note or any other Note as and when the same shall become
due and payable, either at maturity, upon any redemption, by declaration or
otherwise; or
(iii) failure on the part of the Company due to observe or perform
the covenants set forth in Sections 8.5(c), 8.5(g), 8.5(j) and 8.5(m) of the
Note Purchase Agreement in accordance with their terms; or
(iv) failure on the part of the Company duly to observe or perform
any other of the covenants or agreements on the part of the Company contained in
this Note or any other Note, or in the Note Purchase Agreement, for a period of
twenty-five (25) days after the date on which written notice specifying such
failure, stating that such notice is a "Notice of Default" hereunder and
demanding that the Company remedy the same, shall have been given by registered
or certified mail, return receipt requested, to the Company by the Holder; or
(v) the breach of any representation or warranty of the Company in
the Note Purchase Agreement in any
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<PAGE>
material respect, provided that written notice specifying such breach,
specifying that such notice is a "Notice of Default" hereunder, shall have been
given by registered or certified mail, return receipt requested, to the Company
by the Holder; or
(vi) (A) Either the Company or Freemedic plc ("Freemedic") shall
fail to perform by [April 2], 1998 their respective obligations set forth in
Clauses 2.1 and 2.2 of the Loan and Option Agreement dated [March 30], 1998,
among Freemedic, the Company's Subsidiary and the Company (the "Loan and Option
Agreement") or (B) there shall have occurred an Event of Default (as such term
is defined in the Loan and Option Agreement, without giving effect to any waiver
thereof);
(vii) there shall have occurred with respect to any issue or issues
of Debt of the Company and/or any Subsidiary exceeding $100,000 in principal
amount, an event of default beyond the applicable period of grace with respect
thereto, which would permit the holders of such Debt to declare such Debt to be
due and payable prior to the maturity thereof; or
(viii) the Company or any Subsidiary shall fail to discharge any
final judgment not covered by insurance (from which no further appeal may be
taken) in excess of $25,000 and such judgment shall remain in force,
undischarged, unsatisfied, unstayed and unbonded for more than thirty (30) days;
or
(ix) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company or any Subsidiary in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or any
Subsidiary or for all or substantially all of the property of the Company or any
Subsidiary or ordering the winding up or liquidation of the affairs of the
Company or any Subsidiary, and such decree or order shall remain unstayed and in
effect for a period of sixty (60) consecutive days; or
(x) the Company or any Subsidiary shall commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in an
involuntary case under any such law, or consent to the appointment or taking
possession by a receiver, liquidator, assignee, custodian,
24
<PAGE>
trustee, sequestrator (or similar official) of the Company or any Subsidiary or
for all or substantially all of the property of the Company or any Subsidiary,
or the Company or any Subsidiary shall make any general assignment for the
benefit of creditors; or
(xi) default by the Company in conversion of this Note in
accordance herewith and continuance of such default for a period of five (5)
days after the occurrence of such default; or
(xii) failure on the part of the Company to nominate a designee of
the Requisite Holders for election to a member of the Board of Directors; or
(xiii) failure on the part of each of the Company's officers and
directors who hold Common Stock to vote in favor of the election of the designee
of the Requisite Holders to the Board of Directors.
then, and in each and every such case (other than an Event of Default specified,
Section 5(a)(vi), Section 5(a)(ix) or 5(a)(x) hereof), the Requisite Holders, by
notice in writing to the Company (the "Acceleration Notice"), may declare the
entire principal amount of this Note, and the interest accrued thereon, to be
due and payable immediately, and the same shall become immediately due and
payable without presentment, demand or protest, all of which are hereby
expressly waived, anything contained herein or other evidence of such
indebtedness to the contrary notwithstanding. If an Event of Default specified
in Section 5(a)(vi), Section 5(a)(ix) or 5(a)(x) occurs, the entire principal
amount of this Note, and the interest accrued thereon, shall become and be
immediately due and payable without any declaration or other act on the part of
the Holder and the same shall become immediately due and payable without
presentment, demand or protest, all of which are hereby expressly waived,
anything contained herein or other evidence of such indebtedness to the contrary
notwithstanding.
(b) If the entire principal amount of this Note, and the interest
accrued thereon, shall be declared due and payable as a result of an Event of
Default pursuant to Section 5(a)(vi), such acceleration shall be rescinded and
annulled without any further action required on the part of the Holder in the
event that the event of default triggering the Event of
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<PAGE>
Default pursuant to Section 5(a)(vi) shall be remedied, cured by the Company or
waived by the holders of the relevant Debt.
(c) In case any one or more Events of Default shall occur and be
continuing, the Holder may, inter alia, proceed to protect and enforce its
rights by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained in this Note, or
for an injunction against a violation of any of the terms hereof or thereof or
in and of the exercise of any power granted hereby or thereby or by law. No
right conferred upon the Holder hereby shall be exclusive of any other right
referred to herein or now or hereafter available at law, in equity, by statute
or otherwise.
(d) Upon the occurrence of an Event of Default, all accrued and
unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire principal balance, as so adjusted, shall bear interest
thereafter until paid at the of rate equal to the lesser of (i) the rate that is
thirteen percent (13%) per annum and (ii) the maximum rate of interest allowed
to be charged under applicable law.
SECTION 8. Exchange or Replacement of Notes.
(a) The Holder may, at its option, in person or by duly
authorized attorney, surrender this Note for exchange at the principal business
office of the Company, and receive in exchange therefor, a new Note in the same
principal amount as the unpaid principal amount of this Note and bearing
interest at the same annual rate as this Note, each such new Note to be dated as
of the date of this Note and to be in such principal amount as remains unpaid
and payable to such person or persons, or order, as the Holder may designate in
writing.
(b) Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction, or mutilation of this Note, and (in case of loss,
theft or destruction) of an indemnity reasonably satisfactory to it, and upon
surrender and cancellation of this Note, if mutilated, the Company will deliver
a new Note of like tenor in lieu of this Note. Any Note delivered in accordance
with the provisions of this Section 8 shall be dated as of the date of this
Note.
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SECTION 9. Extension of Maturity.
Should the principal of or interest on this Note become due and
payable on other than a Business Day, the maturity date thereof shall be
extended to the next succeeding Business Day, and, in the case of principal,
interest shall be payable thereon at the rate per annum herein specified during
such extension.
SECTION 10. Attorneys' and Collection Fees.
Should the indebtedness evidenced by this Note or any part hereof
be collected at law or in equity or in bankruptcy, receivership or other court
proceedings, or this Note be placed in the hands of attorneys for collection,
the Company agrees to pay, in addition to principal and interest due and payable
hereon, all costs of collection, including reasonable attorneys' fees and
expenses, incurred by the Holder in collecting or enforcing this Note.
SECTION 11. Waivers.
The Company hereby waives presentment, demand for payment, notice
of dishonor, notice of protest and all other notices or demands in connection
with the delivery, acceptance, performance or default of this Note.
No delay by the Holder in exercising any power or right hereunder
shall operate as a waiver of any power or right, nor shall any single or partial
exercise of any power or right preclude other or further exercise thereof, or
the exercise of any other power or right hereunder or otherwise; and no waiver
whatsoever or modification of the terms hereof shall be valid unless set forth
in writing by the Holder and then only to the extent set forth therein.
SECTION 12. Defined Terms.
The following terms used in this Note shall have the meanings set
forth below.
"Affiliate" means, with respect to any Person, (a) a director,
officer, member or general partner of such Person or any Person identified in
clause (c) below, (b) a spouse, parent, sibling or descendant of such Person (or
a spouse, parent, sibling or descendant of any director or executive officer of
such Person) and (c) any other Person that directly or indirectly
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through one or more intermediaries, controls, is controlled by, or is under
common control with such Person. For the purpose of the above definition, the
term "control" (including, with correlative meaning, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Board" and "Board of Directors" means the Board of Directors of
the Company.
"Business Day" shall mean any day other than a Saturday, Sunday
or other day which shall be in Boston, Massachusetts or New York, New York a
legal holiday or a day on which banking institutions therein are authorized by
law to close.
"Change of Control" means the occurrence of any of the following:
(i) any Person or any group, acquires fifty percent (50%) or more of the
outstanding Common Stock; or assets of the Company or its Subsidiaries
representing more than fifty percent (50%) of the consolidated earning power of
the Company and its Subsidiaries; (ii) the sale or transfer in one or more
transactions of thirty percent (30%) or more of the assets of the Company and
its Subsidiaries (other than in the ordinary course of business or to the extent
such assets are replaced with other assets of equal or better value and
function); (iii) Michael Szycher ceases to be Chief Executive Officer of the
Company for any reason whatsoever, including by termination with or without
cause, death, disability, retirement or resignation, or Michael Szycher ceases
to devote all or substantially all of his working time to the Company; or (iv)
the consummation of the sale of any Strategic Assets, such that the Company is
no longer able to pursue the business described in the Form 10-K. For purposes
of this definition, the term "group" shall have the same meaning as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to the extent the members of any such group would be required
to file a Schedule 13D (or an amendment thereto) with the Securities and
Exchange Commission with respect to an acquisition of the type referred to in
clause (i) of this definition (assuming that the Common Stock is registered
under the Exchange Act).
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"Common Stock" shall mean the Common Stock, $0.01 par value, of
the Company as constituted on the date of this Note and any stock into which
such Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock.
"Convertible Securities" shall mean evidences of indebtedness,
shares (including, without limitation, Preferred Shares) of stock or other
securities which are convertible into or exchangeable for, with or without
payment of additional consideration, shares of Common Stock, either immediately
or upon the arrival of a specified date or the happening of a specified event.
"Debt" shall have the same meaning herein as in the Note Purchase
Agreement.
"Fair Value" shall mean the fair value of the appropriate
security, property, assets, business or entity as determined by an independent
investment banking firm of recognized national standing selected by the Company
and satisfactory to the Requisite Holders, provided that the fair value of the
security, property, assets, business or entity, as the case may be, in question
shall be determined without, in the case of any such securities, applying a
discount for any lack of liquidity thereof, but otherwise in each case in
accordance with generally accepted financial practice. Such determination shall
be set forth in writing, and the Company shall, immediately following such
determination, mail a copy thereof to the holder of this Note. The determination
so made shall be conclusive and binding on the Company and such holder or
holders. The Company shall pay all of the expenses incurred in connection with
any such determination, including, without limitation, the expenses of the
independent investment banking firm engaged to make such determination. If the
Company shall not have selected such investment banking firm within 10 days
after the occurrence of the event giving rise to the need therefor, then the
Requisite Holders may select such investment banking firm.
"Market Price" of any security as of any date herein specified
shall be (a) if such security is listed or admitted for trading on any national
securities exchange, the average closing sale price of such security over the
prior ten (10) trading days, or the average of the closing bid and asked prices
thereof if no such sale occurred, in each case as
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officially reported on the principal securities exchange on which such security
is listed, or (b) if not reported as described in clause (a), the, average of
the closing bid and asked prices of such security over the prior ten (10)
trading days in the over-the-counter market as shown by the National Association
of Securities Dealers, Inc. Automated Quotation System, or any similar system of
automated dissemination of quotations of securities prices then in common use,
if so quoted, as reported by any member firm of the New York Stock Exchange
selected by the Company, or (c) if not quoted as described in clause (b), the
average of the closing bid and asked prices for such security over the prior ten
(10) trading days as reported by the National Quotation Bureau Incorporated or
any similar successor organization, as reported by any member firm of the New
York Stock Exchange selected by the Company. If such security is quoted on a
national securities or central market system in lieu of a market or quotation
system described above, the closing price shall be determined in the manner set
forth in clause (a) of the preceding sentence if actual transactions are
reported and in the manner set forth in clause (b) of the preceding sentence if
bid and asked prices are reported but actual transactions are not.
"Notes" means this Note, the Additional Notes and any other 7%
Convertible Senior Note issued by the Company subject to the same terms
(including the rate of interest from time to time payable thereon) as this Note
(except as the case may be, with respect to the issuance date and the aggregate
principal amount).
"Officers' Certificate" shall mean a certificate signed on behalf
of the Company by its President or one of its Vice Presidents and its Chief
Financial Officer or its Treasurer.
"Person" shall be construed broadly and shall include without
limitation an individual, a partnership, a corporation, an association, a joint
stock company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a governmental authority.
"Preferred Shares", as applied to any Person, shall mean shares
of such Person which shall be entitled to preference or priority over any other
shares of such Person in respect of either the payment of dividends or the
distribution of assets upon liquidation.
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"Requisite Holders" means, as of any date of determination, the
holders of a majority of the aggregate principal amount outstanding of the Notes
outstanding on such date.
"Stock Purchase Rights" shall mean any warrants, options or other
rights to subscribe for, purchase or otherwise acquire any shares of Common
Stock or any Convertible Securities, either immediately or upon the arrival of a
specified date or the happening of a specified event.
"Strategic Assets" means patents or other intellectual property
of the Company that are essential to the development or manufacture of the
Company's prospective products, as such products are described in the Company's
Form 10-K for the fiscal year ended March 31, 1997 (the "Form 10-K").
"Subsidiary" of any Person means any other Person (i) whose
securities having a majority of the general voting power in electing the board
of directors or equivalent governing body of such other Person (excluding
securities entitled to vote only upon the failure to pay dividends thereon or
the occurrence of other contingencies) are, at the time as of which any
determination is being made, owned by such Person either directly or indirectly
through one or more other entities constituting subsidiaries or (ii) more than a
50% interest in the profits or capital of whom is, at the time as of which any
determination is being made, owned by such Person either directly or indirectly
through one or more other entities constituting subsidiaries.
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SECTION 13. Amendments and Waivers. No provision of this Note may
be amended or waived without the express written consent of both the Company and
the Requisite Holders. No delay by the holder of this Note in exercising any
power or right hereunder shall operate as a waiver of any power or right, nor
shall a single or partial exercise of any power or right preclude other or
further exercise thereof, or the exercise of any other power or right hereunder
or otherwise. No waiver or modification of the terms hereof shall be valid
unless set forth in writing by the holder of this Note.
SECTION 14. Transfer. Subject to compliance with Article VI of
the Note Purchase Agreement (to the extent applicable), this Note may be
transferred, in whole or in part, by the Holder without the consent of the
Company.
SECTION 15. No Impairment; No Set-Off.
(a) The Company will not, by amendment of its articles of
incorporation, bylaws or any other document or agreement relating to corporate
governance or existence or through reorganization, consolidation, merger,
dissolution, sale of assets or another voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Note, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Note against impairment.
(b) The Company owes its obligations under this Note without any
right of set-off or deduction of any kind.
SECTION 16. Governing Law. This Note is made and delivered in,
and shall be governed by and construed in accordance with the laws of, the State
of New York (without giving effect to principles of conflicts of laws).
* * * * *
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IN WITNESS WHEREOF, the Company has duly executed and delivered this
Note as of the date first written above.
CARDIOTECH INTERNATIONAL, INC.
By: /s/Michael Szycher, Ph.D.
---------------------------
Name: Michael Szycher, Ph.D.
Title: CEO
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