<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 30, 1996.
REGISTRATION NO. 333-3866
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SABRATEK CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3845 36-3700639
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
SABRATEK CORPORATION
5601 WEST HOWARD STREET, NILES, ILLINOIS 60714
(847) 647-2760
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------
K. SHAN PADDA
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SABRATEK CORPORATION
5601 WEST HOWARD STREET
NILES, ILLINOIS 60714
(847) 647-2760
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies To:
<TABLE>
<S> <C>
SCOTT HODES, ESQ. ROBERT SEBER, ESQ.
DAVID S. GUIN, ESQ. O'SULLIVAN GRAEV & KARABELL, LLP
ROSS & HARDIES 30 ROCKEFELLER PLAZA
150 N. MICHIGAN AVENUE NEW YORK, NEW YORK 10112
CHICAGO, ILLINOIS 60601-7567 (212) 408-2400
(312) 558-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
SABRATEK CORPORATION
CROSS-REFERENCE SHEET SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY FORM S-1
<TABLE>
<CAPTION>
ITEM
NUMBER ITEM IN FORM S-1 AND TITLE OF ITEM LOCATION IN PROSPECTUS
- ------ ------------------------------------------ -------------------------------------------
<C> <S> <C>
1 Forepart of the Registration Statement and Outside Front Cover Page
Outside Front Cover Page of
Prospectus..............................
2 Inside Front and Outside Back Cover Pages Inside Front Cover Page, Back Cover Pages
of Prospectus...........................
3 Summary Information, Risk Factors and Prospectus Summary, Risk Factors
Ratio of Earnings to Fixed Charges......
4 Use of Proceeds........................... Use of Proceeds
5 Determination of Offering Price........... Underwriting
6 Dilution.................................. Risk Factors, Dilution
7 Selling Security Holders.................. Not Applicable
8 Plan of Distribution...................... Underwriting
9 Description of Securities to be Prospectus Summary, Description of Capital
Registered.............................. Stock -- Common Stock
10 Interests of Named Experts and Counsel.... Legal Matters, Experts
11 Information with Respect to the Prospectus Summary, Risk Factors, The
Registrant.............................. Company, Use of Proceeds, Capitalization,
Selected Financial Data, Management's
Discussion and Analysis of Financial
Condition and Results of Operations,
Business, Management, Principal
Stockholders, Certain Transactions,
Description of Capital Stock, Shares
Eligible for Future Sale
12 Disclosure of Commission Position on Undertakings
Indemnification for Securities Act
Liabilities.............................
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 30, 1996
PROSPECTUS
2,500,000 SHARES
SABRATEK LOGO
COMMON STOCK
------------------------------
All of the 2,500,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), offered hereby are being sold by Sabratek Corporation
("Sabratek" or the "Company"). Prior to this offering (the "Offering"), there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $11.00 and
$13.00. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. The Company has applied for
listing of its Common Stock on the Nasdaq National Market under the symbol
"SBTK."
------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share........................ $ $ $
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Total(3)......................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $990,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares at the Price to Public, less Underwriting
Discounts and Commissions, solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ , and $ , respectively.
------------------------------
The shares of Common Stock are being offered severally by the Underwriters,
subject to prior sale, when, as and if accepted by the Underwriters and subject
to conditions including their right to reject orders in whole or in part. It is
expected that delivery of the shares will be made at the offices of Bear,
Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, on or about
, 1996.
------------------------------
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
BARINGTON CAPITAL GROUP, L.P.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 4
The Company has registered or applied to register the following trademarks:
SABRATEK(R) and its logo, AutoRamp(R), HOMERUN(R), Seamless Delivery System(TM),
PumpMaster(TM), Mediview(TM) and TCS Total Compliance System(TM). The Company
has also filed a foreign trademark application for the name SABRATEK(TM) and its
logo in Japan.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined by its independent auditors and
quarterly reports containing unaudited financial information for each of the
first three quarters of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL ON THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER THE
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
2
<PAGE> 5
SUB-ACUTE FACILITY LONG-TERM CARE FACILITY SKILLED NURSING FACILITY HOSPICE
SEAMLESS DELIVERY SYSTEM(TM) FEATURES
FACILITATE THERAPIES FOR HIGHER ACUITY PATIENTS:
- - MULTIPLE THERAPY PROTOCOLS
- - REMOTE INTERACTIVE PROGRAMMING AND MONITORING
- - DATA CAPTURE AND OUTCOMES REPORTING
- - CUSTOMIZABLE DELIVERY FORMATS
- - USER-FRIENDLY DESIGN AND FEATURES
- - ADVANCED SAFETY ALARMS AND FEATURES
ANTIBIOTIC THERAPY PREGNANCY/OBSTETRICAL CHEMOTHERAPY PAIN MANAGEMENT
<PAGE> 6
INFUSION SUITE CLINIC PHYSICIAN'S HOME HEALTH PATIENT'S HOME
OFFICE AGENCY
HEALTH CARE PROVIDER AND PAYOR BENEFITS
ACHIEVE LOWER COSTS
- MINIMIZES ON-SITE CAREGIVER INTERVENTION
- MAXIMIZES THERAPY COMPLIANCE
- REDUCES TRAINING/TRAVEL TIME
- ENABLES OPTIMAL CLINICAL PROTOCOL
DEVELOPMENT
- MINIMIZES PUMP INVENTORIES AND
MAINTENANCE COSTS
- OPTIMIZES ADMINISTRATIVE EFFICIENCIES
ENTERAL NUTRITION PARENTERAL NUTRITION HUMAN GROWTH HORMONES HEMOPHILIA
<PAGE> 7
TECHNOLOGICALLY-ADVANCED
USER-FRIENDLY
AND COST-EFFECTIVE
MULTI-THERAPY SYSTEMS
DESIGNED TO MEET THE UNIQUE NEEDS
OF THE ALTERNATE-SITE HEALTH CARE MARKET
[SABRATEK LOGO]
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the Financial Statements and Notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, all information contained in this
Prospectus (i) assumes that the Underwriters' over-allotment option is not
exercised, (ii) has been adjusted to give effect to a 1-for-3.173 reverse stock
split prior to the consummation of the sale by the Company of the 2,500,000
shares of Common Stock offered hereby (the "Offering"), and (iii) assumes the
conversion of the Company's Series A Preferred Stock and approximately $3.0
million principal amount of its outstanding debt plus $3.4 million accrued
interest and prepayment premium into Common Stock upon consummation of the
Offering.
THE COMPANY
Sabratek Corporation (the "Company" or "Sabratek") develops, produces and
markets technologically-advanced, user-friendly and cost-effective multi-therapy
infusion systems designed to meet the unique needs of the alternate-site health
care market. The Company's integrated infusion products incorporate advanced
communications technology which is designed to reduce provider operating costs
while maintaining the integrity and quality of care. Sabratek's proprietary
health care information system provides remote programming as well as real-time
diagnostic and therapeutic data capture capabilities, allowing caregivers to
monitor patient compliance more effectively and allowing providers to develop
outcome analyses and optimal clinical protocols. The Company has designed its
integrated hardware and software system to permit providers of infusion therapy
to achieve cost-effective movement of patients along the continuum of
alternate-site health care settings. The Company intends to expand its product
line beyond infusion therapy to become a leading developer and marketer of a
variety of interactive therapeutic and diagnostic medical systems for the
delivery of high-quality, cost-effective health care at alternate sites. The
Company believes that its current and future products and related software will
facilitate the ability of alternate-site providers to create a "virtual"
hospital room, thereby affording the delivery of a wide range of care previously
provided primarily in an acute-care setting. Substantially all of the Company's
current revenues are derived from the sale of its multi-therapy infusion pumps
and related disposable supplies.
Sabratek's strategy focuses specifically on the alternate-site health care
market, which it believes will continue to experience significant growth as
managed care payors continue to move patients to the lowest-cost care setting.
Such growth may be attributed to increasing cost-containment pressures, along
with advances in medical technology, that have transitioned the delivery of
health care away from the traditional acute-care setting to more cost-effective
sites. The alternate-site market includes, among other things, the provision of
infusion services rendered in various settings, including the patient's
residence, sub-acute care facilities, nursing homes, outpatient clinics,
dialysis centers and hospice facilities. According to POV, Incorporated, an
industry tracking and consulting firm, the infusion therapy segment of this
market is expected to grow in revenue from $3.2 billion in 1992 to $7.9 billion
in 1997, representing an average annual compounded growth rate of approximately
20%.
The Company believes that for alternate-site health care providers, the
management of costly resources such as nursing staff and infusion equipment
inventories is critical to their operating viability. The Company's strategic
response to the need to achieve cost-effective movement of patients along the
continuum of alternate-site care has been to develop a SEAMLESS DELIVERY SYSTEM
that integrates stationary and ambulatory multi-therapy infusion pumps,
disposable supplies, a proprietary interactive software system and a proprietary
diagnostic testing device. Sabratek's SEAMLESS DELIVERY SYSTEM maximizes the
similarities in operating features and range of therapeutic applications of the
Company's stationary and ambulatory infusion devices, thereby reducing the
costly time requirements of training and infusion administration as well as
minimizing equipment inventories. The Company's interactive software system is
designed to augment the utilization of Sabratek's infusion pumps and allow
providers to program therapies and monitor compliance on a real-time basis from
a remote location. The Company's portable, automatic testing device will enable
providers to perform on-site diagnostic tests on Sabratek's infusion pumps and
thereby reduce costs by eliminating the
3
<PAGE> 9
traditional reliance on third-party testing services and in-house biomedical
engineering capabilities. The Company believes that competing infusion therapy
products do not meet the diverse needs of payors, alternate-site health care
providers and their patients within the managed care environment to the same
extent as the Company's SEAMLESS DELIVERY SYSTEM.
In 1992, the Company commercially launched its multi-therapy stationary
infusion device (the "3030 Stationary Pump"), and in 1995 introduced its
multi-therapy ambulatory infusion device (the "6060 Ambulatory Pump"). In
addition, the Company markets a comprehensive line of related disposable tubing
sets. Both the 3030 Stationary Pump and the 6060 Ambulatory Pump have received
510(k) clearance from the Food and Drug Administration (the "FDA"). The Company
is preparing to launch its proprietary medical software system ("Mediview") and
its proprietary diagnostic testing device (the "PumpMaster"). The Company
currently markets its products domestically to national, regional and local
alternate-site health care providers through a sales force composed of nine
direct sales professionals, four clinical support staff and two full-time sales
consultants combined with a network of specialized alternate-site medical
products distributors. The Company also markets its products internationally
through distributors in Europe, Asia, South America and the Middle East.
The Company's goal is to continue to develop and market interactive
therapeutic and diagnostic medical systems designed to improve the delivery of
high-quality, cost-effective health care at alternate sites. The Company intends
to achieve its goal by pursuing the following business strategies: (i) continue
to develop advanced medical products and related software systems that maximize
the cost-effective provision of alternate-site health care, (ii) develop a
system of therapeutic and diagnostic information-based medical products
supported by the Company's proprietary health care information system platform,
and (iii) create a proprietary outcomes database through the Company's products
and software system platform.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................... 2,500,000 shares
Common Stock to be outstanding after the
Offering(1)......................................... 7,679,712 shares
Use of proceeds....................................... To repay certain outstanding
indebtedness, meet obligations under
certain stock appreciation rights,
expand sales and marketing activities,
fund research and development efforts
and increase manufacturing capacity
and for working capital and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol................ SBTK
</TABLE>
- ---------------
(1) Excludes 1,176,365 shares of Common Stock issuable upon exercise of
outstanding stock options under the Company's Stock Option Plan at a
weighted average exercise price of $5.18 per share, 137,683 shares of Common
Stock reserved for future option grants under such plan and 604,046 shares
of Common Stock issuable upon exercise of warrants at a weighted average
exercise price of $4.59 per share. See "Management -- Stock Option Plan" and
"Description of Capital Stock -- Warrants."
4
<PAGE> 10
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $ 63 $ 842 $ 1,229 $ 3,315 $ 4,040 $ 930 $ 2,944
Gross margin (loss)............... (13) (28) (405) 834 1,138 213 1,488
Selling, general and
administrative expenses......... 174 734 1,698 3,009 4,680 1,190 1,245
Research and development.......... 6 31 713 1,099 2,194 541 231
Operating income (loss)........... (193) (793) (2,816) (3,274) (5,736) (1,518) 12
Net loss(1)....................... (207) (791) (2,821) (3,555) (6,036) (1,547) (1,716)
Pro forma net loss(2)............. -- -- -- -- (5,861) -- (1,617)
Weighted average common shares
outstanding(2).................. -- -- -- -- 6,672 -- 6,672
Pro forma net loss per share(2)... -- -- -- -- $ (.88) -- $ (.24)
Dividends declared................ -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)(5)
-------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................................... $ 1,253 $ 1,253 $ 25,584
Working capital.................................... 975 975 27,535
Total assets....................................... 6,500 6,500 30,832
Total debt and capital lease obligations........... 3,930 917 266
Accumulated deficit................................ (15,168) (15,469) (15,469)
Total stockholders' equity (deficit)............... (1,803) 1,438 28,348
</TABLE>
- ---------------
(1) For the period ended March 31, 1996, a non-recurring charge in the amount of
$1,628,463 was recorded to recognize obligations under certain stock
appreciation rights.
(2) See Note (1) to the Financial Statements for an explanation of the
calculation of the pro forma net loss per share.
(3) Gives effect to the conversion of the Series A Preferred Stock into
1,838,114 shares of Common Stock and $3,012,793 principal amount of
outstanding debt plus $3,409,245 of accrued interest and prepayment premium
into 1,202,980 shares of Common Stock upon consummation of the Offering. See
Note (1)(j) to the Financial Statements for further information regarding
accrued interest. Also gives effect to the recognition of a non-recurring
charge of $301,000 for the change in the conversion price associated with
$300,000 of convertible subordinated debentures from $11.90 to $7.17.
(4) Adjusted to give effect to the sale of the 2,500,000 shares of Common Stock
offered by the Company hereby at an initial public offering price of $12.00
and the application of a portion of the net proceeds therefrom to the
repayment of $950,000 of certain outstanding indebtedness and $1,628,463 to
meet obligations under certain stock appreciation rights. See "Use of
Proceeds."
(5) Pro Forma, As Adjusted, amounts reflect the use of $600,000 of the net
proceeds of the Offering to repay the anticipated balance due Sterling
National Bank. The total amount due Sterling National Bank at March 31, 1996
was $301,393. See "Use of Proceeds."
5
<PAGE> 11
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the risk factors set forth below
in evaluating an investment in the shares of Common Stock offered hereby.
HISTORY OF LOSSES
The Company was formed in 1989, introduced its first product in 1992, and
has incurred operating and net losses since its inception. The Company incurred
net losses of $2,820,644, $3,554,823, and $6,036,335, for the years 1993, 1994
and 1995, respectively, and as of March 31, 1996, had an accumulated deficit of
$15,167,582. The Company's losses resulted primarily from expenditures relating
to research and development, product engineering, obtaining FDA clearance for
its products, development of its initial sales and marketing organization, and
establishment of manufacturing capability. Although the Company has experienced
revenue growth in recent periods, such growth may not be sustainable, may not
result in the Company's profitability and may not be indicative of future
results. The Company's ability to increase sales and generate profits will
depend on numerous factors, and there can be no assurance that the Company's
revenues will continue to grow or that the Company will become profitable or
sustain profitability if it becomes profitable. See "Selected Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON PRINCIPAL PRODUCT LINE AND NEW PRODUCT DEVELOPMENT
The Company currently derives substantially all of its revenues from the
sale of its multi-therapy infusion pumps and related disposable supplies and
expects that revenues from these products will continue to account for a
significant portion of the Company's revenues in the future. Declines in the
demand for the Company's infusion pumps and related disposable supplies, whether
due to increased competition, technological changes, or other factors, could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company's execution of its business strategy and
its future financial performance will depend in large part on the Company's
ability to meet the increasingly sophisticated needs of its customers through
the timely development and successful introduction of new infusion therapy
products, enhanced versions of existing products, and new complementary
products. The success of new or enhanced products is subject to certain risks of
failure inherent in the development of products and materials based upon new
technologies. These risks include the possibilities that (i) certain of the
products developed may require and fail to receive regulatory clearance or
approval, (ii) the products may be difficult to manufacture on a commercial
scale or may be uneconomical to manufacture or market, (iii) the proprietary
rights of third parties may preclude the Company from marketing such products,
(iv) the Company's competitors may market superior, more cost-effective or
equivalent products and may do so on a more timely basis, (v) errors and
malfunctions may be found in products after their commercial introduction and
discovered errors and malfunctions may not be corrected in a timely manner, and
(vi) customers may not accept or use the products. The Company has historically
expended a significant amount on product development and believes that
significant continuing product development efforts will be required to sustain
the Company's growth. There can be no assurance that the market will continue to
accept the Company's existing products, or that product enhancements or new
products will be developed in a timely and cost-effective manner, meet the needs
and requirements of alternate-site health care providers or achieve market
acceptance. See "Business -- Products," "-- Sales and Marketing" and
"-- Competition."
HIGHLY COMPETITIVE MARKETS; TECHNOLOGICAL RISK
The medical products industry in general and the infusion therapy products
industry in particular are characterized by intense competition. Large
competitors, such as Abbott Laboratories, Baxter International Inc., IVAC
Corporation and SIMS Deltec, Inc., among others, have significant market shares
and installed bases of products in the infusion pump and related disposable
supplies industry. Many of the Company's competitors have substantially greater
capital resources, research and development staffs, regulatory experience, sales
and marketing capabilities, manufacturing facilities and broader product
offerings than the
6
<PAGE> 12
Company. The Company expects that these competitors will continue to compete
aggressively with tactics such as offering volume discounts based on "bundled"
purchases of a broader range of medical equipment and supplies, a tactic that
the Company is currently unable to pursue except on a joint venture basis. There
can be no assurance that such competition will not adversely affect the
Company's results of operations or its ability to maintain or increase sales and
market share. As a consequence of the foregoing, the Company may not be able to
successfully execute its business strategies.
The market for infusion therapy products is affected by continuing
improvements and enhancements in technology. There can be no assurance that the
Company's competitors or potential competitors will not succeed in developing or
marketing products that provide more desirable characteristics, or are more
effective or less expensive than those developed or marketed by the Company. In
addition, technological advances in drug delivery systems, the development of
therapies that can be administered by methods other than infusion therapy, and
the development of new medical treatments that cure certain complex diseases or
reduce the need for infusion therapy could adversely impact the Company's
business. See "Business -- Research and Development" and "-- Competition."
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY
There can be no assurance that the common law, statutory and contractual
rights on which the Company relies to protect its intellectual property and
confidential and proprietary information will provide it with meaningful
protection. Third parties may independently develop products, techniques or
information which are substantially equivalent to the products, techniques and
information which the Company considers proprietary. In addition, proprietary
information regarding the Company could be disclosed in a manner against which
the Company has no meaningful remedy.
Disputes regarding the Company's intellectual property could force the
Company into expensive and protracted litigation or costly agreements with third
parties. An adverse determination in a judicial or administrative proceeding or
failure to reach an agreement with a third party regarding intellectual property
rights could prevent the Company from manufacturing and selling certain of its
products, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Although the Company knows of no infringement of rights held by others, a
third-party may assert infringement of such rights, which assertion may result
in expensive and protracted litigation. Sabratek received a letter in September,
1995, in which a potential competitor (referred to below as "competitor") made
the following allegations: (i) that the competitor had developed a
re-certification system for an infusion pump; (ii) that the competitor had filed
several patent applications for the re-certification system; (iii) that
Sabratek's PumpMaster product appeared to implement many, if not all, of the
innovative features of the competitor's re-certification system; (iv) that the
competitor shared many of these features in confidence with an employee of
Sabratek prior to the commercial introduction of the competitor's
re-certification system; and (v) that the competitor was prepared, upon issuance
of any patents for its re-certification system, to enforce such patents if any
conflicts existed. Sabratek conducted an internal investigation of this matter
and believes that its PumpMaster product was independently developed by
Sabratek, and was not developed based on any information, confidential or
otherwise, improperly obtained from the competitor. Since patent applications
pending in the U.S. Patent and Trademark Office are maintained in secrecy until
issuance, the merits of the competitor's allegations with respect to its patent
claims cannot be evaluated until its alleged patent application(s) are issued.
LIMITED SALES AND MARKETING EXPERIENCE; DEPENDENCE ON DISTRIBUTORS
The Company has limited experience in the areas of sales, marketing and
distribution. The Company's sales and marketing staff will require additional
personnel in the future. There can be no assurance that the Company will be able
to build an adequate sales and marketing staff, that establishing such a sales
and marketing staff will be cost-effective, or that the Company's direct sales
and marketing efforts will be successful. The Company currently sells its
products primarily through domestic and international distributors of medical
products. The loss of one or more of these distributors or the inability to
enter into agreements with new distributors to sell its products in the United
States or internationally could have a material adverse effect
7
<PAGE> 13
on the Company. There can be no assurance that the Company or its distributors
will be successful in marketing or selling the Company's products. See
"Business -- Sales and Marketing."
LIMITED ASSEMBLY EXPERIENCE
The Company's 3030 Stationary Pump and 6060 Ambulatory Pump are currently
assembled by the Company at its facility. To be successful, the Company must
assemble its products in compliance with regulatory requirements, in sufficient
quantities and on a timely basis, while maintaining product quality and
acceptable assembly costs. The Company has limited experience assembling its
products in large commercial quantities. There can be no assurance that the
Company will be able to assemble products in large commercial quantities on a
timely basis and at an acceptable cost. If the Company becomes unable to
assemble its infusion pumps at its facility in a timely and efficient manner,
the Company's ability to supply product to its distributors and direct customers
may be adversely affected until such time as the Company is able to establish
alternative assembly arrangements. See "Business -- Assembly."
INTERRUPTION IN SOURCES OF SUPPLY
The Company could face problems in supplying its equipment and disposable
products to distributors and customers if its sources of supply are interrupted.
If the Company's primary sources of supply were interrupted, it would
nonetheless face delays in activating its secondary sources of supply which
could adversely affect the Company. There can be no assurance that the Company
will be able to maintain a sufficient and adequate supply of products in its own
inventory or that the Company will be able to cause its distributors to maintain
a sufficient and adequate supply of products to avoid such a disruption. See
"Business -- Manufacturing."
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT
The Company's products are generally purchased by health care providers,
which then seek reimbursement from various public and private third-party
payors, such as Medicare, Medicaid and indemnity insurers, for health care
services provided to patients. Government and private third-party payors are
increasingly attempting to contain health care costs by limiting both the extent
of coverage and the reimbursement rate for new diagnostic and therapeutic
products and services. The Health Care Financing Administration of the United
States Department of Health and Human Services ("HCFA"), which administers
Medicare, and most private insurance companies do not provide reimbursement for
services that they determine to be experimental in nature or that are not
considered "reasonable and necessary" for diagnosis or treatment. Many private
insurers are influenced by HCFA actions in making their own coverage decisions
on new products or services. There can be no assurance that third-party
reimbursement for the services provided using the Company's products will
continue to be available to its customers or that any such reimbursement will be
adequate. Disapproval of, or limitations in, coverage by HCFA or other
third-party payors could materially and adversely affect market acceptance of
the Company's products which could, in turn, have a material adverse affect on
the Company's business, financial condition and results of operations. See
"Business -- Reimbursement."
NO ASSURANCE OF REGULATORY CLEARANCE; STRICT GOVERNMENTAL REGULATION
The production and marketing of the Company's current products and the
products the Company intends to introduce in the future are subject to
regulations by numerous governmental authorities, including the FDA and
corresponding state and foreign agencies. In the United States, the development,
manufacture and promotion of medical devices are regulated by the FDA under the
Federal Food, Drug, and Cosmetic Act (the "FFDCA"). The Company's 3030
Stationary Pump and 6060 Ambulatory Pump, and the related disposable tubing
sets, have been cleared by the FDA under a premarket notification procedure
known as a "510(k) Submission," which generally takes less time to complete, and
requires less information, than the FDA's lengthy and expensive premarket
approval ("PMA") process.
8
<PAGE> 14
The Company believes that the original 510(k) clearance for the 6060
Ambulatory Pump permits the Company to market the Mediview software with the
6060 Ambulatory Pump in the United States without a new 510(k) Submission.
However, there can be no assurance that the FDA would agree with the Company's
determination. If in the future the FDA concludes that the Mediview software
system for use with the 6060 Ambulatory Pump required a new 510(k) Submission,
the FDA could prohibit the Company from marketing the Mediview software system
for this use until the Company filed a new 510(k) Submission and obtained
clearance from the FDA. The FDA could also take regulatory action against the
Company for its prior distribution of the Mediview software system with the 6060
Ambulatory Pump.
In November 1995, the Company filed a new 510(k) Submission for the
Mediview software system for use with its 3030 Stationary Pump. The Company
expects to receive FDA's 510(k) clearance for the Mediview software system for
use with the 3030 Stationary Pump in the near future. However, there is no
assurance that the product will be cleared for marketing in the United States on
a timely basis, if at all.
The Company has determined that the PumpMaster does not constitute a device
under the statutory definition and, therefore, did not file a 510(k) Submission
with respect to this product. There can be no assurance that the FDA will agree
with the Company's determination in this regard. If the FDA were to determine
that the PumpMaster is a medical device that requires a 510(k) Submission prior
to its commercial distribution, the FDA could suspend further commercial
distribution of the PumpMaster and take regulatory action against the Company
for its prior distribution of the product. The product clearance process for
future products can be lengthy, expensive and uncertain. There can be no
assurance that market clearances will be forthcoming in a timely manner, if at
all, or that the FDA will not require more extensive clinical evaluations, other
information or a PMA Submission. Moreover, the clearances, if granted, could
limit the uses for which the product could be marketed. Failure to obtain or
delays caused by, regulatory clearances or approvals could have a material
adverse affect on the Company's business, financial condition and results of
operations.
The Company is also subject to strict domestic and foreign regulations and
supervision regarding the manufacturing, marketing, labeling, distribution, and
promotion of its products. This includes periodic inspections of the Company's
manufacturing facility by the FDA to determine compliance with good
manufacturing practice ("GMP") regulations, which may become more stringent in
the future. There can be no assurance that the Company will be able to attain or
maintain compliance with GMP requirements.
Failure to comply with the regulations outlined above may result in severe
governmental sanctions. Noncompliance with applicable requirements can result
in, among other things, rejection or withdrawal of premarket clearance or
approval for devices, recall or seizure of products, total or partial suspension
of production, fines, injunctions, and civil and criminal penalties. The FDA
also has the authority to request repair, replacement or refund of the cost of
any devices manufactured or sold by the Company. Any of these sanctions may have
a material adverse effect on the Company's business, financial condition or
results of operations. See "Business -- Government Regulation."
PRODUCT LIABILITY EXPOSURE
Manufacturers of medical devices face the possibility of substantial
liability for damages in the event that the use of their products is alleged to
have resulted in adverse effects to a patient. The Company maintains product
liability insurance with coverage limits of $5.0 million per occurrence with an
annual aggregate policy limit of $5.0 million. The Company's product liability
insurance provides coverage only for products currently manufactured and
distributed. There can be no assurance that liability claims will not exceed the
limits of such coverage or that such insurance will continue to be available on
commercially reasonable terms or at all. Furthermore, the Company does not
maintain insurance that would provide coverage for any costs or losses resulting
from any required recall of its products due to alleged defects, whether
instituted by the Company or a regulatory agency. See "Business -- Product
Liability Exposure."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
During the year ended December 31, 1995, the Company derived approximately
15% of its revenues from international sales, resulting in exposure to certain
risks. Fluctuations in exchange rates of the U.S. dollar
9
<PAGE> 15
against foreign currencies may reduce demand for, or the profitability of, the
Company's products sold overseas. In addition, the Company's international sales
may be affected by economic or political instability and domestic and foreign
governmental regulations, including export license requirements, trade
restrictions, changes in tariffs, regulatory approval for marketing products or
similar factors. Finally, the laws of certain foreign countries may not protect
the Company's intellectual property rights to the same extent as do the laws of
the United States. See "Business -- Sales and Marketing" and " -- Intellectual
Property."
RELIANCE ON LIMITED NUMBER OF CUSTOMERS
In 1995, five customers accounted for 47% of the Company's sales. Four of
these customers are distributors and the fifth is a health care provider. The
loss of or a significant reduction of business from any of these distributors or
such provider would have a material adverse effect on the Company. See
"Business -- Sales and Marketing" and Note (15) to the Financial Statements.
QUARTERLY FLUCTUATIONS
The Company's quarterly revenues and operating results have varied
significantly in the past and may continue to do so in the future. In
particular, the Company's distributors may purchase several months of inventory
at one time which may cause fluctuations in quarterly revenues. Future revenues
and operating results may also fluctuate significantly from quarter to quarter
and will depend upon, among other factors: (i) demand for the Company's products
and new product introductions by the Company or its competitors or transitions
to new products, (ii) the timing of orders and shipments, (iii) the mix of sales
between third-party distributors and the Company's direct sales force, (iv)
competition, including pricing pressures, (v) the timing of regulatory and
third-party reimbursement approvals, (vi) expansion of the Company's assembly
capacity and the Company's ability to assemble or manufacture its products
efficiently, and (vii) the timing of research and development expenditures.
Accordingly, period-to-period comparisons of the Company's revenues and
operating results should not be relied upon as an indication of future
performance, and the results of any quarterly period may not be indicative of
results to be expected for a full year. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends in significant part upon the
continued service of its senior management and other key personnel. Because the
Company has a relatively small number of employees when compared to other
companies in the same industry, its dependence on maintaining its employees is
particularly significant. There can be no assurance that the Company's current
employees will continue to work for the Company. Loss of services of key
employees could have a material adverse effect on the Company's business,
results of operations and financial condition. The Company is also dependent on
its ability to attract and retain additional high quality personnel. The Company
may need to grant additional options to key employees and provide other forms of
incentive compensation to attract and retain key personnel. See
"Business -- Employees."
NEED FOR ADDITIONAL FINANCING
The Company anticipates that the net proceeds of the Offering will be
adequate to satisfy its operating and capital requirements at least through the
end of 1997. However, changes in the Company's business or business plan could
affect the Company's capital requirements. The Company's future capital
requirements will depend on many factors, including, but not limited to, the
cost of manufacturing and marketing activities, its ability to successfully
market its products, the scope of its research and development programs, the
length of time required to collect accounts receivable, competing technological
and market developments, and potential acquisitions. If additional financing is
needed, there can be no assurance that it will be available on terms acceptable
to the Company, if at all, or that such financing would not be dilutive to
existing stockholders. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
10
<PAGE> 16
CONTROL BY LIMITED NUMBER OF STOCKHOLDERS
Following completion of the Offering, the directors and executive officers
of the Company and the Company's two largest existing stockholders will
beneficially own approximately 31% of the outstanding shares of the Company's
Common Stock. As a result, these stockholders, acting together with a limited
number of other stockholders, may be able to effectively control the Company and
direct its affairs and business, including any determination with respect to a
change in control of the Company, future issuances of Common Stock or other
securities by the Company, declaration of dividends on the Company's Common
Stock and the election of directors. Such control by existing stockholders could
have the effect of delaying, deferring or preventing a change in control of the
Company which could deprive the Company's stockholders of the opportunity to
sell their shares of Common Stock at prices higher than prevailing market
prices. See "Principal Stockholders."
ABSENCE OF PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE;
OFFERING PRICE DETERMINED BY NEGOTIATION
Prior to the Offering, there has been no public trading market for the
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after the Offering. The securities markets have, from
time to time, experienced extreme price and volume fluctuations which often have
been unrelated to the operating performance of particular companies. The market
prices of the common stock of many publicly-held medical device companies have
been in the past, and are expected to be, volatile. Announcements of
technological or medical innovations or new commercial products by the Company
or its competitors, developments or disputes concerning patents or proprietary
rights, changes in regulatory or medical reimbursement policies, and economic
and other external factors, as well as period-to-period fluctuations in the
financial results of the Company, may have a significant impact on the market
price and marketability of the Common Stock. The initial public offering price
of the shares of Common Stock in the Offering has been determined through
negotiations between the Company and the Underwriters based upon several factors
and may not be indicative of prices that will prevail in the trading market. See
"Underwriting."
ADVERSE IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of shares of Common Stock (including shares issued upon the exercise
of outstanding options) in the public market after the Offering or the
perception that such sales could occur could adversely affect the market price
of the Common Stock. Such sales also might make it more difficult for the
Company to sell equity securities or equity-related securities in the future at
a time and price that the Company deems appropriate. Upon completion of the
Offering, the Company will have approximately 7,679,712 shares of Common Stock
outstanding. The 2,500,000 shares offered hereby will be freely tradable without
restriction, unless purchased by an affiliate of the Company. The remaining
approximately 5,179,712 shares are restricted securities that may be sold only
if registered under the Securities Act of 1933, as amended (the "Act"), or sold
in accordance with an applicable exemption from registration, such as Rule 144
promulgated under the Act. None of these shares will be available for sale upon
the effective date of the Registration Statement of which this prospectus is a
part (the "Effective Date"). Beginning 180 days after the Effective Date,
approximately 3,200,000 of these shares will become eligible for sale, under
Rule 144 or Rule 701 promulgated under the Act. In addition, beginning 180 days
after the Effective Date, an additional approximately 615,000 shares subject to
vested stock options and warrants will become eligible for sale under Rule 144
or Rule 701 promulgated under the Act. See "Shares Eligible for Future Sale" and
"Dilution."
IMPACT OF ANTI-TAKEOVER MEASURES; POSSIBLE ISSUANCE OF PREFERRED STOCK;
CLASSIFIED BOARD
Certain provisions of the Company's Certificate of Incorporation and Bylaws
and the Delaware General Corporation Law may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company. Such provisions could limit the
price that certain investors might be willing to pay in the future for shares of
the Company's Common Stock. Pursuant to the Company's Certificate of
Incorporation, the Board of Directors is authorized to fix the rights,
preferences, privileges and restrictions, including voting rights, of unissued
shares of the Company's preferred
11
<PAGE> 17
stock and to issue such stock without any further vote or action by the
Company's stockholders. The rights of the holders of Common Stock will be
subject to and may be adversely affected by the rights of the holders of any
preferred stock that may be created and issued in the future. In addition,
stockholders do not have the right to cumulative voting for the election of
directors. The Company's Bylaws include a number of provisions which may have
the effect of discouraging persons from pursuing non-negotiated takeover
attempts. Specifically, the Company's Bylaws provide for a staggered board
whereby only one-third of the total number of directors are replaced or
re-elected each year. The Bylaws also require the affirmative vote of two-thirds
of the Company's issued and outstanding capital stock to remove a director.
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which restricts certain transactions and business
combinations between a corporation and an "Interested Stockholder" owning 15% or
more of the corporation's outstanding voting stock for a period of three years
from the date the stockholder becomes an Interested Stockholder. Subject to
certain exceptions, unless the transaction is approved in a prescribed manner,
Section 203 prohibits significant business transactions such as a merger with,
disposition of assets to or receipt of disproportionate financial benefits by
the Interested Stockholder, or any other transactions that would increase the
Interested Stockholder's proportionate ownership of any class or series of the
corporation's stock.
BROAD DISCRETION WITH RESPECT TO ALLOCATION OF NET PROCEEDS
The Company has estimated the portion of the net proceeds of the Offering
to be used to expand its sales and marketing activities, to fund its research
and development efforts, including capital expenditures, and for the expansion
of manufacturing facilities. These proposed uses are estimates only and the
Company retains broad discretion over the actual amount allocated to each such
use.
In addition, the Company expects to use a significant portion of the net
proceeds of the Offering for working capital and general corporate purposes. The
Company has not yet identified the specific uses for such net proceeds and will,
therefore, retain broad discretion as to the allocation of a significant portion
of the net proceeds of the Offering. Pending such uses, the Company intends to
invest the net proceeds in short-term interest-bearing, investment-grade
securities. See "Use of Proceeds."
SUBSTANTIAL DILUTION AND ABSENCE OF DIVIDENDS
Purchasers of shares of Common Stock in the Offering will experience
immediate and substantial dilution in the net tangible book value per share of
Common Stock from the initial public offering price. In addition, the exercise
of outstanding options and warrants will result in further dilution. See
"Dilution." The Company has never paid any cash dividends and does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
See "Dividend Policy."
12
<PAGE> 18
THE COMPANY
The Company was organized under Illinois law in December, 1989, and was
reincorporated under Delaware law in December, 1991. The Company's executive
offices are located at 5601 West Howard Street, Niles, Illinois 60714. The
Company's telephone number is (847) 647-2760.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
2,500,000 shares of Common Stock offered hereby are estimated to be
approximately $26,910,000 ($31,095,000 if the Underwriters' over-allotment
option is exercised in full), at an estimated initial-public-offering price of
$12.00 per share, after deducting underwriting discounts and commissions and
estimated offering expenses.
The Company anticipates that it will use approximately $950,000 of the net
proceeds of the Offering to repay certain indebtedness, approximately $1.6
million to meet its obligations under certain stock appreciation rights,
approximately $5.0 million to expand sales and marketing activities,
approximately $4.0 million to fund the Company's research and development
efforts, including capital expenditures, and approximately $2.0 million for the
expansion of manufacturing capabilities. The Company intends to use the balance
of the proceeds for working capital and general corporate purposes. The Company
also may use a portion of the net proceeds to acquire businesses, technologies
or products complementary to the Company's business, although the Company
currently has no specific plans or commitments in this regard. The amounts
actually expended for each purpose may vary significantly depending upon the
costs and timing of expansion of marketing, sales and manufacturing activities
and hence the foregoing allocations represent the Company's best estimate of the
application of the net proceeds of the Offering and are subject to
reapportionment of proceeds among the categories listed above or to new
categories.
The $950,000 principal amount of indebtedness to be retired consists of the
following components: (i) $250,000 principal amount of Secured Subordinated
Notes which bear interest at a rate of 15.00% per annum and which are payable in
three yearly installments beginning in March 1998, (ii) $100,000 principal
amount of Debentures which bear interest at a rate of 10.00% per annum until
June 30, 1996 and at a rate of 13.22% per annum thereafter and which mature on
January 23, 2002, and (iii) approximately $600,000 principal amount expected to
be advanced to the Company under its line of credit with Sterling National Bank
("Sterling") which indebtedness bears interest at a rate equal to the Base Rate
from time to time announced by Sterling plus 3.50% (11.75% as of March 31, 1996)
and which is due on demand. The proceeds of all such indebtedness was used by
the Company to fund working capital requirements.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain all available funds for use in
its business and therefore does not intend to pay any cash dividends on its
Common Stock in the foreseeable future.
13
<PAGE> 19
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996
was $1,437,990, or $.28 per share. Pro forma net tangible book value per share
is determined by dividing the pro forma tangible net worth of the Company (total
pro forma tangible assets less total pro forma liabilities) by the pro forma
number of shares of Common Stock outstanding. Without taking into account any
changes in such pro forma net tangible book value after March 31, 1996, other
than to give effect to the sale of the 2,500,000 shares of Common Stock offered
by the Company hereby at an initial public offering price of $12.00 per share,
pro forma net tangible book value of the Company as of March 31, 1996 would have
been $28,347,990, or $3.69 per share (after deducting the estimated underwriting
discount and Offering expenses payable by the Company). This represents an
immediate increase in pro forma net tangible book value of $3.41 per share to
existing stockholders and an immediate dilution of $8.31 per share to new
investors. Dilution to new investors is determined by subtracting the pro forma
net tangible book value per share after the Offering from the initial public
offering price per share. The following table illustrates this per share
dilution.
<TABLE>
<S> <C> <C>
Assumed public offering price per share (1).......................................... $12.00
Pro forma net tangible book value per share before Offering................. $ .28
Increase per share attributable to new investors............................ 3.41
-----
Pro forma net tangible book value per share after Offering........................... 3.69
Dilution per share to new investors (2).............................................. $ 8.31
</TABLE>
- ---------------
(1) Initial public offering price before deduction of underwriting discounts and
commissions and estimated expenses of the Offering to be paid by the
Company.
(2) Assumes no exercise of outstanding stock options and warrants. As of the
date of this Prospectus, there are options and warrants outstanding to
purchase a total of 1,780,411 shares of Common Stock at exercise prices
ranging from $3.17 to $11.11 per share. See "Management -- Stock Option
Plan" and Notes (11) and (12) to the Financial Statements.
The following table summarizes, as of March 31, 1996, the difference
between the existing stockholders and the new investors with respect to the
number of shares of Common Stock purchased (or to be purchased) from the
Company, the total consideration paid (or to be paid) and the average price per
share paid (or to be paid) by the existing stockholders and new investors,
including proceeds from the issuance.
<TABLE>
<CAPTION>
PRO FORMA
SHARES PURCHASED(1)(2) TOTAL CONSIDERATION(2)
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 5,179,712 67% $15,713,792 34% $ 3.03
New investors................... 2,500,000 33 30,000,000 66 12.00
--------- ---- ------------ ----
Total................. 7,679,712 100% $45,713,792 100%
========= ==== ============ ====
</TABLE>
- ---------------
(1) Assumes no exercise of outstanding stock options and warrants. See
"Management -- Stock Option Plan" and "Description of Capital
Stock -- Common Stock."
(2) Gives effect to the conversion of the Series A Preferred Stock into
1,838,114 shares of Common Stock and $3,012,793 of outstanding debt plus
$3,409,245 of accrued interest and prepayment premium into 1,202,980 shares
of Common Stock upon consummation of the Offering. See Note (1)(j) to the
Financial Statements for further information regarding accrued interest.
14
<PAGE> 20
CAPITALIZATION
The following table sets forth (i) the total capitalization of the Company
as of March 31, 1996, (ii) the pro forma capitalization of the Company as of
March 31, 1996, reflecting the conversion of the Series A Preferred Stock and
$3,012,793 principal amount of outstanding debt plus $3,409,245 of accrued
interest and prepayment premium into Common Stock upon consummation of the
Offering, and (iii) such pro forma capitalization as adjusted to reflect the
sale of the 2,500,000 shares of Common Stock offered by the Company hereby at an
initial public offering price of $12.00 per share and the application of a
portion of the net proceeds therefrom to the repayment of $950,000 of certain
outstanding indebtedness and $1,628,463 to meet obligations under certain stock
appreciation rights.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt (including current portion of long-term
obligations)(1)......................................... $ 455 $ 455 $ 154
Long-term obligations (excluding current portion)(1)...... 3,475 462 112
------- ------- -------
Total debt................................................ 3,930 917 266
======= ======= =======
Stockholders' equity:
Convertible Preferred Stock, par value $0.01; 12,500,000
shares authorized; 1,768,129 issued and outstanding
at March 31, 1996; no shares issued and outstanding
pro forma and as adjusted............................ 18 0 0
Common Stock, par value $0.01; 25,000,000 shares
authorized; 2,133,103 shares issued and outstanding
(pro forma 5,179,712); 7,679,712 shares issued and
outstanding as adjusted(2)........................... 21 52 77
Additional paid-in capital(3)........................... 13,439 16,968 43,853
Accumulated deficit(3).................................. (15,168) (15,469) (15,469)
Note receivable from stockholder.......................... (113) (113) (113)
------- ------- -------
Total stockholders' equity (deficit)...................... (1,803) 1,438 28,348
------- ------- -------
Total capitalization...................................... $ 2,127 $ 2,355 $28,614
======= ======= =======
</TABLE>
- ---------------
(1) Includes capital lease obligations.
(2) Excludes 1,780,411 shares of Common Stock issuable upon exercise of
outstanding stock options and warrants.
(3) Pro forma numbers reflect the recognition of a non-recurring charge of
$301,000 for the change in the conversion price associated with $300,000 of
convertible subordinated debentures from $11.90 to $7.17.
15
<PAGE> 21
SELECTED FINANCIAL DATA
The selected financial data with respect to the Company's statements of
operations for each of the years in the four year period ended December 31, 1995
and the balance sheet data as of December 31, 1992, 1993, 1994 and 1995 are
derived from the Company's financial statements, which have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The selected
financial data with respect to the Company's statements of operations for the
year ended December 31, 1991 and the balance sheet data as of December 31, 1991,
as well as the Company's statement of operations for the three month periods
ended March 31, 1995 and 1996 and the balance sheet data as of March 31, 1996,
are derived from the Company's unaudited financial statements that include, in
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the information set forth
therein. The financial data for the Company should be read in conjunction with
the Company's audited Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 63 $ 842 $ 1,229 $ 3,315 $ 4,040 $ 930 $ 2,944
Cost of sales............................. 76 870 1,634 2,481 2,902 717 1,456
------ ------ ------ ------- ------- ------- -------
Gross margin (loss)....................... (13) (28) (405) 834 1,138 213 1,488
------ ------ ------ ------- ------- ------- -------
Operating expenses:
Selling, general and administrative..... 174 734 1,698 3,009 4,680 1,190 1,245
Research and development................ 6 31 713 1,099 2,194 541 231
------ ------ ------ ------- ------- ------- -------
Total............................ 180 765 2,411 4,108 6,874 1,731 1,476
------ ------ ------ ------- ------- ------- -------
Operating income (loss)................... (193) (793) (2,816) (3,274) (5,736) (1,518) 12
Interest expense.......................... (14) (11) (20) (260) (222) (11) (104)
Other income (expense), including interest
income(1)............................... -- 13 15 (21) (78) (18) (1,624)
------ ------ ------ ------- ------- ------- -------
Net loss.................................. $(207) $(791) $(2,821) $(3,555) $(6,036) $(1,547) $(1,716)
====== ====== ====== ======= ======= ======= =======
Pro forma net loss(2)..................... -- -- -- -- (5,861) -- (1,617)
Weighted average common shares
outstanding(2).......................... -- -- -- -- 6,672 6,672
======= =======
Pro forma net loss per share(2)........... -- -- -- -- $ (.88) $ (.24)
======= =======
Dividends declared........................ -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, AS OF MARCH 31, MARCH 31,
------------------------------------------- -------------------- 1996
1991 1992 1993 1994 1995 1995 1996 PRO FORMA(3)
------ ------ ------ ------ ------- ------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.......................... $ 17 $ 85 $ 582 $ 765 $ 8 $ 46 $ 1,253 $ 1,253
Working capital............... (233) (1) (1,296) 999 (1,101) (307) 975 975
Total assets.................. 133 1,547 2,215 3,338 4,179 2,866 6,500 6,500
Short-term debt (including
current portion of long term
obligations)(4)............. 161 381 2,013 91 775 486 455 455
Long term obligations
(excluding current
portion)(4)................. -- -- 310 464 2,512 526 3,475 462
Accumulated deficit........... (249) (1,040) (3,861) (7,416) (13,452) (8,962) (15,168) (15,469)
Total stockholders' equity
(deficit)................... (164) 390 (1,211) 1,151 (2,821) (11) (1,803) 1,438
</TABLE>
- ---------------
(1) For the three month period ended March 31, 1996, a non-recurring charge in
the amount of $1,628,463 was recorded to recognize obligations under certain
stock appreciation rights.
(2) See Note (1) to the Financial Statements for an explanation of the
calculation of the pro forma net loss per share.
(3) Gives effect to the conversion of the Series A Preferred Stock into
1,838,114 shares of Common Stock and $3,012,793 principal amount of
outstanding debt plus $3,409,245 of accrued interest and prepayment premium
into 1,202,980 shares of Common Stock upon consummation of the Offering. See
Note (1)(j) to the Financial Statements for further information regarding
accrued interest. Also gives effect to the recognition of a non-recurring
charge of $301,000 for the change in the conversion price associated with
$300,000 of convertible subordinated debentures from $11.90 to $7.17.
(4) Includes capital lease obligations.
16
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since its inception in 1989, through 1991, the Company was in its
development stage and engaged primarily in research and development, product
engineering and activities related to obtaining clearance from the FDA for its
first product, the 3030 Stationary Pump. The Company has a limited operating
history and has experienced significant operating losses since inception. Upon
receiving FDA clearance for the 3030 Stationary Pump in mid-1992, the Company
focused its efforts on creating a domestic and international sales and marketing
network, as well as a manufacturing capability, to assist in the distribution of
its first product to the alternate-site health care market. Concurrent with
these sales and marketing activities, the Company continued to fund the
research, development and regulatory clearance activities of other device and
software products. See "Risk Factors -- History of Losses."
After receiving FDA clearance, the Company commercially launched the 6060
Ambulatory Pump and related disposable supplies in late 1995. Since then, the
Company has continued its sales and marketing activities domestically and
internationally for the distribution of the 3030 Stationary Pump and the 6060
Ambulatory Pump and continued to fund the research and development of additional
products, including the Mediview software system and the PumpMaster.
Substantially all of the Company's current revenues are derived from the sale of
its multi-therapy infusion devices and the sale of related disposable supplies.
In addition, the Company derives revenues from the rental of its multi-therapy
infusion devices, servicing of products, and the sale of extended warranties.
The Company expects to be able to derive revenues in the future from the sale of
the Mediview software system and the PumpMaster. See "Risk Factors -- Dependence
on Principal Product Line and New Product Development."
The Company recognizes revenues at the time of shipment of its products
with allowances for discounts and estimated returns recorded at the time of
sale. The Company sells its products both directly to alternate-site health
providers as well as to third-party distributors. The Company's distributors may
purchase several months of inventory at any one time which may cause
fluctuations in quarterly revenues. Quarterly fluctuations may also result from
other factors. Although the Company does not sell its products on consignment,
it may allow the return of products it has shipped if the customer has no viable
resources to pay for such shipment due to the deterioration in the
creditworthiness of such customer. The Company also markets and sells its
products internationally and, as a result, its revenues may be affected by
fluctuations in exchange rates. Failure to obtain regulatory approval for the
distribution of new products domestically or in international markets, or
regulatory problems in general, may affect the revenues of the Company. See
"Risk Factors -- Dependence on Principal Product Line and New Product
Development," "-- Governmental Regulations," "-- International Operations," and
"-- Quarterly Fluctuations."
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
NET SALES. Net sales increased from $930,000 for the three months ended
March 31, 1995 to $2.9 million for the three months ended March 31, 1996, an
increase of $2.0 million or 217%. Incremental sales volume of the 3030
Stationary Pump and related disposables accounted for $1.1 million of the
increase. The remaining amount was primarily attributable to newly introduced
products.
COST OF SALES. Cost of sales increased from $718,000 for the three months
ended March 31, 1995 to $1.5 million for the three months ended March 31, 1996,
an increase of $738,000 or 103%. Approximately $663,000 of the increase was a
result of incremental volume and the remainder is attributable to the higher
level of fixed manufacturing costs resulting from the investment in additional
production capacity made throughout 1995. Cost of sales as a percentage of sales
decreased from 77% for the three months ended March 31, 1995 to 49% for the
three months ended March 31, 1996. The decrease was due to greater distribution
of fixed manufacturing costs over a larger sales volume and the related per unit
contribution. Secondarily, the percent of sales decrease was attributable to
higher average per unit pricing, reductions in direct product costs, and
improved manufacturing efficiencies.
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<PAGE> 23
GROSS MARGIN. Gross margin increased from $213,000 for the three months
ended March 31, 1995 to $1.5 million for the three months ended March 31, 1996,
an increase of $1.3 million, or 600%. The increase is mostly attributable to
increased sales volume and the related effect of per unit contribution. Also
contributing to the increased margin were higher average unit pricing, a
reduction in direct product costs, volume discounts, and improved manufacturing
efficiencies as discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses remained virtually unchanged at a level of $1.2 million
for the three months ended March 31, 1995 and 1996. Even though the Company has
expanded its sales and clinical support staff since the first quarter of 1995,
the expense associated with that expansion was largely offset by the absence of
marketing and financial consulting fees of $128,000 that were incurred in the
comparative period of 1995.
RESEARCH AND DEVELOPMENT. Research and development costs decreased from
$541,000 for the three months ended March 31, 1995 to $231,000 for the three
months ended March 31, 1996, a decrease of $310,000 or 57%. The decrease is
attributable to the completion of the 6060 Ambulatory Pump development project
before the end of 1995. Specifically, substantial development materials and
services have been eliminated as a result of the project completion.
OPERATING INCOME AND LOSS. The Company recorded an operating loss of $1.5
million for the three months ended March 31, 1995 versus operating income of
$12,000 for the three months ended March 31, 1996. As described above, operating
profit was achieved by increased sales volume, increased per unit pricing,
reductions in direct product costs, and a reduction of research and development
expenses.
INTEREST EXPENSE. Interest expense increased from $11,000 for the three
months ended March 31, 1995 to $104,000 for the three months ended March 31,
1996. The increase was primarily a result of an increase in average debt
outstanding during the comparative periods and, secondarily, the result of
higher interest rates for debt issuances subsequent to March 31, 1995.
INCOME TAX PROVISION. Due to net losses for the three months ended March
31, 1995 and 1996, the Company did not incur any federal or state income tax
liability for such periods.
NET LOSS. Net loss increased from $1.5 million for the three months ended
March 31, 1995 to $1.7 million for the three months ended March 31, 1996. A
non-recurring reserve of $1.6 million was recorded in the three month period
ended March 31, 1996 for certain stock appreciation rights obligations of the
Company which are expected to be paid from the proceeds of the Offering. Such
obligations are not ongoing and are considered extraordinary in nature. Without
the above reserve, the net loss would have been $87,000.
YEARS ENDED DECEMBER 31, 1995 AND 1994
NET SALES. Net sales increased from $3.3 million for the year ended
December 31, 1994 to $4.0 million for the year ended December 31, 1995, an
increase of $725,000 or 22%. The market launch of the 6060 Ambulatory Pump and
related disposable tubing sets in the fourth quarter of 1995 accounted for
approximately $611,000 of the increase. The remaining amount was attributable to
further penetration of the alternate-site health care market through sales of
the 3030 Stationary Pump and related disposable tubing sets by regional
distributors, the implementation of a direct sales and marketing program in
non-distributor territories and the signing of additional national accounts.
COST OF SALES. Cost of sales increased from $2.5 million for the year
ended December 31, 1994 to $2.9 million for the year ended December 31, 1995, an
increase of $421,000, or 17%. Approximately $399,000 of the increase was
attributed to increased sales volume. The remainder was related to the expansion
of the Company's manufacturing capacities, including an increase in operations
headcount and facility and equipment expenditures. Cost of sales as a percentage
of sales decreased from 75% in 1994 to 72% in 1995 as a result of the change in
sales mix between disposables and capital equipment, as well as efficiencies
from volume purchases of supplies. However, the overall decrease in cost of
sales from these factors was partially offset by the costs associated with
increases in manufacturing capacities.
GROSS MARGIN. Gross margin increased from $834,000 for the year ended
December 31, 1994 to $1.1 million for the year ended December 31, 1995, an
increase of $304,000, or 36%. This increase in gross margin was attributable to
the higher percentage of sales to national accounts during 1995 at pricing
levels which were typically higher than those of sales to the Company's
distributors.
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<PAGE> 24
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $3.0 million for the year ended December
31, 1994 to $4.7 million for the year ended December 31, 1995, an increase of
$1.7 million, or 56%. Selling, general and administrative expenses accounted for
91% of net sales in 1994 and 116% of net sales in 1995. The high level of such
expenses in both 1994 and 1995 is attributable to the Company's development of
its sales and marketing organization, expansion of its administrative staff, and
efforts to obtain FDA clearance for its products. The increase in such expenses
from 1994 to 1995 resulted primarily from an increase in the number of direct
sales personnel, the training of such personnel, the initiation of new marketing
programs, the creation of a clinical support department, and the further
addition of administrative support staff. Additionally, financial advisory fees
of $410,000 were recorded in 1995.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased from $1.1 million for the year ended December 31, 1994 to $2.2 million
for the year ended December 31, 1995, an increase of 100%. Research and
development expenses as a percentage of sales increased from 33% in 1994 to 54%
in 1995. This increase resulted primarily from the addition of staff and
increased expenditures related to the 6060 Ambulatory Pump, the Mediview
software system and the PumpMaster. The Company recorded for the service of
outside consultants a charge of $480,000 in 1995 in connection with above
mentioned development projects.
OPERATING LOSS. Operating loss increased from $3.3 million for the year
ended December 31, 1994 to $5.7 million for the year ended December 31, 1995.
INTEREST EXPENSE. Interest expense decreased from $260,000 for the year
ended December 31, 1994 to $222,000 for the year ended December 31, 1995. This
decrease was primarily attributable to a reduction of average debt outstanding
during the year.
INCOME TAX PROVISION. The Company had net operating losses for the years
ended December 31, 1994 and 1995, and therefore did not incur any federal or
state income tax liability.
NET LOSS. As a result of the items discussed above, the Company's net loss
increased from $3.6 million for the year ended December 31, 1994 to $6.0 million
for the year ended December 31, 1995.
YEARS ENDED DECEMBER 31, 1994 AND 1993
NET SALES. Net sales increased from $1.2 million for the year ended
December 31, 1993 to $3.3 million for the year ended December 31, 1994, an
increase of $2.1 million, or 170%. This increase reflects increased sales volume
of the 3030 Stationary Pump and related disposable tubing sets.
COST OF SALES. Cost of sales increased from $1.6 million for the year
ended December 31, 1993 to $2.5 million for the year ended December 31, 1994, an
increase of $847,000 or 52%. This increase resulted primarily from the increase
in sales volume. Cost of sales as a percent of net sales decreased from 133% of
sales in 1993 to 75% of sales in 1995. This decrease was primarily attributable
to greater absorption of fixed overhead costs due to increased sales volume.
Costs per unit for the Company's products decreased due to lower material costs
and increased labor productivity.
GROSS MARGIN. Gross margin increased from a loss of $405,000 for the year
ended December 31, 1993 to a profit of $834,000 for the year ended December 31,
1994, an increase of $1.2 million. This increase resulted primarily from the
increase in net sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $1.7 million for the year ended December
31, 1993 to $3.0 million for the year ended December 31, 1994, an increase of
$1.3 million, or 77%. This increase was due primarily to the increase in sales
staff and corresponding expenses, marketing costs, corporate overhead, and the
Company's relocation to a larger facility.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased from $713,000 for the year ended December 31, 1993 to $1.1 million for
the year ended December 31, 1994, an increase of $386,000 or 54%. This increase
resulted primarily from increased expenditures related to the addition of staff
and activities related to ongoing development projects.
OPERATING LOSS. Operating loss increased from $2.8 million for the year
ended December 31, 1993 to $3.3 million for the year ended December 31, 1994.
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<PAGE> 25
INTEREST EXPENSE. Interest expense increased from $20,000 for the year
ended December 31, 1993 to $260,000 for the year ended December 31, 1994. This
increase was primarily attributable to the issuance of convertible subordinated
debentures and the corresponding increase in outstanding indebtedness.
INCOME TAX PROVISION. The Company had net operating losses for the years
ended December 31, 1993 and 1994 and therefore did not incur any federal or
state income tax liability.
NET LOSS. As a result of the items discussed above, the Company's net loss
increased from $2.8 million for the year ended December 31, 1993 to $3.6 million
for the year ended December 31, 1994.
NET OPERATING LOSSES AND CREDIT CARRYFORWARDS
As of March 31, 1996, the Company had net operating loss and credit
carryforwards of $12.6 million. The net operating loss and credit carryforwards
will expire at various dates between 2005 and 2010, if not utilized. The Tax
Reform Act of 1986, as amended, limits the use of net operating loss and credit
carryforwards in certain situations where changes occur in the ownership of a
company's capital stock.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's cash expenditures have significantly
exceeded its revenues. The Company has funded its operations primarily through
the private placement of debt and equity securities, as well as through limited
product sales and secured loan arrangements. Through December 31, 1995, the
Company had raised approximately $10.7 million from the private placement of
equity securities and approximately $2.4 million from the issuance of privately
placed debt securities.
The Company used cash in its operations of $2.5 million, $3.6 million and
$4.9 million for the years ended December 31, 1993, 1994 and 1995, respectively,
primarily to fund sales and marketing efforts, research and development
activities and to expand its employee base. The Company's capital expenditures
were approximately $143,000, $250,000 and $459,000 for the years ended December
31, 1993, 1994 and 1995, respectively. The Company plans to finance its capital
needs principally from the net proceeds of the Offering and interest thereon,
cash flow from operations and, to the extent available, from bank and lease
financing.
At March 31, 1996, the Company had cash and cash equivalents of $1,252,896
and working capital of $974,772. The Company maintains a credit facility which
it uses to supplement working capital and is based upon the amount of qualifying
trade accounts receivable. At March 31, 1996, the outstanding balance of the
credit facility was $301,393; however, the total credit available under the
facility was not fully utilized as of that date. The Company intends to repay
certain of its outstanding indebtedness from the proceeds of the Offering.
The Company believes that the anticipated net proceeds from the Offering,
together with interest thereon, will be sufficient to fund its operations
through the foreseeable future. However, the Company's future liquidity and
capital requirements will depend upon numerous factors, including market
acceptance of the Company's products and product development programs and the
resources the Company devotes to marketing its products. The Company's
requirements will also depend on, among other things, the resources required to
hire and develop a direct sales force, the resources required to expand
manufacturing capacity and facilities requirements, and the extent to which the
Company's products generate market acceptance and demand. Accordingly, there can
be no assurance that the Company will not require additional financing and,
therefore, may in the future seek to raise additional funds through bank
facilities, debt or equity offerings, or other sources of capital. Additional
funding may not be available when needed or on terms acceptable to the Company,
which would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Need for Additional
Financing" and "-- Significant Unallocated Net Proceeds."
RECENT ACCOUNTING PRONOUNCEMENTS
During October, 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation,"
which establishes a fair value base method of accounting for stock-based
compensation plans, and requires additional disclosures for those companies who
elect not to adopt the new method of accounting. While the Company studies the
impact of the pronouncement, it continues to account for employees' stock
options under APB Opinion No. 25, "Accounting for Stock Issued to Employees."
SFAS No. 123 will be effective for fiscal years beginning after December 15,
1995.
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<PAGE> 26
BUSINESS
INTRODUCTION
Sabratek develops, produces and markets multi-therapy infusion systems
designed to meet the needs of alternate-site health care providers to reduce
operating costs while maintaining the integrity and quality of care. The Company
believes that the alternate-site health care market will continue to experience
significant growth as managed care payors continue to move patients to the
lowest-cost care setting. The Company also believes that the need of
alternate-site health care providers to reduce costs compels them to capitalize
on advances in medical technology that maximize operating efficiencies.
Sabratek's infusion system incorporates advanced technology that offers a
standardized programming format to permit a seamless transition from stationary
to ambulatory therapy, as well as multiple therapeutic applications to permit a
seamless transition across different therapies. The Company's proprietary
interactive communications software will enable providers to program and
monitor, on a real-time basis, the Company's infusion pumps and allow payors and
providers to capture data for clinical outcomes analysis and reporting purposes
from a remote location. The Company's portable, automatic testing device will
enable health care providers to perform on-site diagnostic tests on the
Company's infusion devices. The Company believes that its integrated hardware
and software system will permit providers of infusion therapy to achieve
cost-effective movement of patients along the continuum of alternate-site health
care settings. The Company intends to expand its product line beyond infusion
therapy and become a leading developer and marketer of a variety of interactive
therapeutic and diagnostic medical systems for the delivery of high-quality,
cost-effective health care at alternate sites. Substantially all of the
Company's current revenues are derived from the sale of its multi-therapy
infusion pumps and related disposable supplies.
CHANGING HEALTH CARE ENVIRONMENT
The continued increase in health care costs at a rate significantly higher
than that of overall inflation has caused managed care companies, indemnity
insurers, employers, governmental agencies and other payors to employ a variety
of strategies designed to contain health care expenditures. These
cost-containment strategies aim to reduce the price paid for health care
services, as well as the amount of health care services utilized. In certain
markets, payors are shifting away from traditional fee-for-service based payment
plans and moving towards managed care plans in an effort to deliver quality
health care services more cost-effectively. In particular, cost-containment
measures, including increased utilization review and case management, have
caused many health care providers to move patients from the higher-cost hospital
setting to lower-cost alternate sites.
The alternate-site health care industry, which includes the delivery of
skilled nursing services, intravenous infusion and respiratory therapy, physical
therapy and pharmaceutical therapies in the home, long-term care facilities,
physicians' offices and outpatient centers, has grown significantly during the
past decade. According to a report entitled "National Health Expenditure
Projections, 1994-2005" published in the summer of 1995 by HCFA, total
expenditures for home health care, which constitutes a significant component of
alternate-site health care, increased from approximately $11.1 billion in 1990
to approximately $24.2 billion in 1994 and is projected to reach $45.9 billion
in 2000. Since the early 1980s, the provision of acute and chronic care for
serious illnesses outside the hospital has been recognized as a critical
component of health care cost containment because the delivery of certain
therapies in an alternate-site setting is more cost effective than the delivery
of these same therapies in an acute-care hospital setting. The Company believes
that the alternate-site health care industry will continue to benefit from
cost-containment measures which governmental and private payors have employed to
reduce hospital admissions and lengths of stays in hospitals. The Company
believes that such measures will continue the increase in the use of
alternate-site health care due to its significantly lower cost when compared to
similar care provided in traditional health care settings. In addition to cost
savings, the alternate-site health care industry should continue to benefit from
advances in medical technology which have facilitated the provision of
sophisticated care outside the hospital. Many disease states, including
pulmonary diseases, neurological conditions, infectious diseases, digestive
disorders, AIDS-related symptoms, various forms of cancer and related medical
conditions such as pain and nausea, are now being treated in alternate-site
settings, including the home. Growth in alternate-site health care has also been
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<PAGE> 27
facilitated by the increased acceptance of such care by physicians, caregivers
and patients. The American Medical Association Council on Scientific Affairs and
Medical Education has recommended that training in the principles and practice
of home health care be incorporated into the undergraduate, graduate and
continuing education of physicians. Also contributing to the growth of the
alternate-site health care industry is the increase in the over-65 population,
which has a higher incidence of illness and disability.
A significant component of alternate-site health care is infusion therapy,
which involves the administration of fluid intravenously at a regulated rate and
volume. Alternate-site infusion therapy has historically been the
fastest-growing segment of the alternate-site health care market. According to
POV, Incorporated, an industry tracking and consulting firm, the infusion
therapy segment of this market is expected to grow in revenues from $3.2 billion
in 1992 to $7.9 billion in 1997, representing an average annual compounded
growth rate of approximately 20%. Infusion therapy is used in a wide range of
applications such as nutrition therapy, pain management, delivery of
antibiotics, pregnancy and obstetrical therapies, chemotherapy, cardiovascular
therapy and immunosuppressive therapy. These therapies generally require the use
of specialized infusion pumps to deliver precise dosages of fluids such as
nutrients, parenteral solutions, anti-infectives, chemotherapeutic agents,
narcotic analgesics and a variety of other drugs.
Due to the shift by managed care payors toward fixed fee or capitated
payment arrangements, providers of infusion therapy are being forced to reduce
costs without compromising the quality of care in order to maintain
profitability. The costs associated with providing infusion therapy are composed
of three general components: capital equipment, supplies and labor.
Traditionally, providers of infusion therapy needed to purchase multiple types
of infusion pumps and related back-up inventory because most pumps delivered
only one type of therapy. This requirement to purchase several single therapy
pumps also results in increased labor training costs because of the need to
learn multiple programming protocols. The delivery of infusion therapy requires
a substantial amount of non-clinical nursing time. The Company believes that
reducing the labor costs of delivering infusion therapy is critical for
alternate-site health care providers to achieve operating efficiencies.
According to a 1992 study of the home infusion therapy industry published by The
National Alliance for Infusion Therapy (the "NAIT Study"), nurses spent an
average of 3.1 hours per home visit, of which approximately 64 minutes, or 35%,
was spent traveling to and from the patient's home, 56 minutes, or 30%, was
spent documenting clinical observations as well as coordinating care and the
balance was spent on tasks performed during personal contact with the patient,
including documentation. The NAIT Study also shows that training is required for
patients not only at the start of therapy but also over time as the therapy of
an individual patient changes. The NAIT Study indicates that during such home
visits, a significant amount of nursing time is required to ensure that patients
are complying with the prescribed therapy. Compliance is important to ensure
that patients are not required to re-enter the costly hospital setting thereby
generating unnecessary incremental expenses and health risks as a result of
failure to adhere to their prescribed therapies, whether intentionally or
unintentionally. The Company believes that products and technology which reduce
the cost of providing infusion therapy, especially the labor component, will be
attractive to health care payors in general and providers of infusion therapy in
particular.
BUSINESS STRATEGY
The Company's goal is to become a leading developer and marketer of
interactive therapeutic and diagnostic medical systems designed to improve the
delivery of high-quality, cost-effective health care at alternate sites. The
Company intends to achieve its goal by pursuing the following business
strategies:
- DEVELOP ADVANCED MEDICAL PRODUCTS AND RELATED SOFTWARE SYSTEMS THAT
MAXIMIZE THE COST-EFFECTIVE PROVISION OF ALTERNATE-SITE HEALTH CARE. The
Company has designed its multi-therapy infusion products and related
software system, and intends to develop additional products, to address
the various needs of its major constituencies -- payors, providers and
patients and their families.
Payors -- The Company believes that payors are primarily concerned with
reducing costs while assuring the quality of health care. The Company's
multi-therapy infusion system has the flexibility to effectively treat a
wide range of disease states in the lower cost alternate-site market.
Characteristics of the Company's infusion and software systems help
address quality assurance concerns through
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<PAGE> 28
such features as real-time data capture, remote monitoring capability,
alarms that immediately alert providers of non-compliance and the
capability to perform customized outcomes analysis. Such analyses also
help provide oversight of the practice patterns of health care providers.
Providers -- The Company believes that alternate-site providers are
concerned with improving their ability to effectively treat patients
through the use of products that reduce labor costs, allow real-time
patient monitoring, improve patient compliance and provide data to
develop better protocols in order to improve operating efficiencies. The
Company's infusion products incorporate user-friendly characteristics
that minimize set-up time and nurse/patient training, and have the
flexibility to provide multiple therapies using a single infusion device.
Additionally, the Company believes that its infusion pumps' capabilities
for remote interactive programming and monitoring on a real-time basis
will considerably reduce costly on-site nurse intervention. The ability
of the Company's infusion system to administer a variety of infusion
therapies allows providers to minimize their inventories of infusion
pumps and related supplies. The Company believes that the advanced
features incorporated in its infusion system allow providers to treat
higher acuity patients in the alternate-site setting who could previously
only be treated in an acute-care hospital. In combination with the
Company's interactive software, Sabratek's infusion pumps will enable
health care professionals to collect diagnostic and therapeutic data
useful in the analysis and development of clinical protocols and provide
insight into practice patterns, thereby reducing the need for frequent
on-site visits and evaluations as well as redundant and burdensome
record-keeping.
Patients and their Families -- The Company believes that, while
undergoing infusion therapy, patients and their families want comfort,
peace of mind, ease of use and more control over their lives. The
Company's infusion system meets these needs through such characteristics
as user-friendly programming to aid those patients who are not
technologically literate, multiple language formats, quietness of
operation, bright LED displays, alarm system warnings of non-compliance
and, when used in conjunction with the Company's interactive software,
the ability to provide real-time information over standard telephone
lines to providers in remote locations. Real-time monitoring and
intervention capabilities provide patients with an increased comfort
level to receive therapies in a home setting where they would otherwise
feel uncomfortable because of the lack of immediately available medical
personnel.
- DEVELOP AN INTEGRATED SYSTEM OF THERAPEUTIC AND DIAGNOSTIC
INFORMATION-BASED MEDICAL PRODUCTS SUPPORTED BY THE COMPANY'S PROPRIETARY
HEALTH CARE INFORMATION SOFTWARE PLATFORM. The Company is developing a
software system to allow health care providers to program and monitor the
Company's infusion pumps and capture data for reporting and clinical
purposes from a remote location on a real-time basis. The Company intends
to expand the capabilities of its proprietary medical information
software as well as its line of advanced, user-friendly medical devices
to create a complete interactive system that addresses a variety of
therapeutic and diagnostic applications in the alternate-site health care
industry. The Company intends to expand its line of products through
further internal product design and development, licensing arrangements,
joint ventures and acquisitions of technology, products and companies
when available.
- CREATE A PROPRIETARY OUTCOMES DATABASE THROUGH THE COMPANY'S PRODUCTS AND
SOFTWARE SYSTEM PLATFORM. The Company's strategy is to expand the
installed base of its interactive medical system and to become the
preferred vendor of such system to alternate-site health care providers.
The Company believes that its software-based medical systems will serve
as a platform on which to develop interactive communication and
information systems designed to allow payors and providers to capture and
analyze clinical data to design the most cost-effective therapy protocols
and practice patterns. The Company has designed its proprietary
information system to incorporate a wide range of real-time, remote
programming, monitoring and administrative report functions for multiple
therapeutic modalities beyond infusion therapy.
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PRODUCTS
SABRATEK'S SEAMLESS DELIVERY SYSTEM. Sabratek's software-based infusion
devices and related interactive information system are designed to provide both
health care professionals and patients with ease of use and a smooth transition
throughout the health care delivery spectrum. Sabratek's SEAMLESS DELIVERY
SYSTEM product design is the Company's strategic response to the need to achieve
cost-effective movement of patients from a hospital setting to an alternate-site
setting, and among the various stages in alternate-site care, from sub-acute to
home care, with maximum ease of transition. The SEAMLESS DELIVERY SYSTEM
maximizes the similarities between Sabratek's stationary and ambulatory infusion
devices and is intended to allow both patients and health care providers to use
both types of infusion devices interchangeably, as the specific setting or
therapy dictates, and with greater ease. This ability reduces the amount of time
health care professionals must spend training on multiple operating systems as
well as administering and monitoring therapies. In addition, Sabratek's infusion
devices have the flexibility to provide multiple therapies which allows
providers to minimize their equipment inventories. Sabratek's infusion devices
intravenously deliver therapeutic agents to address treatments for a wide
variety of conditions, including, among others, antibiotic therapy for viral or
bacterial infections, chemotherapy for cancer, pain management for chronic pain,
clotting agents for hemophelia and various therapies for pregnancy and
obstetrics.
The following table summarizes certain information with respect to the
Company's products:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION STATUS
- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C>
INFUSION PUMPS
3030 Stationary Pump...... Stationary, multi-therapy Commercially available since
infusion device 1992(1)
6060 Ambulatory Pump...... Ambulatory, multi-therapy Commercially available since
infusion device 1995(2)
INFUSION SUPPLIES
3030 Infusion Sets........ Non-proprietary, disposable Commercially available since
tubing sets for use with 1992
3030 Stationary Pump
6060 Infusion Sets........ Proprietary, disposable Commercially available since
tubing sets for use with 1995
6060 Ambulatory Pump
INTERACTIVE PROGRAMMING AND MONITORING SOFTWARE
Mediview.................. Proprietary, PC-based Beta-site test stage
software that allows remote
and real-time programming,
monitoring and data capture
AUTOMATIC DIAGNOSTIC TESTING DEVICE
PumpMaster................ Proprietary, portable, Beta-site test stage(3)
automatic diagnostic device
for the testing of Sabratek
infusion pumps
</TABLE>
- ---------------
(1) Patents issued in the United States.
(2) United States and foreign patents pending.
(3) Patent pending in the United States.
SABRATEK 3030 -- STATIONARY MULTI-THERAPY INFUSION PUMP. The Company's
3030 Stationary Pump is an electromechanical, volumetric infusion device that is
able to deliver a wide variety of infusion therapies including, among others,
chemotherapy, antibiotics, circadian rhythms and total parenteral nutrition
under three standard and one customizable delivery modes. The 3030 Stationary
Pump incorporates multiple language capabilities, remote communications and
pre-programming capabilities, a state-of-the-art ergonomic design and a
relatively easy-to-learn programming format. The 3030 Stationary Pump operates
with leading brands of disposable tubing as well as Sabratek's own line of
non-proprietary disposable tubing. The current list price for the 3030
Stationary Pump is $3,495.
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<PAGE> 30
SABRATEK 6060/HOMERUN -- AMBULATORY MULTI-THERAPY INFUSION PUMP. The
Company's 6060 Ambulatory Pump weighs approximately 13 ounces and can be worn
discreetly by a patient. The 6060 Ambulatory Pump was designed as a
complementary product to the 3030 Stationary Pump and, when combined with the
use of the 3030 Stationary Pump, provides a seamless transition between the bed
and an ambulatory state, or vice versa, with minimal additional training. The
6060 Ambulatory Pump has delivery capabilities and a programming format that are
similar to the 3030 Stationary Pump, with the addition of a pre-programmed
capability to deliver pain management infusion therapy. The 6060 Ambulatory Pump
also has the ability to work in conjunction with the Mediview software and
utilizes a proprietary disposable tubing set. The current list price for the
6060 Ambulatory Pump is $3,995.
DISPOSABLE INFUSION SUPPLIES. The Company sells non-proprietary disposable
tubing sets for use with the 3030 Stationary Pump and proprietary disposable
tubing sets for use exclusively with the 6060 Ambulatory Pump.
MEDIVIEW -- REMOTE PROGRAMMING; MONITORING AND DATA CAPTURE SOFTWARE
SYSTEM. Mediview is a proprietary software system designed to allow providers
to program and monitor Sabratek's infusion pumps and capture data for reporting
and clinical purposes from remote locations over standard telephone lines. The
Company believes that alternate-site health care providers using the 3030
Stationary Pump and 6060 Ambulatory Pump combined with Mediview will be able to:
(i) remotely monitor and program the Company's pumps on a real-time basis, (ii)
receive instantaneous notification of alarm activation and immediately respond
from the provider's physical location, (iii) automatically record and "package"
data regarding the outcomes of actual therapy courses for specific case
management and clinical as well as administrative/reimbursement purposes, and
(iv) develop a proprietary clinical protocol and outcomes database useful to
providers in managed care cases. In addition, patients who receive therapy on
the Company's infusion products should derive greater comfort because their
providers will be able to monitor their therapies on a real-time basis. Mediview
is currently not commercially available and is in the Beta-site test stage.
PUMPMASTER -- PORTABLE, AUTOMATIC DIAGNOSTIC DEVICE FOR THE TESTING OF
SABRATEK INFUSION PUMPS. The PumpMaster is a portable device designed to enable
providers to perform on-site diagnostic tests on Sabratek's infusion devices.
Pursuant to suggested standards adopted recently by the Joint Commission for the
Accreditation of Healthcare Organizations ("JCAHO"), an industry group which
promulgates standards relating to the provision of alternate-site health care,
the performance of every infusion pump is required to be re-certified on the
earlier of the date on which such pump is provided to a new patient for their
use or the date which is 12 months from the date of the last certification. The
Company believes that it is not cost-efficient for providers to maintain
in-house bio-medical engineering resources on a branch level to perform pump re-
certification. Instead, providers typically ship their pumps for remote-site
testing and, as a result, are required to maintain costly back-up pump
inventory. The PumpMaster is intended to obviate such incremental capital
expenditure outlays. The PumpMaster is designed to conduct automatically, in
approximately ten minutes, all tests typically performed as part of JCAHO
re-certification. PumpMaster is currently not commercially available and is in
the Beta-site test stage.
SALES AND MARKETING
The Company sells its products to a diverse group of customers in the
alternate-site health care industry such as sub-acute skilled nursing care
facilities, home health care providers, physicians' offices, clinics, surgery
centers and long-term care facilities. This group of customers ranges in size
from national and regional chains to local independent operators. Key decision
makers include nursing, pharmacy, purchasing and bio-medical departments, as
well as physicians.
As of March 31, 1996, the Company's domestic sales force consisted of nine
direct sales professionals, four clinical support staff and two full-time sales
consultants as well as a network of domestic distributors each of whom covers an
exclusive geographic territory. The Company's distributors have been selected
for their experience in and focus on the infusion therapy market, coverage of
specific geographical areas, product sales support and regional dominance. The
Company's sales management team trains the sales personnel of each of the
distributors and provides them with all product sales information and other
relevant field literature. In addition, Sabratek's direct sales representatives
coordinate and manage national account activity. The
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<PAGE> 31
Company's marketing and sales efforts are supported by advertising in trade
journals, new product literature and attendance at trade shows. The Company
believes that its existing sales force and distribution network provide the
necessary infrastructure to market its current products and those under
development. The Company intends to use a portion of the proceeds from the
Offering to augment its sales and marketing staff and increase its marketing
efforts to further facilitate sales of current and future products.
The Company has also entered into distribution agreements with distributors
in South America, Europe, the Middle East and Asia. For the year ended December
31, 1995, Sabratek's international sales accounted for approximately 15% of the
Company's total sales. The Company perceives the international marketplace as a
potential area for significant future growth. The Company has distribution
agreements in Japan and Germany, which it believes are among the largest
international markets for infusion systems, and will commence marketing its
products in these countries upon receipt of regulatory approval.
The Company has enhanced its domestic sales effort through an affiliation
with Americorp Financial, Inc. ("Americorp") to provide leasing services to the
Company's domestic customers. Americorp has licensed the name "Sabratek Credit
Corporation" from the Company and offers financing for the acquisition of
Sabratek products under both capital and operating leases. Under the agreement
entered into with Americorp, the Company retains a contingent repurchase
obligation for 20% of the outstanding balances of certain leases of Americorp to
customers that do not meet certain financial criteria. As of March 31, 1996, the
Company had no such repurchase obligation.
RESEARCH AND DEVELOPMENT
The Company is committed to continued product innovation and has invested
approximately $713,000, $1.1 million and $2.2 million in research and
development for the years ended December 31, 1993, 1994 and 1995, respectively.
The Company's research and development effort is supported by a staff of eight
electrical, mechanical and software engineers who have extensive experience in
the design and development of electromechanical infusion therapy devices, other
medical instrumentation and software. Sabratek's engineering team closely
coordinates its design activities with the Company's sales and marketing team.
This group solicits extensive pre-design focus group input from constituencies
that use or are impacted by the use of Sabratek's products, but who may possess
a host of different strategic, economic and other objectives.
Sabratek's research and development program is focused on both new product
development and enhancements of existing products. The Company's product
development efforts include advancements in infusion therapy, interactive
software systems and vital signs monitoring. The Company's product development
strategy is based on developing product platforms that have the flexibility to
be configured to respond to a variety of customer requirements. The Company's
product enhancement efforts are based on the input received from customers after
the initial introduction of its products and focus on addressing customers'
needs in a more cost-effective and comprehensive way.
ASSEMBLY
Sabratek currently assembles all of its infusion devices at its facility in
Niles, Illinois in an effort to ensure production quality and control its costs.
The Company does, however, purchase certain pre-assembled sub-systems from other
sources. In addition, disposable tubing sets sold by Sabratek are manufactured
by contract manufacturers. Sabratek believes in-house assembly of its infusion
devices and contract manufacturing of disposable tubing sets are the most
cost-effective means of producing its products.
The Company's production process for its infusion devices consists of
assembling major sub-systems as well as the assembly of both standard and custom
components. The standard components can be obtained from a number of sources.
The custom components are produced by both Sabratek as well as by sub-
contractors and, in all cases, competitive back-up supply sources exist. The
Company believes that, due to volume discounts, the unit cost of both standard
and custom components will decrease as production volumes increase.
Disposable tubing sets are manufactured to Sabratek's specifications by
third parties in a clean room environment under stringent quality control
procedures covering assembly, storage and sterilization. Set
26
<PAGE> 32
production consists of the assembly of both standard and custom components. The
plastic custom components are manufactured by a sub-contractor using molds
supplied by the Company. The Company uses more than one manufacturer for the
production of its disposable tubing sets.
QUALITY ASSURANCE
The Company maintains a comprehensive quality assurance program. The
quality assurance program begins with the components and other materials the
Company purchases from vendors. Vendors are required to supply materials which
meet stated specifications. The Company monitors vendors' compliance with the
stated specifications through a program of on-site surveys, audits and product
testing. The Company also employs quality assurance procedures during its
on-site manufacturing and assembly process in an effort to ensure that finished
products meet the standards set by the Company. All finished products are tested
by the Company's separate quality assurance department to ensure that the
Company avoids distributing sub-standard products. Finally, the Company
maintains a post-sale performance monitoring program.
Sabratek provides a one-year warranty on the 3030 Stationary Pump and the
6060 Ambulatory Pump. This warranty is passed on to the end-users by the
distributors. To provide further product support, the Company has established an
in-house capability for repair and maintenance of its products. The repair and
maintenance function utilizes one full-time engineer and one full-time
technician as well as on-going support from production personnel as required to
service infusion devices. The Company believes the service and maintenance of
its infusion devices require minimal manpower due to the modularity of such
devices' sub-systems, sound quality control procedures and the service
capabilities of distributors.
INTELLECTUAL PROPERTY
One United States patent has been issued for the 3030 Stationary Pump and
eight patent applications are pending for the 6060 Ambulatory Pump. The Company
also has a pending patent application on certain aspects of the PumpMaster. The
Company has two pending foreign design applications for the 6060 Ambulatory
Pump, which are patent applications seeking protection for the ornamental
design, rather than functional features, of the product. In addition, three
foreign patent applications are pending for the 3030 Stationary Pump and one
Patent Cooperation Treaty application is pending, seeking protection in foreign
countries for certain aspects of the 6060 Ambulatory Pump. The Company also
requires each of its employees, consultants and advisors to agree in writing to
keep its proprietary information confidential and to assign all inventions
relating to the Company's business to the Company. There can be no assurance
that any unprotected information will not also be developed by others.
The Company has registered or applied to register the following trademarks:
SABRATEK(R) and its logo, AutoRamp(R), HOMERUN(R), Seamless Delivery System(TM),
PumpMaster(TM), Mediview(TM) and TCS Total Compliance System(TM). The Company
has also filed a foreign trademark application for the name SABRATEK(TM) and its
logo in Japan. See "Risk Factors -- Intellectual Property."
COMPETITION
The Company faces substantial competition. At the present time, the Company
considers its primary competitors to be other marketers of infusion pumps. The
Company believes there are several major competitors in the market for infusion
pump devices, including, but not limited to: Abbott Laboratories; Baxter
International Inc.; BLOCK Medical, Inc.; I-Flow Corp.; IMED Corporation; IVAC
Corporation; McGaw, Inc. and SIMS Deltec, Inc. See "Risk Factors -- Highly
Competitive Markets; Technological Risk."
Despite the greater size and market share of its competitors, Sabratek
believes that its products compete favorably against the products offered by its
competitors. Sabratek has strategically designed its stationary and ambulatory
pump products to offer cost efficient and convenient transferability of
training/operational procedures and functions. Unlike manufacturers that offer
only a stationary or an ambulatory pump, or offer both but whose products lack
operational integration, Sabratek's SEAMLESS DELIVERY SYSTEM product design
provides health care providers with product standardization which the Company
believes to be critical in
27
<PAGE> 33
achieving operating efficiencies. Sabratek believes that its products also
compete favorably with the products of larger, more established companies on the
basis of other advanced product features.
REIMBURSEMENT
The Company's current products are generally purchased by health care
providers who are reimbursed by third-party payors, including indemnity
insurance companies, managed care organizations and government agencies. Such
health care providers recover the cost of purchasing the Company's products
through reimbursement for services provided using the Company's products.
HCFA coordinates a system of reimbursement for outpatient hospital
procedures, physician office procedures and devices used in conjunction
therewith. Under this system, HCFA determines coverage eligibility, issues
coverage instructions and assigns billing codes called the HCFA Common
Procedures Coding System ("HCPCS") for such procedures and devices under
Medicare and Medicaid. HCFA has established HCPCS billing codes for infusion
devices. Moreover, the HCPCS system is referenced by most third-party payors,
including Medicare and Medicaid, insurance companies and health maintenance
organizations, thereby standardizing coverage identification and billing
identification across a broad spectrum of payor plans. When the use of
FDA-approved infusion devices is prescribed by a physician and determined to be
reasonable and necessary in the treatment of illness, such use is generally
reimbursable under Medicare and Medicaid. Reimbursement by other third-party
payors is dependent upon the coverage provided under the applicable plan. See
"Risk Factors -- Dependence on Third-Party Reimbursement."
GOVERNMENT REGULATION
The medical devices manufactured and marketed by the Company are subject to
regulation by the FDA and, in some instances, by state and foreign authorities.
Pursuant to the FFDCA and the regulations promulgated thereunder, the FDA
regulates the clinical testing, manufacture, packaging, labeling, distribution
and promotion of medical devices.
Pursuant to the FFDCA, medical devices intended for human use are
classified into three categories, Classes I, II and III, on the basis of the
controls deemed necessary by the FDA to reasonably assure their safety and
effectiveness. Class I devices are subject to general controls (for example,
labeling, premarket notification and adherence to good manufacturing practice
("GMP") regulations) and Class II devices are subject to general and special
controls (for example, performance standards, postmarket surveillance, patient
registries, and FDA guidelines). Generally, Class III devices are those which
must receive premarket approval ("PMA") from the FDA to ensure their safety and
effectiveness (for example, life-sustaining, life-supporting and implantable
devices, or new devices which have not been found substantially equivalent to
legally marketed devices). Electronic infusion devices and disposable tubing
sets are classified by the FDA as Class II medical devices.
If a new Class II medical device is substantially equivalent in terms of
safety and effectiveness to a medical device already legally marketed in the
United States, the FDA requirements may be satisfied through a procedure known
as a "510(k) Submission," in which the applicant provides product information
supporting its claim of substantial equivalency. "Substantial equivalence" means
that a device has the same intended use and the same technological
characteristics as the legally marketed device, or the same intended use and
different technological characteristics, provided that it can be demonstrated
that the device is as safe and effective as the legally marketed device, and
does not raise different questions regarding safety and effectiveness. A
"legally marketed device" to which a new device may be compared for a
determination regarding substantial equivalence is a device that was legally
marketed prior to May 28, 1976, when the Medical Device Amendments were added to
the FFDCA, or a device which has been reclassified from Class III to Class II or
I, or a device which has been found to be substantially equivalent through the
510(k) premarket notification process.
Commercial distribution of a device for which a 510(k) Submission is
required can begin only after the FDA issues an order finding the device to be
"substantially equivalent" to a legally marketed device. The FDA has recently
been requiring a more rigorous demonstration of substantial equivalence than in
the past. This
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<PAGE> 34
may include a requirement for clinical testing of the device. It generally takes
from four to twelve months from submission of a 510(k) to obtain a 510(k)
clearance, but it may take longer. The FDA may determine that a proposed device
is not substantially equivalent to a legally marketed device, in which case a
PMA may be required, or that additional information is needed before a
substantial equivalence determination can be made, in which case data from
safety and effectiveness tests, including clinical tests, may be required. A
"not substantially equivalent" determination or a request for additional
information could delay the market introduction of new products that fall into
this category.
The Company received 510(k) clearance to begin marketing the 3030
Stationary Pump in the United States in May, 1992. The Company received 510(k)
clearance for the disposable tubing sets for use with the 3030 Stationary Pump
in March, 1995. In July, 1994, the FDA cleared the 510(k) Submission for the
6060 Ambulatory Pump and disposable tubing sets for use with the 6060 Ambulatory
Pump.
The FFDCA requires the filing of a new 510(k) Submission when, among other
things, there is a major change or modification in the intended use of the
device or a change or modification, including product enhancements, to a legally
marketed device that could significantly affect its safety or effectiveness. A
device manufacturer is responsible for making the initial determination as to
whether a proposed change to a cleared device or to its intended use
necessitates the filing of a new 510(k) Submission. The addition of software
features to currently marketed products may require the filing of a new 510(k)
Submission.
The Company believes that its 510(k) clearance for the 6060 Ambulatory Pump
adequately described the Mediview software system and, accordingly, that the
original 510(k) clearance for the 6060 Ambulatory Pump permits the Company to
market the Mediview software with the 6060 Ambulatory Pump in the United States.
However, there can be no assurance that the FDA would agree with the Company's
determination. If in the future the FDA concluded that the Mediview software
system for use with the 6060 Ambulatory Pump required a new 510(k) Submission,
the FDA could prohibit the Company from marketing the Mediview software system
for this use until the Company files a new 510(k) Submission and obtains
clearance from the FDA. The FDA could also take regulatory action against the
Company for any prior distribution of the Mediview software system with the 6060
Ambulatory Pump. Alternatively, the FDA could use its discretion not to take any
regulatory steps with regard to this issue.
In November, 1995, the Company filed a new 510(k) Submission for the
Mediview software system for use with its 3030 Stationary Pump. The application
has received preliminary FDA review, and the FDA requested that the Company
provide additional information to support the 510(k) Submission. In March, 1996,
the Company submitted a response to the FDA's request. While the Company
believes that it has provided all information necessary for the FDA to clear the
Mediview software system, there is no assurance that the product will be cleared
for marketing in the United States on a timely basis, if at all.
The PumpMaster is a hardware and software system designed to perform
diagnostic tests on the Company's infusion pumps. The Company has determined
that the PumpMaster does not qualify as a medical device under the statutory
definition and, therefore, did not file a 510(k) Submission with respect to such
product. There can be no assurance that the FDA will agree with the Company's
determination in this regard. If the FDA were to determine that the PumpMaster
is a medical device, it could suspend its commercial distribution until such
time as a 510(k) Submission covering such product has been filed and cleared.
The FDA could also take regulatory action against the Company based on its prior
distribution of the uncleared product. Alternatively, the FDA could use its
discretion not to take any regulatory steps with respect to this issue.
Additional product modifications, including new software features, that the
Company intends to develop in the future will likely require 510(k) clearance if
the modifications could affect the safety or efficacy of the Company's products.
If the Company determines that any modifications that it may make to its cleared
devices do not require a new 510(k) Submission, there can be no assurance that
the FDA would agree with the Company's determinations and would not require a
new 510(k) Submission for any modifications made to the devices. If the FDA
requires the Company to file a new 510(k) Submission for any modification to the
device, the Company may be prohibited from marketing the device as modified
until it obtains clearance from the FDA. There can be no assurance that the
Company will obtain 510(k) clearance on a timely basis, if at
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<PAGE> 35
all, for any device modification for which it files a future 510(k) Submission.
If 510(k) clearance is granted, there can be no assurance that it will not
contain significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA. Device manufacturers are required to register their establishments and
list their devices with the FDA, and are subject to periodic inspections by the
FDA and certain state agencies. The FFDCA requires devices to be manufactured in
accordance with GMP regulations which impose certain process, procedure and
documentation requirements upon the Company with respect to manufacturing and
quality assurance activities. The FDA has proposed changes to the GMP
regulations which, if finalized, would likely increase the cost of complying
with GMP requirements. The Company believes that its manufacturing and quality
control procedures substantially conform to the requirements of FDA regulations.
In addition, the Medical Device Reporting ("MDR") regulation obligates the
Company to inform the FDA whenever there is reasonable evidence to suggest that
one of its devices may have caused or contributed to death or serious injury, or
where one of its devices malfunctions and, if the malfunction were to recur, the
device would be likely to cause or contribute to a death or serious injury.
Labeling and promotion activities are also subject to scrutiny by the FDA
and, in certain instances, by the Federal Trade Commission. The FDA actively
enforces regulations prohibiting marketing of products for unapproved uses.
If, as a result of FDA inspections, MDR reports or information derived from
any other source, the FDA believes the Company is not in compliance with the
law, the FDA can refuse to clear pending 510(k) Submissions; withdraw previously
cleared 510(k) Submissions; require notification to users regarding newly found
unreasonable risks; request repair, refund or replacement of faulty devices;
request corrective advertisements, formal recalls or temporary marketing
suspension; impose civil penalties; or institute legal proceedings to detain or
seize products, enjoin future violations, or seek criminal penalties against the
Company, its officers or employees. Civil penalties for FFDCA violations may be
assessed by the FDA in lieu of or in addition to instituting legal action. Civil
penalties may range up to $15,000 per violation for violations of the FFDCA, and
a maximum of $1,000,000 per proceeding. Civil penalties may not be imposed for
GMP violations, unless the violations involve a significant or knowing departure
from the requirements of the FFDCA or a risk to public health. The FDA provides
manufacturers with an opportunity to be heard prior to the assessment of civil
penalties. If civil penalties are assessed, judicial review is available.
The Company exports, or intends to export, its products to Europe, Japan
and other foreign countries. Exports of products that have market clearance from
the FDA in the United States do not require FDA authorization for export.
However, foreign countries often require, among other things, an FDA certificate
for products for export (a "CPE"). To obtain a CPE the device manufacturer must
certify to the FDA that the product has been granted clearance in the United
States and that the manufacturing facilities appeared to be in compliance with
GMPs at the time of the last FDA inspection. The FDA will refuse to issue a CPE
if significant outstanding GMP violations exist.
International sales of medical devices are subject to the regulatory
requirements of each country. The regulatory review process varies from country
to country. Many countries also impose product standards, packaging and labeling
requirements, and import restrictions on devices. In addition, each country has
its own tariff regulations, duties and tax requirements. The Company plans to
use its distributors to assist in obtaining any necessary foreign governmental
and regulatory approvals. The Company does not currently have its products
registered or approved in any countries requiring an extensive registration or
approval process and has, therefore, not sold any products in such countries.
The Company has received Underwriters Laboratory, Inc. product recognition
under UL 544, Standard for Medical and Dental Equipment as well as product
recognition under Canadian National Standard C22.2 through cUL for both the 3030
Stationary Pump and the 6060 Ambulatory Pump. To maintain "UL" status, the
Company is subject to quarterly inspections by Underwriters Laboratory, Inc.
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<PAGE> 36
The Company and its products are also subject to a variety of state and
local laws and regulations in those states or localities where its products are
or will be marketed. Use of the Company's products is subject to inspection,
quality control, quality assurance, proficiency testing, documentation and
safety reporting standards promulgated by JCAHO. Various states and
municipalities may also have similar regulations.
Manufacturers are also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations.
PRODUCT LIABILITY INSURANCE
The Company faces an inherent business risk of exposure to product
liability claims in the event that the use of its products is alleged to have
resulted in adverse effects. The Company maintains product liability insurance
with coverage of $5.0 million per claim, with an annual aggregate policy limit
of $5.0 million. There can be no assurance that liability claims will not exceed
the coverage limits of such policies or that such insurance will continue to be
available on commercially acceptable terms, if at all. See "Risk Factors --
Product Liability Exposure."
LITIGATION
The Company is a party to routine litigation in the ordinary course of
business, none of which, if determined adversely to the Company, would
individually or in the aggregate have a material adverse effect on the Company.
Sabratek recently reached an agreement with Medtec Medical, Inc. ("Medtec") to
settle the litigation between the parties. Pursuant to the settlement, the
Company will pay Medtec $46,500 and Medtec will dismiss the lawsuit with
prejudice.
EMPLOYEES
As of March 31, 1996, the Company employed sixty-four persons full-time,
including thirty-four in manufacturing and operations, thirteen in sales and
marketing, seven in research and development, five in administration, and five
in regulatory affairs/quality assurance. The Company anticipates hiring
additional personnel following the completion of the Offering, primarily in the
areas of sales and marketing and operations. The Company's employees are not
represented by a union, and the Company considers its relationship with its
employees to be satisfactory.
The Company has entered into employee non-disclosure and non-competition
agreements with each of its full-time employees that (i) prohibit disclosure of
confidential information to anyone outside of the Company both during and
subsequent to employment, (ii) require disclosure to the Company of ideas,
discoveries or inventions relating to or resulting from the employee's work for
the Company and assignment to the Company of all proprietary rights to such
ideas, discoveries or inventions, and (iii) limit competition with the Company's
business by the employee for a maximum period of one year following termination
of their employment.
FACILITIES
The Company occupies approximately 30,500 square feet of development,
production, warehouse and administrative space in Niles, Illinois. The facility
lease runs through October 31, 1999. The current annual lease rate for this
space is approximately $161,000 and is subject to annual increases. Sabratek
believes that the leased space is adequate for its anticipated needs into the
foreseeable future.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ----------------------------------------------
<S> <C> <C>
K. Shan Padda................. 33 Chairman of the Board, Chief Executive Officer
and Treasurer
Anil K. Rastogi, Ph.D......... 53 President and Chief Operating Officer
Doron C. Levitas.............. 38 Vice Chairman of the Board, Vice President of
International Operations and Secretary
Alan E. Jordan................ 52 Senior Vice President of Sales and Marketing
Scott Skooglund............... 37 Vice President of Finance
Joseph Moser.................. 42 Vice President of Research and Development
Donald J. India............... 44 Vice President of Operations
Vincent J. Capponi............ 38 Vice President of Quality Control
Scott Hodes................... 58 Director
Mark Lampert.................. 36 Director
William D. Lautman(1)......... 33 Director
William H. Lomicka(1)......... 58 Director
Marvin Samson(2).............. 54 Director
L. Peter Smith(2)............. 47 Director
Edson W. Spencer, Jr.(2)...... 41 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
OFFICERS
The executive officers of the Company are elected annually by the Board of
Directors of the Company (the "Board") and serve at the discretion of the Board.
K. SHAN PADDA co-founded the Company in 1989 and has served as Chairman,
Chief Executive Officer and Treasurer since 1991 and Co-Chairman of the Board
and Vice President of Finance from 1989 to 1991. From 1984 to 1988, Mr. Padda
served as Chief Executive Officer of Andens of Illinois, Inc., a medical
supplies company headquartered in Chicago, Illinois, which assembled and
marketed hospital operating room supply kits. From 1982 to 1984, Mr. Padda
directed marketing and sales efforts for a division of Crowd Caps, Inc., an
apparel company, in Minneapolis, Minnesota. Mr. Padda graduated from Harvard
University with a B.A. in Biology. In 1995, Mr. Padda was inducted into the
Chicagoland Entrepreneur Hall of Fame.
ANIL K. RASTOGI, PH.D. joined the Company in August, 1995 as President and
Chief Operating Officer. Prior to joining Sabratek, from 1991 to 1995, Dr.
Rastogi held various positions with SIMS Deltec, Inc. (formerly Pharmacia
Deltec, Inc.), a manufacturer and marketer of ambulatory drug delivery and
vascular access devices. From 1994 to 1995, Dr. Rastogi served as Chief
Operating Officer; from 1992 to 1994, as Executive Vice President; and from 1991
to 1992, as Vice President and General Manager of the Infusion Division of SIMS
Deltec, Inc. Prior thereto, Dr. Rastogi was President of the Cycolor Division of
Mead Corporation and held various positions with Owens-Corning Fiberglas
Corporation. Dr. Rastogi graduated from McGill University with a Ph.D. degree in
Polymer Science.
DORON C. LEVITAS co-founded the Company in 1989 and has served as Vice
Chairman of the Board and Secretary since 1994 and Vice President of
International Operations since 1993. Prior thereto, Mr. Levitas served in
various capacities including Co-Chairman of the Board and Chief Operating
Officer. Before joining Sabratek, from 1986 to 1988, Mr. Levitas served as
President of a division of Chicago-based Andens of
32
<PAGE> 38
Illinois. From 1984 to 1986, Mr. Levitas served as President of Headings, Inc.,
an international apparel marketing firm based in New York, New York, which was
later sold to Andens of Illinois. Mr. Levitas graduated from Baruch College in
New York, New York with a B.A. in International Business and Finance. In 1996,
under Mr. Levitas' guidance, Sabratek received the State of Illinois's 1996
Governor's Export Award.
ALAN E. JORDAN has served as Senior Vice President of Sales and Marketing
of the Company since 1994 and in various other capacities since joining the
Company in 1991. Prior thereto, in 1986, he founded Ivonyx Corp., a national
home health care company, where he served until 1989 in various positions,
including Chairman and Chief Executive Officer. Mr. Jordan has many years
experience in the infusion pump industry, including tenures at IMED Corporation,
an electronic infusion pump manufacturer, where he, among other positions,
served as Vice President of Sales and Marketing. In 1968, Mr. Jordan joined IVAC
Corporation, an electronic infusion equipment manufacturer. He graduated from
Drake University with a B.S. in Business Management.
SCOTT SKOOGLUND has been Vice President of Finance of the Company since
joining Sabratek in 1992. Prior thereto, from 1989 to 1992, Mr. Skooglund served
in various capacities at XCEL Laboratories, Inc., a pharmaceutical manufacturer,
including Vice President of Finance. From 1984 to 1989, Mr. Skooglund was
Regional Accounting Manager at Leaseway Transportation Corp. Mr. Skooglund
graduated with a B.S. in Accounting from Eastern Illinois University and is a
certified public accountant.
JOSEPH MOSER has been Vice President of Research and Development of the
Company since joining Sabratek in 1993. Prior thereto, Mr. Moser served as Vice
President, Research and Development for VideOcart, a Chicago-based technology
firm from 1990 to 1992. Mr. Moser has served as Director of Engineering and Vice
President of Engineering for Information Resources, Inc., a communications
technology company. Mr. Moser graduated from the University of Michigan with a
B.S. in Electrical Engineering.
DONALD J. INDIA has been Vice President of Operations of the Company since
joining Sabratek in 1992. Prior thereto, Mr. India served as Vice President of
Operations for MDA Scientific Inc., a manufacturer of toxic gas monitoring
systems, from 1983 to 1992. Mr. India has also held various management positions
at Alphatype Corporation and EMI Medical Ltd. He graduated with a B.S. in
Electrical Engineering from the University of Illinois and an M.B.A. from the
Keller School of Management.
VINCENT J. CAPPONI joined the Company in April, 1996, as Vice President of
Quality Control. Prior to joining Sabratek, from 1992 to 1996, Mr. Capponi was
employed by SIMS Deltec, Inc. (formerly Pharmacia Deltec, Inc.), a manufacturer
and marketer of ambulatory drug delivery and vascular access devices, most
recently as Director of Operations. From 1984 to 1992, Mr. Capponi served in a
variety of positions with Mead Imaging, a division of Mead Corporation, which
commercialized a new color-imaging technology. Mr. Capponi graduated from
Bowling Green State University and also holds a Masters of Science degree in
Chemistry from Bowling Green State University.
BOARD OF DIRECTORS
In addition to K. Shan Padda and Doron C. Levitas, the Board includes:
SCOTT HODES, a director of the Company since 1992, has been a Senior
Partner in the Business and Finance Group of the Chicago law firm of Ross &
Hardies since 1992. Prior to joining Ross & Hardies, Mr. Hodes was a Partner at
the Chicago law firm of Arvey, Hodes, Costello & Burman. Mr. Hodes is a director
of the following companies: Richardson Electronics, Ltd. and First Investors
Life Insurance Co. Mr. Hodes graduated from the University of Chicago and has a
J.D. degree from the University of Michigan Law School and an LL.M. from
Northwestern University Law School.
MARK LAMPERT, a director of the Company since May, 1996, founded and has
been the managing partner of Biotechnology Value Fund, L.P., a private
investment partnership which specializes in biotechnology, since 1993. Prior to
forming the Biotechnology Value Fund in August, 1993, Mr. Lampert was a Vice
President at the investment banking firm Oppenheimer & Co. in New York, New York
from March, 1991 through August, 1992. Prior to joining Oppenheimer & Co., Mr.
Lampert worked at Biotechnology Royalty Corp., which he founded in March, 1990.
Prior to founding Biotechnology Royalty Corp., Mr. Lampert headed business
33
<PAGE> 39
development for Cambridge NeuroScience, Inc., a public biotechnology company,
and served as Assistant to the President of the NutraSweet Company, then a
subsidiary of G.D. Searle & Co. Mr. Lampert has also worked for the Boston
Consulting Group. Mr. Lampert received a B.A. in Chemistry from Harvard College
and a M.B.A. from Harvard Business School.
WILLIAM D. LAUTMAN, a director of the Company since 1994, has been a
Managing Director of EGS Securities Corp. since 1995. Prior to joining EGS
Securities Corp., Mr. Lautman served as a Managing Director of Advisory Capital
Partners, Inc., which he joined in 1994. Prior thereto, Mr. Lautman served as a
Managing Director of Cowen & Company, which he joined in 1992. From 1989 until
joining Cowen & Company, Mr. Lautman was employed by Kidder, Peabody & Co.,
Incorporated, most recently as a Senior Vice President. Mr. Lautman graduated
from The Wharton School, University of Pennsylvania with an M.B.A., and from
Georgetown University with a B.S. in Business Administration. Mr. Lautman also
completed the Comparative Business Policy Program, Centre for Management
Studies, Oxford University, England.
WILLIAM H. LOMICKA, a director of the Company since 1994, has been
President of Mayfair Capital, Inc., a private investment firm, since 1989 and
President of The Regent Group, an asset management firm since 1990. Prior
thereto, Mr. Lomicka was Senior Vice President of CW Group, a New York venture
capital firm specializing in health care enterprises. From 1975 to 1985, Mr.
Lomicka served in various capacities at Humana Inc., including Treasurer and
Senior Vice President -- Finance. Mr. Lomicka is a director of the following
companies: Advocat Inc., Regal Cinemas, Inc., TransAmerica Funds, Inc., and
Vencor, Inc.
MARVIN SAMSON, a director of the Company since 1994, has been President and
Chief Executive Officer of Marsam Pharmaceuticals Inc. ("Marsam"), a developer,
manufacturer and marketer of generic injectible drug products, since its
formation. Marsam was acquired by Schein Pharmaceutical, Inc. in 1995. Prior to
founding Marsam, Mr. Samson was a founder of Elkins-Sinn, Inc., a manufacturer
of generic injectible products. Mr. Samson is a director of Community National
Bank. Mr. Samson graduated from Temple University with a B.S. in Chemistry.
L. PETER SMITH, a director of the Company since 1992, has been Chairman and
Chief Executive Officer of Ralin, Inc., a medical service company specializing
in outpatient cardiac care, since 1990. Mr. Smith has also served as a Managing
Partner of AllCare Health Services, Inc., a health care services provider which
was acquired by Medisys, Inc. in 1992. Prior to joining Ralin, Inc. in 1990, Mr.
Smith served in various capacities with Baxter Healthcare, Inc., most recently
as President of Caremark Inc. and Travacare, a division of Baxter. He also
served as Chief Operating Officer of Baxter Japan, Ltd. He is a director of
Coram Healthcare Corporation. Mr. Smith graduated from Princeton University and
from the University of Chicago, Graduate School of Business with an M.B.A.
EDSON W. SPENCER, JR., a director of the Company since 1993, has been the
Managing Partner of PSF Health Care Fund, L.P., a Minnesota-based venture
capital partnership that invests in the health care sector, since 1993. Mr.
Spencer has also been principal and Chief Financial Officer of
Peterson-Spencer-Fansler Company since 1991. Mr. Spencer serves on the Board of
Directors of Pendose Corporation, a privately held physician practice management
company, and is Chairman of the Board of Directors of Children's Health Care,
the Minneapolis/St. Paul Children's Hospitals. Mr. Spencer graduated from
Columbia University with an M.B.A. and from Williams College.
BOARD COMMITTEES
The Board has established a Compensation Committee and an Audit Committee.
The Compensation Committee establishes salaries, incentives and other forms of
compensation for directors, executive officers and key employees of the Company
and administers the Company's Amended and Restated 1993 Stock Option Plan (the
"Stock Option Plan") and other incentive compensation and benefit plans. The
Audit Committee oversees the work performed by the Company's independent
auditors, and reviews internal audit controls.
34
<PAGE> 40
COMPENSATION OF DIRECTORS
Outside directors do not currently receive cash fees for serving as
directors or for attending meetings, participating on committees of the Board of
Directors or attending meetings of such committees. The Company does, however,
reimburse directors for out-of-pocket expenses incurred in connection with
attendance at such meetings. Pursuant to a formula contained in the Stock Option
Plan, each director receives an option to purchase 7,879 shares of the Company's
Common Stock annually. In addition, each member of a committee of the Board of
Directors receives an option to purchase 945 shares of the Company's Common
Stock annually and each chairman of each such committee receives an additional
option to purchase 473 shares of the Company's Common Stock annually. Such
options vest on the earlier of (i) one year from the date of grant or (ii) the
next annual election of directors and have an exercise price equal to the market
price of the Common Stock on the date of grant.
Directors who are not also executive officers of the Company have been
granted options to purchase a total of 89,819 shares of Common Stock at prices
ranging from $3.17 to $11.11 per share pursuant to the Company's Stock Option
Plan through December 31, 1995. In 1996, outside directors received additional
options to purchase an aggregate of 75,479 shares of Common Stock at prices
ranging from $4.76 to $9.80 per share.
CLASSIFIED BOARD OF DIRECTORS
The Company's By-Laws divide the Board of Directors into three classes,
with three-year staggered terms and initial terms of one, two and three years
for Class I, Class II and Class III Directors, respectively. The terms of
Messrs. Hodes, Lampert and Spencer expire at the 1997 annual meeting of
stockholders; the terms of Messrs. Lautman, Samson and Smith expire at the 1998
annual meeting of stockholders and the terms of Messrs. Padda, Levitas and
Lomicka expire at the 1999 annual meeting of stockholders.
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<PAGE> 41
EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth certain information
concerning compensation paid or accrued for services rendered to the Company in
all capacities for the year ended December 31, 1995 to the Chief Executive
Officer and each of the four other most highly compensated executive officers of
the Company (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
1995 ANNUAL COMPENSATION ---------------------------------
--------------------------- AWARDS
OTHER -----------------------
ANNUAL RESTRICTED SECURITIES PAYOUTS
COMPEN- STOCK UNDERLYING ------- ALL OTHER
NAME AND SALARY BONUS SATION AWARD(S) OPTIONS LTIP COMPENSATION
PRINCIPAL POSITION ($) ($)(1) ($) ($) (#)(2) PAYOUTS ($)
- ----------------------------------- -------- ----- ------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
K. Shan Padda...................... $ 90,000 -- -- -- 157,580 -- --
Chairman and Chief Executive
Officer
Anil K. Rastogi, Ph.D.............. 52,500(3) -- -- -- 70,911 -- --
President and Chief Operating
Officer
Doron C. Levitas................... 90,000 -- -- -- 94,548 -- --
Vice Chairman and Vice President
of International Operations
Alan E. Jordan..................... 124,980 -- 22,939(4) -- 107,154 -- --
Senior Vice President of Sales
and Marketing
Joseph Moser....................... 95,000 -- -- -- -- -- --
Vice President of Research and
Development
</TABLE>
- ---------------
(1) The Board adopted a bonus plan for 1996 and subsequent years, with bonuses
to be paid in the discretion of the Compensation Committee.
(2) Represents shares of Common Stock underlying stock options granted to
executives during 1995 pursuant to the Stock Option Plan.
(3) Mr. Rastogi joined the Company in August, 1995.
(4) Represents commissions paid by the Company.
36
<PAGE> 42
The following table sets forth certain information with respect to options
granted to the Named Executive Officers during 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES ANNUAL RATES OF STOCK
UNDERLYING PERCENT OF TOTAL PRICE APPRECIATION
OPTIONS OPTIONS GRANTED EXERCISE FOR OPTION TERM(3)
GRANTED TO EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME (#) 1995 ($/SH)(1) DATE(2) 5%($) 10%($)
- ----------------------------- ---------- ---------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
K. Shan Padda................ 157,580 30.44% $4.76 12/31/04 $452,255 $1,136,152
Anil K. Rastogi, Ph.D........ 70,911 13.70% $4.76 07/31/05 $212,024 $ 538,214
Alan E. Jordan............... 107,154 20.70% $4.76 12/31/04 $307,532 $ 772,580
Joseph Moser................. -- -- -- -- -- --
Doron C. Levitas............. 94,548 18.26% $4.76 12/31/04 $271,353 $ 681,691
</TABLE>
- ---------------
(1) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock on the date of grant, as determined by the Board.
(2) Some of the options granted to the Named Executive Officers are subject to
vesting and, accordingly, may expire before the dates indicated.
(3) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.
The following table sets forth certain information with respect to the
unexercised options held by the Named Executive Officers as of December 31,
1995. No options were exercised by the Named Executive Officers during 1995.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT YEAR-END
VALUE OPTIONS AT YEAR-END 1995($)
SHARES ACQUIRED REALIZED 1995(#) EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
- ----------------------------- --------------- -------- ---------------------- --------------------
<S> <C> <C> <C> <C>
K. Shan Padda................ -- -- --/157,580 --/--
Anil K. Rastogi, Ph.D........ -- -- 23,637/ 47,274 --/--
Alan E. Jordan............... -- -- --/107,154 --/--
Joseph Moser................. -- -- 11,026/ 7,884 --/--
Doron C. Levitas............. -- -- --/ 94,548 --/--
</TABLE>
- ---------------
(1) Based on the fair market value of the Common Stock at year-end ($4.76 per
share), as determined by the Company's Board of Directors, none of such
options were in-the-money at fiscal year-end.
STOCK OPTION PLAN
The Company's Stock Option Plan was adopted in 1992, amended in 1993 and
amended and restated in 1996. The Stock Option Plan, as amended, provides for
the grant of options to purchase up to an aggregate of 1,323,669 shares of
Common Stock. The Plan is administered by the Compensation Committee who will
make discretionary grants ("discretionary grants") of options to employees
(including employees who are officers and directors of the Company) and
consultants. The Stock Option Plan also provides for formula grants ("formula
grants") of options to directors who are not employees of the Company.
37
<PAGE> 43
Options granted pursuant to discretionary grants may be nonqualified
options or incentive options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
The selection of participants, allotment of shares, determination of price
and other conditions of purchase of such options is determined by the
Compensation Committee, in its sole discretion. Options granted pursuant to
discretionary grants are exercisable for a period of up to ten years, except
that incentive options granted to optionees who, at the time the option is
granted, own stock representing greater than 10% of the voting power of all
classes of stock of the Company or any parent or subsidiary, are exercisable for
a period of up to five years. The per share exercise price of incentive options
granted pursuant to discretionary grants must be no less than 100% of the fair
market value of the Common Stock on the date of grant, except that the per share
exercise price of incentive options granted to optionees who, at the time the
options is granted, own stock representing greater than 10% of the voting power
of all classes of stock of the Company or any parent or subsidiary, must be no
less than 110% of the fair market value of the Common Stock. The per share
exercise price of non-qualified stock options granted pursuant to discretionary
grants must be no less than 85% of the fair market value of the Common Stock on
the date of grant.
Under the formula grants, each director who is not an employee of the
Company will receive automatically upon such director's election to the Board an
option to purchase 7,879 shares of Common Stock. In addition, each director who
serves on a Committee of the Board of Directors will receive an option to
purchase 945 shares of the Company's Common Stock annually and each Chairman of
each such Committee will receive an additional option to purchase 473 shares of
the Company's Common Stock annually. Such options vest on the earlier of (i) one
year from the date of grant or (ii) the next annual election of directors. Each
such option shall have a term of not more than ten years from the date of
vesting and the exercise price per share of Common Stock for such options shall
be 100% of the fair market value of the Common Stock as determined under the
terms of the Stock Option Plan.
Options granted under the Stock Option Plan are nontransferable, other than
by will or by the laws of descent and distribution, and may be exercised during
the optionee's lifetime, only by the optionee, or in the event of optionee's
legal incapacity to do so, by the optionee's guardian or legal representative.
EMPLOYMENT AGREEMENTS
The Company entered into a two-year Employment Agreement with Mr. Padda as
of January 1, 1996. The Employment Agreement provides that Mr. Padda shall
receive a base salary of $150,000, bonuses based upon the Company's performance
as compared to its budget and options to purchase shares of the Company's Common
Stock under its Stock Option Plan. Mr. Padda is entitled to severance payments
if he is terminated other than for cause. In addition, the Employment Agreement
provides that Mr. Padda will be paid his base salary through the term of the
Employment Agreement if he is terminated following a change in control of the
Company. In addition to provisions relating to Mr. Padda's duties and
compensation, the Employment Agreement requires Mr. Padda to assign all
inventions he develops in the course of his employment with the Company to the
Company, maintain the confidentiality of the Company's proprietary information
and refrain from competing with the Company during his employment with the
Company and for a period of twelve months thereafter.
38
<PAGE> 44
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of the Company's Common Stock as of May 30, 1996, for (i) each officer of the
Company, (ii) each director of the Company, (iii) each stockholder known by the
Company to own beneficially 5% or more of the outstanding shares of Common Stock
of the Company and (iv) all officers and directors of the Company as a group.
Unless otherwise indicated, the address for each officer, director and 5%
stockholder is c/o the Company, 5601 West Howard Street, Niles, Illinois 60714.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES PERCENTAGE OF OUTSTANDING SHARES AFTER
OFFICERS, DIRECTORS OR BENEFICIALLY OUTSTANDING SHARES COMPLETION OF
5% STOCKHOLDERS OWNED(1) BEFORE OFFERING OFFERING(2)
------------------------------ ------------------ ------------------ ------------------------
<S> <C> <C> <C>
OFFICERS:
K. Shan Padda(3).............. 430,508 7.012% 4.983%
Doron C. Levitas(4)........... 414,828 6.757% 4.802%
Anil K. Rastogi, Ph.D(5)...... 23,637 0.385% 0.274%
Alan E. Jordan(6)............. 99,591 1.622% 1.153%
Scott Skooglund(7)............ 8,273 0.135% 0.096%
Donald J. India(8)............ 48,850 0.796% 0.565%
Joseph Moser(9)............... 14,702 0.239% 0.170%
Vincent J. Capponi............ 0 0.000% 0.000%
DIRECTORS:
Scott Hodes(10)............... 52,702 0.858% 0.610%
Mark Lampert.................. 0 0.000% 0.000%
William D. Lautman(11)........ 166,882 2.718% 1.932%
William H. Lomicka(12)........ 70,138 1.142% 0.812%
Marvin Samson(13)............. 12,291 0.200% 0.142%
L. Peter Smith(14)............ 31,023 0.505% 0.359%
Edson W. Spencer, Jr.(15)..... 176,630 2.877% 2.044%
5% STOCKHOLDERS:
MSI, Inc.(16)................. 758,633 12.357% 8.781%
Charles K. Stewart(17)........ 843,957 13.747% 9.769%
All Officers and Directors
as a group (15 persons):.... 1,550,055 25.248% 17.942%
</TABLE>
- ---------------
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options that are currently exercisable or
exercisable within 60 days are deemed to be outstanding and to be
beneficially owned by the person holding such options. Assumes that all
outstanding shares of Series A Preferred Stock, all shares of Series A
Preferred Stock issuable upon exercise of warrants or options exercisable
within 60 days, and all outstanding convertible debt plus accrued interest
(other than $950,000 principal amount of debt being repaid with the
proceeds of the Offering) have been converted into Common Stock.
(2) Assumes that the Underwriters' over-allotment option to purchase up to
375,000 shares from the Company is not exercised.
(3) Includes 39,395 shares subject to options exercisable within 60 days.
(4) Includes 23,637 shares subject to options exercisable within 60 days.
(5) Includes 23,637 shares subject to options exercisable within 60 days.
(6) Includes 26,789 shares subject to options exercisable within 60 days.
(7) Includes 8,273 shares subject to options exercisable within 60 days.
(8) Includes 37,819 shares subject to options exercisable within 60 days.
(9) Includes 14,702 shares subject to options exercisable within 60 days.
39
<PAGE> 45
(10) Includes 20,042 shares subject to options exercisable within 60 days and 46
shares issuable upon exercise of warrants.
(11) Includes 12,291 shares subject to options exercisable within 60 days and
77,199 shares issuable upon exercise of warrants. Excludes 21,977 shares
held of record by The Pharmaceutical/Medical Technology Fund, L.P., an
investment partnership whose general partners are the owners of EGS
Partners, L.L.C. EGS Partners, L.L.C. is an affiliate of EGS Securities
Corp. of which Mr. Lautman is a managing director. Mr. Lautman disclaims
beneficial ownership of shares owned by The Pharmaceutical/Medical
Technology Fund, L.P.
(12) Includes 12,527 shares subject to options exercisable within 60 days and
3,152 shares issuable upon exercise of warrants.
(13) Includes 12,291 shares subject to options exercisable within 60 days. Mr.
Samson disclaims beneficial ownership of shares owned by MSI, Inc.
(14) Includes 24,110 shares subject to options exercisable within 60 days.
(15) Includes 19,618 shares subject to options exercisable within 60 days, 1,173
shares issuable upon exercise of warrants, 3,367 shares held of record by
Peterson-Spencer-Fansler Company ("PSF Co."), of which Mr. Spencer is a
principal, 14,240 shares issuable upon exercise of warrants held by PSF
Co., 110,526 shares held by PSF HealthCare Fund, L.P. ("PSF Health") of
which Mr. Spencer is the managing partner, 12,088 shares issuable upon
exercise of warrants held by PSF Health, and 7,109 shares held of record by
Spencer Family Partnership, L.P. Excludes 29,296 shares held of record by
Valerie Spencer, Mr. Spencer's wife, and by WHC #145751 Trust, a trust
established for the benefit of Mrs. Spencer's family. Mr. Spencer disclaims
beneficial ownership of shares owned by Mrs. Spencer and the WHC #145751
Trust.
(16) Includes 318,668 shares issuable upon exercise of warrants. MSI, Inc.
disclaims beneficial ownership of shares owned by Marvin Samson. MSI,
Inc.'s address is Building 31, Olney Ave., Cherry Hill, New Jersey 08034.
(17) Includes 3,939 shares subject to options exercisable within 60 days,
275,883 shares held of record by Charles K. Stewart Money Purchase Plan,
and 167,245 shares held of record by Charles K. Stewart Investments of
which Mr. Stewart is a general partner. Mr. Stewart's address is 401 South
LaSalle Street, Suite 1502, Chicago, Illinois 60605.
40
<PAGE> 46
CERTAIN TRANSACTIONS
In May, 1996 the Company entered into an agreement with EGS Securities
Corp., ("EGS") of which William D. Lautman, a director of the Company, is a
Managing Director, pursuant to which EGS agreed to provide financial advisory
services in connection with the Offering. In connection with this agreement, the
Company will pay to EGS $150,000 upon successful consummation of the Offering.
In March, 1996, the Company issued a Convertible Subordinated Debenture to
Charles K. Stewart Investments, in the principal amount of $844,500. The
debenture bears interest at a rate of 13.22% per annum and would have matured on
the date six years from the date of its issuance. On May 21, 1996, Charles K.
Stewart Investments agreed to convert the $844,500 principal and $1,014,153
accrued interest and prepayment premium, which was calculated in accordance with
the terms of the debenture, on the debenture into 354,869 shares of Common Stock
effective upon the consummation of this Offering. The conversion price is equal
to $5.23757 per share. Also in March, 1996, the Company issued 167,245 shares of
Common Stock at $9.80 per share to Charles K. Stewart Investments.
In March, 1996, the Company issued 100,851 shares of Common Stock to Arie
Kalo at $4.76 per share in payment for past engineering consulting services
performed by him personally during 1995 and which the Company valued at
$480,000. K. Shan Padda and Doron Levitas, each of whom is an officer and
director of the Company, together with Arie Kalo each own one-third of the
shares of DAK-Tech, Ltd. (an Israeli corporation) which supplies component
assemblies and research and development services to the Company, the value of
which was $538,544 in 1995.
In January, 1996, the Company issued a Convertible Subordinated Debenture
to William D. Lautman, a director of the Company, in the principal amount of
$110,000, of which $60,000 was payment for financial consulting services
rendered. The debenture bears interest at a rate equal to 10% per annum until
June 30, 1996 and thereafter at a rate of 13.22%. The debenture would have
matured on the date six years from the date of its issuance. In February, 1996,
William D. Lautman agreed to convert the $110,000 principal into 23,112 shares
of Common Stock and to forgo the payment of accrued interest. The conversion
price is equal to $4.76 per share.
In January, 1996, the Company issued a Convertible Subordinated Debenture
to Marvin Samson, a director of the Company, in the principal amount of
$100,000. The debenture bears interest at a rate of 10% per annum until June 30,
1996. If the principal and interest under the debenture are not paid on such
date, then the interest rate will be 13.22% per annum through the date six years
from the date of its issuance. The Company may prepay the debenture at any time,
provided, however, that if the prepayment occurs after the initial maturity
date, the Company shall pay the outstanding principal balance plus a sum equal
to the amount of interest which would have been earned if the debenture remained
outstanding until the later maturity date.
In December, 1995, the Company issued a Convertible Subordinated Debenture
to Charles Stewart in the principal amount of $100,000. The debenture bears
interest at a rate of 13.22% per annum and would have matured on the date six
years from the date of its issuance. On May 21, 1996, Charles Stewart agreed to
convert the $100,000 principal and $120,088 accrued interest and prepayment
premium on the debenture, calculated in accordance with the terms of the
debenture, into 42,021 shares of Common Stock effective upon the consummation of
the Offering. The conversion price is equal to $5.23757 per share.
On September 26, 1995, the Company entered into an agreement with EGS (the
"EGS Agreement") for a period of one year pursuant to which the Company engaged
EGS as a financial and business consultant for the Company. Mr. Lautman is a
Managing Director of EGS and a director of the Company. The EGS Agreement
provides for the payment to EGS of a $180,000 fee, $100,000 of which was to be
paid on the effective date of the agreement and $40,000 on each of the sixth and
twelfth month anniversaries of the agreement, plus an amount equal to 8% of the
proceeds of certain financings (hereinafter the "Success Fee"). Based primarily
on management's experience with other financial consultants, the Company
believes that the cost to it of the services provided was comparable to what the
Company would have paid in an arm's length transaction with an unrelated party.
The EGS Agreement was amended in December, 1995 to remove EGS' right to receive
the Success Fee. As part of this amendment, the Company agreed to pay EGS an
additional $150,000 for services performed prior to the date of the amendment
but which were not included in the consulting services previously provided for
in the EGS Agreement. An example of the services provided to the
41
<PAGE> 47
Company by EGS during 1995 but which did not fall within the scope of the
original agreement were providing the Company with investor relations and other
administrative services. In March 1996, the Company further amended the EGS
Agreement. Pursuant to the March amendment, the Company agreed to pay EGS
$80,000 in connection with the March 14, 1996 equity financing and both of the
Company and EGS were relieved from further rights and obligations under the EGS
Agreement including the obligation of the Company to pay EGS the two $40,000
installment payments. As of May 30, 1996, the Company's accrued obligations
under the agreement remained unpaid.
In July and September, 1995, the Company issued Convertible Subordinated
Debentures to Charles K. Stewart Money Purchase Plan in the principal amount of
$150,000 and $200,000 respectively. The debentures bear interest at a rate of
13.22% per annum and would have matured on the date six years from the date of
their issuance. On May 21, 1996, Charles K. Stewart Money Purchase Plan agreed
to convert the $350,000 principal and $420,316 accrued interest and prepayment
premium, calculated in accordance with the terms of the debenture, on the
debenture into 147,075 shares of Common Stock effective upon the consummation of
the Offering. The conversion price is equal to $5.23757 per share.
On May 12, 1995, the Company issued warrants in exchange for advisory
services to Scott C. Newquist and Robert G. Eccles which gives each of them the
right to purchase 87,032 shares of Common Stock at $4.76 per share. The Company
valued the services received in exchange for these warrants at $27,618. Messrs.
Eccles and Newquist transferred such portion of the rights under their warrants
as was necessary to purchase 174,065 shares of Common Stock to Oracle Partners,
L.P. for immediate exercise and, in connection therewith, the Company entered
into stock appreciation rights agreements with Messrs. Newquist and Eccles.
Under the stock appreciation rights agreements, the Company agreed to make each
of Messrs. Newquist and Eccles a stock appreciation payment. The payment is to
be calculated by multiplying 87,032 by the difference between $4.76 and the per
share market price of the stock on the date payment is demanded, up to a maximum
of $4.76 per share. Messrs. Newquist and Eccles are principals of Advisory
Capital Partners, Inc. of which William D. Lautman, a director of the Company,
was also affiliated at the time the parties entered into the stock appreciation
rights agreement.
On May 12, 1995, the Company issued a warrant to purchase 87,032 shares of
Common Stock at $4.76 per share to William D. Lautman, a Managing Director of
EGS, as compensation for financial services rendered to the Company which
services were valued at $13,809. This warrant vested immediately and expires on
May 12, 2000. On May 31, 1995, Mr. Lautman exercised the warrant to purchase
21,011 shares of Common Stock at $2.38 per share, pursuant to a re-pricing
offered by the Company. Mr. Lautman and retains the right to exercise the
warrant for the remaining 66,021 shares of Common Stock at $4.76 per share.
On September 23, 1994, the Company issued a warrant (the "MSI Warrant") to
MSI, Inc. which initially gave MSI, Inc., a subsidiary of Marsam Pharmaceuticals
Inc. of which Marvin Samson, a director of the Company, is President and a
director, the right to purchase up to 472,739 shares of Series A Preferred
Stock. On May 8, 1995, such portion of the rights under the MSI Warrant as was
necessary to acquire 84,043 shares of Series A Preferred Stock was transferred
to each of Charles K. Stewart Money Purchase Plan and John Stafford for
immediate exercise. In connection with the transfer, the Company entered into a
stock appreciation rights agreement with MSI, Inc. pursuant to which the Company
agreed to make MSI, Inc. a stock appreciation payment. The payment is to be
calculated by multiplying 168,085, which constitutes the number of shares
exercised under the MSI Warrant, by the difference between $4.76 and the per
share market price of the stock on the date payment is demanded, up to a maximum
of $4.76 per share. Pursuant to the MSI Warrant, after giving effect to
conversion of Series A Preferred Stock to Common Stock, MSI, Inc. currently has
the right to purchase 318,668 shares of Common Stock at $4.55 per share.
On November 14, 1991, the Company lent Alan Jordan, currently its Executive
Vice President of Sales and Marketing, $112,500 to purchase 135,000 shares of
the Company's Common Stock. This note accrues interest at a rate of 5.89% and
the principal of and accrued interest on this note are due and payable on June
30, 1997. As of March 31, 1996, the principal of and accrued and unpaid interest
on this note amounted to $141,514.
Scott Hodes, a director of the Company, is a senior partner at the Chicago
law firm of Ross & Hardies and provides legal services as corporate counsel to
the Company.
42
<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
Immediately prior to the issuance of the shares offered hereby, the
authorized capital of the Company will consist of 25,000,000 shares of Common
Stock, par value $0.01 per share, and 12,500,000 shares of Preferred Stock, par
value $0.01 per share. See "Risk Factors -- Control by Directors, Executive
Officers and Affiliated Entities" and "-- Impact of Anti-Takeover Measures;
Possible Issuance of Preferred Stock; Classified Board."
COMMON STOCK
As of May 30, 1996, assuming no exercise of outstanding options or warrants
or conversion of Series A Preferred Stock or convertible debt, there were
2,133,103 shares of Common Stock outstanding, held of record by approximately 90
stockholders. The holders of the Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. Holders
of the Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
the Common Stock are entitled to share ratably in all assets remaining after
payment of all liabilities. The outstanding shares of the Common stock are fully
paid and nonassessable. No preemptive rights, conversion rights, redemption
rights or sinking fund provisions are applicable to the Common Stock.
PREFERRED STOCK
Upon the consummation of the Offering, no shares of Preferred Stock will be
outstanding. The Company's Board of Directors is authorized, without further
stockholder action, to issue Preferred Stock in one or more series and to fix
the voting rights, liquidation preferences, dividend rights, repurchase rights,
conversion rights, redemption rights and terms, including sinking fund
provisions, and certain other rights and preferences, of the Preferred Stock.
Although there is no current intention to do so, the Board of Directors of
the Company may, without stockholder approval, issue shares of a class or series
of Preferred Stock with voting and conversion rights which could adversely
affect the voting power or dividend rights of the holders of Common Stock and
may have the effect of delaying, deferring or preventing a change in control of
the Company.
WARRANTS
As of May 30, 1996, there were warrants outstanding to purchase 604,046
shares of Common Stock at a weighted average exercise price of $4.59 per share.
The warrants were issued in exchange for services or in connection with the
issuance of debt securities by the Company. All of the warrants are currently
exercisable. The warrants will expire by their terms at times ranging from
November, 1996 to November, 2000.
REGISTRATION RIGHTS
The Company has entered into a Registration Rights Agreement (the
"Registration Rights Agreement") which may, in certain circumstances, be
applicable to the holders of the equivalent of approximately 1,591,390 shares of
Common Stock (the "Rights Holders"). In order for the Rights Holders to effect a
demand for registration, the Registration Rights Agreement requires that the
holders of more than 25% of all of the shares held under the Registration Rights
Agreement request such registration. An unlimited number of demands may be made;
however, the Company has an obligation to complete only two registrations at the
demand of Rights Holders. In addition to demand registration rights, Rights
Holders have unlimited "piggyback" registration rights pursuant to which the
Rights Holders will have the right to request that the Company register shares
of Common Stock under the Act at the expense of the Company, unless in
connection with an underwritten public offering, the managing underwriter is of
the opinion that inclusion of the shares of Common Stock to which the Rights
Holders request registration would have an adverse impact on the marketing of
the securities to be sold in such public offering. It is anticipated that the
Rights Holders will waive their rights with respect to the Offering and will
agree not to demand registration of any of their shares during any time during
which the Rights Holders are subject to the terms of a Lock-Up Agreement with
the Company. The holders of 24,377 shares of Common Stock and the holders of
warrants to purchase 87,127 shares of Common Stock have registration rights
equivalent to those contained in the Registration Rights
43
<PAGE> 49
Agreements. In addition, the holders of warrants to purchase 7,832 shares of
Common Stock have piggyback registration rights.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is LaSalle National
Trust, N.A., Chicago, Illinois.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
7,679,712 shares of Common Stock. Of these shares, the 2,500,000 shares of
Common Stock sold in the Offering will be freely tradable without restriction
under the Act, unless held by "affiliates" of the Company (as that term is
defined in the Act and regulations promulgated thereunder).
The shares of Common Stock issued and outstanding prior to the Offering
were acquired by existing stockholders without registration under the Act in
reliance upon exemptions from registration and are "restricted securities" for
purposes of the Act. These shares may not be sold unless they are registered
under the Act or unless an exemption from registration, such as the exemption
provided by Rule 144 under the Act, is available.
The Company and all holders of capital stock of the Company, or securities
exercisable into such capital stock, have agreed not to offer, pledge, issue,
sell, contract to sell, grant any option for the sale of, or otherwise dispose
or announce any offer, sale, grant of any option to purchase or other
disposition of, directly or indirectly, any Common Stock, or any securities
convertible into or exercisable or exchangeable for Common Stock, until 180 days
following the date of the final prospectus relating to the Offering without the
prior written consent of Bear, Stearns & Co. Inc. ("Bear, Stearns"), subject to
certain exceptions.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned "restricted
securities" for at least two but less than three years, and any affiliate of the
Company who has owned shares for at least two years, is entitled to sell within
any three-month period a number of shares that does not exceed the greater of 1%
of the outstanding shares of the Company's Common Stock or the average weekly
trading volume in the Company's Common Stock on the Nasdaq National Market
during the four calendar weeks preceding such sale. Such sales under Rule 144
are also subject to certain provisions regarding the manner of sale, notice
requirements and the availability of current public information about the
Company. A stockholder who is not an affiliate of the Company at the time of the
sale and for at least 90 days prior to a proposed transaction and who has
beneficially owned "restricted securities" for at least three years is entitled
to sell such shares under Rule 144 without regard to the limitations described
above. In addition, Rule 701 permits persons who purchase shares upon exercise
of options granted prior to the effective date of the Offering to sell such
shares without having to comply with the holding period requirements of Rule 144
and, in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice provisions of Rule 144. All shares
underlying options that could be sold pursuant to Rule 701 are subject to the
180-day lock-up agreement described above.
The Company anticipates that it will file a registration statement on Form
S-8 under the Act to register all of the shares of Common Stock issued or
reserved for future issuance under the Stock Option Plan and certain other
options currently outstanding to employees of the Company. After the effective
date of that registration statement, shares purchased upon exercise of options
covered by such registration statement generally would be available for resale
in public market (subject to the lock-up agreement).
Beginning 180 days after the Effective Date, approximately 3,200,000 of the
shares of Common Stock outstanding before the Offering will become eligible for
sale under Rule 144 or Rule 701 promulgated under the Act. In addition,
beginning 180 days after the Effective Date, an additional approximately 615,000
shares subject to vested stock options and warrants will become eligible for
sale under Rule 144 or Rule 701 promulgated under the Act. See "Shares Eligible
for Future Sale" and "Dilution."
The holders of certain of the Company's outstanding securities also have
the benefit of a Registration Rights Agreement which provides that, subject to
certain conditions, certain holders of the Company's
44
<PAGE> 50
outstanding securities have rights with respect to registration under the Act.
See "Description of Capital Stock -- Registration Rights."
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
public sales of shares or the availability of such shares will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of Common Stock in the public market, or the perception that such sales
could occur, could have an adverse impact on the market price of Common Stock.
45
<PAGE> 51
UNDERWRITING
Subject to certain terms and conditions contained in the Underwriting
Agreement (the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), for whom Bear, Stearns & Co. Inc., Salomon Brothers Inc and
Barington Capital Group, L.P. ("Barington") are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company an
aggregate of 2,500,000 shares of Common Stock. The number of shares of Common
Stock that each Underwriter has agreed to purchase is set forth opposite its
name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Bear, Stearns & Co. Inc. .................................................
Salomon Brothers Inc .....................................................
Barington Capital Group, L.P. ............................................
---------
Total........................................................... 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to approval of
certain legal matters by counsel and to certain other conditions precedent. If
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such shares of Common Stock (other than shares
of Common Stock covered by the over-allotment option described below) must be so
purchased.
Prior to the Offering, there has been no established public trading market
for the Common Stock. The initial price to the public for the Common Stock
offered hereby will be determined in negotiations between the Company and the
Representatives. Among the factors to be considered in such negotiations will be
the history of and the prospects for the industry in which the Company competes,
an assessment of the Company's management, the past and present operations of
the Company, the historical results of operations of the Company, the prospects
for future earnings of the Company, the general condition of the securities
markets at the time of the Offering, and the recent market prices of securities
of generally comparable companies. There can be no assurance that an active
trading market will develop for the Common Stock or that the Common Stock will
trade in the public market subsequent to the Offering at or above the initial
offering price.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Act, or to contribute to payments
that the Underwriters may be required to make in respect thereof.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Stock to the public initially at the price set forth
on the cover page of this Prospectus and to certain dealers (who may include the
Underwriters) at such price less a concession not to exceed $ per
share. The Underwriters may allow, and such dealers may allow, discounts not in
excess of $ per share to any Underwriter and certain other dealers.
The Company has granted to the Underwriters an option to purchase up to an
aggregate of 375,000 additional shares of Common Stock at the initial public
offering price less underwriting discounts and commissions solely to cover
overallotments. Such option may be exercised at any time until 30 days after the
date of the final Prospectus relating to the Offering. To the extent that the
Underwriters exercise such option, each of the Underwriters will be committed,
subject to certain conditions, to purchase a number of option shares
proportionate to such Underwriters' initial commitment as indicated in the
preceding table.
The Company, all of its directors and executive officers, and all holders
of capital stock of the Company, or securities convertible or exercisable into
such capital stock, have agreed not to offer, pledge, issue, sell, contract to
sell, grant any option to purchase or otherwise dispose (or announce any offer,
sale, grant of any
46
<PAGE> 52
option to purchase or other disposition) of any shares of Common Stock, or any
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock for a period of 180 days after the date of the final Prospectus
relating to the Offering, without the prior written consent of Bear, Stearns.
The Underwriters do not intend to sell shares of Common Stock to any
account over which they exercise discretionary authority.
At the request of the Company, the Underwriters have reserved 125,000
shares of Common Stock for sale at the public offering price to employees of the
Company, certain of the Company's suppliers and distributors and certain other
parties. The number of shares available for sale to the general public will be
reduced to the extent such individuals purchase such reserved shares. Any
reserved shares not so purchased will be released for sale by the Underwriters
to the general public no later than the closing date of the Offering on the same
terms as the other shares offered hereby. Reserved shares purchased by such
individuals will, except as restricted by applicable securities laws, be
available for resale following the Offering.
Pursuant to the terms of a Letter Agreement dated March 12, 1996 as amended
on May 29, 1996, Barington has been engaged as a financial advisor to the
Company and shall receive as compensation therefor a fee of $50,000 upon the
earlier of the consummation of the Offering and December 31, 1996. In addition,
Barington will be reimbursed for certain expenses expected to be approximately
$15,000.
In May, 1996, the Company engaged EGS as a financial advisor to the Company
in connection with the Offering. EGS shall receive as compensation for its
service a fee of $150,000 upon successful consummation of the Offering. EGS is
not an underwriter of this Offering and is not related to any underwriter.
Stephen Raphael, an employee and director of Bear, Stearns, beneficially
owns 10,505 shares of Common Stock, and Kenneth Lebow, an employee of Bear,
Stearns, beneficially owns 10,988 shares of Common Stock of the Company.
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock of the
Company offered hereby will be passed upon for the Company by Ross & Hardies,
Chicago, Illinois. A partner of Ross & Hardies beneficially owns 52,702 shares
of the Company's Common Stock. O'Sullivan Graev & Karabell, LLP, New York, New
York, has acted as counsel to the Underwriters in connection with the Offering.
EXPERTS
The financial statements and schedule of the Company as of December 31,
1994 and 1995 and for each of the years in the three year period ended December
31, 1995 have been included herein and elsewhere in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing herein, and upon the authority of said firm as
experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement on Form S-1 under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
the exhibits and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract or any other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the offices of the Commission at 450 Fifth Street,
N.W., Washington, D.C 20549, and copies of all or any part of the Registration
Statement may be obtained from the Public Reference Section of the Commission
upon the payment of the fees prescribed by the Commission.
47
<PAGE> 53
SABRATEK CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996.................... F-3
Statements of Operations for the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1995 and 1996.................................. F-4
Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and
1995
and the three months ended March 31, 1996........................................... F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1995 and 1996.................................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Sabratek Corporation:
We have audited the accompanying balance sheets of Sabratek Corporation as
of December 31, 1994 and 1995, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sabratek Corporation as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
April 8, 1996, except as to Note 17
which is as of May 6, 1996.
F-2
<PAGE> 55
SABRATEK CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------- MARCH 31, MARCH 31,
1994 1995 1996 1996
---------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 764,762 $ 8,027 $ 1,252,896 $ 1,252,896
Receivables:
Trade, net of allowance for doubtful accounts of
$-0- and $187,969 at December 31, 1994 and
1995, respectively............................ 569,432 766,445 1,455,864 1,455,864
Due from related party (note 4)................. 486,338 575,974 673,735 673,735
Other........................................... 123,959 -- -- --
---------- ------------ ------------ ------------
Total receivables.......................... 1,179,729 1,342,419 2,129,599 2,129,599
---------- ------------ ------------ ------------
Inventories (note 2).............................. 635,085 1,825,411 2,022,351 2,022,351
Other current assets.............................. 96,488 50,737 170,028 170,028
---------- ------------ ------------ ------------
Total current assets................................ 2,676,064 3,226,594 5,574,874 5,574,874
---------- ------------ ------------ ------------
Property, plant, and equipment, net (note 3)........ 447,686 901,728 874,406 874,406
Advances to stockholders (note 4)................... 162,306 -- -- --
Organizational costs, net........................... 1,179 -- -- --
Other............................................... 50,828 50,828 50,828 50,828
---------- ------------ ------------ ------------
$3,338,063 $ 4,179,150 $ 6,500,108 $ 6,500,108
========== ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term debt (note 6).......................... $ -- $ 621,021 $ 301,393 $ 301,393
Current portion of capital lease obligations
(note 9)........................................ 87,942 150,848 150,848 150,848
Current portion of long-term debt (note 7)........ 3,200 3,200 3,200 3,200
Accounts payable.................................. 854,199 2,377,159 1,265,258 1,265,258
Accrued expenses:
Payroll and commissions......................... 77,967 191,086 330,588 330,588
Warranty........................................ 130,881 229,263 229,263 229,263
Other........................................... 103,004 286,990 212,344 212,344
Deferred rent..................................... 12,068 31,322 31,322 31,322
Deferred revenue.................................. -- 125,000 125,000 125,000
Stock appreciation rights payable................. -- -- 1,628,463 1,628,463
Due to affiliated company......................... 407,674 311,811 322,423 322,423
---------- ------------ ------------ ------------
Total current liabilities........................... 1,676,935 4,327,700 4,600,102 4,600,102
---------- ------------ ------------ ------------
Long-term capital lease obligations (note 9)........ 156,584 149,334 108,816 108,816
Long-term debt (note 7)............................. 306,960 2,362,293 3,365,993 353,200
Accrued interest.................................... 46,757 160,630 227,755 --
---------- ------------ ------------ ------------
Total liabilities................................... 2,187,236 6,999,957 8,302,666 5,062,118
---------- ------------ ------------ ------------
Stockholders' equity (deficit):
Convertible preferred stock, $.01 par value.
Authorized 12,500,000 shares; issued and
outstanding 1,317,715 and 1,768,129 shares at
December 31, 1994 and 1995, respectively........ 13,177 17,681 17,681 --
Common stock, $.01 par value. Authorized
25,000,000 shares; issued and outstanding
1,510,395 and 1,718,458 shares at December 31,
1994 and 1995, respectively..................... 15,104 17,185 21,331 51,797
Additional paid-in capital........................ 8,650,555 10,708,671 13,438,512 16,967,391
Note receivable from stockholder (note 4)......... (112,500) (112,500) (112,500) (112,500)
Accumulated deficit............................... (7,415,509) (13,451,844) (15,167,582) (15,468,698)
---------- ------------ ------------ ------------
Total stockholders' equity (deficit)................ 1,150,827 (2,820,807) (1,802,558) 1,437,990
---------- ------------ ------------ ------------
Commitments......................................... -- -- -- --
---------- ------------ ------------ ------------
$3,338,063 $ 4,179,150 $ 6,500,108 $ 6,500,108
========== ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 56
SABRATEK CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................... $ 1,228,921 $ 3,314,599 $ 4,039,797 $ 930,125 $ 2,944,090
Cost of sales............... 1,634,426 2,480,369 2,901,818 717,614 1,455,638
----------- ----------- ----------- ----------- -----------
Gross margin (loss)......... (405,505) 834,230 1,137,979 212,511 1,488,452
Selling, general, and
administrative expenses... 2,410,873 4,107,588 6,873,934 1,730,770 1,476,754
----------- ----------- ----------- ----------- -----------
Operating loss.............. (2,816,378) (3,273,358) (5,735,955) (1,518,259) 11,698
Other income (expense):
Interest income........... 7,682 19,340 12,607 3,782 2,182
Interest expense.......... (19,948) (260,494) (222,491) (11,153) (103,755)
Other..................... 8,000 (40,311) (90,496) (21,325) (1,625,863)
----------- ----------- ----------- ----------- -----------
Net loss.................... $(2,820,644) $(3,554,823) $(6,036,335) $(1,546,955) $(1,715,738)
=========== =========== =========== =========== ===========
Pro forma net loss.......... -- -- $(5,860,993) $(1,617,473)
Weighted average shares
outstanding............... 6,672,271 6,672,271
=========== ===========
Pro forma net loss per
share..................... $ (.88) $ (.24)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 57
SABRATEK CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
CONVERTIBLE TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCKHOLDERS'
-------------------- -------------------- PAID-IN NOTE ACCUMULATED EQUITY
DESCRIPTION SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT (DEFICIT)
- --------------------- --------- ------- --------- ------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1992........... -- $ -- 1,398,046 $13,980 $ 1,528,935 $ (112,500) $(1,040,042 ) $ 390,373
Issuance of common
stock, net of
$28,897 of offering
costs.............. -- -- 112,349 1,124 1,217,728 -- -- 1,218,852
Net loss............. -- -- -- -- -- -- (2,820,644 ) (2,820,644)
--------- ------ --------- ------ ----------- --------- ------------ -----------
Balance at December
31, 1993........... -- -- 1,510,395 15,104 2,746,663 (112,500) (3,860,686 ) (1,211,419)
Conversion of
short-term
convertible
subordinated
debentures to
convertible
preferred stock.... 635,815 6,358 -- -- 3,019,802 -- -- 3,026,160
Issuance of
convertible
preferred stock,
net of $354,596 of
offering costs..... 681,900 6,819 -- -- 2,884,090 -- -- 2,890,909
Net loss............. -- -- -- -- -- -- (3,554,823 ) (3,554,823)
--------- ------ --------- ------ ----------- --------- ------------ -----------
Balance at December
31, 1994........... 1,317,715 13,177 1,510,395 15,104 8,650,555 (112,500) (7,415,509 ) 1,150,827
Issuance of
convertible
preferred stock and
warrants, net of
$76,758 of offering
costs.............. 202,963 2,030 -- -- 887,207 -- -- 889,237
Issuance of preferred
stock in exchange
for services
rendered........... 728 7 -- -- 3,458 -- -- 3,465
Exercise of stock
options............ -- -- 9,621 96 33,623 -- -- 33,719
Exercise of stock
warrants........... 246,723 2,467 198,442 1,985 1,054,928 -- -- 1,059,380
Issuance of common
stock warrants..... -- -- -- -- 78,900 -- -- 78,900
Net loss............. -- -- -- -- -- -- (6,036,335 ) (6,036,335)
--------- ------ --------- ------ ----------- --------- ------------ -----------
Balance at December
31, 1995........... 1,768,129 17,681 1,718,458 17,185 10,708,671 (112,500) (13,451,844 ) (2,820,807)
--------- ------ --------- ------ ----------- --------- ------------ -----------
Issuance of common
stock in exchange
for services
rendered........... -- -- 124,488 1,245 591,255 -- -- 592,500
Conversion of
subordinated
convertible
debentures to
common stock....... -- -- 122,912 1,229 583,771 -- -- 585,000
Issuance of Common
Stock, net of
offering costs of
$83,274............ -- -- 167,245 1,672 1,554,815 1,556,487
Net loss............. -- -- -- -- -- -- (1,715,738 ) (1,715,738)
--------- ------ --------- ------ ----------- --------- ------------ -----------
Balance at March 31,
1996 (unaudited)... 1,768,129 $17,681 2,133,103 $21,331 $13,438,512 $ (112,500) $(15,167,582) $(1,802,558)
========= ====== ========= ====== =========== ========= ============ ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 58
SABRATEK CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................ $(2,820,644) $(3,554,823) $(6,036,335) $(1,546,955) $(1,715,738)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization......... 68,245 89,483 185,562 35,769 68,658
Loss on sale of property, plant, and
equipment........................... -- 63,498 -- -- --
Expenses paid with issuance of
preferred stock..................... -- -- 3,465 -- --
Expenses paid with issuance of
warrants............................ -- -- 35,700 -- --
Stock appreciation rights expense..... -- -- -- -- 1,628,463
Provision for bad debts............... -- -- 187,969 19,180 17,274
Changes in assets and liabilities:
Receivables......................... (29,371) (509,268) (350,659) 193,584 (804,454)
Inventories......................... (133,525) (90,479) (1,190,326) (189,715) (196,940)
Advances to stockholders............ (44,313) (11,827) 162,306 14,483 --
Accounts payable.................... 220,640 147,883 1,522,960 226,005 (519,401)
Accrued expenses.................... 48,414 139,010 509,360 15,234 131,981
Deferred rent....................... -- 3,535 19,254 -- --
Deferred revenue.................... -- -- 125,000 -- --
Due to affiliated company........... 174,408 238,732 (95,863) (9,019) 10,612
Other............................... (4,558) (124,196) 45,751 3,056 (119,291)
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities..... (2,520,704) (3,608,452) (4,875,856) (1,238,378) (1,498,836)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property, plant, and
equipment............................. (143,217) (249,824) (458,857) (211,971) (41,336)
Proceeds from sale of property, plant,
and equipment......................... -- 182,611 -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities..... (143,217) (67,213) (458,857) (211,971) (41,336)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of short-term
debt.................................. 2,010,000 860,000 621,021 363,028 --
Repayment of short-term debt............ (380,922) (25,000) -- -- (319,628)
Repayment of long-term debt............. (2,640) (3,200) (3,200) (560) (800)
Proceeds from issuance of long-term
debt.................................. 316,000 -- 2,058,533 -- 1,589,500
Payments of capital lease obligations... -- (45,880) (123,912) (15,354) (40,518)
Proceeds from sale of common stock,
net................................... 1,218,852 -- 505,963 -- 1,556,487
Proceeds from sale of convertible
preferred stock, net.................. -- 3,072,069 1,519,573 384,955 --
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities.............................. 3,161,290 3,857,989 4,577,978 732,069 2,785,041
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash............... 497,369 182,324 (756,735) (718,280) 1,244,869
Cash at beginning of year................. 85,069 582,438 764,762 764,762 8,027
----------- ----------- ----------- ----------- -----------
Cash at end of year....................... $ 582,438 $ 764,762 $ 8,027 $ 46,482 $ 1,252,896
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 59
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of the Business
Sabratek Corporation (the Company) designs and manufactures electronic
medical infusion pumps. Sales of the infusion pumps are made primarily through a
nationwide network of specialty distributors.
(b) Revenue Recognition
Revenues are recognized when products are shipped with allowances for
discounts and estimated returns recorded at the time of sale. Contract revenue
from research agreements is recorded when earned and as the related costs are
incurred. Payments received which are related to future performance are deferred
and recognized as revenue when earned over future performance periods.
(c) Inventories
Inventories are stated at the lower of cost or net realizable value. Cost
is determined under the first-in, first-out (FIFO) method.
(d) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost less accumulated
depreciation and amortization. Expenditures for maintenance and repairs are
charged to expense as incurred. Depreciation and amortization is provided on a
straight-line basis over the estimated useful lives. The estimated useful lives
of the machinery and equipment range from 3 to 5 years. The estimated useful
lives of furniture and fixtures is 7 years. Leasehold improvements are amortized
over the life of the lease.
(e) Warranty
The provision for estimated warranty costs is recorded at the time of sale
and periodically adjusted to reflect actual experience.
(f) Research and Development
Research and development costs are expensed as incurred. Research and
development costs amounted to $713,218, $1,098,167 and $2,193,508 in 1993, 1994
and 1995, respectively.
(g) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(h) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE> 60
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(i) Computation of Pro forma Net Loss per Share
The Company has presented pro forma net loss per share for the year ended
December 31, 1995 in lieu of historical net loss per share as such historical
information is not meaningful due to the conversion of the convertible preferred
stock and convertible subordinated debentures in connection with this offering.
The pro forma net loss per share has been computed assuming (a) the offering had
occurred at the beginning of each of the applicable periods, resulting in
interest savings from the anticipated repayment of certain debt with the net
proceeds of the offering, (b) the conversion of the debt occurred at the
beginning of each of the applicable periods resulting in interest savings, and
(c) the weighted average number of common shares outstanding for each period
have been adjusted to give effect to the increase in the number of common shares
reflecting the proportionate share of net proceeds to repay certain debt and the
conversion of all outstanding shares of convertible preferred stock and
convertible subordinated debentures and inclusion of stock, convertible
subordinated debentures, stock options and warrants for common stock and
convertible preferred stock granted by the Company for consideration below the
proposed public offering price during the twelve months immediately preceding
the offering date as if they were outstanding for all periods presented,
pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83.
Other common equivalent shares from stock options and warrants are excluded from
the computation because their effect is antidilutive.
(j) Pro-forma presentation (unaudited)
The March 31, 1996 pro forma balance sheet is presented giving effect to
the conversion of all outstanding shares of convertible preferred stock into
1,838,114 shares of common stock. In addition to the preferred conversion,
$3,012,793 of principal of the convertible debt and $3,409,245 of related
accrued interest has been converted at their respective conversion rates into
1,202,982 shares of common stock. The accrued interest for purposes of the pro
forma calculation includes accrued interest to the date of conversion plus the
interest that would have been earned if the debentures remained outstanding
until the maturity date as provided for in the debenture agreements. The
pro-forma amounts also reflect nonrecurring charge of $301,000 to operations
associated with the change in the conversion price from $11.90 to $7.17 per
share associated with $300,000 of convertible subordinated debentures payable in
1997.
(k) Interim Financial Statements
The financial statements as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 are unaudited. In the opinion of management, the
unaudited financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial position
and results of operations for such periods. Results of operations for interim
periods are not necessarily indicative of results that will be achieved for the
entire year.
(2) INVENTORIES
Inventories at December 31 is as follows:
<TABLE>
<CAPTION>
1994 1995
-------- ----------
<S> <C> <C>
Raw materials................................................ $508,638 $1,228,594
Work-in-process.............................................. 88,211 195,981
Finished goods............................................... 38,236 400,836
-------- ----------
$635,085 $1,825,411
======== ==========
</TABLE>
F-8
<PAGE> 61
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31 is as follows:
<TABLE>
<CAPTION>
1994 1995
-------- ----------
<S> <C> <C>
Machinery and equipment.................................... $161,962 $ 725,694
Furniture and fixtures..................................... 220,376 278,168
Leasehold improvements..................................... 114,035 130,936
-------- ----------
496,373 1,134,798
Less accumulated depreciation and amortization............. 48,687 233,070
-------- ----------
$447,686 $ 901,728
======== ==========
</TABLE>
Depreciation expense for years ended December 31, 1993, 1994 and 1995
amounted to $65,401, $86,639 and $184,383, respectively.
(4) TRANSACTIONS WITH STOCKHOLDERS
A stockholder who is an officer of the Company owes $162,306 and $-0- at
December 31, 1994 and 1995, respectively, which is primarily an advance on sales
commissions. An additional receivable of $112,500 is outstanding as of December
31, 1994 and 1995, resulting from the exercise of a stock option. Such amount is
reflected as a reduction of stockholders' equity and is supported by a
promissory note which is due June 30, 1997 and accrues interest at 5.89%
annually.
Several officers of Sabratek customers are stockholders of Sabratek. These
officers own in the aggregate 44,122 shares of common stock. These customers
accounted for $417,699, $1,448,722 and $1,213,552 of sales for the years ended
December 31, 1993, 1994 and 1995, respectively, and $486,338 and $575,974 of
accounts receivable as of December 31, 1994 and 1995, respectively.
(5) AFFILIATED COMPANY
The Company is affiliated through common ownership with Dak-Tech Ltd., an
Israeli company. Dak-Tech Ltd. provides the Company with research and
development activities. 67% of the Dak-Tech Ltd. stock is owned by two
stockholders of Sabratek. Amounts included as research and development expense
were $70,007, $271,166, and $44,585 for the years ended December 31, 1993, 1994
and 1995, respectively. Amounts included as cost of sales were $378,251,
$748,652 and $493,959 for the years ended December 31, 1993, 1994 and 1995,
respectively. As of December 31, 1994 and 1995 the Company was indebted to
Dak-Tech Ltd. for receipts of various inventory components and research and
development activities in the amount of $407,674 and $311,811, respectively.
(6) SHORT-TERM DEBT
In 1993 and 1994, the Company issued short-term convertible subordinated
debentures totaling $2,870,000. Such debentures bore interest at prime plus 2%
and matured nine months from the issue date. On September 23, 1994 $2,845,000 of
the short-term convertible subordinated debenture agreements, including the
related accrued interest of $181,160, were converted into 635,815 shares of
Series A convertible preferred stock at a conversion rate of $4.76 per share.
The remaining $25,000 of debentures which were not converted were repaid on
September 23, 1994.
In February, 1995, the Company entered into a General Loan and Security
Agreement with Sterling Business Credit (Sterling), pursuant to which, Sterling
holds a first security interest in accounts receivable, as well as other assets,
of the Company. Under the terms of the agreement, the Company had outstanding
borrowings of $621,021 as of December 31, 1995. Interest at prime plus 3.5% is
payable monthly. The Company violated a covenant under the terms of the
agreement during the quarter ended December 31, 1995. Sterling has provided a
waiver of this covenant violation for the quarter ended December 31, 1995 and
through March 31, 1996.
F-9
<PAGE> 62
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
1994 1995
-------- ---------
<S> <C> <C>
Convertible subordinated debentures:
$200,000 principal and interest payable June 1997 at a rate
of 10.35%, convertible by the holder into common stock at
a price of $7.17 per share............................... $200,000 $ 200,000
$100,000 principal and interest payable August 1997 at a
rate of 10.35%, convertible by the holder into common
stock at a price of $7.17 per share...................... 100,000 100,000
$600,000 principal and interest payable July 2001 at a rate
of 13.22%, convertible by the holder into common stock at
a price of $5.24 per share............................... -- 600,000
$925,000 principal and interest payable September 2001 at a
rate of 13.22%, convertible by the holder into common
stock at a price of $5.24 per share...................... -- 925,000
$200,000 principal and interest payable December 2001 at a
rate of 13.22%, convertible by the holder into common
stock at a price of $5.24 per share...................... -- 200,000
$50,000 principal and interest payable on the earlier to
occur of the closing of an offering of $1,000,000 of 10%
senior secured promissory notes or December 4, 2001;
interest at a rate of 10% through June 30, 1996 and
13.22% thereafter........................................ -- 50,000
Subordinated debentures:
$175,000 principal payable in installments in March 1998,
1999, and 2000, interest at a rate of 15% payable in
common stock on each anniversary date at a price of $4.76
per share, with warrants to purchase common stock
attached, secured by all assets of the Company........... -- 175,000
$75,000 principal payable in installments in March 1998,
1999, and 2000, interest at a rate of 15% payable
monthly, with warrants to purchase common stock attached,
secured by all assets of the Company..................... -- 75,000
Other......................................................... 10,160 40,493
-------- ----------
Total debt.................................................... 310,160 2,365,493
Less current portion.......................................... 3,200 3,200
-------- ----------
Long-term debt................................................ $306,960 $2,362,293
======== ==========
</TABLE>
The conversion price for the convertible subordinated debentures due June
1997 and August 1997 was changed during 1995. The previous conversion price of
$11.90 per share was reduced to $7.17 per share.
F-10
<PAGE> 63
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The principal amounts of long-term debt maturing in each of the five years
subsequent to December 31, 1995 and thereafter are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
--------------------------------------------------------------------- ----------
<S> <C>
1996.............................................................. $ 3,200
1997.............................................................. 303,200
1998.............................................................. 800
1999.............................................................. 83,333
2000.............................................................. 83,333
Thereafter........................................................ 1,891,627
----------
$2,365,493
==========
</TABLE>
(8) INCOME TAXES
A deferred tax asset stemming from the Company's net operating loss
carryforward, research and development credit carryforward, and other accruals
has been reduced by a valuation account to zero due to uncertainties regarding
the utilization of the deferred assets. The deferred tax asset and the
corresponding valuation allowance were approximately $2,742,340 and $5,201,542
as of December 31, 1994 and 1995, respectively.
The sale of the Company's common stock will result in an ownership change
for the Company, as defined for tax purposes. As a result an annual limitation
will be placed on the utilization of the existing net operating loss
carryforwards and credit carryforwards. This limitation may cause a portion of
the existing net operating loss and credit carryforwards to expire prior to
utilization.
The net operating loss and research and development credit carryforwards
will expire as follows:
<TABLE>
<CAPTION>
NET RESEARCH
OPERATING AND
LOSS DEVELOPMENT
----------- -----------
<S> <C> <C>
2005....................................................... $ 42,000 $ --
2006....................................................... 128,000 --
2007....................................................... 794,000 2,000
2008....................................................... 2,500,000 47,000
2009....................................................... 3,341,000 53,000
2010....................................................... 5,668,000 86,000
----------- ---------
Total...................................................... $12,473,000 $ 188,000
=========== =========
</TABLE>
The net deferred tax assets are summarized at December 31 as follows:
<TABLE>
<CAPTION>
1992 1993 1994 1995
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards... $ 374,032 $ 1,344,032 $ 2,640,340 $ 4,839,542
Research and development credit
carryforwards................... -- -- 102,000 188,000
Other.............................. -- -- -- 174,000
--------- ----------- ----------- -----------
374,032 1,344,032 2,742,340 5,201,542
Less: Valuation allowance............ (374,032) (1,344,032) (2,742,340) (5,201,542)
--------- ----------- ----------- -----------
Net deferred taxes................... $ -- $ -- $ -- $ --
========= =========== =========== ===========
</TABLE>
F-11
<PAGE> 64
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) LEASES
The following summarizes assets held under capital leases which are
included in property, plant, and equipment as of December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Machinery and equipment........................................ $ 82,379 $239,839
Furniture and fixtures......................................... 159,665 181,750
Leasehold improvements......................................... 48,363 48,386
-------- --------
290,407 469,975
Less accumulated depreciation.................................. 21,935 94,316
-------- --------
$268,472 $375,659
======== ========
</TABLE>
The Company also leases various facilities under noncancelable operating
lease arrangements. Rent expense charged to operations for the years ended
December 31, 1993, 1994 and 1995 amounted to $68,082, $121,632 and $221,361,
respectively.
At December 31, 1995 minimum lease commitments together with the present
value of obligations under leases that have initial or remaining noncancelable
terms in excess of one year were as follows:
<TABLE>
<CAPTION>
YEARS ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
--------------------------------------------------------------- -------- ---------
<S> <C> <C>
1996........................................................... $178,629 $ 183,213
1997........................................................... 133,718 166,864
1998........................................................... 14,021 172,362
1999........................................................... -- 147,460
2000........................................................... -- --
-------- ---------
Total minimum lease payments................................... 326,368 $ 669,899
=========
Less amount representing interest.............................. 26,186
--------
Present value of minimum lease payments........................ 300,182
Less current installments of obligation........................ 150,848
--------
Obligation excluding current installments...................... $149,334
========
</TABLE>
(10) CONVERTIBLE PREFERRED STOCK
The Series A convertible preferred stock has voting rights and is
convertible to shares of the Company's common stock at a ratio of 1 to 1
initially. However, upon issuance of common stock or common stock equivalents,
the conversion ratio is subject to an anti-dilution adjustment pursuant to the
Series A convertible preferred stock Certificate of Designation for principally
all convertible preferred stock. As of December 31, 1995, the conversion ratio
has been adjusted per the terms of the anti-dilution provision whereby an
additional 4.6% shares will be issued upon conversion. The convertible preferred
shares are automatically converted into common stock upon closing of an
underwritten public offering of common stock. The Series A convertible preferred
stock has a liquidation preference to the common stock at an amount equal to the
amount originally paid.
(11) STOCK OPTIONS
The Company adopted the Amended and Restated 1993 Stock Option Plan (the
Stock Option Plan) which provided for the granting of stock options to
employees, nonemployee consultants, and directors of the Company. Options vest
over various periods as defined in the agreements and expire as determined by
the
F-12
<PAGE> 65
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Board on an individual basis, but not to exceed 10 years. Total shares of common
stock reserved at December 31, 1995 for issuance upon the exercise of stock
options was 923,250.
On March 18, 1995, the directors and stockholders authorized the repricing
of certain stock options held by employees to $4.76 per share, fair market value
at date of repricing. Such options were previously issued with an exercise price
of $11.11 per share.
On May 6, 1995, the directors approved a proposal offering option holders a
repricing of the outstanding options to $2.38 per share if such options were
exercised within a specified period of time. The directors designated 315,159
shares of common stock and 630,318 shares of preferred stock for this purpose.
Under the terms of this proposal, options were exercised resulting in the
issuance of 5,072 shares of common stock for gross proceeds of approximately
$12,000. This proposal expired in all cases by June 15, 1995.
The following table summarizes the transactions pursuant to the Company's
stock option plan:
<TABLE>
<CAPTION>
NUMBER
OF SHARES PRICE RANGE
--------- ---------------
<S> <C> <C>
Outstanding at December 31, 1992............................ 23,637 $3.17 to 11.11
Granted................................................... 81,547 3.17 to 11.11
-------
Outstanding at December 31, 1993............................ 105,184 3.17 to 11.11
Granted................................................... 53,577 4.76 to 11.11
Expired................................................... (157) 11.11
-------
Outstanding at December 31, 1994............................ 158,604 3.17 to 11.11
Granted................................................... 613,773 4.76
Exercised................................................. (9,621) 2.38 to 4.76
Expired................................................... (30,120) 3.17 to 11.11
-------
Outstanding at December 31, 1995............................ 732,636 $3.17 to 11.11
=======
Exercisable at December 31, 1995............................ 164,365 $3.17 to 11.11
=======
</TABLE>
(12) WARRANTS
The Company has issued both convertible preferred stock warrants and common
stock warrants to various parties for their efforts in connection with the
raising of additional capital through common stock offerings, preferred stock
offerings, and other services rendered.
On May 6, 1995, the directors approved a proposal offering warrant holders
a repricing of the outstanding warrants to $2.38 per share if such warrants were
exercised within a specified period of time. The directors designated 315,159
shares of common stock and 630,318 shares of preferred stock for this purpose.
Under the terms of this proposal, warrants were exercised resulting in the
issuance of 246,723 shares of preferred stock and 198,442 of common stock for
gross proceeds of $1,059,380. This proposal expired in all cases by June 15,
1995.
In 1995, the Company issued warrants for 90,000 shares of common stock in
exchange for services rendered. The value of the services rendered equaled
$78,900, with $35,700 included in selling, general and administrative expenses
and $43,200 net against proceeds raised from the issuance of convertible
securities.
Certain convertible preferred stock warrants contain an anti-dilution
provision. This provision was triggered in May 1995 resulting in the issuance of
19,849 shares upon conversion of the related warrants. The issuance of the
shares is a non-cash transaction.
F-13
<PAGE> 66
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the warrant transactions:
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------- -----------------------------
NUMBER PRICE NUMBER PRICE
OF SHARES RANGE OF SHARES RANGE
--------- ------ --------- ---------------
<S> <C> <C> <C> <C>
December 31, 1992..................... -- $ -- 7,832 $ 3.17
Issued.............................. 84,462 4.76 25,966 3.17 to 11.11
--------- ---------
December 31, 1993..................... 84,462 4.76 33,798 3.17 to 11.11
Issued.............................. 593,760 4.76 945 4.76
--------- ---------
December 31, 1994..................... 678,222 4.76 34,743 3.17 to 11.11
Issued.............................. 19,849 4.76 316,397 4.76
Exercised........................... (246,723) 2.38 (198,442) 2.38
--------- ---------
December 31, 1995..................... 451,348 $ 4.76 152,698 $ 3.17 to 11.11
========= =========
</TABLE>
(13) STOCK APPRECIATION RIGHTS
In May 1995, warrants to purchase a total of 168,085 shares of convertible
preferred stock were transferred, by the holder, to two other parties in
exchange for a Stock Appreciation Rights Agreement. The Agreement requires the
Company to pay the difference between $4.76 and the per share value of the stock
at the time of exercise of the right, up to a maximum of $4.76. Such rights are
exercisable at the earlier of the closing of an underwritten public offering
with gross proceeds not less than $15,000,000, any liquidation or dissolution of
the affairs of the Company, or upon demand of the right holder.
In May 1995, warrants to purchase 174,065 shares, in aggregate, of common
stock were transferred, by two holders, to a stockholder in exchange for a Stock
Appreciation Rights Agreement. The Agreement requires the Company to pay the
difference between $4.76 and the per share value of the stock at the time of
exercise of the right, up to a maximum of $4.76. Such rights are exercisable at
the earlier of the closing of an underwritten public offering with gross proceed
not less than $15,000,000, any liquidation or dissolution of the affairs of the
Company, or upon demand of the right holder.
(14) RETIREMENT PLAN
The Company implemented a defined contribution plan during 1995 pursuant to
section 401(k) of the Internal Revenue Code, whereby participants may contribute
a percentage of compensation, but not in excess of the maximum allowed under the
Code. The Plan includes a discretionary employer matching contribution program
as determined by the Board of Directors. In 1995, no matching contributions were
made to Plan participants' accounts.
(15) BUSINESS AND CREDIT CONCENTRATIONS
As of December 31, 1994 and 1995 three customers and five customers,
respectively, accounted for $505,362 or 43% and $848,588 or 53% of accounts
receivable, respectively. Aggregate sales to customers representing at least 10%
of total sales individually amounts to $565,657 (3 customers), $1,690,678 (4
customers) and $1,367,227 (3 customers), for the years ended December 31, 1993,
1994 and 1995, respectively.
The Company's customers are based throughout the world with 7%, 14% and 15%
of sales from international markets for the years ended December 31, 1993, 1994
and 1995 respectively. Customers are not concentrated in any specific geographic
location. The customer base is very specific, however, to the health care
industry as the Company's products are used primarily by hospitals and alternate
site healthcare settings such as nursing homes and clinics.
F-14
<PAGE> 67
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(16) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1993 1994 1995
-------- ----- --------
<S> <C> <C> <C>
Cash paid during the year for interest..................... $ 10,924 $ -- $ 87,473
</TABLE>
Capital lease obligations of $-0-, $290,406 and $178,239 were incurred in
1993, 1994 and 1995, respectively, when the Company entered into leases
primarily for machinery, equipment, furniture and fixtures.
In 1994, 635,815 shares of Series A convertible preferred stock were issued
upon the conversion of $3,026,160 of short-term convertible subordinated
debentures, including accrued interest of $181,160.
In 1995, 728 shares of common stock were issued in exchange for services
rendered. The value of the services rendered equaled $3,465.
(17) SUBSEQUENT EVENTS
In January 1996, the Company issued convertible subordinated debentures to
a director and an independent third party in the principal amount of $50,000 and
$60,000, respectively. These debentures bear interest at a rate of 13.22% per
annum and will mature 6 years from the date of the debenture. Such debentures
are convertible into shares of common stock at the rate of one share of common
stock for each $5.24 of principal and accrued interest.
In January 1996, the Company issued a convertible subordinated debenture to
a director of the Company, in the principal amount of $100,000. The debenture
bears interest at a rate of 10% per annum until June 30, 1996. If the principal
and interest under the debenture are not paid on such date, then the interest
rate will be 13.22% per annum through the date six years from the date of its
issuance. The Company may prepay the debenture at any time, provided, however,
that if the prepayment occurs after the initial maturity date, the Company must
pay the outstanding principal balance plus a sum equal to the amount of interest
which would have been earned if the debenture remained outstanding until the
later maturity date.
In January and February 1996, the Company issued convertible subordinated
debentures to directors and independent third parties in the principal amount of
$110,000 and $425,000, respectively. Cash received from the issuance of
debentures was $475,000. There was no cash received for $60,000 of debentures
which were issued to a director for services rendered. The debentures bear
interest at a rate of 10% per annum until June 30, 1996 at which time the
interest rate would increase to 13.22% per annum and the debentures would become
convertible at a price of $5.24. The Company may prepay the debentures at any
time, provided, however, that if the prepayment occurs after June 30, 1996, the
Company shall pay the outstanding principal balance plus a sum equal to the
amount of interest which would have been earned if the debentures remained
outstanding until the later maturity date. In February 1996, the Company agreed
to convert the indebtedness evidenced by the debenture into shares of Common
Stock at a rate of one share for each $4.76 of principal so converted.
F-15
<PAGE> 68
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In January, February and March 1996, stock options for 376,599 shares of
common stock were granted to various officers, directors and employees under the
stock option plan at exercise prices between $4.76 and $9.80 per share. Such
options vest over 4 years except directors and one other option holder vest
immediately.
In February 1996, the Company agreed to issue 124,488 shares of common
stock to two individuals in exchange for consulting services performed in 1995.
Related expenses in the amount of $592,500, representing the fair value of
services provided, has been included in the selling, general, and administrative
expenses in the accompanying statement of operations for the year ended December
31, 1995. Stock certificates were issued to the respective individuals in April
1996.
In February 1996 the Company agreed to convert a total of $585,000 of
convertible subordinated debentures at a rate of one share for each $4.76 of the
principal amount converted which will result in the issuance of 122,912 common
shares on the Offering date.
In March 1996, the Company issued a convertible subordinated debenture to a
stockholder in the principal amount of $844,500. The debenture bears interest at
a rate of 13.22% per annum and will mature six years from the date of the
debenture. The debenture can be prepaid, however, the holder has the option to
convert the principal and accrued interest into shares of common stock. If
prepaid, the Company must pay the outstanding principal balance plus a sum equal
to the amount of interest which would have been earned if the debenture remained
outstanding until its maturity date. The debenture is convertible into shares of
common stock at the rate of one share of common stock for each $5.24 of
principal and accrued interest.
In March 1996, the Company issued 167,245 shares of common stock at $9.80
per share resulting in additional equity proceeds of $1,639,761.
In April 1996, stock options for 27,577 shares of common stock were granted
to various employees under the stock option plan at exercise prices between
$4.76 and $9.80 per share.
In April 1996, the Company approved a 1-for-3.173 reverse stock split of
its common stock and convertible preferred stock and increased the common shares
reserved for issuance upon the exercise of stock options to 1,314,048.
Additionally, on April 25, 1996, the Company filed a Restated Certificate of
Incorporation authorizing an increase in the number of authorized shares of
common stock to 25,000,000 shares, $.01 par value per share, and in the number
of authorized shares of preferred stock to 12,500,000, $.01 par value. All
references in the financial statements to share and per share data have been
adjusted to reflect this reverse stock split.
On May 6, 1996, stock options for 39,553 shares of common stock were
granted to various directors under the stock option plan at an exercise price of
$9.80.
F-16
<PAGE> 69
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THOSE TO WHICH IT RELATES IN ANY JURISDICTION IN WHICH SUCH OFFER IS NOT LAWFUL,
OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT AUTHORIZED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH AN OFFER. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 13
Use of Proceeds....................... 13
Dividend Policy....................... 13
Dilution.............................. 14
Capitalization........................ 15
Selected Financial Data............... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 21
Management............................ 32
Principal Stockholders................ 39
Certain Transactions.................. 41
Description of Capital Stock.......... 43
Shares Eligible for Future Sale....... 44
Underwriting.......................... 46
Legal Matters......................... 47
Experts............................... 47
Available Information................. 47
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,500,000 SHARES
SABRATEK LOGO
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
BARINGTON CAPITAL GROUP, L.P.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses of the issuance and distribution
of the securities being registered.
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission.................... $ 12,888
Filing and Listing Fee -- National Association of Securities Dealers...... 46,338
Legal Fees................................................................ 325,000
Accounting Fees........................................................... 100,000
Printing and Engraving.................................................... 150,000
Blue Sky Fees and Expenses................................................ 15,000
Transfer Agent Fees....................................................... 20,000
Director and Officer Indemnification Insurance Premiums................... 105,774
Financial Advisory Fees................................................... 215,000
--------
Total........................................................... $990,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Certificate of Incorporation provides
for indemnification to the full extent permitted by the laws of the State of
Delaware against and with respect to threatened, pending or completed actions,
suits or proceedings arising from or alleged to arise from, a party's actions or
omissions as a director, officer, employee or agent of the Company or of any
other corporation, partnership, joint venture, trust or other enterprise which
has served in such capacity at the request of the Company if such acts or
omissions occurred or were or are alleged to have occurred, while said party was
a director or officer of the Company; provided, however, the Company shall not
indemnify any director or officer in an action against the Company unless the
Company shall have consented to such action. Generally, under Delaware law,
indemnification will only be available where an officer or director can
establish that he/she acted in good faith and in a manner which was reasonably
believed to be in or not opposed to the best interests of the Company.
Section 145 of the Delaware Law provides that a corporation may indemnify a
director, officer, employee or agent made a party to an action by reason of the
fact that such person was a director, officer, employee or agent of the
corporation or was serving at the request of the corporation against expenses
actually incurred by such person in connection with such action if such person
acted in good faith and in a manner such person reasonably believed to be in, or
not opposed to, the best interest of the corporation with respect to any
criminal action, and had no reasonable cause to believe his conduct was
unlawful. Delaware Law does not permit a corporation to eliminate a director's
duty of care, and the provisions of the Company's Amended and Restated
Certificate of Incorporation have no effect on the availability of equitable
remedies such as injunction or rescission, based upon a director's breach of the
duty of care. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions and agreements, the Company has
been informed that in the opinion of the Staff of the Securities and Exchange
Commission such indemnification is against policy as expressed in the Securities
Act and is therefore unenforceable.
Upon the consummation of the Offering the Company will purchase a
director's and officer's liability insurance policy which indemnifies directors
and officers for certain losses arising from a claim by reason of a wrongful
act, as defined, under certain circumstances where the Company does not provide
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On April 18, 1996, the Company issued 23,637 shares of Common Stock to
Mirza Mehdi for aggregate consideration of $112,500 and 100,851 shares of Common
Stock to Arie Kalo for aggregate consideration of
II-1
<PAGE> 71
$480,000 in exchange for consulting services performed by such individuals
during 1995. The sales were exempted from registration in reliance on Section
4(2) of the Act.
On March 14, 1996, the Company issued a Convertible Subordinated Debenture
to Charles K. Stewart Investments, in the amount of $844,500 for a purchase
price equal to the face amount thereof. The sale was exempt from registration
under the Act pursuant to Regulation D of the Act. The Company also issued
167,245 shares of Common Stock for aggregate consideration of $1,639,761 under
the Act pursuant to Regulation D of the Act.
On February 13, 1996, the Company issued a Debenture to Hospital Credit
Corp. in the amount of $200,000 for a purchase price equal to the face amount
thereof. The sale was exempt from registration under the Act pursuant to
Regulation D of the Act.
On February 8, 1996, the Company issued a Debenture to ABDM Partners c/o
Daniel E. Straus in the amount of $50,000 for a purchase price equal to the face
amount thereof. The sale was exempt from registration under the Act pursuant to
Regulation D of the Act.
On February 6, 1996, the Company issued a Debenture to Stephen Raphael, IRA
in the amount of $50,000 for a purchase price equal to the face amount thereof.
The sale was exempt from registration under the Act pursuant to Regulation D of
the Act.
On January 23, 1996, the Company issued a Debenture to Marvin Samson in the
amount of $100,000 for a purchase price equal to the face amount thereof. The
sale was exempt from registration under the Act pursuant to Regulation D of the
Act.
On January 16, 1996, the Company issued a Debenture to Valerie Spencer in
the amount of $25,000 for a purchase price equal to the face amount thereof. The
sale was exempt from registration under the Act pursuant to Regulation D of the
Act.
On January 15, 1996, the Company issued Convertible Subordinated Debentures
to Mark Mitchell in the amount of $60,000 and The Hodes Family Foundation in the
amount of $50,000. Each debenture was issued for a purchase price equal to the
face amount thereof, and the sales were exempt from registration under the Act
pursuant to Regulation D of the Act.
On January 11, 1996, the Company issued a Debenture to IASD Health Services
Corp. in the amount of $100,000 for a purchase price equal to the face amount
thereof. The sale was exempt from registration under the Act pursuant to
Regulation D of the Act.
On January 8, 1996, the Company issued a Debenture to William Lautman, a
managing director of EGS Securities Corp., in the amount of $110,000 for $50,000
in cash and $60,000 in payment for services rendered by Mr. Lautman to the
Company. The sale was exempt from registration under the Act pursuant to
Regulation D of the Act.
On December 19, 1995, the Company sold 3,152 shares of Common Stock to
Timothy M. McCaffrey for aggregate consideration of $15,000 in a private
transaction in reliance on Section 4(2) of the Act.
On December 14, 1995, the Company issued a Convertible Subordinated
Debenture to John Stafford in the amount of $100,000 for a purchase price equal
to the face amount thereof. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On December 11, 1995, the Company sold 1,397 shares of Common Stock to Todd
W. Garrison for aggregate consideration of $6,648 in a private transaction in
reliance on Section 4(2) of the Act.
On December 6, 1995, the Company issued a Debenture to Charles Stewart in
the amount of $100,000 for a purchase price equal to the face amount thereof.
The sale was exempt from registration under the Act pursuant to Regulation D of
the Act.
II-2
<PAGE> 72
On December 4, 1995, the Company issued a Debenture to William Lomicka in
the amount of $50,000 for a purchase price equal to the face amount thereof. The
sale was exempt from registration under the Act pursuant to Regulation D of the
Act.
On November 30, 1995, the Company sold 105,053 shares of Series A Preferred
Stock to MSI, Inc. (Marsam) for aggregate consideration of $499,999.50 in a
private transaction in reliance on Section 4(2) of the Act.
On November 7, 1995, the Company issued Convertible Subordinated Debentures
to Ilan Kaufthal in the amount of $3,550 and Steven L. Volla in the amount of
$3,550. Each Convertible Subordinated Debenture was issued for a purchase price
equal to the face amount thereof, and the sales were exempt from registration
under the Act pursuant to Regulation D of the Act.
On November 6, 1995, the Company issued Convertible Subordinated Debentures
to Martin and Patricia Volla in the amount of $372.75 and Lillian Volla Trust in
the amount of $372.75. Each Convertible Subordinated Debenture was issued for a
purchase price equal to the face amount thereof, and the sales were exempt from
registration under the Act pursuant to Regulation D of the Act.
On November 5, 1995, the Company issued Convertible Subordinated Debentures
to Gildea Investment Co. Def. Benefit in the amount of $1,775 and John W. Gildea
in the amount of $3,550. Each Convertible Subordinated Debenture was issued for
a purchase price equal to the face amount thereof, and the sales were exempt
from registration under the Act pursuant to Regulation D of the Act.
On October 31, 1995, the Company issued Convertible Subordinated Debentures
to Anne L. Fawcett in the amount of $10,000, Donald N. Fawcett in the amount of
$1,000 and Dwight P. Fawcett in the amount of $1,000. Each Convertible
Subordinated Debenture was issued for a purchase price equal to the face amount
thereof, and the sales were exempt from registration under the Act pursuant to
Regulation D of the Act.
On October 28, 1995, the Company issued a Convertible Subordinated
Debenture to Peter M. Gaines in the amount of $2,946 for a purchase price equal
to the face amount thereof. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On October 26, 1995, the Company issued a Convertible Subordinated
Debenture to Jane F. Dearborn in the amount of $1,000 for a purchase price equal
to the face amount thereof. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On October 20, 1995, the Company issued a Convertible Subordinated
Debenture to John E. Traeger Trust No. 1 in the amount of $2,951 for a purchase
price equal to the face amount thereof. The sale was exempt from registration
under the Act pursuant to Regulation D of the Act.
On October 16, 1995, the Company issued a warrant to Oscar E. Hyman to
purchase 18,910 shares of Common Stock at $4.76 per share as compensation for
services rendered to the Company. This warrant vested immediately and expires on
April 15, 1999. The Company valued the services received in exchange for the
warrant at $24,000. The sale was exempt from registration under the Act pursuant
to Regulation D of the Act.
On October 15, 1995, the Company issued a Convertible Subordinated
Debenture to Charles R. Hall in the amount of $1,225 for a purchase price equal
to the face amount thereof. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On October 5, 1995, the Company issued a warrant to Steven B. Johns to
purchase 9,455 shares of Common Stock at $4.76 per share as compensation for
services rendered to the Company. This warrant vested immediately and expires on
February 15, 1999. The Company valued the services received in exchange for the
warrant at $11,700. The sale was exempt from registration under the Act pursuant
to Regulation D of the Act.
On September 21, 1995, the Company issued a Convertible Subordinated
Debenture to Robert J. Nowlin in the amount of $25,000 for a purchase price
equal to the face amount thereof. The sale was exempt from registration under
the Act pursuant to Regulation D of the Act.
II-3
<PAGE> 73
On September 13, 1995, the Company issued Convertible Subordinated
Debentures to John Stafford in the amount of $200,000 and Cowen & Co., Custodian
FBO William G. Walters IRA in the amount of $100,000. Each Convertible
Subordinated Debenture was issued for a purchase price equal to the face amount
thereof, and the sales were exempt from registration under the Act pursuant to
Regulation D of the Act.
On September 12, 1995, the Company issued a Convertible Subordinated
Debenture to R. J. Bertero in the amount of $150,000 for a purchase price equal
to the face amount thereof. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On September 8, 1995, the Company issued Convertible Subordinated
Debentures to Charles K. Stewart Money Purchase Plan in the amount of $200,000
and Paine Webber Inc. IRA Custodian for Francis Cook in the amount of $200,000.
Each Convertible Subordinated Debenture was issued for a purchase price equal to
the face amount thereof, and the sales were exempt from registration under the
Act pursuant to Regulation D of the Act.
On September 5, 1995, the Company issued a Convertible Subordinated
Debenture to Catherine Dawson in the amount of $50,000 for a purchase price
equal to the face amount thereof. The sale was exempt from registration under
the Act pursuant to Regulation D of the Act.
On August 31, 1995, the Company issued a warrant to purchase 11,177 shares
of Common Stock at $4.76 per share to William D. Lautman as compensation for
financial services rendered to the Company. This warrant vested immediately and
expires on August 31, 2000. The Company valued the services received in exchange
for the warrant at $1,773. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On July 14, 1995, the Company issued a Convertible Subordinated Debenture
to George Walker in the amount of $100,000 for a purchase price equal to the
face amount thereof. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On July 12, 1995, the Company issued Convertible Subordinated Debentures to
Charles K. Stewart Money Purchase Plan in the amount of $150,000, John Stafford
in the amount of $150,000 and Paine Webber Inc. IRA Custodian for Francis Cook
in the amount of $200,000. Each Convertible Subordinated Debenture was issued
for a purchase price equal to the face amount thereof, and the sales were exempt
from registration under the Act pursuant to Regulation D of the Act.
On June 7, 1995, the Company sold 5,072 shares of Common Stock to Scott
Hodes for aggregate consideration of $12,071.25 in a private transaction in
reliance on Section 4(2) of the Act.
On June 5, 1995, the Company sold 6,303 shares of Common Stock to Charles
F. Manker for aggregate consideration of $15,000 in a private transaction in
reliance on Section 4(2) of the Act.
On May 31, 1995, the Company issued Secured Subordinated Notes to IASD
Health Services Corp. in the amount of $150,000, Edson W. Spencer, Jr. in the
amount of $25,000, Gideon Hixon Fund, L.P. in the amount of $25,000 and William
H. Lomicka in the amount of $50,000. Each Secured Subordinated Note was issued
for a purchase price equal to the face amount thereof, and the sales were exempt
from registration under the Act pursuant to Regulation D of the Act.
On May 31, 1995, in connection with certain secured notes issued by the
Company on May 31, 1995 to such parties, the Company issued the following
warrants to purchase shares of Common Stock at $4.76 per share: to Edson W.
Spencer, a warrant to purchase 1,576 shares of Common Stock; to William H.
Lomicka, a warrant to purchase 3,152 shares of Common Stock; to Gideon Hixon
Fund, L.P., a warrant to purchase 1,576 shares of Common Stock; and to IASD
Health Services Corp., a warrant to purchase 9,455 shares of Common Stock. These
warrants vested immediately and expire on May 31, 2000. The sales were exempt
from registration under the Act pursuant to Regulation D of the Act.
On May 31, 1995, the Company sold 7,202 shares of Series A Preferred Stock
to Charles K. Stewart Money Purchase Plan and Timm R. & Robin S. Reynolds for
aggregate consideration of $17,139.75, each in a private transaction in reliance
on Section 4(2) of the Act.
II-4
<PAGE> 74
On May 26, 1995, the Company sold 1,050 shares of Series A Preferred Stock
to Spencer Family Partnership, L.P. for aggregate consideration of $2,499.75 in
a private transaction in reliance on Section 4(2) of the Act.
On May 24, 1995, the Company sold 21,011 shares of Series A Preferred Stock
to PSF Health Care Fund for aggregate consideration of $50,000.25 in a private
transaction in reliance on Section 4(2) of the Act.
On May 22, 1995, the Company sold 1,050 shares of Series A Preferred Stock
to Edson W. & Harriett S. Spencer for aggregate consideration of $24,999.75 in a
private transaction in reliance on Section 4(2) of the Act.
On May 15, 1995, the Company sold 8,404 shares of Series A Preferred Stock
to Upland Associates, L.P., Namakagon Associates, L.P. and Barker, Lee & Company
for aggregate consideration of $20,000.25, each in a private transaction in
reliance on Section 4(2) of the Act.
On May 13, 1995, the Company sold 28,364 shares of Series A Preferred Stock
to Gideon Hixon Fund and Benson K. Whitney for aggregate consideration of
$67,500, each in a private transaction in reliance on Section 4(2) of the Act.
On May 12, 1995, the Company sold 2,101 shares of Series A Preferred Stock
to Robert D. Stuart, Jr. for aggregate consideration of $5,000.25 in a private
transaction in reliance on Section 4(2) of the Act.
On May 12, 1995, the Company issued a warrant to purchase 87,032 shares of
Common Stock at $4.76 per share to William D. Lautman, a managing director of
EGS Securities Corp., as compensation for financial services rendered to the
Company. The Company valued the services received in exchange for the warrant at
$13,809. This warrant vested immediately and expires on May 12, 2000. On May 31,
1995, Mr. Lautman exercised the warrant to purchase 21,011 shares of Common
Stock at $2.38 per share, pursuant to a discount offered by the Company in
consideration for services rendered by Mr. Lautman and retains the right to
exercise the warrant for the remaining 66,021 shares of Common Stock at $4.76
per share. The sale was exempt from registration under the Act pursuant to
Regulation D of the Act.
On May 12, 1995, the Company issued a warrant to purchase 87,032 shares of
Common Stock at $4.76 per share to Scott C. Newquist and a warrant to purchase
87,032 shares of Common Stock at $4.76 per share to Robert G. Eccles as
compensation for financial services rendered to the Company. The Company valued
the services received in exchange for the warrants at $27,618. These warrants
vested immediately and expire on May 12, 2000. The sales were exempt from
registration under the Act pursuant to Regulation D of the Act. Messrs. Eccles
and Newquist transferred the rights under their warrants to Oracle Partners,
L.P. for immediate exercise. On May 31, 1995, Larry N. Feinberg c/o Oracle
Partners, L.P., Oracle Institutional Partners, L.P., Sam Oracle Fund, Inc. and
Oracle Partners, L.P. exercised the warrants which were transferred by Messrs.
Eccles and Newquist to purchase an aggregate of 174,064 shares of Common Stock.
On May 9, 1995, the Company sold 168,085 shares of Series A Preferred Stock
to Charles K. Stewart Money Purchase Plan and John Stafford for aggregate
consideration of $400,000.50, each in a private transaction in reliance on
Section 4(2) of the Act.
On April 24, 1995, the Company issued 5,072 shares of Common Stock to Scott
Hodes, in partial exercise of the stock option granted by the Company to Scott
Hodes, at an exercise price of $2.38 per share, in a private transaction in
reliance on Section 4(2) of the Act.
On March 2, 1995, the Company sold 5,252 shares of Series A Preferred Stock
to Joan O. Bent TTEE for aggregate consideration of $24,999 in a private
transaction in reliance on Section 4(2) of the Act.
On February 28, 1995, the Company sold 11,234 shares of Series A Preferred
Stock to Martin Volla and Patricia Volla as Joint Tenants, Lillian Volla Trust,
Stephen E. Raphael IRA, Lucy H. Gordon and Noam Frankel for aggregate
consideration of $53,466, each in a private transaction in reliance on Section
4(2) of the Act.
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On February 27, 1995, the Company sold 10,505 shares of Series A Preferred
Stock to Kenneth Lebow IRA R/O for aggregate consideration of $49,999.50 in a
private transaction in reliance on Section 4(2) of the Act.
On February 10, 1995, the Company sold 4,412 shares of Series A Preferred
Stock to Martin Volla and Patricia Volla as Joint Tenants and Lillian Volla
Trust for aggregate consideration of $21,000, each in a private transaction in
reliance on Section 4(2) of the Act.
On January 24, 1995, the Company sold 21,011 shares of Series A Preferred
Stock to Steven Volla for aggregate consideration of $100,000.50 in a private
transaction in reliance on Section 4(2) of the Act.
On January 17, 1995, the Company sold 46,223 shares of Series A Preferred
Stock to Eveswise Limited Retirement Benefit Scheme, Gildea Investment Co.
Defined Benefit Plan, John Gildea and Charles F. Manker for aggregate
consideration of $220,000.50, each in a private transaction in reliance on
Section 4(2) of the Act.
On December 21, 1994, the Company sold 10,505 shares of Series A Preferred
Stock to William D. Lautman IRA for aggregate consideration of $49,999.50 in a
private transaction in reliance on Section 4(2) of the Act.
On December 7, 1994, the Company sold 5,253 shares of Series A Preferred
Stock to Joe Gutman for aggregate consideration of $25,000.50 in a private
transaction in reliance on Section 4(2) of the Act.
On December 1, 1994, the Company sold 10,506 shares of Series A Preferred
Stock to Jeffrey B. Goldenberg for aggregate consideration of $50,001 in a
private transaction in reliance on Section 4(2) of the Act.
On November 22, 1994, the Company issued a warrant to Comdisco, Inc. to
purchase 8,089 shares of Series A Preferred Stock at $4.76 per share as
compensation for services rendered to the Company. This warrant vested
immediately and expires on November 22, 2000. The sale was exempt from
registration under the Act pursuant to Regulation D of the Act.
On November 3, 1994, the Company sold 2,364 shares of Series A Preferred
Stock to Buzz Benson for aggregate consideration of $11,250 in a private
transaction in reliance on Section 4(2) of the Act.
On October 31, 1994, the Company sold 105,053 shares of Series A Preferred
Stock to Oracle Partners, L.P.; Oracle Institutional Partners, L.P.; and Sam
Oracle Fund, Inc. for aggregate consideration of $500,001, each in a private
transaction in reliance on Section 4(2) of the Act.
On October 29, 1994, the Company sold 10,506 shares of Series A Preferred
Stock to William Lomicka for aggregate consideration of $50,001 in a private
transaction in reliance on Section 4(2) of the Act.
On October 5, 1994, the Company sold 21,011 shares of Series A Preferred
Stock to The Pharmaceutical/Medical Technology Fund, L.P. for aggregate
consideration of $100,000.50 in a private transaction in reliance on Section
4(2) of the Act. The Pharmaceutical/Medical Technology Fund, L.P. is an
investment partnership whose general partners are the owners of EGS Partners,
L.L.C., which is a registered investment adviser. EGS Partners, L.L.C. is an
affiliate of EGS Securities Corp. of which William D. Lautman is a managing
director. Mr. Lautman disclaims beneficial ownership of the shares held by
Pharmaceutical/Medical Technology Fund, L.P. On the same date, the Company also
issued a warrant to Steven Johns to purchase 9,455 shares of Common Stock at
$4.76 per share as compensation for services rendered to the Company. This
warrant vested immediately and expires on February 15, 1999. The issuance of
this warrant was exempted from registration under the Act pursuant to Regulation
D of the Act.
On September 23, 1994, the Company issued a warrant to
Peterson-Spencer-Fansler Co. to purchase 945 shares of Common Stock at $4.76 per
share as compensation for financial services rendered to the Company. The
Company valued the services received in exchange for this warrant at $150. This
warrant vested immediately and expires on September 23, 1999. The sale was
exempt from registration under the Act pursuant to Regulation D of the Act.
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In connection with the sale of its Series A Preferred Stock, on September
23, 1994, the Company issued a warrant to MSI Inc. to purchase 472,739 shares of
Series A Preferred Stock at $6.35 per share. This warrant vested immediately and
expires on September 12, 1999. On May 8, 1995, MSI Inc. transferred the right to
exercise the warrant to purchase 168,085 shares of Series A Preferred Stock to
Charles K. Stewart Money Purchase Plan and John Stafford for immediate exercise,
and retains the right to exercise the warrant for the remaining 304,654 shares
of Series A Preferred Stock at an exercise price of $4.76 per share. On May 9,
1995, Charles K. Stewart Money Purchase Plan and John Stafford exercised such
warrant for 168,085 shares. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On September 23, 1994, the Company sold 1,152,682 shares of Series A
Preferred Stock to MSI Inc., a subsidiary of Marsam Pharmaceuticals Inc.;
William D. Lautman, a managing director of EGS Securities Corp.; James E. Flynn;
David H. Betts TIEE DHB Trust; Howard Miller; Mark Lenowitz; Ilan Kaufthal; IASD
Health Services Corp.; Leopold Swergold; William H. Lomicka; ABDM Partners;
Scott Newquist (later transferred to Scott C. Newquist and Aileen M. Newquist as
Joint Tenants); Spencer Family Partnership, L.P.; PSF Health Care Fund, L.P.;
Davis D. Fansler; Benson K. Whitney; Warren H. Corning #145751 Trust; Frank D.
Mayer Jr.; Duncan N. Dayton; Dwight W. Fawcett; Jane F. Dearborn; Donald N. &
Adrienne W. Fawcett; Charles R. Hall; John E. Traeger Trust #1; Gideon Hixon
Fund; Robert D. Stuart, Jr.; Peter M. Gaines; Paul J. Finnegan; Timm R. & Robin
S. Reynolds; Robin S. & Timm R. Reynolds; Gordon H. & Eunice H. Smith; James O.
Pohlad; P-J Investments; Vukasin Pavlovic; D-W Investments, L.P.; Gerald E. Jr.,
& Linda E. Bisbee; Steven M. & Rivanna Hyman; Sabratek Holdings I (later
transferred to Charles K. Stewart Money Purchase Plan, John Stafford, Jim
Stafford and Sabratek Holdings I); Edward G. Edelstein; Gideon Hixon Fund;
Pohlad Companies; Edson W. & Harriet S. Spencer; Jack E. Hill; John E. Rogers;
Upland Associates, L.P.; Barker, Lee & Company; Namakagon Associates, L.P.; D.W.
Fawcett; and Anne L. Fawcett for aggregate consideration of $5,486,190, each in
a private transaction in reliance on Section 4(2) of the Act.
On May 26, 1994, the Company issued a Convertible Debenture to Pohlad
Companies in the amount of $50,000 for a purchase price equal to the face amount
thereof. This Convertible Debenture was converted into 10,846 shares of Series A
Preferred Stock. The sale was exempt from registration under the Act pursuant to
Section 4(2) of the Act.
On May 26, 1994, in connection with the Company's sale of Convertible
Debentures, the Company issued a warrant to Pohlad Companies to purchase shares
of its Capital Stock which was subsequently exchanged for a warrant to purchase
10,505 shares of Series A Preferred Stock at $4.76 per share. This warrant
vested immediately and expires on May 26, 1997. The sale was exempt from
registration under the Act pursuant to Regulation D of the Act.
On May 18, 1994, the Company issued Convertible Debentures to the following
individuals and entities each in the amount set forth after its name and each
for a purchase price equal to the face amount thereof: Edson W. & Harriet S.
Spencer, $50,000; Barker, Lee & Company, $11,400; Upland Associates, L.P.,
$17,200; Namakagon Associates, L.P., $11,400. The Convertible Debentures were
exchanged for 10,869; 2,478; 3,739; and 2,478 shares of Series A Preferred Stock
respectively. The sales were exempt from registration under the Act pursuant to
Section 4(2) of the Act.
On May 18, 1994, in connection with the Company's sale of Convertible
Debentures, the Company issued the following warrants to purchase shares of its
Capital Stock which were subsequently exchanged for warrants to purchase shares
of Series A Preferred Stock at $4.76 per share: to Edson W. & Harriet S.
Spencer, a warrant to purchase 10,505 shares of Series A Preferred Stock, which
warrant was exercised on May 22, 1995; to Barker, Lee & Company, a warrant to
purchase 2,395 shares of Series A Preferred Stock, which warrant was exercised
on May 15, 1995; to Upland Associates, L.P., a warrant to purchase 3,614 shares
of Series A Preferred Stock, which warrant was exercised on May 15, 1995; and to
Namakagon Associates, L.P., a warrant to purchase 2,395 shares of Series A
Preferred Stock, which warrant was exercised on May 15, 1995. These warrants
vested immediately and expire on May 18, 1997. The sales were exempt from
registration under the Act pursuant to Regulation D of the Act.
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On May 16, 1994, the Company issued Convertible Debentures to the following
individuals each in the amount set forth after his name and each for a purchase
price equal to the face amount thereof: John E. Rogers, $100,000; and Jack E.
Hill, $20,000. The Convertible Debentures were exchanged for 21,750 and 4,350
shares of Series A Preferred Stock respectively. The sales were exempt from
registration under the Act pursuant to Regulation D of the Act.
On May 16, 1994, in connection with the Company's sale of Convertible
Debentures, the Company issued the following warrants to purchase shares of its
Capital Stock which were subsequently exchanged for warrants to purchase shares
of Series A Preferred Stock at $4.76 per share: to John E. Rogers, a warrant to
purchase 21,011 shares of Series A Preferred Stock; and to Jack E. Hill, a
warrant to purchase 4,202 shares of Series A Preferred Stock. These warrants
vested immediately and expire on May 16, 1997. The sales were exempt from
registration under the Act pursuant to Regulation D of the Act.
On May 12, 1994, the Company issued Convertible Debentures to the following
individuals and entities each in the amount set forth after its name and each
for a purchase price equal to the face amount thereof: PSF Health Care Fund,
L.P., $100,000; Gideon Hixon Fund, $75,000; and Benson K. Whitney, $25,000. The
Convertible Debentures were exchanged for 21,773; 16,330; and 5,443 shares of
Series A Preferred Stock respectively. The sales were exempt from registration
under the Act pursuant to Regulation D of the Act.
On May 12, 1994, in connection with the Company's sale of Convertible
Debentures, the Company issued the following warrants to purchase shares of its
Capital Stock which were subsequently exchanged for warrants to purchase shares
of Series A Preferred Stock at $4.76 per share: to PSF Health Care Fund, L.P., a
warrant to purchase 21,011 shares of Series A Preferred Stock, which warrant was
exercised on May 24, 1995; to Gideon Hixon Fund, a warrant to purchase 15,758
shares of Series A Preferred Stock, which warrant was exercised on May 13, 1995;
and to Benson K. Whitney, a warrant to purchase 5,253 shares of Series A
Preferred Stock, which warrant was exercised on May 13, 1995. These warrants
vested immediately and expire on May 12, 1997. The sales were exempt from
registration under the Act pursuant to Regulation D of the Act.
On April 28, 1994, the Company issued a Convertible Debenture to Peter M.
Gaines in the amount of $25,000 for a purchase price equal to the face amount
thereof. This Convertible Debenture was converted into 5,464 shares of Series A
Preferred Stock. The sale was exempt from registration under the Act pursuant to
Regulation D of the Act.
On April 28, 1994, in connection with the Company's sale of Convertible
Debentures, the Company issued a warrant to Peter M. Gaines to purchase shares
of its Capital Stock which were subsequently exchanged for warrants to purchase
5,253 shares of Series A Preferred Stock at $4.76 per share. This warrant vested
immediately and expires on April 28, 1997. The sale was exempt from registration
under the Act pursuant to Regulation D of the Act.
On April 20, 1994, the Company issued a Convertible Debenture to Charles R.
Hall in the amount of $25,000 for a purchase price equal to the face amount
thereof. This Convertible Subordinated Debenture was converted into 5,678 shares
of Series A Preferred Stock. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On April 20, 1994, in connection with the Company's sale of Convertible
Debentures, the Company issued a warrant to Charles R. Hall to purchase shares
of its Capital Stock which were subsequently exchanged for warrants to purchase
525 shares of Series A Preferred Stock at $4.76 per share. This warrant vested
immediately and expires on April 20, 1997. The sale was exempt from registration
under the Act pursuant to Regulation D of the Act.
On April 18, 1994, the Company issued a Convertible Debenture to Dwight W.
Fawcett in the amount of $45,000 for a purchase price equal to the face amount
thereof. This Convertible Debenture was converted into 10,225 shares of Series A
Preferred Stock. The sale was exempt from registration under the Act pursuant to
Regulation D of the Act.
On April 18, 1994, in connection with the Company's sale of Convertible
Debentures, the Company issued a warrant to Dwight W. Fawcett to purchase shares
of its Capital Stock which were subsequently
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exchanged for warrants to purchase 5,253 shares of Series A Preferred Stock at
$4.76 per share. This warrant vested immediately and expires on April 18, 1997.
The sale was exempt from registration under the Act pursuant to Regulation D of
the Act.
On April 16, 1994, the Company issued a Convertible Debenture to John E.
Traeger Trust #1 in the amount of $25,000 for a purchase price equal to the face
amount thereof. This Convertible Debenture was converted into 5,681 shares of
Series A Preferred Stock. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On April 16, 1994, in connection with the Company's sale of Convertible
Debentures, the Company issued a warrant to John E. Traeger Trust #1 to purchase
shares of its Capital Stock which were subsequently exchanged for warrants to
purchase 5,253 shares of Series A Preferred Stock at $4.76 per share. This
warrant vested immediately and expires on April 16, 1997. The sale was exempt
from registration under the Act pursuant to Regulation D of the Act.
On December 15, 1993, the Company issued a Convertible Debenture to Edward
G. Edelstein in the amount of $5,000 for a purchase price equal to the face
amount thereof. This Convertible Debenture was converted into 1,118 shares of
Series A Preferred Stock. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On December 15, 1993, in connection with the Company's sale of Convertible
Debentures, the Company issued a warrant to Edward G. Edelstein to purchase
shares of its Capital Stock which were subsequently exchanged for warrants to
purchase 210 shares of Series A Preferred Stock at $4.76 per share. This warrant
vested immediately and expires on December 15, 1996. The sale was exempt from
registration under the Act pursuant to Regulation D of the Act.
On December 2, 1993, the Company issued a warrant to Mirza Mehdi to
purchase 6,303 shares of Common Stock at $4.76 per share as compensation for
financial services rendered to the Company. The Company valued the services
received in exchange for this warrant at $1,000. This warrant vested immediately
and expires on December 2, 1998. The sale was exempt from registration under the
Act pursuant to Regulation D of the Act.
On December 2, 1993, the Company issued a Convertible Debenture to Sabratek
Holdings I for a purchase price equal to $600,000. The Convertible Debenture
converted into 134,951 shares of Series A Preferred Stock. The sale was exempt
from registration under the Act pursuant to Regulation D of the Act.
On December 2, 1993, in connection with the Company's sale of a Convertible
Debenture, the Company issued a warrant to purchase shares of its Capital Stock
which was subsequently exchanged for a warrant to purchase shares of Series A
Preferred Stock at $4.76 per share to Sabratek Holdings I, which warrant was
subsequently canceled and replaced with warrants to: Charles K. Stewart Money
Purchase Plan, a warrant to purchase 6,152 shares of Series A Preferred Stock,
which warrant was exercised on May 31, 1995; to John Stafford, a warrant to
purchase 5,118 shares of Series A Preferred Stock; to Sabratek Holdings I, a
warrant to purchase 8,824 shares of Series A Preferred Stock; and to Jim
Stafford, a warrant to purchase 5,118 shares of Series A Preferred Stock. These
warrants vested immediately and expire on December 2, 1996. The sales were
exempt from registration under the Act pursuant to Regulation D of the Act.
On November 30, 1993, the Company issued a warrant to purchase 5,725 shares
of Common Stock at $4.76 per share to James W. DeYoung as compensation for
financial services rendered to the Company. The Company valued the services
received in exchange for this warrant at $908. This warrant vested immediately
and expires on November 30, 1998. The sale was exempt from registration under
the Act pursuant to Regulation D of the Act.
On November 30, 1993, the Company issued warrants to
Peterson-Spencer-Fansler Co. to purchase 1,576 shares of Common Stock at $4.76
per share and 3,519 shares of Common Stock at $4.76 per share as compensation
for financial services rendered to the Company. The Company valued the services
received in exchange for this warrant at $250. These warrants vested immediately
and expire on November 30, 1998. The sales were exempt from registration under
the Act pursuant to Regulation D of the Act.
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On November 24, 1993, the Company issued a Convertible Debenture to Steven
M. & Rivanna Hyman in the amount of $50,000 for a purchase price equal to the
face amount thereof. This Convertible Debenture was converted into 11,288 shares
of Series A Preferred Stock. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On November 24, 1993, in connection with the Company's sale of Convertible
Debentures, the Company issued a warrant to Steven M. & Rivanna Hyman to
purchase shares of its Capital Stock which were subsequently exchanged for
warrants to purchase 2,101 shares of Series A Preferred Stock at $4.76 per
share. This warrant vested immediately and expires on November 24, 1996. The
sale was exempt from registration under the Act pursuant to Regulation D of the
Act.
On November 22, 1993, the Company issued a Convertible Debenture to Gerald
E., Jr. and Linda Bisbee in the amount of $25,000 for a purchase price equal to
the face amount thereof. This Convertible Debenture was converted into 5,649
shares of Series A Preferred Stock. The sale was exempt from registration under
the Act pursuant to Regulation D of the Act.
On November 22, 1993, in connection with the Company's sale of Convertible
Debentures, the Company issued a warrant to Gerald E. Jr., & Linda E. Bisbee to
purchase shares of its Capital Stock which were subsequently exchanged for
warrants to purchase 1,050 shares of Series A Preferred Stock at $4.76 per
share. This warrant vested immediately and expires on November 22, 1996. The
sale was exempt from registration under the Act pursuant to Regulation D of the
Act.
On November 19, 1993, the Company issued a Convertible Debenture to D-W
Investments in the amount of $120,000 for a purchase price equal to the face
amount thereof. This Convertible Debenture was converted into 27,167 shares of
Series A Preferred Stock. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On November 19, 1993, in connection with the Company's sale of Convertible
Debentures, the Company issued a warrant to D-W Investments to purchase shares
of its Capital Stock which were subsequently exchanged for warrants to purchase
5,043 shares of Series A Preferred Stock at $4.76 per share. This warrant vested
immediately and expires on November 19, 1996. The sale was exempt from
registration under the Act pursuant to Regulation D of the Act.
On November 18, 1993, the Company issued a Convertible Debenture to Vukasin
Pavlovic in the amount of $25,000 for a purchase price equal to the face amount
thereof. This Convertible Debenture was converted into 5,649 shares of Series A
Preferred Stock. The sale was exempt from registration under the Act pursuant to
Regulation D of the Act.
On November 18, 1993, in connection with the Company's sale of Convertible
Debentures, the Company issued a warrant to Vukasin Pavlovic to purchase shares
of its Capital Stock which were subsequently exchanged for warrants to purchase
1,050 shares of Series A Preferred Stock at $4.76 per share. This warrant vested
immediately and expires on November 18, 1996. The sale was exempt from
registration under the Act pursuant to Regulation D of the Act.
On November 17, 1993, the Company issued Convertible Debentures to the
following individuals and entities each in the amount and for the purchase price
set forth after its name: PSF Health Care Fund, L.P., $75,000; P-J Investments,
$100,000; James O. Pohlad, $50,000; Davis D. Fansler, $20,000; and Gordon H. &
Eunice H. Smith, $25,000. The Convertible Debentures converted into 16,995;
22,660; 11,330; 4,532; and 5,665 shares of Series A Preferred Stock
respectively. The sales were exempt from registration under the Act pursuant to
Regulation D of the Act.
On November 17, 1993, in connection with the Company's sale of Convertible
Debentures, the Company issued the following warrants to purchase shares of its
Capital Stock which were subsequently exchanged for warrants to purchase shares
of Series A Preferred Stock at $4.76 per share: to PSF Health Care Fund, L.P., a
warrant to purchase 3,152 shares of Series A Preferred Stock; to P-J
Investments, a warrant to purchase 4,202 shares of Series A Preferred Stock; to
James O. Pohlad, a warrant to purchase 2,101 shares of Series A Preferred Stock;
to Davis D. Fansler, a warrant to purchase 841 shares of Series A Preferred
Stock; and to
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Gordon H. & Eunice H. Smith, a warrant to purchase 1,050 shares of Series A
Preferred Stock. These warrants vested immediately and expire on November 17,
1996. The sales were exempt from registration under the Act pursuant to
Regulation D of the Act.
On November 16, 1993, the Company issued Convertible Debentures to the
following individuals and entities each in the amount and for the purchase price
set forth after its name: Robert D. Stuart, $50,000; Timm R. & Robin S.
Reynolds, $25,000; and Timm R. and Robin S. Reynolds, $25,000. The Convertible
Debentures converted into 11,335; 5,706; and 5,706 shares of Series A Preferred
Stock respectively. The sales were exempt from registration under the Act
pursuant to Regulation D of the Act.
On November 16, 1993, in connection with the Company's sale of Convertible
Debentures, the Company issued the following warrants to purchase shares of its
Capital Stock which were subsequently exchanged for warrants to purchase shares
of Series A Preferred Stock at $4.76 per share to: Robert D. Stuart, Jr., a
warrant to purchase 2,101 shares of Series A Preferred Stock, which warrant was
exercised on May 12, 1995; to Timm R. & Robin S. Reynolds, a warrant to purchase
1,050 shares of Series A Preferred Stock, which warrant was exercised on May 31,
1995; and to Robin S. & Timm R. Reynolds, a warrant to purchase 1,050 shares of
Series A Preferred Stock. These warrants vested immediately and expire on
November 16, 1996. The sales were exempt from registration under the Act
pursuant to Regulation D of the Act.
On November 15, 1993, the Company issued Convertible Debentures to the
following individuals and entities each in the amount and for the purchase price
set forth after its name: PSF Health Care Fund, L.P., $50,000; Gideon Hixon
Fund, $150,000; Paul J. Finnegan, $75,000; and Peter M. Gaines, $25,000. The
Convertible Debentures converted into 11,409; 34,021; 17,010; and 5,670 shares
of Series A Preferred Stock respectively. The sales were exempt from
registration under the Act pursuant to Regulation D of the Act.
On November 15, 1993, in connection with the Company's sale of Convertible
Debentures, the Company issued the following warrants to purchase shares of its
Capital Stock which were subsequently exchanged for warrants to purchase shares
of Series A Preferred Stock at $4.76 per share to: PSF Health Care Fund, L.P., a
warrant to purchase 2,101 shares of Series A Preferred Stock; to Gideon Hixon
Fund, a warrant to purchase 6,303 shares of Series A Preferred Stock, which
warrant was exercised on May 13, 1995; to Paul J. Finnegan, a warrant to
purchase 3,152 shares of Series A Preferred Stock; and to Peter M. Gaines, a
warrant to purchase 1,050 shares of Series A Preferred Stock. These warrants
vested immediately and expire on November 15, 1996. The sales were exempt from
registration under the Act pursuant to Regulation D of the Act.
On November 12, 1993, the Company issued Convertible Debentures to the
following individuals and entities each in the amount and for the purchase price
set forth after its name: Duncan N. Dayton, $50,000; and Frank D. Mayer, Jr.,
$25,000. The Convertible Debentures converted into 11,356; and 5,678 shares of
Series A Preferred Stock respectively. The sales were exempt from registration
under the Act pursuant to Regulation D of the Act.
On November 12, 1993, in connection with the Company's sale of Convertible
Debentures, the Company issued the following warrants to purchase shares of its
Capital Stock which were subsequently exchanged for warrants to purchase shares
of Series A Preferred Stock at $4.76 per share to: Duncan N. Dayton, a warrant
to purchase 2,101 shares of Series A Preferred Stock; to Frank D. Mayer Jr., a
warrant to purchase 1,050 shares of Series A Preferred Stock; and to Charles R.
Hall, a warrant to purchase 1,050 shares of Series A Preferred Stock. These
warrants vested immediately and expire on November 12, 1996. The sales were
exempt from registration under the Act pursuant to Regulation D of the Act.
On November 11, 1993, the Company issued Convertible Debentures to the
following individuals and entities each in the amount and for the purchase price
set forth after its name: John E. Traeger Trust #1, $25,000; Dwight P. Fawcett,
$12,500; Dwight W. Fawcett, $45,000; Jane F. Dearborn, $12,500; Donald N. &
Adrienne W. Fawcett, $5,000; and D.W. Fawcett, $25,000. The Convertible
Debentures converted into 5,482; 10,225; 2,840; 2,840; 1,136 and 5,479 shares of
Series A Preferred Stock respectively. The sales were exempt from registration
under the Act pursuant to Regulation D of the Act.
On November 11, 1993, in connection with the Company's sale of Convertible
Debentures, the Company issued the following warrants to purchase shares of its
Capital Stock which were subsequently exchanged for
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warrants to purchase shares of Series A Preferred Stock at $4.76 per share to:
John E. Traeger Trust #1, a warrant to purchase 1,050 shares of Series A
Preferred Stock; to Anne L. Fawcett, a warrant to purchase 1,471 shares of
Series A Preferred Stock; to Dwight W. Fawcett, a warrant to purchase 420 shares
of Series A Preferred Stock; to Jane F. Dearborn, a warrant to purchase 525
shares of Series A Preferred Stock; to Donald N. & Adrienne W. Fawcett, a
warrant to purchase 210 shares of Series A Preferred Stock; to Dwight P,
Fawcett, a warrant to purchase 525 shares of Series A Preferred Stock. These
warrants vested immediately and expire on November 11, 1996. The sales were
exempt from registration under the Act pursuant to Regulation D of the Act.
On November 5, 1993, the Company issued a Convertible Debenture to Davis D.
Fansler in the amount of $15,000 for a purchase price equal to the face amount
thereof. The Convertible Debenture converted into 3,416 shares of Series A
Preferred Stock. The sale was exempt from registration under the Act pursuant to
Regulation D of the Act.
On November 5, 1993, in connection with the Company's sale of Convertible
Debentures, the Company issued a warrant to Davis D. Fansler to purchase shares
of its Capital Stock which were subsequently exchanged for warrants to purchase
630 shares of Series A Preferred Stock at $4.76 per share. This warrant vested
immediately and expires on November 5, 1996. The sale was exempt from
registration under the Act pursuant to Regulation D of the Act.
On October 14, 1993, the Company issued Convertible Debentures to the
following individuals and entities each in the amount and for the purchase price
set forth after its name: PSF Health Care Fund, L.P., $50,000; PSF Health Care
Fund, L.P., $100,000; Warren H. Corning #145751 Trust, $100,000; Benson K.
Whitney, $25,000; and Spencer Family Partnership, L.P., $25,000. The Convertible
Debentures converted into 11,493; 22,986; 22,986; 5,678; and 5,678 shares of
Series A Preferred Stock respectively. The sales were exempt from registration
under the Act pursuant to Regulation D of the Act.
On October 14, 1993, in connection with the Company's sale of Convertible
Debentures, the Company issued the following warrants to purchase shares of its
Capital Stock which were subsequently exchanged for warrants to purchase shares
of Series A Preferred Stock at $4.76 per share to: PSF Health Care Fund, L.P., a
warrant to purchase 2,101 shares of Series A Preferred Stock; to PSF Health Care
Fund, L.P., a warrant to purchase 4,202 shares of Series A Preferred Stock; to
Warren H. Corning #145751 Trust, a warrant to purchase 4,202 shares of Series A
Preferred Stock; to Benson K. Whitney, a warrant to purchase 1,050 shares of
Series A Preferred Stock, which warrant was exercised on May 1, 1995; and to
Spencer Family Partnership, L.P., a warrant to purchase 1,050 shares of Series A
Preferred Stock, which warrant was exercised on May 26, 1995. These warrants
vested immediately and expire on October 14, 1996. The sales were exempt from
registration under the Act pursuant to Regulation D of the Act.
On August 24, 1993, the Company issued a Convertible Subordinated Debenture
to Gideon Hixon Fund, L.P. in the amount of $100,000 for a purchase price equal
to the face amount thereof. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On July 15, 1993, the Company issued a warrant to Peterson-Spencer-Fansler
Co. to purchase 3,152 shares of Common Stock at $3.17 per share as compensation
for financial services rendered to the Company. The Company valued the services
received in exchange for this warrant at $500. This warrant vested immediately
and expires on July 15, 1998. The sale was exempt from registration under the
Act pursuant to Regulation D of the Act.
On June 29, 1993, the Company issued a Convertible Subordinated Debenture
to John E. Rogers in the amount of $200,000 for a purchase price equal to the
face amount thereof. The sale was exempt from registration under the Act
pursuant to Regulation D of the Act.
On May 31, 1993, the Company issued warrants to Peterson-Spencer-Fansler
Co. to purchase 735 shares of Common Stock at $4.76 per share, 918 shares of
Common Stock at $11.11 per share and 2,448 shares of Common Stock at $11.11 per
share as compensation for financial services rendered to the Company. The
Company valued the services received in exchange for this warrant at $262. These
warrants vested immediately and expire on May 31, 1998. The warrant for 918
shares of Common Stock and the warrant for
II-12
<PAGE> 82
2,448 shares of Common Stock were exercised on May 31, 1995. The sales were
exempt from registration under the Act pursuant to Regulation D of the Act.
On May 27, 1993, the Company issued a warrant to Mirza Mehdi to purchase
1,009 shares of Common Stock at $11.11 per share as compensation for financial
services rendered to the Company. The Company valued the services received in
exchange for this warrant at $160. This warrant vested immediately and expires
on May 27, 1998. The sale was exempt from registration under the Act pursuant to
Regulation D of the Act.
On May 27, 1993, the Company sold 15,758 shares of Common Stock to Murdoch
& Co. for aggregate consideration of $175,000 in a private transaction in
reliance on Section 4(2) of the Act.
On May 6, 1993, the Company sold 11,031 shares of Common Stock to MLPF&S
CUST FBO Donald India IRA for aggregate consideration of $122,500 in a private
transaction in reliance on Section 4(2) of the Act.
On May 5, 1993, the Company sold 2,206 shares of Common Stock to Noam
Frankel for aggregate consideration of $24,500 in a private transaction in
reliance on Section 4(2) of the Act.
On May 1, 1993, the Company sold 4,502 shares of Common Stock to Koshin
International Corporation for aggregate consideration of $49,997.50 in a private
transaction in reliance on Section 4(2) of the Act.
On April 13, 1993, the Company sold 610 shares of Common Stock to Lewis P.
Smith for aggregate consideration of $6,772.50 in a private transaction in
reliance on Section 4(2) of the Act.
On April 8, 1993, the Company issued the following warrants to purchase
shares of Common Stock at $11.11 per share: to Scott Hodes, in compensation for
services rendered, a warrant to purchase 46 shares of Common Stock; to Upland
Associates, L.P., in compensation for services rendered, a warrant to purchase
229 shares of Common Stock; to Barker, Lee & Co., in compensation for services
rendered, a warrant to purchase 153 shares of Common Stock; and to Namakagon
Associates, L.P., in compensation for services rendered, a warrant to purchase
153 shares of Common Stock. The Company valued the services received in exchange
for this warrant at $92. These warrants vested immediately and expire on April
8, 1998. The sales were exempt from registration under the Act pursuant to
Regulation D of the Act.
On April 8, 1993, the Company sold 10,692 shares of Common Stock to Barker,
Lee & Co., Upland Associates, L.P. and Namakagon Associates, L.P. for aggregate
consideration of $118,744.50 in a private transaction in reliance on Section
4(2) of the Act.
II-13
<PAGE> 83
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
1.1 Underwriting Agreement
+ 3.1 Amended and Restated Certificate of Incorporation
+ 3.2 Amended and Restated By-Laws
5.1 Opinion of Ross & Hardies regarding legality of shares of Common Stock
++10.1 Agreement with Americorp Financial, Inc. re: Leasing Services, dated March 22,
1995
++10.2 Agreement with Clintec Nutrition Company re: Development Agreement, dated
September 1, 1995
++10.3 Distributorship Agreement with IV Support Systems Inc., dated April 1, 1994
++10.4 Distributorship Agreement with PCI Medical, Inc., dated July 27, 1992
++10.5 Distributorship Agreement with CO-Medical, Inc., dated February 17, 1992
++10.6 Distributorship Agreement with Clinical Technology Inc., dated August 1, 1992
++10.7 Distributorship Agreement with Bimeco, Inc., dated August 21, 1991
++10.8 Distributorship Agreement with AMTEC Medical, Inc., dated March 31, 1992
++10.9 Distributorship Agreement with Advanced Medical, Inc., dated September 1, 1991
++10.10 Distributorship Agreement with Healthcare Technology, dated October 9, 1991
10.11 Intentionally Omitted
10.12 Intentionally Omitted
++10.13 Pump Contract with Chartwell Home Therapies, dated November 22, 1993
++10.14 Sales Agreement with Pharmacy Corporation of America, dated March 17, 1995
++10.15 Sales & Marketing Agreement with Alpha Group, dated November 6, 1995
++10.16 Foreign Distributorship Agreement with MED-O-GEN INC., dated September 22,
1995
++10.17 Foreign Distributorship Agreement with Yoon Duk Separation Technology, dated
April 17, 1995
++10.18 Foreign Distributorship Agreement with Upwards Biosystems Ltd., dated March 8,
1995
++10.19 Foreign Distributorship Agreement with Grupo Grifols, S.A., dated September
17, 1993
++10.20 Foreign Distributorship Agreement with JMS Company, dated March 22, 1996
10.21 Foreign Distributorship Agreement with Brasimpex
++10.22 Foreign Distributorship Agreements with Medicare (s) PTE LTD., dated February
10, 1995
++10.23 Loan and Security Agreement with Sterling Business Credit, dated February 3,
1995
+10.24 Engagement Letter with EGS Securities Corp., dated September 26, 1995 and
amendments thereto
++10.25 Master Lease Agreement with Comdisco, Inc., dated August 9, 1994
+10.26 Stock Option Plan
++10.27 Lease for Real Property located at 5601 West Howard, Niles, Illinois, dated as
of May 31, 1994
++10.28 Employment Agreement for K. Shan Padda
11.1 Computation of Per Share Earnings
23.1 Consent of KPMG Peat Marwick, LLP
23.2 Consent of Ross & Hardies (to be included as part of its opinion to be filed
as Exhibit 5.1 hereto)
</TABLE>
II-14
<PAGE> 84
<TABLE>
<C> <S>
++24.1 Powers of Attorney
</TABLE>
- ---------------
+ Originally filed as an Exhibit to the Registration Statement on Form S-1 on
April 22, 1996, being refiled to provide document as amended subsequent to
April 22, 1996.
++ Filed as an Exhibit to the Registration Statement on Form S-1 on April 22,
1996.
(b) Financial Statement Schedules
The following financial statement schedules, which are not included in the
Prospectus, appear on the following pages of this Registration Statement:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C> <C>
Schedule II -- Valuation and Qualifying Accounts............................. S-3
</TABLE>
II-15
<PAGE> 85
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
provided to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-16
<PAGE> 86
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Niles,
State of Illinois, on May 29, 1996.
SABRATEK CORPORATION
By: /s/ K. SHAN PADDA
------------------------------------
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities indicated on May 29, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ K. SHAN PADDA Chairman of the Board and Chief Executive
- --------------------------------------------- Officer
K. Shan Padda
/s/ ANIL RASTOGI* President and Chief Operating Officer
- ---------------------------------------------
Anil Rastogi
/s/ DORON C. LEVITAS* Vice Chairman of the Board, Vice
- --------------------------------------------- President -- International Operations and
Doron C. Levitas Secretary
/s/ SCOTT SKOOGLUND Vice President -- Finance and Assistant
- --------------------------------------------- Secretary, Principal Financial Officer and
Scott Skooglund Principal Accounting Officer
/s/ WILLIAM D. LAUTMAN* Director
- ---------------------------------------------
William D. Lautman
/s/ L. PETER SMITH* Director
- ---------------------------------------------
L. Peter Smith
/s/ SCOTT HODES* Director
- ---------------------------------------------
Scott Hodes
/s/ EDSON SPENCER, JR.* Director
- ---------------------------------------------
Edson Spencer, Jr.
/s/ MARVIN SAMSON* Director
- ---------------------------------------------
Marvin Samson
/s/ WILLIAM H. LOMICKA* Director
- ---------------------------------------------
William H. Lomicka
Director
- ---------------------------------------------
Mark Lampert
</TABLE>
- ---------------
* Signed by K. Shan Padda pursuant to power of attorney
II-17
<PAGE> 87
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
Independent Auditors' Report............................................................. S-2
Schedule II -- Valuation and Qualifying Accounts.................................. S-3
</TABLE>
S-1
<PAGE> 88
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Sabratek Corporation:
Under date of April 8, 1996 except as to note 17 which is as of May 6,
1996, we reported on the balance sheets of Sabratek Corporation as of December
31, 1994 and 1995, and the related statements of operations, stockholders'
equity (deficit), and cash flows for each of the years in the three year period
ended December 31, 1995, which are included in the prospectus. In connection
with our audits of the aforementioned financial statements, we also audited the
related financial statement schedule in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole present fairly, in
all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois,
April 8, 1996, except as to note 17
which is as of May 6, 1996
S-2
<PAGE> 89
SABRATEK CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
---------- ----------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
December 31, 1993...................... $ -- -- -- -- $ --
December 31, 1994...................... -- -- -- -- --
December 31, 1995...................... -- 187,969 -- -- 187,969
</TABLE>
S-3
<PAGE> 90
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ------------------------------------------------------------------- ------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
1.1 Underwriting Agreement.............................................
+ 3.1 Amended and Restated Certificate of Incorporation..................
+ 3.2 Amended and Restated By-Laws.......................................
5.1 Opinion of Ross & Hardies regarding legality of shares of Common
Stock..............................................................
++10.1 Agreement with Americorp Financial, Inc. re: Leasing Services,
dated March 22, 1995...............................................
++10.2 Agreement with Clintec Nutrition Company re: Development Agreement,
dated September 1, 1995............................................
++10.3 Distributorship Agreement with IV Support Systems Inc., dated April
1,
1994...............................................................
++10.4 Distributorship Agreement with PCI Medical, Inc., dated July 27,
1992...............................................................
++10.5 Distributorship Agreement with CO-Medical, Inc., dated February 17,
1992...............................................................
++10.6 Distributorship Agreement with Clinical Technology Inc., dated
August 1,
1992...............................................................
++10.7 Distributorship Agreement with Bimeco, Inc., dated August 21,
1991...............................................................
++10.8 Distributorship Agreement with AMTEC Medical, Inc., dated March 31,
1992...............................................................
++10.9 Distributorship Agreement with Advanced Medical, Inc., dated
September 1, 1991..................................................
++10.10 Distributorship Agreement with Healthcare Technology, dated October
9,
1991...............................................................
10.11 Intentionally Omitted..............................................
10.12 Intentionally Omitted..............................................
++10.13 Pump Contract with Chartwell Home Therapies, dated November 22,
1993...............................................................
++10.14 Sales Agreement with Pharmacy Corporation of America, dated March
17, 1995...........................................................
++10.15 Sales & Marketing Agreement with Alpha Group, dated November 6,
1995...............................................................
++10.16 Foreign Distributorship Agreement with MED-O-GEN INC., dated
September 22, 1995.................................................
++10.17 Foreign Distributorship Agreement with Yoon Duk Separation
Technology, dated April 17, 1995...................................
++10.18 Foreign Distributorship Agreement with Upwards Biosystems Ltd.,
dated March 8, 1995................................................
++10.19 Foreign Distributorship Agreement with Grupo Grifols, S.A., dated
September 17, 1993.................................................
++10.20 Foreign Distributorship Agreement with JMS Company, dated March 22,
1996...............................................................
10.21 Foreign Distributorship Agreement with Brasimpex...................
++10.22 Foreign Distributorship Agreements with Medicare (s) PTE LTD.,
dated February 10, 1995............................................
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ------------------------------------------------------------------- ------------
<C> <S> <C>
++10.23 Loan and Security Agreement with Sterling Business Credit, dated
February 3, 1995...................................................
+10.24 Engagement Letter with EGS Securities Corp., dated September 26,
1995 and amendments thereto........................................
++10.25 Master Lease Agreement with Comdisco, Inc., dated August 9, 1994...
+10.26 Stock Option Plan..................................................
++10.27 Lease for Real Property located at 5601 West Howard, Niles,
Illinois, dated as of May 31, 1994.................................
++10.28 Employment Agreement for K. Shan Padda.............................
11.1 Computation of Per Share Earnings..................................
23.1 Consent of KPMG Peat Marwick, LLP..................................
23.2 Consent of Ross & Hardies (to be included as part of its opinion to
be filed as Exhibit 5.1 hereto)....................................
++24.1 Powers of Attorney.................................................
</TABLE>
- ---------------
+ Originally filed as an Exhibit to the Registration Statement on Form S-1 on
April 22, 1996, being refiled to provide document as amended subsequent to
April 22, 1996.
++ Filed as an Exhibit to the Registration Statement on Form S-1 on April 22,
1996.
<PAGE> 1
EXHIBIT 1.1
2,500,000 Shares of Common Stock
SABRATEK CORPORATION
UNDERWRITING AGREEMENT
JUNE __, 1996
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
BARINGTON CAPITAL GROUP, L.P.
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Dear Sirs:
Sabratek Corporation, a corporation organized and existing under the laws
of Delaware (the "Company"), proposes, subject to the terms and conditions
stated herein, to issue and sell to the several underwriters named in Schedule I
hereto (the "Underwriters") an aggregate of 2,500,000 shares (the "Firm
Shares") of its common stock, par value .01 per share (the "Common Stock") and,
for the sole purpose of covering over-allotments in connection with the sale of
the Firm Shares, at the option of the Underwriters, up to an additional 375,000
shares (the "Additional Shares") of Common Stock. The Firm Shares and any
Additional Shares purchased by the Underwriters are referred to herein as the
"Shares". The Shares are more fully described in the Registration Statement
referred to below.
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with, the Underwriters
that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement, and may have filed an amendment or
amendments thereto, on Form S-1 (No. 33- ), for the registration of the
Shares under the Securities Act of 1933, as amended (the "Act").
<PAGE> 2
Such registration statement, including the prospectus, financial statements and
schedules, exhibits and all other documents filed as a part thereof, as amended
at the time of effectiveness of the registration statement, including any
information deemed to be a part thereof as of the time of effectiveness
pursuant to paragraph (b) of Rule 430A or Rule 434 of the Rules and Regulations
of the Commission under the Act (the "Regulations"), is herein called the
"Registration Statement" and the prospectus, in the form first filed with the
Commission pursuant to Rule 424(b) of the Regulations or filed as part of the
Registration Statement at the time of effectiveness if no Rule 424(b) or Rule
434 filing is required, is herein called the "Prospectus". The term
"preliminary prospectus" as used herein means a preliminary prospectus as
described in Rule 430 of the Regulations.
(b) At the time of the effectiveness of the Registration Statement or
the effectiveness of any post-effective amendment to the Registration Statement,
when the Prospectus is first filed with the Commission pursuant to Rule 424(b)
or Rule 434 of the Regulations, when any supplement to or amendment of the
Prospectus is filed with the Commission, and at the Closing Date and the
Additional Closing Date, if any, (as hereinafter respectively defined), the
Registration Statement and the Prospectus and any amendments thereof and
supplements thereto complied or will comply in all material respects with the
applicable provisions of the Act and the Regulations and does not or will not
contain an untrue statement of a material fact and does not or will not omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein (i) in the case of the Registration Statement, not
misleading and (ii) in the case of the Prospectus, in light of the
circumstances under which they were made, not misleading. When any related
preliminary prospectus was first filed with the Commission (whether filed as
part of the registration statement for the registration of the Shares or any
amendment thereto or pursuant to Rule 424(a) of the Regulations) and when any
amendment thereof or supplement thereto was first filed with the Commission,
such preliminary prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the Act and
the Regulations and did not contain an untrue statement of a material fact and
did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein in light of the circumstances
under which they were made not misleading. No representation and warranty is
made in this subsection (b), however, with respect to any information contained
in or omitted from the Registration Statement or the Prospectus or any related
preliminary prospectus or any amendment thereofor supplement thereto in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Underwriter through you as herein stated
expressly for use in connection with the preparation thereof. If Rule 434 is
used, the Company will comply with the requirements of Rule 434.
2
<PAGE> 3
(c) KPMG Peat Marwick LLP, who have certified the financial statements
and supporting schedules included in the Registration Statement, are
independent public accountants as required by the Act and the Regulations.
(d) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as set forth in the
Registration Statement and the Prospectus, there has been no material adverse
change or any development involving a prospective material adverse change in
the business, prospects, properties, operations, condition (financial or other)
or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, and since the date of the
latest balance sheet presented in the Registration Statement and the
Prospectus, the Company has not incurred or undertaken any liabilities or
obligations, direct or contingent, which are material to the Company, except
for liabilities or obligations which are reflected in the Registration
Statement and the Prospectus.
(e) This Agreement and the transactions contemplated herein have been
duly and validly authorized by the Company and this Agreement has been duly and
validly executed and delivered by the Company.
(f) The execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and will not (i)
conflict with or result in a breach of any of the terms and provisions of, or
constitute a default (or an event which with notice or lapse of time, or both,
would constitute a default) under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company
pursuant to, any agreement, instrument, franchise, license or permit to which
the Company is a party or by which it or its properties or assets may be bound
or (ii) violate or conflict with any provision of the certificate of
incorporation or by-laws of the Company or any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over the Company or its
properties or assets. No consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with any court or
any public, governmental or regulatory agency or body having jurisdiction over
the Company or its properties or assets is required for the execution, delivery
and performance of this Agreement or the consummation of the transactions
contemplated hereby, including the issuance, sale and delivery of the Shares to
be issued, sold and delivered by the Company hereunder, except the registration
under the Act of the Shares and such consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses and permits as may be
required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters.
3
<PAGE> 4
(g) All of the outstanding shares of Common Stock are duly and validly
authorized and issued, fully paid and nonassessable and were not issued and are
not now in violation of or subject to any preemptive rights (except for any
issuance for which a subsequent waiver of all applicable preemptive rights was
obtained). The Shares, when issued, delivered and sold in accordance with this
Agreement, will be duly and validly issued and outstanding, fully paid and
nonassessable, and will not have been issued in violation of or be subject to
any preemptive rights. The Company has an authorized and outstanding
capitalization, including, without limitation, stock options, warrants, and
convertible debt securities, as set forth in the Registration Statement and the
Prospectus. The Common Stock, the Firm Shares and the Additional Shares
conform to the descriptions thereof contained in the Registration Statement and
the Prospectus.
(h) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation. The Company is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its business
makes such qualification necessary, except for those failures to be so
qualified or in good standing which will not in the aggregate have a material
adverse effect on the Company. The Company has all requisite power and
authority, and all necessary consents, approvals, authorizations, orders,
registrations, qualifications, licenses and permits of and from all public,
regulatory or governmental agencies and bodies, to own, lease and operate its
properties and conduct its business as now being conducted and as described in
the Registration Statement and the Prospectus, and no such consent, approval,
authorization, order, registration, qualification, license or permit contains a
materially burdensome restriction not adequately disclosed in the Registration
Statement and the Prospectus.
(i) Except as described in the Prospectus, there is no litigation or
governmental proceeding to which the Company is a party or to which any
property of the Company is subject or which is pending or, to the knowledge of
the Company, contemplated against the Company which might result in any
material adverse change or any development involving a material adverse change
in the business, prospects, properties, operations, condition (financial or
other) or, results of operations of the Company or which is required to be
disclosed in the Registration Statement and the Prospectus.
(j) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which constitutes or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the sale
or resale of the Shares.
4
<PAGE> 5
(k) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the Prospectus
present fairly the financial position of the Company as of the dates indicated
and the results of its operations for the periods specified; except as
otherwise stated in the Registration Statement, said financial statements have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis; and the supporting schedules included in the
Registration Statement present fairly the information required to be stated
therein.
(l) Except as described in the Prospectus, no holder of securities of
the Company has any rights to the registration of securities of the Company
because of the filing of the Registration Statement or otherwise in connection
with the sale of the Shares contemplated hereby.
(m) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, subject to registration as an "investment
company" under the Investment Company Act of 1940.
(n) The Company does not own, directly or indirectly, any capital
stock, partnership interests, or similar equity securities of any person or
entity.
(o) The Company owns or has a valid license to use all patents,
trademarks, copyrights, service marks, and applications and registrations
therefor, and all trade names, customer lists, trade secrets, proprietary
processes and formulae, inventions, know-how, and other intellectual property
rights necessary for the Company to conduct its business as now being conducted
and as described in the Registration Statement and the Prospectus. Except as
described in the Prospectus, there is no pending or, to the knowledge of the
Company, threatened claim or litigation against the Company contesting the
right to use its intellectual property rights, asserting the misuse of any
thereof, or asserting the infringement or other violation of any intellectual
property rights of any third party. All inventions and know-how conceived by
employees of the Company and related to the business of the Company were "works
for hire," and the company owns all right, title, and interest therein .
(p) The Company has been, and currently is, manufacturing,
distributing, and marketing its products in compliance with all applicable
federal, state, and foreign laws, rules and regulations.
2. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but
5
<PAGE> 6
subject to the terms and conditions herein set forth, the Company agrees to
sell to the Underwriters and the Underwriters, severally and not jointly, agree
to purchase from the Company, at a purchase price per share of $_______, the
number of Firm Shares set forth opposite the respective names of the
Underwriters in Schedule I hereto plus any additional number of Shares which
such Underwriter may become obligated to purchase pursuant to the provisions of
Section 9 hereof.
(b) Payment of the purchase price for, and delivery of certificates
for, the Shares shall be made at the office of Bear, Stearns & Co. Inc., 245
Park Avenue, New York, New York 10167, or at such other place as shall be
agreed upon by you and the Company, at 10:00 A.M. on the third or fourth
business day (as permitted under Rule 15c6-1 under the Exchange Act) (unless
postponed in accordance with the provisions of Section 9 hereof) following the
date of the effectiveness of the Registration Statement (or, if the Company has
elected to rely upon Rule 430A of the Regulations, the third or fourth business
day (as permitted under Rule 15c6-1 under the Exchange Act) after the
determination of the initial public offering price of the Shares), or such
other time not later than ten business days after such date as shall be agreed
upon by you and the Company (such time and date of payment and delivery being
herein called the "Closing Date"). Payment shall be made to the Company by
wire transfer in same day funds to a bank account specified by the Company at
the Company's expense against delivery to you for the respective accounts of
the Underwriters of certificates for the Shares to be purchased by them.
Certificates for the Shares shall be registered in such name or names and in
such authorized denominations as you may request in writing at least two full
business days prior to the Closing Date. The Company will permit you to
examine and package such certificates for delivery at least one full business
day prior to the Closing Date.
(c) In addition, the Company hereby grants to the Underwriters the
option to purchase up to 375,000 Additional Shares at the same purchase price
per share to be paid by the Underwriters to the Company for the Firm Shares as
set forth in this Section 2, for the sole purpose of covering over-allotments
in the sale of Firm Shares by the Underwriters. This option may be exercised
at any time, in whole or in part, on or before the thirtieth day following the
date of the Prospectus, by written notice by you to the Company. Such notice
shall set forth the aggregate number of Additional Shares as to which the
option is being exercised and the date and time, as reasonably determined by
you, when the Additional Shares are to be delivered (such date and time being
herein sometimes referred to as the "Additional Closing Date"); provided,
however, that the Additional Closing Date shall not be earlier than the Closing
Date or earlier than the second full business day after the date on which the
option shall have been exercised nor later than the eighth full business day
after the date on which the option shall have been exercised (unless such time
and date are postponed in accordance with the provisions of Section 9
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hereof). Certificates for the Additional Shares shall be registered in such
name or names and in such authorized denominations as you may request in
writing at least two full business days prior to the Additional Closing Date.
The Company will permit you to examine and package such certificates for
delivery at least one full business day prior to the Additional Closing Date.
The number of Additional Shares to be sold to each Underwriter shall be
the number which bears the same ratio to the aggregate number of Additional
Shares being purchased as the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto (or such number increased as set forth
in Section 9 hereof) bears to 2,500,000 subject, however, to such adjustments
to eliminate any fractional shares as you in your sole discretion shall make.
Payment for the Additional Shares shall be made by wire transfer in same
day funds to a bank account specified by the Company at the Company's expense,
upon delivery of the certificates for the Additional Shares to you for the
respective accounts of the Underwriters at the offices of Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 10167.
3. Offering.
Upon your authorization of the release of the Firm Shares, the
Underwriters propose to offer the Shares for sale to the public upon the terms
set forth in the Prospectus.
4. Covenants of the Company.
The Company covenants and agrees with the Underwriters that:
(a) If the Registration Statement has not yet been declared effective
the Company will use its best efforts to cause the Registration Statement and
any amendments thereto to become effective as promptly as possible, and if Rule
430A is used or the filing of the Prospectus is otherwise required under Rule
424(b) or Rule 434, the Company will file the Prospectus (properly completed if
Rule 430A has been used) pursuant to Rule 424(b) or Rule 434 within the
prescribed time period and will provide evidence satisfactory to you of such
timely filing. If the Company elects to rely on Rule 434, the Company will
prepare and file a term sheet that complies with the requirements of Rule 434.
The Company will notify you immediately (and, if requested by you, will
confirm such notice in writing) (i) when the Registration Statement and any
amendments thereto become effective, (ii) of any request by the Commission for
any amendment of or supplement to the Registration Statement or the
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<PAGE> 8
Prospectus or for any additional information, (iii) of the mailing or the
delivery to the Commission for filing of any amendment of or supplement to the
Registration Statement or the Prospectus, (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto or of the initiation, or the
threatening, of any proceedings therefor, (v) of the receipt of any comments
from the Commission, and (vi) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding for that
purpose. If the Commission shall propose or enter a stop order at any time,
the Company will make every reasonable effort to prevent the issuance of any
such stop order and, if issued, to obtain the lifting of such order as soon as
possible. The Company will not file any amendment to the Registration
Statement or any amendment of or supplement to the Prospectus (including the
prospectus required to be filed pursuant to Rule 424(b) or Rule 434) that
differs from the prospectus on file at the time of the effectiveness of the
Registration Statement before or after the effective date of the Registration
Statement to which you shall reasonably object in writing after being timely
furnished in advance a copy thereof.
(b) If at any time when a prospectus relating to the Shares is required
to be delivered under the Act any event shall have occurred as a result of
which the Prospectus as then amended or supplemented would, in the judgment of
the Underwriters or the Company include an untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if it shall be necessary at any time to
amend or supplement the Prospectus or Registration Statement to comply with the
Act or the Regulations, the Company will notify you promptly and prepare and
file with the Commission an appropriate amendment or supplement (in form and
substance satisfactory to you) which will correct such statement or omission
and will use its best efforts to have any amendment to the Registration
Statement declared effective as soon as possible.
(c) The Company will promptly deliver to you three signed copies of
the Registration Statement, including exhibits and all amendments thereto, and
the Company will promptly deliver to each of the Underwriters such number of
copies of any preliminary prospectus, the Prospectus, the Registration
Statement, and all amendments of and supplements to such documents, if any, as
you may reasonably request.
(d) The Company will endeavor in good faith, in cooperation with you,
at or prior to the time of effectiveness of the Registration Statement, to
qualify the Shares for offering and sale under the securities laws relating to
the offering or sale of the Shares of such jurisdictions as you may designate
and to maintain such qualification in effect for so
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<PAGE> 9
long as required for the distribution thereof; except that in no event shall
the Company be obligated in connection therewith to qualify as a foreign
corporation or to execute a general consent to service of process.
(e) The Company will make generally available (within the meaning of
Section 11(a) of the Act) to its security holders and to you as soon as
practicable, but not later than 45 days after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs, an earning statement (in form complying with the provisions
of Rule 158 of the Regulations) covering a period of at least twelve
consecutive months beginning after the effective date of the Registration
Statement.
(f) During the period of 180 days from the date of the Prospectus, the
Company will not, without the prior written consent of Bear Stearns & Co.,
Inc., issue, sell, pledge, offer or agree to sell, grant any option for the
sale of, or otherwise dispose of (or announce any issuance, sale, pledge, offer
grant of option, or other disposition), directly or indirectly, any Common
Stock (or any securities convertible into, exercisable for or exchangeable for
Common Stock), and the Company will obtain the undertaking of each of its
officers and directors and each holder of capital stock, stock options,
warrants, or convertible debt securities of the Company not to engage in any of
the aforementioned transactions on their own behalf, other than (i) the
Company's sale of Shares hereunder , (ii) the Company's grant of stock options
to employees under the Company's Stock Option Plan, provided that each recipient
of any such option agrees to the foregoing undertaking, and (iii) the
Company's issuance of Common Stock upon the exercise of outstanding stock
options, warrants, and convertible debt securities.
(g) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its shareholders; and (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission or any
national securities exchange.
(h) The Company will apply the proceeds from the sale of the Shares as
set forth under "Use of Proceeds" in the Prospectus.
(i) The Company will use its best efforts to cause the Shares to be
included in the Nasdaq National Market.
(j) The Company will file with the Commission such reports on Form SR
as may be required pursuant to Rule 463 of the Regulations.
5. Payment of Expense.
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<PAGE> 10
Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, the Company hereby agrees to pay
all costs and expenses incident to the performance of the obligations of the
Company hereunder, including those in connection with (i) preparing, printing,
duplicating, filing and distributing the Registration Statement, as originally
filed and all amendments thereof (including all exhibits thereto), any
preliminary prospectus, the Prospectus and any amendments or supplements
thereto (including, without limitation, fees and expenses of the Company's
accountants and counsel), the underwriting documents (other than the fees and
expenses of O'Sullivan Graev & Karabell, LLP ("Underwriters' Counsel") for the
preparation of such documents), and all other documents related to the public
offering of the Shares (including those supplied to the Underwriters in
quantities as hereinabove stated), (ii) the issuance, transfer and delivery of
the Shares to the Underwriters, including any transfer or other taxes payable
thereon, (iii) the qualification of the Shares under state or foreign
securities or Blue Sky laws, including the costs of printing and mailing a
preliminary and final "Blue Sky Survey" and the fees of counsel for the
Underwriters and such counsel's disbursements in relation thereto, (iv)
inclusion of the Shares in the Nasdaq National Market, (v) filing fees of the
Commission and the National Association of Securities Dealers, Inc.; (vi) the
cost of printing certificates representing the Shares and (vii) the cost and
charges of any transfer agent or registrar.
6. Conditions of Underwriters' Obligations.
The obligations of the Underwriters to purchase and pay for the Firm
Shares and the Additional Shares, as provided herein, shall be subject to the
accuracy of the representations and warranties of the Company herein contained,
as of the date hereof and as of the Closing Date (for purposes of this Section
6 "Closing Date" shall refer to the Closing Date for the Firm Shares and any
Additional Closing Date, if different, for the Additional Shares), to the
absence from any certificates, opinions, written statements or letters
furnished to you or to Underwriters' Counsel pursuant to this Section 6 of
any misstatement or omission, to the performance by the Company of its
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York time, on the date of this Agreement, or at such later
time and date as shall have been consented to in writing by you; if the Company
shall have elected to rely upon Rule 430A or Rule 434 of the Regulations, the
Prospectus shall have been filed with the Commission in a timely fashion in
accordance with Section 4(a) hereof; and, at or prior to the Closing Date no
stop order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereof shall have been issued and no
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<PAGE> 11
proceedings therefor shall have been initiated or threatened by the Commission.
(b) At the Closing Date you shall have received the opinion of Ross &
Hardies, counsel for the Company, dated the Closing Date addressed to the
Underwriters and in form and substance satisfactory to Underwriters' Counsel,
to the effect that:
(i) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation. The Company is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the character or
location of its properties (owned, leased or licensed) or the nature or
conduct of its business makes such qualification necessary, except for
those failures to be so qualified or in good standing which will not in
the aggregate have a material adverse effect on the Company. The Company
has all requisite corporate authority to own, lease and license its
respective properties and conduct its business as now being conducted and
as described in the Registration Statement and the Prospectus.
(ii) The Company has an authorized and outstanding capital stock,
including, without limitation, stock options, warrants, and convertible
debt securities, as set forth in the Registration Statement and the
Prospectus. All shares of Series A Preferred Stock of the Company have
been converted into shares of Common Stock at the applicable conversion
ratio. All of the outstanding shares of Common Stock are duly and
validly authorized and issued, are fully paid and nonassessable. All
outstanding securities of the Company were not issued in violation of or
subject to any preemptive rights. The Shares to be delivered on the
Closing Date have been duly and validly authorized and, when delivered by
the Company in accordance with this Agreement, will be duly and validly
issued, fully paid and nonassessable and will not have been issued in
violation of or subject to any preemptive rights. The Common Stock, the
Firm Shares and the Additional Shares conform to the descriptions thereof
contained in the Registration Statement and the Prospectus.
(iii) The Shares to be sold under this Agreement to the
Underwriters are duly authorized for inclusion in the Nasdaq National
Market.
(iv) This Agreement has been duly and validly authorized, executed
and delivered by the Company.
(v) To the best of such counsel's knowledge, the Company does not
have any subsidiaries.
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<PAGE> 12
(vi) There is no litigation or governmental or other action, suit,
proceeding or investigation before any court or before or by any public,
regulatory or governmental agency or body pending or to the best of such
counsel's knowledge, threatened against, or involving the properties or
business of, the Company which is of a character required to be disclosed
in the Registration Statement and the Prospectus which has not been
properly disclosed therein.
(vii) The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby by the
Company do not and will not (A) conflict with or result in a breach of
any of the terms and provisions of, or constitute a default (or an event
which with notice or lapse of time, or both, would constitute a default)
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company pursuant to, any
agreement, instrument, franchise, license or permit known to such counsel
to which the Company is a party or by which it or its properties or
assets may be bound or (B) violate or conflict with any provision of the
certificate of incorporation or by-laws of the Company, or, to the best
knowledge of such counsel, any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency
or body having jurisdiction over the Company or any of its properties or
assets. No consent, approval, authorization, order, registration,
filing, qualification, license or permit of or with any court or any
public, governmental, or regulatory agency or body having jurisdiction
over the Company or any of its properties or assets is required for the
execution, delivery and performance of this Agreement or the consummation
of the transactions contemplated hereby, except for (1) such as may be
required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters (as to which
such counsel need express no opinion) and (2) such as have been made or
obtained under the Act.
(viii) The Registration Statement and the Prospectus and any
amendments thereof or supplements thereto (other than the financial
statements and schedules and other financial data included or
incorporated by reference therein, as to which no opinion need be
rendered) comply as to form in all material respects with the
requirements of the Act and the Regulations.
(ix) The Registration Statement is effective under the Act, and, to
the best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereof has been issued and no
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<PAGE> 13
proceedings therefor have been initiated or threatened by the
Commission and all filings required by Rule 424(b) of the Regulations
have been made.
(x) In addition, such opinion shall also contain a statement that
such counsel has participated in conferences with officers and
representatives of the Company, representatives of the independent public
accountants for the Company and the Underwriters at which the contents
and the Prospectus and related matters were discussed and, no facts have
come to the attention of such counsel which would lead such counsel to
believe that either the Registration Statement at the time it became
effective (including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule
430A(b) or Rule 434, if applicable), or any amendment thereof made prior
to the Closing Date as of the date of such amendment, contained an untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus as of its date (or any amendment
thereof or supplement thereto made prior to the Closing Date as of the
date of such amendment or supplement) and as of the Closing Date
contained or contains an untrue statement of a material fact or omitted
or omits to state any 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 (it being understood that such
counsel need express no belief or opinion with respect to the financial
statements and schedules and other financial data included or
incorporated by reference therein).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance reasonably satisfactory to Underwriters'
Counsel) of other counsel reasonably acceptable to Underwriters' Counsel,
familiar with the applicable laws; (B) as to matters of fact, to the extent
they deem proper, on certificates of responsible officers of the Company and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company and its subsidiaries, provided that copies of any
such statements or certificates shall be delivered to Underwriters' Counsel.
The opinion of such counsel for the Company shall state that the opinion of any
such other counsel is in form satisfactory to such counsel and, in their
opinion, you and they are justified in relying thereon.
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<PAGE> 14
(c) All proceedings taken in connection with the sale of the Firm Shares
and the Additional Shares as herein contemplated shall be satisfactory in form
and substance to you and to Underwriters' Counsel, and the Underwriters shall
have received from said Underwriters' Counsel a favorable opinion, dated as of
the Closing Date with respect to the issuance and sale of the Shares, the
Registration Statement and the Prospectus and such other related matters as you
may reasonably require, and the Company shall have furnished to Underwriters'
Counsel such documents as they request for the purpose of enabling them to pass
upon such matters.
(d) At the Closing Date you shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of the Company, dated the
Closing Date to the effect that (i) the condition set forth in subsection (a)
of this Section 6 has been satisfied, (ii) as of the date hereof and as of the
Closing Date the representations and warranties of the Company set forth in
Section 1 hereof are accurate, (iii) as of the Closing Date the obligations of
the Company to be performed hereunder on or prior thereto have been duly
performed and (iv) subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company has not
sustained any material loss or interference with its business or properties
from fire, flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any material adverse change, or any
development involving a material adverse change, in the business prospects,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, except in each case as described in or contemplated
by the Prospectus.
(e) At the time this Agreement is executed and at the Closing Date, you
shall have received a letter, from KPMG Peat Marwick LLP, independent public
accountants for the Company, dated, respectively, as of the date of this
Agreement and as of the Closing Date addressed to the Underwriters and in form
and substance satisfactory to you, to the effect that: (i) they are independent
certified public accountants with respect to the Company within the meaning of
the Act and the Regulations and stating that the answer to Item 10 of the
Registration Statement is correct insofar as it relates to them; (ii) stating
that, in their opinion, the financial statements and schedules of the Company
included in the Registration Statement and the Prospectus and covered by their
opinion therein comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable published rules and
regulations of the Commission thereunder; (iii) on the basis of procedures
consisting of a reading of the latest available unaudited interim financial
statements of the Company, a reading of the minutes of meetings and consents of
the shareholders and board of directors of the Company and the committees of
such board subsequent to December 31, 1995, inquiries of officers and other
employees of
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<PAGE> 15
the Company who have responsibility for financial and accounting matters of the
Company with respect to transactions and events subsequent to December 31,
1995 and other specified procedures and inquiries to a date not more than five
days prior to the date of such letter, nothing has come to their attention that
would cause them to believe that: (A) the unaudited financial statements and
schedules of the Company presented in the Registration Statement and the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the applicable published
rules and regulations of the Commission thereunder or that such unaudited
financial statements are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited financial statements included in the Registration Statement
and the Prospectus; (B) with respect to the period subsequent to March 31,
1996, there were, as of the date of the most recent available monthly
financial statements of the Company and its subsidiaries, if any, and as of a
specified date not more than five days prior to the date of such letter, any
changes in the capital stock or long-term indebtedness of the Company or any
decrease in the net current assets or stockholders' equity of the Company, in
each case as compared with the amounts shown in the most recent balance sheet
presented in the Registration Statement and the Prospectus, except for changes
or decreases which the Registration Statement and the Prospectus disclose have
occurred or may occur or which are set forth in such letter, (C) the pro
forma adjustments to certain financial statements of the Company presented in
the Registration Statement and the Prospectus have not been properly applied
to the historical amounts reflected in those statements; (D) that during the
period from April 1, 1996, to the date of the most recent available monthly
financial statements of the Company, if any, and to a specified date not more
than five days prior to the date of such letter, there was any decrease, as
compared with the corresponding period in the prior fiscal year, in total
revenues, or total or per share net income, except for decreases which the
Registration Statement and the Prospectus disclose have occurred or may occur
or which are set forth in such letter; and (iv) stating that they have compared
specific dollar amounts, numbers of shares, percentages of revenues and
earnings, and other financial information pertaining to the Company and its
subsidiaries set forth in the Registration Statement and the Prospectus, which
have been specified by you prior to the date of this Agreement, to the extent
that such amounts, numbers, percentages, and information may be derived from
the general accounting and financial records of the Company or from schedules
furnished by the Company, and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries, and other appropriate procedures specified by
you set forth in such letter, and found them to be in agreement.
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<PAGE> 16
(f) Prior to the Closing Date the Company shall have furnished to you
such further information, certificates and documents as you may reasonably
request.
(g) You shall have received from each person who is a director or officer
of the Company and each holder of capital stock, stock options, warrants, or
convertible debt securities of the Company an agreement to the effect that such
person will not, directly or indirectly, without your prior written consent,
offer, sell, offer or agree to sell, grant any option to purchase or otherwise
dispose (or announce any offer, sale, grant of an option to purchase or other
disposition) of any shares of Common Stock (or any securities convertible into,
exercisable for or exchangeable or exercisable for shares of Common Stock) for
a period of 180 days after the date of the Prospectus.
(h) At the Closing Date, the Shares shall have been approved for
inclusion in the Nasdaq National Market.
(i) At the time this Agreement is executed, all holders of securities of
the Company entitled to preemptive rights shall have (A) waived such rights
with respect to the issuance of the Shares and all prior issuances of
securities by the Company and (B) agreed to terminate such rights as of the
Closing Date.
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
cancelled by you at, or at any time prior to, the Closing Date and the
obligations of the Underwriters to purchase the Additional Shares may be
cancelled by you at, or at any time prior to, the Additional Closing Date.
Notice of such cancellation shall be given to the Company in writing, or by
telephone, telex or telegraph, confirmed in writing.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), against any and all losses, liabilities,
claims, damages and expenses whatsoever as incurred (including but not limited
to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of
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<PAGE> 17
them may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
registration of the Shares, as originally filed or any amendment thereof, or
any related preliminary prospectus or the Prospectus, or in any supplement
thereto or amendment thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case to the extent but
only to the extent that any such loss, liability, claim, damage or expense
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Underwriter through you expressly for use therein. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have including under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to indemnify and
hold harmless the Company, each of the directors of the Company, each of the
officers of the Company who shall have signed the Registration Statement, and
each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any losses,
liabilities, claims, damages and expenses whatsoever as incurred (including but
not limited to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), jointly or several, to which they or any of them
may become subject under the Act, the Exchange Act or otherwise, insofar as
such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
registration of the Shares, as originally filed or any amendment thereof, or
any related preliminary prospectus or the Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished
to the Company by or on behalf of any Underwriter through you expressly for use
therein; provided, however, that in no case shall any Underwriter be liable or
responsible for any amount in excess of the underwriting discount applicable to
the Shares purchased by such
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<PAGE> 18
Underwriter hereunder. This indemnity will be in addition to any liability
which any Underwriter may otherwise have including under this Agreement. The
Company acknowledges that the statements set forth in the last paragraph of the
cover page, in the bold legend at the bottom of page 2, and in the fifth,
eighth, and tenth paragraphs under the caption "Underwriting" in the Prospectus
constitute the only information furnished in writing by or on behalf of any
Underwriter expressly for use in the registration statement relating to the
Shares as originally filed or in any amendment thereof, any related preliminary
prospectus or the Prospectus or in any amendment thereof or supplement thereto,
as the case may be.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 7). In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless (i) the employment of such counsel shall have been authorized in
writing by one of the indemnifying parties in connection with the defense of
such action, (ii) the indemnifying parties shall not have employed counsel to
have charge of the defense of such action within a reasonable time after notice
of commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties), in any of which events such fees and expenses shall be borne by
the indemnifying parties. Anything in this subsection to the contrary
notwithstanding, an indenifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
8. Contribution.
18
<PAGE> 19
In order to provide for contribution in circumstances in which the
indemnification provided for in Section 7 hereof is for any reason held to be
unavailable from any indemnifying party or is insufficient to hold harmless a
party indemnified thereunder, the Company and the Underwriters shall contribute
to the aggregate losses, claims, damages, liabilities and expenses of the
nature contemplated by such indemnification provision (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company any contribution received by
the Company from persons, other than the Underwriters, who may also be liable
for contribution, including persons who control the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the
Company who signed the Registration Statement and directors of the Company) as
incurred to which the Company and one or more of the Underwriters may be
subject, in such proportions as is appropriate to reflect the relative benefits
received by the Company and the Underwriters from the offering of the Shares
or, if such allocation is not permitted by applicable law or indemnification is
not available as a result of the indemnifying party not having received notice
as provided in Section 7 hereof, in such proportion as is appropriate to
reflect not only the relative benefits referred to above but also the relative
fault of the Company and the Underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Underwriters shall be deemed to be in
the same proportion as (x) the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expnses) received
by the Company and (y) the underwriting discounts and commissions received by
the Underwriters, respectively, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the Company and of the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above. Notwithstanding the provisions
of this Section 8, (i) in no case shall any Underwriter be liable or
responsible for any amount in excess of the underwriting discount applicable to
the Shares purchased by such Underwriter hereunder, and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who
19
<PAGE> 20
was not guilty of such fraudulent misrepresentation. Notwithstanding the
provisions of this Section 8 and the preceding sentence, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. For purposes of this Section 8,
each person, if any, who controls an Underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act shall have the same rights to
contribution as such Underwriter, and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to clauses (i) and
(ii) of this Section 8. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for contribution may be made
against another party or parties, notify each party or parties from whom
contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought
from any obligation it or they may have under this Section 8 or otherwise. No
party shall be liable for contribution with respect to any action or claim
settled without its consent; provided, however, that such consent was not
unreasonably withheld.
9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Additional Shares hereunder, and if the
Firm Shares or Additional Shares with respect to which such default relates do
not (after giving effect to arrangements, if any, made by you pursuant to
subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares
or Additional Shares, the Firm Shares or Additional Shares with respect to
which the default relates shall be purchased by the non-defaulting Underwriters
in proportion to the respective proportions which the numbers of Firm Shares
set forth opposite their respective names in Schedule I hereto bear to the
aggregate number of Firm Shares set forth opposite the names of the
non-defaulting Underwriters.
(b) In the event that such default relates to more than 10% of the Firm
Shares or Additional Shares, as the case may be, you may in your discretion
arrange for yourself or for another party or parties (including any
non-defaulting Underwriter or Underwriters who so agree) to purchase such Firm
Shares or Additional Shares, as the case may be, to which such default relates
on the terms contained herein. In the event that within 5 calendar days after
such a default you do not
20
<PAGE> 21
arrange for the purchase of the Firm Shares or Additional Shares, as the case
may be, to which such default relates as provided in this Section 9, this
Agreement or, in the case of a default with respect to the Additional Shares,
the obligations of the Underwriters to purchase and of the Company to sell the
Additional Shares shall thereupon terminate, without liability on the part of
the Company with respect thereto (except in each case as provided in Sections
5, 7(a) and 8 hereof) or the Underwriters, but nothing in this Agreement shall
relieve a defaulting Underwriter or Underwriters of its or their liability, if
any, to the other Underwriters and the Company for damages occasioned by its or
their default hereunder.
(c) In the event that the Firm Shares or Additional Shares to which the
default relates are to be purchased by the non-defaulting Underwriters, or are
to be purchased by another party or parties as aforesaid, you or the Company
shall have the right to postpone the Closing Date or Additional Closing Date,
as the case may be for a period, not exceeding five business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus or in any other documents and arrangements, and the
Company agrees to file promptly any amendment or supplement to the Registration
Statement or the Prospectus which, in the opinion of Underwriters' Counsel, may
thereby be made necessary or advisable. The term "Underwriter" as used in this
Agreement shall include any party substituted under this Section 9 with like
effect as if it had originally been a party to this Agreement with respect to
such Firm Shares and Additional Shares.
10. Survival of Representations and Agreements.
All representations and warranties, covenants and agreements of the
Underwriters and the Company contained in this Agreement, including the
agreements contained in Section 5, the indemnity agreements contained in
Section 7 and the contribution agreements contained in Section 8, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter or any controlling person thereof or by or on
behalf of the Company, any of its officers and directors or any controlling
person thereof, and shall survive delivery of and payment for the Shares to and
by the Underwriters. The representations contained in Section 1 and the
agreements contained in Sections 5, 7, 8 and 11(d) hereof shall survive the
termination of this Agreement, including termination pursuant to Section 9 or
11 hereof.
11. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective, upon the later of when (i)
you and the Company shall have received notification of the effectiveness of
the Registration Statement or (ii) the execution of this Agreement. If either
the initial
21
<PAGE> 22
public offering price or the purchase price per Share has not been agreed upon
prior to 5:00 P.M., New York time, on the fifth full business day after the
Registration Statement shall have become effective, this Agreement shall
thereupon terminate without liability to the Company or the Underwriters except
as herein expressly provided. Until this Agreement becomes effective as
aforesaid, it may be terminated by the Company by notifying you or by you
notifying the Company. Notwithstanding the foregoing, the provisions of this
Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all times be in full
force and effect.
(b) You shall have the right to terminate this Agreement at any time
prior to the Closing Date, or terminate the obligations of the Underwriters to
purchase the Additional Shares at any time prior to the Additional Closing
Date, as the case may be, if (A) any domestic or international event or act or
occurrence has materially disrupted, or in your opinion will in the immediate
future materially disrupt, the market for the Company's securities or
securities in general; or (B) if trading on the New York or American Stock
Exchanges shall have been suspended, or minimum or maximum prices for trading
shall have been fixed, or maximum ranges for prices for securities shall have
been required, on the New York or American Stock Exchanges by the New York or
American Stock Exchanges or by order of the Commission or any other
governmental authority having jurisdiction; or (C) if a banking moratorium has
been declared by a state or federal authority or if any new restriction
materially adversely affecting the distribution of the Firm Shares or the
Additional Shares, as the case may be, shall have become effective; or (D) (i)
if the United States becomes engaged in hostilities or there is an escalation
of hostilities involving the United States or there is a declaration of a
national emergency or war by the United States or (ii) if there shall have been
such change in political, financial or economic conditions if the effect of any
such event in (i) or (ii) as in your reasonable judgment makes it impracticable
or inadvisable to proceed with the offering, sale and delivery of the Firm
Shares or the Additional Shares, as the case may be, on the terms contemplated
by the Prospectus.
(c) Any notice of termination pursuant to this Section 11 shall be by
telephone, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if
the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof,
the Company will, subject to demand by you, reimburse the Underwriters for all
22
<PAGE> 23
out-of-pocket expenses (including the fees and expenses of their counsel),
incurred by the Underwriters in connection herewith.
12. Notice.
All communications hereunder, except as may be otherwise specifically
provided herein, shall be in writing and, if sent to any Underwriter, shall be
mailed, delivered, or telexed or telegraphed and confirmed in writing, to such
Underwriter c/o Bear, Stearns & Co. Inc., 245 Park Avenue, New York, N.Y.
10167, Attention: Brian A. McCarthy, Marc Cabrera, and Joseph G. Kohls; if
sent to the Company, shall be mailed, delivered, or telegraphed and confirmed
in writing to the Company, 5601 West Howard Street, Niles, IL 60714, Attention:
K. Shan Padda.
13. Parties.
This Agreement shall inure solely to the benefit of, and shall be
binding upon, the Underwriters and the Company and the controlling persons,
directors, officers, employees and agents referred to in Sections 7 and 8, and
their respective successors and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its
capacity as such, of Shares from any of the Underwriters.
14. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
23
<PAGE> 24
If the foregoing correctly sets forth the understanding between you and
the Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
SABRATEK CORPORATION
By:________________________
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
BARINGTON CAPITAL GROUP, L.P.
By: _________________________
On behalf of themselves and the other
Underwriters named in Schedule I hereto.
<PAGE> 25
SCHEDULE I
NAME OF UNDERWRITER NUMBER OF FIRM SHARES
TO BE PURCHASED
Bear, Stearns & Co. Inc. ...........
Salomon Brothers Inc ..............
Barington Capital Group, L.P. ......
---------
Total 2,500,000
=========
<PAGE> 1
State of Delaware EXHIBIT 3.1
PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "SABRATEK DELAWARE CORPORATION", FILED IN THIS OFFICE ON THE
FOURTH DAY OF DECEMBER, A.D. 1991, AT 10 O'CLOCK A.M.
/s/ Edward J. Freel
--------------------------------------
[SEAL] Edward J. Freel, Secretary of State
2280692 8100 AUTHENTICATION: 7946373
960140287 DATE: 05-15-95
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:00 AM 12/04/1991
721338048 - 2280692
CERTIFICATE OF INCORPORATION
OF
SABRATEK DELAWARE CORPORATION
ARTICLE I.
The name of this Corporation is Sabratek Delaware Corporation (the
"Corporation").
ARTICLE II.
The address of its registered office in the State of Delaware is 1209 Orange
Street, in the City of Wilmington, County of New Castle. The name of its
registered agent is The Corporation Trust Company.
ARTICLE III.
The purpose of the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV.
The total number of shares of stock which the Corporation shall have authority
to issue is 10,000,000 shares, consisting of 9,000,000 shares of common stock,
par value $.01 per share ("Common Stock") and 1,000,000 undesignated shares,
par value of $.01 per share. The Board may, from time to time, by an
affirmative vote of a majority of the directors present at a duly called
meeting, establish by resolution from the undesignated shares one or more
classes or series of shares, designate each such class or series and fix the
relative rights and preferences of each such class or series.
ARTICLE V.
The name and mailing address of the incorporator and the person to serve as
director until the first annual meeting of shareholders or until his
successors are elected and qualified is:
NAME MAILING ADDRESS
---- ---------------
K.S. Padda Sabratek Corporation
1901 North Clybourn Avenue
Chicago, Illinois 60614
ARTICLE VI.
Election of directors need not be by written ballot.
<PAGE> 3
ARTICLE VII.
The Corporation shall be managed by the Board of Directors, which shall
exercise all powers conferred under the law of the State of Delaware including
without limitation the power:
(a) To hold meetings, to have one or more offices, and to keep the books
of the Corporation, except as otherwise expressly provided by law, at
such places, whether within or without the State of Delaware, as may
from time to time be designated by the Board.
(b) To adopt, amend, or repeal bylaws of the Corporation, subject to the
reserved power of the stockholders to adopt, amend, or repeal bylaws.
(c) To accept or reject subscriptions for and to allot share of stock of
the Corporation and to dispose of shares of authorized stock of the
Corporation, including the power to grant stock options and warrants,
without action by the stockholders and upon such terms and conditions as
may be deemed advisable by the Board of Directors in the exercise of its
discretion, except as it is otherwise limited by law.
(d) To issue, sell or otherwise dispose of bonds, debentures,
certificates of indebtedness and other securities, including those
convertible into stock, without action by the stockholders and for such
consideration and upon such terms and conditions as may be deemed
advisable by the Board of Directors in the exercise of its discretion,
except as it is otherwise limited by law.
ARTICLE VIII.
A. The Corporation shall indemnify to the full extent authorized or
permitted by law (as now or hereafter in effect) any person made, or
threatened to be made, a party to any threatened, pending or completed action,
suit or proceeding (whether civil or criminal, administrative or investigative
(other than an action by or in the right of the Corporation)) by reason of the
fact that he is or was a director of officer of the Corporation or by reason by
the fact that such director or officer, at the request of the Corporation, is
or was serving any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, in any capacity; provided, however,
that the Corporation shall not indemnify any director or officer in
connection with any action by such director or officer against the Corporation
unless the Corporation shall have consented to such action. Nothing contained
herein shall affect any rights to indemnification to which employees other than
directors and officers may be entitled by law. No amendment or repeal of this
paragraph A of Article VII shall apply to or have any effect on any right to
indemnification
2
<PAGE> 4
provided hereunder with respect to any acts or omission occurring prior to such
amendment or repeal.
B. No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of
fiduciary duty by such a director as a director, except to the extent provided
by applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the General Corporation Law of Delaware, or (iv) for
any transaction from which such director derived an improper personal benefit.
No amendment to or repeal of this paragraph B of Article VIII shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
C. In furtherance and not in limitation of the powers conferred by
statute:
(i) the Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or
not the Corporation would have the power to indemnify him against such
liability under the provisions of law; and
(ii) the Corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters
of credit, surety bonds and/or other similar arrangements), as well as
enter into contracts providing indemnification to the full extent
authorized or permitted by law and including as part thereof provisions
with respect to any or all of the foregoing to ensure the payment of such
amounts as may become necessary to effect indemnification as provided
therein, or elsewhere.
ARTICLE IX.
The Corporation reserves the right to amend, alter, change, or repeal any
provisions contained in this Certificate of Incorporation in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
3
<PAGE> 5
The undersigned, being the incorporator hereinbefore named, for the purpose
of forming a Corporation pursuant to the General Corporation Law of the
State of Delaware, do hereby make this Certificate, hereby declaring and
certifying that this is his act and deed and the facts herein stated are true,
and accordingly has hereunto set his hand this 26th day of November, 1991.
/s/ K.S. Padda
-------------------------------
K.S. Padda
Incorporator
4
<PAGE> 6
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
OWNERSHIP WHICH MERGES:
"SABRATEK CORPORATION", A ILLINOIS CORPORATION.
WITH AND INTO "SABRATEK DELAWARE CORPORATION" UNDER THE NAME OF "SABRATEK
CORPORATION", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE
OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE FOURTH DAY OF DECEMBER,
A.D. 1991, AT 10:01 O'CLOCK A.M.
[SEAL]
/s/ Edward J. Freel
[SEAL] -----------------------------------
Edward J. Freel, Secretary of State
2280692 8100M AUTHENTICATION: 7946372
960140287 DATE: 05-15-96
<PAGE> 7
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:01 AM 12/04/1991
721338049 - 2280692
CERTIFICATE OF OWNERSHIP
AND MERGER OF
SABRATEK CORPORATION
INTO
SABRATEK DELAWARE CORPORATION
Pursuant to Section 253 of the Delaware General Corporation Law and
Section 11.35 of the Illinois Business Corporation Act, Sabratek Corporation,
an Illinois corporation (the "Illinois Parent"), the holder of 100% of the
outstanding common stock of Sabratek Delaware Corporation (the "Delaware
Subsidiary"), and the Delaware Subsidiary, a Delaware corporation, hereby
adopt this Certificate of Ownership and Merger for the purpose of merging the
Illinois Parent into the Delaware Subsidiary and do hereby certify that:
FIRST: A copy of the joint resolution of the Illinois Parent's Board of
Directors and shareholders authorizing the merger, adopted November 25, 1991,
is attached to and incorporated into this Certificate of Ownership and Merger,
as Exhibit A.
SECOND: The joint resolution of the Illinois Parent's Board of Directors
and shareholders includes a provision for the pro rata issuance of stock of
the surviving corporation (the Delaware Subsidiary) to the holders of the
stock of the Illinois Parent on surrender of any certificates therefor.
THIRD: The proposed merger has been adopted, approved, certified,
executed and acknowledged by the Illinois Parent in accordance with the laws
of the State of Illinois.
FOURTH: A copy of the Consent Resolutions of the First Board of
Directors of Sabratek Delaware Corporation authorizing the merger, adopted
November 25, 1991, is attached to and incorporated into this Certificate of
Ownership and Merger, as Exhibit B.
FIFTH: The proposed merger has been adopted, approved, certified,
executed and acknowledged by the subsidiary corporation (Sabratek Delaware) in
accordance with the laws of the State of Delaware.
SIXTH: Sabratek Delaware Corporation shall be the surviving
corporation. As provided in said resolutions, upon the effectiveness of this
merger, the name of the surviving corporation shall automatically change to
Sabratek Corporation.
IN WITNESS WHEREOF, the undersigned signatures shall constitute the
affirmation or acknowledgment of the signatory, under penalties of perjury,
that the instrument is the signatory's act and deed and that the facts stated
herein are true.
<PAGE> 8
IN WITNESS WHEREOF, the Merger Agreement, having first been duly approved
by the Boards of Directors of Sabratek Illinois and Sabratek Delaware, is
hereby executed on behalf of each of such corporations and attested by their
respective officers thereunto duly authorized.
ATTEST: Sabratek Corporation
An Illinois corporation
By Doron Levitas By K. S. Padda
------------------------- ----------------------------
Doron Levitas K. S. Padda
Its Assistant Secretary Its Vice President of Finance
ATTEST: Sabratek Delaware Corporation
A Delaware corporation
By Doron Levitas By K. S. Padda
-------------------------- -------------------------------
Doron Levitas K. S. Padda
Its Assistant Secretary Its Vice President of Finance
<PAGE> 9
JOINT CONSENT RESOLUTIONS OF
THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
SABRATEK CORPORATION
The undersigned, being all of the members of the Board of Directors and
all of the shareholders of Sabratek Corporation, an Illinois corporation (the
"Company"), hereby take the following action by written consent, effective as
of November 25, 1991:
(1) WHEREAS, the Company was incorporated on December 29, 1989, and the
officers and directors of the Company have taken certain actions on behalf of
the Company since the date of incorporation in furtherance of the Company's
business objectives; and
WHEREAS, the Company has failed to adequately document the authority of
such officers and directors to take such actions; and
WHEREAS, the Company desires to document such authorizations;
RESOLVED, that the following actions are hereby authorized, approved,
ratified and confirmed in all respects:
(a) The appointment of Doron Levitas as President and Vice
President of Operations of the Company effective as of December 29,
1989; the appointment of K. S. Padda as Vice President of Finance
and Secretary of the Company effective as of December 29, 1989; the
appointment of Alan E. Jordan as Vice President of Sales and
Marketing and as a director of the Company effective as of
January 1, 1991; and the appointment of Alan E. Jordan as President
of the Company effective as of September 1, 1991.
(b) The execution of an employment agreement between the Company
and Alan E. Jordan and, pursuant thereto, the grant of an option on
February 1, 1991 to purchase 4.5 shares of Common Stock of the
Company for an aggregate exercise price of $112,500, exercisable for
three years from the date of grant.
(c) The issuance of 25 shares of Common Stock to Doron Levitas on
December 29, 1989 for an aggregate purchase price of $28,028; the
issuance of 41.375 shares of Common Stock to K. S. Padda on January
10, 1990 for an aggregate purchase price of $28,053; the issuance of
16.375 shares of Common Stock to Doron Levitas on May 15, 1990 for
an aggregate purchase price of $25; the issuance of 0.25 shares of
Common Stock to Ardath Berliant on December 12, 1990 for an
aggregate purchase price of $2,500; the issuance of 5.5 shares of
Common Stock to Alan E. Jordan on August 15, 1991 as compensation
for past services valued at $6,285; the issuance of 7 shares of
Common Stock to Kulwant Sandhu on August 15, 1991 as compensation
for a direct loan to the Company and the
<PAGE> 10
guaranty of certain other bank loans, which services were
valued at $7,994; and the issuance of 4.5 shares of
Common Stock to Alan E. Jordan on October 16, 1991 pursuant
to the exercise of Mr. Jordan's option for an aggregate
purchase price of $112,500 paid in the form of a promissory
note;
(d) The execution of the manufacturing and distribution
services agreement between the Company and Automatic Systems
Developers, Incorporated.
(e) The execution of distribution agreements between the
Company and various medical products distributors in accordance
with the Company's form distribution agreement, modified as
deemed appropriate by the officers of the Company.
(f) The purchase by the Company of 66-2/3% of the outstanding
common stock of DAK-Tech, Ltd., and the execution of the
product development agreement between the Company and
DAK-Tech, Ltd.
RESOLVED FURTHER, that all other acts of any officer or director of
the Company from the date of the Company's incorporation to the date hereof
are hereby authorized, approved, ratified and confirmed in all respects.
(2) WHEREAS, the Company desires to reincorporate in the State of Delaware;
and
WHEREAS, the Board of Directors and all of the shareholders of the
Company deem it to be advisable and in the best interests of the Company to
reincorporate in the State of Delaware;
RESOLVED, that the President or the Vice President of Finance of the
Company, or any of them, are authorized, empowered and directed, in the name
of and on behalf of the Company, to take all actions that they deem
necessary or appropriate to form a wholly owned subsidiary corporation of the
Company named Sabratek Delaware Corporation, a Delaware corporation ("Sabratek
Delaware"), including subscribing and paying for 100 shares of Common Stock
of Sabratek Delaware at a price of $1.00 per share for a total price of $100.
RESOLVED FURTHER, that the Board of Directors and all of the shareholders
of the Company hereby approves and adopts in all respects the proposed
Agreement and Plan of Merger between the Company and Sabratek Delaware to be
dated as of November 25, 1991, in substantially the form attached hereto as
Exhibit A (the "Merger Agreement"), with such changes and additions as shall
be approved by the President or Vice President of Finance of the Company,
pursuant to which, among other things, each share of Common Stock of the
Company issued and outstanding immediately prior to the effective date of the
merger shall be changed and converted into
2
<PAGE> 11
thirty thousand (30,000) fully paid and nonassessable shares of Common Stock
of Sabratek Delaware, and each share of Common Stock of Sabratek Delaware
issued and outstanding immediately prior to the effective date of the merger
shall be canceled and returned to the status of authorized but unissued
shares; and that the President or Vice President of Finance of the Company, or
any of them, are hereby authorized, empowered and directed, in the name of and
on behalf of the Company, to execute and deliver the Merger Agreement and any
related agreements; and that appropriate officers of the Company are authorized
to do and perform all such acts and things, as any of them may deem necessary
or appropriate to effectuate the purpose of the Merger Agreement.
RESOLVED FURTHER, That wherever in these resolutions any officer of the
Company is authorized to take any action which he or she deems necessary,
proper, advisable or required, the signing or execution by such officer of
any instrument or the taking of any such action shall be conclusive evidence
that he or she deems the action to be necessary, proper, advisable or
required.
RESOLVED FURTHER, That all acts of the officers of the Company
previously performed with respect to the Merger Agreement are hereby
ratified, confirmed and approved in all respects.
/s/ Alan E. Jordon
--------------------------
Alan E. Jordon
Director and Shareholder
/s/ K.S. Padda 11/29/91
--------------------------
K.S. Padda
Director and Shareholder
/s/ Doron Levitas 11-29-91
--------------------------
Doron Levitas
Director and Shareholder
/s/ Ardath Berliant
--------------------------
Ardath Berliant
Shareholder
/s/ Kulwant Sandhu
--------------------------
Kulwant Sandhu
Shareholder
3
<PAGE> 12
EXHIBIT B
JOINT CONSENT RESOLUTIONS OF THE
BOARD OF DIRECTORS AND SOLE SHAREHOLDER OF
SABRATEK DELAWARE CORPORATION
The undersigned, being all of the members of the Board of Directors and
sole shareholder of Sabratek Delaware Corporation, a Delaware corporation (the
"Corporation"), hereby adopt the following resolutions by written consent
effective December 2, 1991:
RESOLVED, that the Board of Directors and all of the stockholders of the
Corporation hereby approve and adopt in all respects the proposed Agreement and
Plan of Merger between the Corporation and Sabratek Corporation to be dated as
of December 2, 1991, in substantially the form attached hereto as Exhibit A (the
"Merger Agreement"), with such changes and additions as shall be approved by the
President or Vice President of Finance of the Company, pursuant to which, among
other things, each share of the Common Stock of Sabratek Corporation, an
Illinois corporation, shall be changed and converted into thirty thousand
(30,000) fully paid and nonassessable shares of the Corporation, and each share
of Common Stock of the Corporation issued and outstanding immediately prior to
the effective date of the merger shall be canceled and returned to the status of
authorized but unissued shares; and that the President and Vice President of
Finance of the Corporation or any of them, are hereby authorized, empowered and
directed, in the name of and on behalf of the Corporation to execute and deliver
the Merger Agreement and any related agreements; and that appropriate officers
of the Corporation are authorized to do and perform all such acts and things, as
any of them may deem necessary or appropriate to effectuate the purpose of the
Merger Agreement; and
RESOLVED, That upon the effectiveness of this merger, the name of the
surviving corporation shall automatically change to Sabratek Corporation.
RESOLVED, That wherever in these resolutions any officer of the
Corporation is authorized to take any action which he or she deems necessary,
proper, advisable or required, the signing or execution by such officer of any
instrument or the taking of any such action shall be conclusive evidence that
he or she deems the action to be necessary, proper, advisable or required; and
RESOLVED, That all acts of the officers of the Corporation previously
performed with respect to the Merger Agreement are hereby ratified, confirmed
and approved in all respects.
<PAGE> 13
/s/ Alan E. Jordan
----------------------------
Alan E. Jordan
/s/ K.S. Padda
----------------------------
K.S. Padda
/s/ Doron Levitas
----------------------------
Doron Levitas
Sabratek Corporation
By:
-------------------------
Alan E. Jordan
Its: President
<PAGE> 14
State of Delaware
PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "SABRATEK CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-THIRD
DAY OF DECEMBER, A.D. 1992, AT 10 O'CLOCK A.M.
/s/ Edward J. Freel
[SEAL] -----------------------------------
Edward J. Freel, Secretary of State
2280692 8100 AUTHENTICATION: 7946371
960140287 DATE: 05-15-96
<PAGE> 15
CERTIFICATE OF DESIGNATION
OF
SABRATEK CORPORATION
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware, Sabratek Corporation, a Delaware corporation (the "Corporation"),
hereby adopts this Certificate of Designation for the purpose of designating
shares of undesignated stock and does hereby certify that:
FIRST: That at a meeting of the Board of Directors of the Corporation
held on October 14, 1992, resolutions were duly adopted setting forth a
Certificate of Designation of Nonvoting Common Stock of the Corporation. The
resolution setting forth the designation is as follows:
RESOLVED, that the attached Certificate of Designation of
Nonvoting Common Stock designating 400,000 shares of the Company's
undesignated shares to be shares of nonvoting common stock is
hereby approved and adopted, and the officers of the
Company are hereby authorized and directed to file such
Certificate of Designation with the Secretary of State of Delaware
and take all such other actions necessary to cause the same to
become effective.
SECOND: That the Certificate of Designation of Nonvoting Common Stock,
as attached to the above referenced resolution, and as approved and adopted by
the Board of Directors of the Corporation is attached hereto as Exhibit A.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Corporation has caused this Certificate of
Designation to be signed by K. S. Padda, its Chief Executive Officer and Doron
Levitas, its Secretary, this 27th day of November, 1992.
SABRATEK CORPORATION
By: /s/ K. S. Padda
----------------------------
K. S. Padda
Chief Executive Officer
Attested:
By:/s/ Doron Levitas
-------------------
Doron Levitas
Secretary
<PAGE> 16
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
K. S. Padda, Chief Executive Officer and Doron Levitas, Secretary of
Sabratek Corporation, a Delaware corporation, being first duly sworn on oath,
deposes and says that they are the aforementioned Officers; that they executed
the foregoing Certificate of Designation as such Officers and know the contents
thereof, and that said contents are true.
/s/ K. S. Padda
--------------------------------
K. S. Padda
/s/ Doron Levitas
--------------------------------
Doron Levitas
SUBSCRIBED in my presence and sworn to before me this 27th day of
November, 1992.
/s/ Juanita C. Todd
--------------------------------
Notary Public
My commission expires:
"OFFICIAL SEAL"
JUANITA C. TODD
11-17-93 Notary Public, State of Illinois
---------- My Commission Expires 11/17/93
<PAGE> 17
EXHIBIT A
CERTIFICATE OF DESIGNATION OF
NONVOTING COMMON STOCK
OF
SABRATEK CORPORATION
Of the one million (1,000,000) undesignated shares which the Corporation is
authorized to issue under its Certificate of Incorporation, four hundred
thousand (400,000) of such shares will be classified as shares of nonvoting
common stock of the Corporation. The holder of shares of nonvoting common
stock will not be entitled to vote such shares on any matter submitted to the
stockholders of the Corporation. Otherwise the shares of nonvoting common stock
will have the same rights and preferences as, and will be equal in all respects
to, shares of the Corporation's voting common stock.
In the event the Corporation registers any of its securities under the
Securities Act of 1933, upon effectiveness of such registration and thereafter
the shares of nonvoting common stock will have the same voting rights as and
will otherwise be treated in all respects identical to the shares of voting
common stock of the Corporation.
In the event of a merger or consolidation of the Corporation with any other
corporation or limited liability company, and the shares of voting common stock
of the Corporation outstanding immediately before such merger or consolidation
(and the securities exchanged therefor and/or distributed thereon as a result
of such merger or consolidation) constitute less than a majority of the voting
power of the capital stock of the surviving corporation outstanding immediately
after such merger or consolidation, the shares of nonvoting common stock will
be treated in all respects identical to the shares of voting common stock of
the Corporation under the terms of such merger or consolidation, and
thereafter (to the extent they remain outstanding) will have the same voting
rights as and will otherwise be treated in all respects identical to the shares
of voting common stock of the Corporation.
In the event the Corporation sells substantially all of its assets, upon
effectiveness of such sale of assets and thereafter the shares of nonvoting
common stock will have the same voting rights as and will otherwise be treated
in all respects identical to the shares of voting common stock of the
Corporation.
For purposes of the preceding two paragraphs, a series of related transactions
will constitute a single transaction.
<PAGE> 18
State of Delaware
PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "SABRATEK CORPORATION", FILED IN THIS OFFICE ON THE NINETEENTH DAY OF
SEPTEMBER, A.D. 1994 AT 1 O'CLOCK P.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2280692 8100 AUTHENTICATION: 7946370
960140287 DATE: 05-15-96
<PAGE> 19
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SABRATEK CORPORATION
SABRATEK CORPORATION, a corporation duly organized and existing under
the General Corporation Law of the State of Delaware, hereby certifies as
follows:
FIRST: The name of the corporation is SABRATEK CORPORATION and the
Certificate of Incorporation was filed with the Secretary of State of Delaware
on December 4, 1991, a Certificate of Ownership and Merger was filed on
December 4, 1991, and a Certificate of Stock Designation was filed on December
23, 1992,
SECOND: That the Board of Directors of SABRATEK CORPORATION duly
adopted on August 25, 1994 the following resolutions setting forth proposed
amendments to the Certificate of Incorporation of the Corporation declaring
said amendments to be advisable and recommending their adoption by the
stockholders of said Corporation. The resolutions setting forth the proposed
amendment are as follows:
RESOLVED, that, the Board of Directors of the Company deems it
in the best interests of the Company to amend its Certificate of
Incorporation to provide for an authorized capital consisting of
22,000,000 shares of capital stock of which 15,000,000 shall be shares
of Common Stock, $.01 par value per share and 7,000,000 shares of
Preferred Stock, $.01 par value per share;
FURTHER RESOLVED, that the following proposal to amend the
Company's Articles of Incorporation as aforesaid be submitted to the
shareholders of the Company for their approval at the Special Meeting:
Article IV of the Company's Certificate of Incorporation shall be
deleted in its entirety and replaced with the following:
<PAGE> 20
ARTICLE IV
4.1. The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 22,000,000 shares.
4.2. All shares when issued shall be fully paid and nonassessable. The
private property of shareholders shall not be liable for corporate debts.
4.3. Of the authorized shares, 15,000,000 shall be shares of common
stock with a par value of $.01 per share (the "Common Stock").
4.4. Of the authorized shares, 7,000,000 shall be shares of preferred
stock, with a par value of $.01 per share (the "Preferred Shares"). The
designations of the Preferred Shares and the powers, preferences,
qualifications, limitations or restrictions, and relative rights thereof shall
be as follows:
4.5. The board of directors is expressly authorized at any time and
from time to time to provide for the issuance of the Preferred Shares in one or
more series, with such voting powers and with such designations, preferences
and relative participating, optional or other special rights and
qualifications, limitations or restrictions thereof as shall be expressed in
the resolution or resolutions providing for the issue thereof adopted by the
Board of Directors, including (but without limiting the generality of the
foregoing) the following:
(a) the designation of such series;
(b) the dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the preference or relation which
such dividends shall bear to the dividends payable on any other class or
classes or on any other series of any class or classes of capital stock of
the Corporation, and whether such dividends shall be cumulative or
noncumulative;
(c) whether the shares of such series may be redeemed by the
Corporation, and, if so, the terms, prices and other terms and conditions
of such redemption;
(d) the terms and amount of any sinking fund provided for the purchase
or redemption of the shares of such series;
(e) whether the shares of such series shall be convertible into or
exchangeable for shares of any other class or classes or of any other
series of any class or classes of capital stock of the Corporation, and,
if provision be made for conversion
-2-
<PAGE> 21
or exchange, the times, prices, rates, adjustments and other terms and
conditions of such conversion or exchange;
(f) the restrictions and conditions, if any, upon the issue or reissue
of any additional Preferred Shares ranking on a parity with or prior to
such shares as to dividends or upon dissolution; and
(g) the rights of holders of the shares of such series upon the
liquidation or the distribution of assets of the Corporation, which rights
may be different in the case of a voluntary liquidation than in the case
of an involuntary liquidation.
4.6. Except as otherwise required by law and except for such voting
powers with respect to the election of directors or other matters as may be
stated in the resolutions of the board of directors creating any series of
Preferred Shares, the holders of any such series shall have no voting power
whatsoever.
4.7. Each share of common stock shall be entitled to one vote, either
in person or by proxy, at all shareholder meetings.
4.8. Cumulative voting shall not be allowed in the election of
directors.
4.9. All outstanding shares of common stock shall share equally in
dividends and upon liquidation subject to the rights of any Preferred Shares.
Dividends are payable at the discretion of the Board of Directors at such times
and in such amounts as it deems advisable, subject to the rights of any
Preferred Shares and the provisions of the Delaware General Corporation Law.
4.10. The Board of Directors may cause any stock issued by the
Corporation to be issued subject to such lawful restrictions, qualifications,
limitations, or special rights as it deems appropriate, which restrictions,
qualifications, limitations or special rights may be created by provisions in
the bylaws of the corporation or in the minutes of any properly convened
meeting of the Board of Directors. Notice of such special restrictions,
qualifications, limitations or special rights, however, must appear on the
certificate evidencing ownership of such stock.
THIRD: That said amendments have been duly adopted in accordance with
the provisions of the General Corporation Law of the State of Delaware at a
meeting of the
-3-
<PAGE> 22
stockholders held on the 8th day of September, 1994, all in accordance with the
provisions of Section 242 of the General Corporation Law.
IN WITNESS WHEREOF, SABRATEK CORPORATION has caused this Certificate to
be signed by K. Shan Padda, its President, and attested to by Scott Skooglund,
its Assistant Secretary, this 16th day of September, 1994.
SABRATEK CORPORATION
By: K. Shan Padda
------------------------------
K. Shan Padda, Chairman
ATTEST:
Scott Skooglund
- -----------------------------------------
Scott Skooglund, Assistant Secretary
-4-
<PAGE> 23
State of Delaware
PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "SABRATEK CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-FIRST
DAY OF SEPTEMBER, A.D. 1994, AT 3:45 O'CLOCK P.M.
[SEAL]
Edward J. Freel
-------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7946369
DATE: 05-15-96
<PAGE> 24
CERTIFICATE OF DESIGNATION, PREFERENCE AND RIGHTS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
SABRATEK CORPORATION
---------------------
Sabratek Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"),
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of
this Corporation (the "Board of Directors") by the Certificate of
Incorporation, as amended, of this Corporation, and pursuant to the provisions
of Section 151 of Title 8 of the Delaware Code, the Board of Directors, by
unanimous written consent of its members dated September 21, 1994, adopted a
resolution providing for the designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, of Seven Million (7,000,000) shares of the Corporation's
Preferred Stock, par value one cent ($.01) per share, which resolution is as
follows:
RESOLVED: That pursuant to the authority granted to and vested in the Board of
Directors of this Corporation in accordance with the provisions of
the Certificate of Incorporation, as amended, of this Corporation,
the Board of Directors hereby designates a series of Preferred
Stock, par value $.01 per share, and hereby fixes the designation
and number of shares, and the relative rights, preferences, and
limitations thereof (in addition to any provisions set forth in the
Certificate of
<PAGE> 25
Incorporation which are applicable to preferred stock of all classes
and series) as follows:
Series A Convertible Preferred Stock. The preferences, privileges and
restrictions granted to or imposed on the Corporation's Series A Convertible
Preferred Stock, par value $.01 per share, or the holders thereof, are as
follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting the Series A Preferred Stock
shall be Seven Million (7,000,000). Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Voting Rights.
(a) General. Except as may be otherwise required by law, the holders
of Series A Preferred Stock shall vote together with all other classes
and series of stock of the Corporation, and not as a separate class or
series, on all actions to be taken by the stockholders of the
Corporation and shall have such additional voting rights as provided in
this Certificate of Designation or provided by law. Each share of
Series A Preferred Stock shall entitle the holder thereof to such number
of votes per share on each such action as shall equal the number of
shares of common stock, par value $.01 per share ("Common Stock"), of
the Corporation (including fractions of a share) into which each share
of such Series A Preferred Stock is then convertible on the record date
for the determination of the stockholders entitled to vote on such
matters, or, if no such record date is established, in accordance with
the Delaware General Corporation Law.
(b) Written Consent. Except as otherwise required by law, in any case
in which an affirmative vote of the holders of record of a proportion
of the Series A Preferred Stock is required under this Certificate of
Designation, the written consent (which may be in the form of a written
consent action pursuant to the Delaware General Corporation Law or in
another form evidencing such consent) of the holders of record of such
proportion of the shares of Series A Preferred Stock shall be deemed
equivalent to such a vote.
(c) Director Election Right. The holders of a majority of the
outstanding shares of Series A Preferred Stock, voting separately, shall
be entitled to elect one (1) director of the Corporation (the "Series A
Director"). At any annual or special meeting of the Corporation (or in
a written consent in lieu thereof) held for the purpose of electing
directors, the presence in person or by proxy (or by written consent) of
the holders of a majority of the outstanding shares of Series A
Preferred Stock shall constitute a quorum for the election of the
Series A Director.
-2-
<PAGE> 26
Any director elected by the holders of the Series A Preferred Stock may be
removed during his or her term of office, with or without cause, by and only
by, the affirmative vote or written consent of the holders of a majority of the
outstanding shares of the Series A Preferred Stock. A vacancy in the seat held
by the Series A Director shall be filled by vote or written consent of the
holders of a majority of the outstanding shares of Series A Preferred Stock.
The Corporation shall not fix the number of directors to exceed nine.
Section 3. Dividends.
(a) Computation of Cumulative Dividends. The holders of the outstanding
shares of Series A Preferred Stock shall be entitled to receive, as, when and
if declared by the Board of Directors out of any funds legally available
therefor, cumulative dividends at the annual rate of $0.075 per share. Such
dividends shall accrue from day to day on each share of Series A Preferred
Stock from the date of original issuance of such share, whether or not earned
or declared, and shall accrue until paid upon conversion of the Series A
Preferred Stock pursuant to Section 5 hereof or upon liquidation, dissolution
or winding up of the Corporation within the meaning of Section 4 hereof.
All numbers relating to the calculation of cumulative dividends shall be
subject to equitable adjustment in the event of any stock dividend, stock
split, combination, reorganization, recapitalization, reclassification or other
similar event involving a change in the terms of the Series A Preferred Stock.
Such dividends on the Series A Preferred Stock shall be cumulative so that if
such dividends in respect of any previous or current annual dividend period, at
the annual rate specified above, shall not have been paid or declared and a sum
sufficient for the payment thereof has not been set aside, the deficiency shall
first be fully paid before any dividend or other distribution shall be paid or
declared and set aside for the Common Stock.
(b) Restrictions on Distributions. Unless all accrued dividends on each share
of the Series A Preferred Stock shall have been paid or declared and a sum
sufficient for the payment thereof set aside, no dividend shall be paid or
declared, and no distribution shall be made, on any Common Stock (other than a
dividend on Common Stock payable solely in the form of additional shares of
Common Stock).
Section 4. Liquidation Rights.
(a) Treatment at Liquidation, Dissolution or Winding Up. The Series A
Preferred Stock shall be preferred as to assets over the Common Stock of the
Corporation. In the event of any liquidation, dissolution, or winding up of
the Corporation, whether voluntary or involuntary, or in the event of its
insolvency, the holders of Series A Preferred Stock shall be entitled to have
set apart for them, or to be paid, out of the assets of the
-3-
<PAGE> 27
Corporation available for distribution to stockholders, and before any
distribution or payment is made to any holders of any shares of Common Stock or
any other class or series of capital stock of the Corporation, an amount equal
to the greater of:
(i) $1.50 per share of Series A Preferred Stock (which amount shall be
subject to equitable adjustment in the event of a stock dividend, stock
split, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the capital structure of the
Company with respect to the Series A Preferred Stock) plus all accrued and
unpaid dividends thereon, whether or not earned or declared, up to and
including the date full payment shall be tendered to the holders of the
Series A Preferred Stock with respect to such liquidation, dissolution or
winding up; or
(ii) Such amount per share of Series A Preferred Stock as would have been
payable had each such share been converted to Common Stock immediately
prior to such event of liquidation, dissolution or winding up pursuant to
the provisions of Section 5 hereof.
If, upon any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary, the assets legally available for distribution
among the holders of the Series A Preferred Stock shall be insufficient to
permit payment to such holders of the full preferential amounts as provided for
above, then such holders shall share ratably in any distribution of available
assets according to the respective amounts which would otherwise be payable with
respect to the shares of Series A Preferred Stock held by them upon such
liquidating distribution if all amounts payable on or with respect to said
shares were paid in full, based upon the aggregate liquidation value of the
Series A Preferred Stock.
After such payment shall have been made in full to the holders of the Series A
Preferred Stock, or funds necessary for such payment shall have been set aside
by the Corporation in trust for the account of holders of the Series A
Preferred Stock so as to be available for such payment, the remaining assets
available for distribution shall be distributed ratably among the holders of
the Common Stock.
The amounts to be paid or set aside for payment as provided above in this
Section 4 shall be proportionately increased or decreased in inverse relation
to the change in the number of outstanding shares resulting from any
consolidation or combination of capital stock, stock-split, stock dividend,
subdivision of shares, recapitalization, reclassification or similar event (a
"Recapitalization Event").
(b) Deemed Liquidation. For purposes of this Section 4 any of the following
transactions shall be deemed to be a liquidation, dissolution or winding up:
(1) a consolidation or merger of the Corporation with or into any other
corporation or corporations, (2) a sale or other disposition of all or
substantially all of the assets of the
-4-
<PAGE> 28
Corporation, and (3) the issuance and/or sale by the Corporation of shares of
Common Stock (or securities convertible into shares of Common Stock) in a
single or integrated transaction constituting a majority of the shares of
Common Stock outstanding immediately following such issuance (treating all
securities convertible into shares of Common Stock as having been fully
converted and all options and other rights to acquire shares of Common Stock or
securities convertible into shares of Common Stock as having been fully
exercised); provided, however, that none of the foregoing transactions shall
be deemed to be a liquidation, dissolution or winding up for purposes of this
paragraph if an election to do so shall have been approved by an affirmative
vote of holders of record of a majority of the shares of Series A Preferred
Stock then outstanding.
Section 5. Conversion Rights.
(a) General. Subject to the terms and conditions set forth in this Section (5),
each holder of record of any share of Series A Preferred Stock may, at any time
(except that upon any liquidation of the Corporation the right of conversion
shall terminate at the close of business on the business day fixed for payment
of the amount distributable with respect to the Series A Preferred Stock), upon
surrender to the Corporation of the certificate(s) therefor at the principal
office of the Corporation or at such other place as the Corporation shall
designate, convert all or any part of such holder's share(s) of Series A
Preferred Stock. Upon any conversion pursuant to this Section 5(a), each share
of Series A Preferred Stock to be converted shall be converted into the number
of fully paid and nonassessable shares of Common Stock determined by dividing
$1.50 by the then effective Conversion Price, as adjusted pursuant to
subsection (b) of this Section 5, in effect as of the effective date of such
conversion. The initial "Conversion Price" shall be $1.50.
(b) Adjustments. The number of shares of Common Stock into which each share of
Series A Preferred Stock may be converted shall be subject to the following
adjustments:
(i) Upon Issuances of Common Stock or Common Stock Equivalents. If the
Corporation shall issue or sell any shares of its Common Stock or Common
Stock Equivalents (as hereinafter defined), except as set forth more
particularly in Section 5(b)(iv), at a price per share which is less
than the Conversion Price in effect immediately prior to such issuance
or sale, then in each case the Conversion Price shall be reduced, upon
such issuance or sale, to a price determined by dividing (a) the sum of
(i) the number of shares of Common Stock outstanding immediately prior
to such issuance or sale (calculated on a fully diluted basis assuming
the exercise or conversion of all then exercisable options, warrants,
purchase rights or convertible securities), multiplied by the Conversion
Price in effect immediately prior to such issuance or sale, plus (ii)
the consideration received by the Corporation upon such issuance or
sale, by (b) the number of shares of Common Stock outstanding
immediately after such issuance
-5-
<PAGE> 29
or sale (calculated on a fully diluted basis assuming the exercise or
conversion of all then exercisable options, warrants, purchase rights or
convertible securities); and in the event of such an adjustment of the
Conversion Price, the number of shares of Common Stock into which each
share of such Series A Preferred Stock may be converted shall be
increased to a number determined by dividing (a) the Conversion Price in
effect immediately before the foregoing adjustment by (b) the Conversion
Price in effect immediately after the foregoing adjustment. Each such
adjustment of the Conversion Price shall be calculated to the nearest
cent, and as applicable, to the nearest hundredths place and nearest
whole share.
As used herein, the term "Common Stock Equivalents" includes any
securities convertible into or exchangeable for shares of Common Stock,
or any warrants, options, subscriptions or purchase rights with respect
to such Common Stock or convertible or exchangeable securities.
(ii) Upon Issuances of Warrants, Options, and Common Stock Equivalents.
For the purposes of this Section 5(b), if the Corporation shall issue or
sell any Common Stock Equivalents (except as set forth more particularly
in Section 5(b)(iv)), the maximum total number of shares of Common Stock
issuable upon exercise of such rights or the exchange and conversion of
such Common Stock Equivalents shall thereupon be deemed to have been
issued and to be outstanding, and the consideration received by the
Corporation therefor shall be deemed to include the sum of the
consideration received for the issue of such rights and the minimum
additional consideration payable upon the exercise of such rights or
the exchange and conversion of such Common Stock Equivalents. No further
adjustment of the Conversion Price adjusted upon the issuance of such
rights shall be made as a result of the actual issuance of shares of
Common Stock on the exercise of any such rights or the exchange and
conversion of such Common Stock Equivalents. If the provisions of any
rights described in this Section 5(b) with respect to the purchase price
of shares of Common Stock or the number of shares purchasable shall
change or expire or if the purchase price thereunder shall decrease or
the number of shares purchasable thereunder increase, any adjustment
previously made hereunder for such rights with respect to Series A
Preferred Stock not yet converted shall be readjusted as of the date of
issuance of such rights to such as would have obtained on the basis of
the rights as modified by such change or expiration (except for the
operation of any anti-dilutive provisions thereof).
(iii) Consideration. In case the Corporation shall issue shares of its
Common Stock or Common Stock Equivalents for a consideration wholly or
partly other than cash, the amount of the consideration other than cash
received by the Corporation shall be deemed to be the fair market value
of such consideration as determined reasonably and in good faith by the
Board of Directors of the Corporation.
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In case Common Stock shall be deemed to have been issued upon the
issuance by the Corporation of any right to acquire such Common Stock in
connection with the issue or sale of other securities or assets of the
Corporation, together comprising one integrated transaction, such rights
shall be deemed to have been issued for such portion of the
consideration received as may be reasonably determined in good faith by
the Board of Directors to be allocable thereto.
Consideration received by the Corporation for issuance of its Common
Stock shall be determined in all cases without deduction therefrom of
any expenses, underwriting commissions or concessions incurred in
connection therewith which are reasonable and customary with respect to
that particular transaction.
(iv) Exceptions to Anti-Dilution. Anything herein notwithstanding, no
adjustments in the number of shares of Common Stock deliverable upon
conversion of the Series A Preferred Stock as set forth in this Section
5 shall be made by reason of or in connection with the issuance of
shares of Common Stock (including options to purchase such shares
whether such options are issued before, at the same time as or after the
authorization of the Series A Preferred Stock) pursuant to employee
stock option agreements, employee stock option or stock purchase plans
adopted by the Board of Directors of the Corporation for the issuance of
shares of Common Stock to employees or consultants, up to a maximum of
2,000,000 shares of Common Stock in the aggregate.
(v) Changes in Common Stock: Capital Reorganization or Reclassification.
If the Corporation shall subdivide the outstanding shares of Common
Stock into a greater number of shares of Common Stock or combine the
outstanding shares of Common Stock into a lesser number of shares, or
issue additional shares of Common Stock as a dividend or other
distribution on its Common Stock, or reorganize or reclassify its shares
of Common Stock into any other shares of the Corporation, the number of
shares of Common Stock into which each share of Series A Preferred Stock
may be converted immediately prior thereto shall be adjusted so that the
holder of the shares of Series A Preferred Stock thereafter surrendered
for conversion shall be entitled to receive for each share of Series A
Preferred Stock the number of shares of Common Stock which such holder
would have owned or been entitled to receive after the happening of any
of the events described above if such holder's Series A Preferred Stock
had been converted immediately prior to the happening of such event,
such adjustment to become effective concurrently with effectiveness of
such event.
(vi) Merger, Consolidation or Sale of Assets. If there shall be a merger
or consolidation of the Corporation with or into another corporation
(other than a merger or reorganization involving only a change in the
state of incorporation of the Corporation or the acquisition by the
Corporation of other businesses where the Corporation survives as a
going concern), or the sale of all or substantially
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<PAGE> 31
all of the Corporation's capital stock or assets to any other person
to which the provisions of Section 4(b) do not apply, then as a part
of such transaction, provision shall be made so that the holders of
the Series A Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Preferred Stock the number of shares
of stock or other securities or property of the Corporation, or of the
successor corporation resulting from the merger, consolidation or
sale, to which such holder would have been entitled if such holder had
converted its shares of Series A Preferred Stock immediately prior
thereto. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 to the end that the
provisions of this Section 5 shall be applicable after that event in
as nearly equivalent a manner as may be practicable.
(vii) Equitable Adjustments. If the Corporation takes any other
action, or if any other event occurs which does not otherwise come
within the scope of this Section, but which should result in an
adjustment in the Conversion Price and/or the number of Common Shares
into which each share of Series A Preferred Stock may be converted in
order to fairly protect the conversion rights of the holders of Series
A Preferred Stock, an appropriate adjustment shall be made by the
Corporation.
(c) Automatic Conversion upon Public Offering. All outstanding shares of
Series A Preferred Stock shall be deemed automatically converted into such
number of shares of Common Stock as are determined in accordance with Section
5(a) hereof immediately upon the closing of an underwritten public offering of
the Common Stock of the Corporation on a firm commitment basis pursuant to an
effective registration statement filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, where the
Corporation actually receives proceeds (before deduction of underwriting
discounts and expenses of sale) of not less than $15,000,000 and the per share
sales price of such securities is not less than the $4.00, as adjusted for
Recapitalization Events (an "Automatic Conversion Event"). On or after the date
of occurrence of an Automatic Conversion Event, and in any event within ten
(10) days after receipt of notice, by mail, postage prepaid from the
Corporation of the occurrence of such event, each holder of record of shares of
Series A Preferred Stock shall surrender such holder's certificates evidencing
such shares at the principal office of the Corporation or at such other place as
the Corporation shall designate, and shall thereupon be entitled to receive
certificates evidencing the number of shares of Common Stock into which such
shares of Series A Preferred Stock are converted. On the date of the occurrence
of an Automatic Conversion Event, each holder of record of shares of Series A
Preferred Stock shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such conversion and no shares of Series A Preferred
Stock shall be considered outstanding, without any further action by the
holders of such shares and whether or not the certificates representing such
shares of Series A Preferred Stock are surrendered to the Corporation or its
transfer agent.
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<PAGE> 32
(d) Notice of Adjustments. Upon any adjustment of the Conversion Price or the
number of shares into which Series A Preferred Stock may be converted, then in
each such case the Corporation shall give written notice thereof within thirty
(30) days of the occurrence of the adjustment, addressed to each registered
holder of Series A Preferred Stock at the address of such holder as shown on
the records of the Corporation. Such notice shall state the Conversion Price
resulting from such adjustment and the increase or decrease, if any, in the
number or shares issuable upon the conversion of Series A Preferred Stock,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
(e) Exercise of Conversion Privilege. To exercise its conversion privilege, a
holder of Series A Preferred Stock shall surrender the certificate or
certificates representing the shares being converted to the Corporation at its
principal office, and shall give written notice to the Corporation at that
office that such holder elects to convert such shares. The certificate or
certificates for shares of Series A Preferred Stock surrendered for conversion
shall be accompanied by proper assignment thereof to the Corporation or in
blank. As promptly as practicable after the date when such written notice is
received by the Corporation (the "Conversion Date"), the Corporation shall
issue and shall deliver to the holder of the shares of Series A Preferred Stock
being converted, or on its written order, such certificate or certificates as
it may request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series A Preferred Stock in accordance with the
provisions of this Section 5, cash in the amount of all declared but unpaid
dividends on such shares of Series A Preferred Stock, up to and including the
Conversion Date, and cash, as provided in Section 5(f), in respect of any
fraction of a share of Common Stock issuable upon such conversion. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the Conversion Date, and at such time the rights of the holder
as holder of the converted shares of Series A Preferred Stock shall cease and
the person(s) in whose name(s) any certificate(s) for shares of Common Stock
shall be issuable shall be deemed to have become the holder or holders of
record of the shares of Common Stock represented thereby.
(f) Cash in Lieu of Fractional Shares. No fractional shares of Common Stock
shall be issued upon the conversion of shares of Series A Preferred Stock.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of Series A Preferred Stock, the Corporation shall pay
to the holder of the shares of Series A Preferred Stock which were converted a
cash adjustment in respect of such fractional shares in an amount equal to the
same fraction of the fair market value per share of the Common Stock (as
determined in a reasonable manner prescribed by the Board of Directors) at the
close of business on the Conversion Date.
Section 6. Covenants.
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<PAGE> 33
(a) Restrictions and Limitations. The Corporation shall not, for so long as any
shares of Series A Preferred Stock are outstanding, without the affirmative
vote of the holders of record of a majority of the outstanding shares of Series
A Preferred Stock, take any corporate action or otherwise amend its Certificate
of Incorporation without the approval by vote or written consent of the holders
of at least a majority of the then outstanding shares of Series A Preferred
Stock if such corporate action or amendment would change any of the rights,
preferences, privileges of or limitations provided for herein for the benefit
of any shares of Series A Preferred Stock or materially adversely affect the
rights of the holders of the Series A Preferred Stock. Without limiting the
generality of the foregoing, the Corporation will not amend its Certificate of
Incorporation or take any other corporate action without the approval by the
holders of at a majority of the then outstanding shares of Series A Preferred
Stock if such amendment or corporate action would:
(i) Declare or pay any dividends or make any other distributions on
shares of Common Stock other than dividends payable solely in Common
Stock;
(ii) Repurchase any shares of capital stock (other than pursuant to
employee stock purchase, option or benefit plans or stock repurchase
agreements authorized by the Board of Directors of the Corporation);
(iii) Sell, lease or otherwise dispose of all or substantially all of
its assets, or voluntarily liquidate, dissolve or wind up, merge with or
consolidate into any corporation, firm or entity, except for a merger or
consolidation involving (1) only a change in the state of incorporation
of the Corporation, (2) a merger of the Corporation with or into a
wholly-owned subsidiary of the Corporation that is incorporated in the
United States of America, or (3) an acquisition by merger,
reorganization or consolidation of another corporation where the
Corporation is the surviving entity and operates as a going concern;
(iv) Amend, repeal or modify any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-Laws, if such
amendment would in any way affect the rights of the Series A Preferred
Stock;
(v) Authorize or create any additional shares of Preferred Stock or
shares of any class or series of stock having any preference or priority
as to dividends or assets superior to or on a parity with any such
preference or priority of the Series A Preferred Stock, or authorize,
create or issue (other than shares currently reserved for issuance upon
the exercise of outstanding warrants or options) shares of any class or
series or any bonds, debentures, notes or other obligations convertible
into or exchangeable for, or having optional rights to purchase, any
shares of the Corporation having any such preference or priority;
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<PAGE> 34
(vi) Reclassify the shares of Common Stock or any other shares of stock
hereafter created junior to the Series A Preferred Stock as to dividends
or assets into shares of Series A Preferred Stock or into shares having
any preference or priority as to dividends or assets superior to or on a
parity with that of the Series A Preferred Stock; or
(vii) Adversely affect the liquidation preferences, dividend rights,
conversion rights or voting rights of the holders of the Series A
Preferred Stock.
(b) Termination of Restrictions and Limitations upon Automatic Conversion
Event. The provisions of Section 6(a) shall terminate upon the occurrence of an
Automatic Conversion Event pursuant to Section 5(c) hereof.
(c) Reservation of Common Stock. The Corporation shall at all times reserve and
keep available out of its authorized but unissued Common Stock the full number
of shares of Common Stock deliverable upon the conversion of all the then
outstanding shares of Series A Preferred Stock and shall take all such action
and obtain all such permits or orders as may be necessary to enable the
Corporation lawfully to issue such Common Stock upon the conversion of Series A
Preferred Stock.
(d) No dilution or Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of capital
stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series A Preferred Stock set forth
herein, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Series A
Preferred Stock against dilution or other impairment. Without limiting the
generality of the foregoing, the Corporation (a) will not increase the par
value of any shares of stock receivable on the conversion of the Series A
Preferred Stock above the amount payable therefor on such conversion, and (b)
will take all such action as may be necessary or appropriate in order that the
Corporation may validly and legally issue fully paid and nonassessable shares
of stock on the conversion of all Series A Preferred Stock from time to time
outstanding.
(e) Notices of Record Date. In the event of
(i) any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of
capital stock of any class or any other securities or property, or to
receive any other right, or
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<PAGE> 35
(ii) any capital reorganization of the Corporation, any reclassification
or recapitalization of the capital stock of the Corporation, any merger
or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other
Corporation, or any other entity or person, or
(iii) any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation,
then and in each such event the Corporation shall deliver or cause to be
delivered to each holder of Series A Preferred Stock a notice specifying (i)
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, and
(iii) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up. Such
notice shall be delivered by facsimile transmission, hand delivery or overnight
courier service to the holders of the Series A Preferred Stock at the address
given to the Corporation, for notice purposes, at lease ten (10) days prior to
the date specified in such notice on which such action is to be taken, except
in the case of an involuntary dissolution, which notice shall be provided
within three (3) days following the date upon which the Corporation receives
notice of such event.
(f) No Reissuance of Series A Preferred Stock. No share or shares of Series A
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares which the Corporation shall
be authorized to issue. The Corporation shall from time to time take such
appropriate corporate action as may be necessary to reduce the authorized
number of shares of the Series A Preferred Stock.
(g) Certain Taxes. The corporation shall pay any issue or transfer taxes
payable in connection with the conversion of the Series A Preferred Stock,
provided, however, that the corporation shall not be required to pay any tax
which may be payable in respect of any transfer to a name other than that of
the holder of the Series A Preferred Stock.
(h) Closing of Books. The Corporation shall at no time close its transfer books
against the transfer of any Series A Preferred Stock or of any shares of Common
Stock issued or issuable upon the conversion of any shares of Series A Stock in
any manner which interferes with the timely conversion or transfer of the
Series A Preferred Stock or Common Stock.
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<PAGE> 36
Section 7. Additional Capital Requirements
(a) Prior to an Automatic Conversion Event, the holder of each share of
Series A Preferred Stock shall have the right to subscribe to any additional
equity securities or securities convertible into equity securities (the
"Securities") of the Corporation pro rata to their ownership of Series A
Preferred Stock. No Securities shall be offered by the Corporation to any
person or entity other than the holders of Series A Preferred Stock unless the
Corporation shall have first complied with the applicable provisions of this
Section 7.
(b) The Board of Directors shall determine in good faith the amount of the
required capital and the type and purchase price of each Security. Upon such
determination, the Corporation will provide written notice of such capital
requirement (a "Capital Requirement Notice") to each holder of shares of Series
A Preferred Stock, which Capital Requirement Notice shall specify (i) the
amount of such required equity capital, (ii) the type and number of Securities
proposed to be issued by the Corporation, (iii) the purchase price per
Security, (iv) the date such capital is required and (v) the use to which such
capital is intended to be put.
(c) Each holder of Series A Preferred Stock may, at its option, during the
ten (10) day period commencing on the date of the Capital Requirement Notice,
give written notice to the Corporation of its election to purchase (and if such
notice is given such holder shall purchase the amount of Securities being
offered equal to the product of (i) the total amount of Securities being
offered by the Corporation, multiplied by (ii) a fraction, the numerator of
which is the number of shares of Common Stock issuable upon conversion of the
Series A Preferred Stock then owned by such holder and the denominator of which
is the total number of shares of Common Stock outstanding (calculated on a
fully diluted basis assuming the exercise or conversion of all then exercisable
options, warrants, purchase rights or convertible securities). In the event the
Corporation is offering Securities as a unit, each holder of Series A Preferred
Stock electing to purchase any Securities must purchase the unit so offered.
(d) The closing the purchase and sale of Securities to the holders of
Series A Preferred Stock pursuant to this Section 7 shall take place on a date
specified by the Corporation, which date shall be not less than (10) nor more
than thirty (30) days after the expiration of the ten (10) day period following
the giving of the Capital Requirement Notice. The Corporation shall be free to
offer and sell to other persons and entities sufficient Securities to satisfy
such requirement, provided, however that such sale is consummated within one
hundred eighty (180) days after the giving of the Capital Requirement Notice.
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<PAGE> 37
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Designation on behalf of the Corporation this 21 day of September, 1994.
K.S. Padda
-----------------------------------
K.S. Padda
Chairman of the Board
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<PAGE> 38
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "SABRATEK CORPORATION", FILED IN THIS OFFICE ON THE TENTH DAY OF
MAY, A.D. 1995, AT 10:30 O'CLOCK A.M.
[SEAL]
Edward J. Freel
[SEAL] ------------------------------------
Edward J. Freel, Secretary of State
2280692 8100 AUTHENTICATION: 7946368
960140287 DATE: 05-15-96
<PAGE> 39
RESTATED
CERTIFICATE OF INCORPORATION
(Originally incorporated on December 4,
1991 under Sabratek Delaware Corporation)
SABRATEK CORPORATION, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: Setting forth a proposed Restated Certificate of Incorporation of
said corporation, declaring said Restated Certificate of Incorporation to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The proposed Restated Certificate of Incorporation is as
follows: SEE ATTACHED
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held on March 18, 1995, upon at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment duly adopted in accordance with the
provisions of Section 242 and 245 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, said SABRATEK CORPORATION has caused this
certificate to be signed by K. Shan Padda, its Chief Executive Officer, this
_____ day of April, 1995.
SABRATEK CORPORATION
By: /s/ K. Shan Padda
-------------------------
K. Shan Padda
Chief Executive Officer
<PAGE> 40
AMENDED AND RESTATED
CERTICATE OF INCORPORATION
OF
SABRATEK CORPORATION
ARTICLE I
The name of this Corporation is Sabratek Corporation (the "Corporation").
ARTICLE II
The address of its registered office in the State of Delaware is 1209
Orange Street, in the City of Wilmington, County of New Castle. The name of
its registered agent is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
4.1. The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 37,500,000 shares.
4.2. All shares when issued shall be fully paid and nonassessable. The
private property of shareholders shall not be liable for corporate debts.
4.3. Of the authorized shares, 25,000,000 shall be shares of common stock
with a par value of $.01 per share (the "Common Stock").
4.4. Of the authorized shares, 12,500,000 shall be shares of preferred
stock, with a par value of $.01 per share (the "Preferred Shares"). The
designations of the Preferred Shares and the powers, preferences,
qualifications, limitations or restrictions, and relative rights thereof shall
be as follows:
4.5. The board of directors is expressly authorized at any time and from
time to time to provide for the issuance of the Preferred Shares in one or more
series, with such voting powers and with such designations, preferences and
relative participating, optional or other special rights and qualifications,
limitations or restrictions thereof as shall be expressed in the Amended and
Restated Certificate of Designation, Preference and Rights of Series A
Convertible
<PAGE> 41
Preferred Stock of the Corporation attached as Exhibit A hereto, or in the
resolution or resolutions providing for the issue thereof adopted by the Board
of Directors, including (but without limiting the generality of the foregoing)
the following:
(a) the designation of such series;
(b) the dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the preference or relation which
such dividends shall bear to the dividends payable on any other class or
classes or on any other series of any class or classes of capital stock
of the Corporation, and whether such dividends shall be cumulative or
noncumulative;
(c) whether the shares of such series may be redeemed by the
Corporation, and, if so, the terms, prices and other terms and
conditions of such redemption;
(d) the terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(e) whether the shares of such series shall be convertible into or
exchangeable for shares of any other class or classes or of any other
series of any class or classes of capital stock of the Corporation. and,
if provision be made for conversion or exchange, the times, prices,
rates, adjustments and other terms and conditions of such conversion or
exchange;
(f) the restrictions and conditions, if any, upon the issue or
reissue of any additional Preferred Shares ranking on a parity with or
prior to such shares as to dividends or upon dissolution; and
(g) the rights of holders of the shares of such series upon the
liquidation or the distribution of assets of the Corporation, which
rights may be different in the case of a voluntary liquidation than in
the case of an involuntary liquidation.
4.6. Except as otherwise required by law and except for such voting powers
with respect to the election of directors or other matters as may be stated in
the resolutions of the board of directors creating any series of Preferred
Shares, the holders of any such series shall have no voting power whatsoever.
4.7. Each share of common stock shall be entitled to one vote, either in
person or by proxy, at all shareholder meetings.
4.8. Cumulative voting shall not be allowed in the election of
directors.
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<PAGE> 42
4.9. All outstanding shares of common stock shall share equally in
dividends and upon liquidation subject to the rights of any Preferred
Shares. Dividends are payable at the discretion of the Board of Directors
at such times and in such amounts as it deems advisable, subject to the
rights of any Preferred Shares and the provisions of the Delaware General
Corporation Law.
4.10. The Board of Directors may cause any stock issued by the
Corporation to be issued subject to such lawful restrictions,
qualifications, limitations, or special rights as it deems appropriate,
which restrictions, qualifications, limitations or special rights may be
created by provisions in the bylaws of the corporation, or in the minutes
of any properly convened meeting of the Board of Directors. Notice of such
special restrictions, qualifications, limitations or special rights,
however, must appear on the certificate evidencing ownership of such stock.
ARTICLE V
Election of directors need not be by written ballot.
ARTICLE VI
The Corporation shall be managed by the Board of Directors,, which
shall exercise all powers conferred under the law of the State of Delaware
including without limitation the power:
(a) To hold meetings, to have one or more offices, and
to keep the books of the Corporation, except as otherwise
expressly provided by law, at such places, whether within or
without the State of Delaware, as may from time to time be
designated by the Board;
(b) To adopt, amend, or repeal bylaws of the Corporation, subject
to the reserved power of the stockholders to adopt, amend, or
repeal bylaws.
(c) To accept or reject subscriptions for and to allot
share of stock of the Corporation and to dispose of shares of
authorized stock of the Corporation, including the power to
grant stock options and warrants, without action by the
stockholders and upon such terms and conditions as may be
deemed advisable by the Board of Directors in the exercise of
its discretion, except as it is otherwise limited by law.
(d) To issue, sell or otherwise dispose of bonds, debentures,
certificates of indebtedness and other securities, including
those convertible into stock, without action by the
stockholders and for such consideration and upon such terms and
conditions as may be deemed advisable by the Board of Directors
in the exercise of its discretion, except as it is otherwise
limited by law.
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<PAGE> 43
ARTICLE VII
7.1 The Corporation shall indemnifY to the full extent authorized or
permitted by law (as now or hereafter in effect) any person made, or threatened
to be made, a party to any threatened, pending or completed action, suit or
proceeding (whether civil or criminal, administrative or investigative (other
than an action by or in the right of the Corporation)) by reason of the fact
that he is or was a director or officer of the Corporation or by reason by the
fact that such director or officer, at the request of the Corporation, is or
was serving any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, in any capacity; provided, however, that the
Corporation shall not indemnify any director or officer in connection with any
action by such director or officer against the Corporation unless the
Corporation shall have consented to such action. Nothing contained herein
shall affect any rights to indemnification to which employees other than
directors and officers may he entitled by law. No amendment or repeal of this
paragraph A of Article VII shall apply to or have any effect on any right to
indemnification provided hereunder with respect to any acts or omission
occurring prior to such amendment or repeal.
7.2 No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of
fiduciary duty by such a director as a director, except to the extent provided
by applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the General Corporation Law of Delaware, or (iv) for
any transaction from which such director derived an improper personal benefit.
No amendment to or repeal of this paragraph B of Article VIII shall apply to or
have any effect on the liability or alleged liability of any director
of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
7.3 In furtherance and not in limitation of the powers conferred
by statute:
(a) the Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability
under the provisions of law; and
(b) the Corporation may create a trust fund, grant a security
interest and/or use other names (including, without limitation, letters
of credit surety bonds and/or other similar arrangements), as well as
enter into contracts providing indemnification to the full extent
authorized or permitted by law and including as part thereof provisions
with respect to any or all of the foregoing to
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<PAGE> 44
ensure the payment of such amounts as may become necessary to effect
indemnification as provided herein, or elsewhere.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change, or repeal any
provisions contained in this Certificate of Incorporation in the manner now or
hereafter prescibed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
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<PAGE> 45
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION, PREFERENCE AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
SABRATEK CORPORATION
______________
Sabratek Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"),
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of this
Corporation (the "Board of Directors") by the Certificate of Incorporation, as
amended, of this Corporation, and pursuant to the provisions of Section 151 of
Title 8 of the Delaware Code, the Board of Directors, by unanimous written
consent of its members dated September 21, 1994, adopted a resolution providing
for the designations, preferences and relative, participating, optional or
other rights, and the qualifications, limitations or restrictions of the
Corporation's Preferred Stock, par value one cent ($.01) per share, which
resolution is as follows:
<PAGE> 46
RESOLVED: That pursuant to the authority granted to and vested in the Board of
Directors of this Corporation in accordance with the provisions of the
Certificate of Incorporation, as amended, of this Corporation, the
Board of Directors hereby designates a series of Preferred Stock,
par value $.01 per share, and hereby fixes the designation and
number of shares, and the relative rights, preferences, and
limitations thereof (in addition to any provisions set forth in the
Certificate of Incorporation which are applicable to preferred stock
of all classes and series) as follows:
Series A Convertible Preferred Stock. The preferences, privileges and
restrictions granted to or imposed on the Corporation's Series A Convertible
Preferred Stock, par value $.01 per share, or the holders thereof, are as
follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting the Series A Preferred Stock
shall be Twelve Million Five Hundred Thousand (12,500,000). Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares then outstanding
plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Series A
Preferred Stock.
Section 2. Voting Rights.
(a) General. Except as may be otherwise required by law, the holders
of Series A Preferred Stock shall vote together with all other classes
and series of stock of the Corporation, and not as a separate class or
series, on all actions to be taken by the stockholders of the
Corporation and shall have such additional voting rights as provided in
this Certificate of Designation or provided by law. Each share of Series
A Preferred Stock shall entitle the holder thereof to such number of
votes per share on each such action as shall equal the number of shares
of common stock, par value $.01 per share ("Common Stock"), of the
Corporation (including fractions of a share) into which each share of
such Series A Preferred Stock is then convertible on the record date for
the determination of the stockholders entitled to vote on such matters,
or, if no such record date is established, in accordance with the
Delaware General Corporation Law.
(b) Written Consent. Except as otherwise required by law, in any case
in which an affirmative vote of the holders of record of a proportion of
the Series A Preferred Stock is required under this Certificate of
Designation, the written consent (which may be in the form of a written
consent action pursuant to the Delaware General Corporation Law or in
another form evidencing such consent) of the holders of record of such
proportion of the shares of Series A Preferred Stock shall be deemed
equivalent to such a vote.
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<PAGE> 47
(c) Director Election Right. The holders of a majority of the outstanding shares
of Series A Preferred Stock, voting separately, shall be entitled to elect one
(1) director of the Corporation (the "Series A Director"). At any annual or
special meeting of the Corporation (or in a written consent in lieu thereof)
held for the purpose of electing directors, the presence in person or by proxy
(or by written consent) of the holders of a majority of the outstanding shares
of Series A Preferred Stock shall constitute a quorum for the election of the
Series A Director.
Any director elected by the holders of the Series A Preferred Stock may be
removed during his or her term of office, with or without cause, by and only
by, the affirmative vote or written consent of the holders of a majority of the
outstanding shares of the Series A Preferred Stock. A vacancy in the seat held
by the Series A Director shall be filled by vote or written consent of the
holders of a majority of the outstanding shares of Series A Preferred Stock.
The Corporation shall not fix the number of directors to exceed nine.
Section 3. Dividends.
(a) Computation of Cumulative Dividends. The holders of the outstanding shares
of Series A Preferred Stock shall be entitled to receive, as, when and if
declared by the Board of Directors out of any funds legally available therefor,
cumulative dividends at the annual rate of $0.075 per share. Such dividends
shall accrue from day to day on each share of Series A Preferred Stock from the
date of original issuance of such share, whether or not earned or declared, and
shall accrue until paid upon conversion of the Series A Preferred Stock
pursuant to Section 5 hereof or upon liquidation, dissolution or winding up of
the Corporation within the meaning of Section 4 hereof.
All numbers relating to the calculation of cumulative dividends shall be subject
to equitable adjustment in the event of any stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other
similar event involving a change in the terms of the Series A Preferred Stock.
Such dividends on the Series A Preferred Stock shall be cumulative so that if
such dividends in respect of any previous or current annual dividend period, at
the annual rate specified above, shall not have been paid or declared and a sum
sufficient for the payment thereof has not been set aside, the deficiency
shall first be fully paid before any dividend or other distribution shall be
paid or declared and set aside for the Common Stock.
(b) Restrictions on Distributions. Unless all accrued dividends on each share
of the Series A Preferred Stock shall have been paid or declared and a sum
sufficient for the payment thereof set aside, no dividend shall be paid or
declared, and no distribution shall be made, on any Common Stock (other than a
dividend on Common Stock payable solely in the form of additional shares of
Common Stock).
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<PAGE> 48
Section 4. Liquidation Rights.
(a) Treatment at Liquidation, Dissolution or Winding Up. The Series A
Preferred Stock shall be preferred as to assets over the Common Stock of the
Corporation. In the event of any liquidation, dissolution, or winding up of
the Corporation, whether voluntary or involuntary, or in the event of its
insolvency, the holders of Series A Preferred Stock shall be entitled to have
set apart for them, or to be paid, out of the assets of the Corporation
available for distribution to stockholders, and before any distribution or
payment is made to any holders of any shares of Common Stock or any other class
or series of capital stock of the Corporation, an amount equal to the greater
of:
(i) $1.50 per share of Series A Preferred Stock (which amount shall be
subject to equitable adjustment in the event of a stock dividend, stock
split, combination, reorganization, recapitalization, reclassification
or other similar event involving a change in the capital structure of
the Corporation with respect to the Series A Preferred Stock) plus all
accrued and unpaid dividends thereon, whether or not earned or declared,
up to and including the date full payment shall be tendered to the
holders of the Series A Preferred Stock with respect to such
liquidation, dissolution or winding up; or
(ii) Such amount per share of Series A Preferred Stock as would have
been payable had each such share been converted to Common Stock
immediately prior to such event of liquidation, dissolution or winding
up pursuant to the provisions of Section 5 hereof.
If, upon any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary, the assets legally available for distribution
among the holders of the Series A Preferred Stock shall be insufficient
to permit payment to such holders of the full preferential amounts as provided
for above, then such holders shall share ratably in any distribution of
available assets according to the respective amounts which would otherwise be
payable with respect to the shares of Series A Preferred Stock held by them
upon such liquidating distribution if all amounts payable on or with respect to
said shares were paid in full, based upon the aggregate liquidation value of
the Series A Preferred Stock.
After such payment shall have been made in full to the holders of the Series A
Preferred Stock, or funds necessary for such payment shall have been set aside
by the Corporation in trust for the account of holders of the Series A
Preferred Stock so as to be available for such payment, the remaining assets
available for distribution shall be distributed ratably among the holders of
the Common Stock.
The amounts to be paid or set aside for payment as provided above in this
Section 4 shall be proportionately increased or decreased in inverse relation
to the change in the number
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<PAGE> 49
of outstanding shares resulting from any consolidation or combination of
capital stock, stock-split, stock dividend, subdivision of shares,
recapitalization, reclassification, or similar event (a "Recapitalization
Event").
(b) Deemed Liquidation. For purposes of this Section 4 any of the following
transactions shall be deemed to be a liquidation, dissolution or winding up:
(1) a consolidation or merger of the Corporation with or into any other
corporation or corporations, (2) a sale or other disposition of all or
substantially all of the assets of the Corporation, and (3) the issuance
and/or sale by the Corporation of shares of Common Stock (or securities
convertible into shares of Common Stock) in a single or integrated transaction
constituting a majority of the shares of Common Stock outstanding immediately
following such issuance (treating all securities convertible into shares of
Common Stock as having been fully converted and all options and other rights
to acquire shares of Common Stock or securities convertible into shares of
Common Stock as having been fully exercised); provided, however, that none of
the foregoing transactions shall be deemed to be a liquidation, dissolution
or winding up for purposes of this paragraph if an election to do so shall
have been approved by an affirmative vote of holders of record of a majority
of the shares of Series A Preferred Stock then outstanding.
Section 5. Conversion Rights.
(a) General. Subject to the terms and conditions set forth in this Section 5,
each holder of record of any share of Series A Preferred Stock may, at any
time (except that upon any liquidation of the Corporation the right of
conversion shall terminate at the close of business on the business day fixed
for payment of the amount distributable with respect to the Series A Preferred
Stock), upon surrender to the Corporation of the certificate(s) therefor at
the principal office of the Corporation or at such other place as the
Corporation shall designate, convert all or any part of such holder's
share(s) of Series A Preferred Stock. Upon any conversion pursuant to this
Section 5(a), each share of Series A Preferred Stock to be converted shall
be converted into the number of fully paid and nonassessable shares of Common
Stock determined by dividing $1.50 by the then effective Conversion Price, as
adjusted pursuant to subsection (b) of this Section 5, in effect as of the
effective date of such conversion. The initial "Conversion Price" shall be
$1.50.
(b) Adjustments. The number of shares of Common Stock into which each share of
Series A Preferred Stock may be converted shall be subject to the following
adjustments:
(i) Upon Issuances of Common Stock or Common Stock Equivalents. If the
Corporation shall issue or sell any shares of its Common Stock or
Common Stock Equivalents (as hereinafter defined), except as set
forth more particularly in Section 5(b)(iv), at a price per share which
is less than the Conversion Price in effect immediately prior to such
issuance or sale, then in each case the
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<PAGE> 50
Conversion Price shall be reduced, upon such issuance or
sale, to a price determined by dividing (a) the sum of (i)
the number of shares of Common Stock outstanding immediately
prior to such issuance or sale (calculated on a fully diluted
basis assuming the exercise or conversion of all then
exercisable options, warrants, purchase rights or convertible
securities); multiplied by the Conversion Price in effect
immediately prior to such issuance or sale, plus (ii) the
consideration received by the Corporation upon such issuance
or sale, by (b) the number of shares of Common Stock
outstanding immediately after such issuance or sale
(calculated on a fully diluted basis assuming the exercise or
conversion of all then exercisable options, warrants,
purchase rights or convertible securities); and in the event
of such an adjustment of the Conversion Price, the number of
shares of Common Stock into which each share of such Series A
Preferred Stock may be converted shall be increased to a
number determined by multiplying the number of shares of
Common Stock into which each share of Series A Preferred Stock
was convertible immediately before the adjustment by a number
derived by dividing (a) the Conversion Price in effect
immediately before the foregoing adjustment by (b) the
Conversion Price in effect immediately after the foregoing
adjustment. Each such adjustment of the Conversion Price
shall be calculated to the nearest cent, and as applicable,
to the nearest hundredths place and nearest whole share.
As used herein, the term "Common Stock Equivalents" includes
any securities convertible into or exchangeable for shares of
Common Stock, or any warrants, options, subscriptions or
purchase rights with respect to such Common Stock or
convertible or exchangeable securities.
(ii) Upon Issuances of Warrants, Options, and Common Stock
Equivalents. For the purposes of this Section 5(b), if the
Corporation shall issue or sell any Common Stock Equivalents
(except as set forth more particularly in Section 5(b)(iv)),
the maximum total number of shares of Common Stock issuable
upon exercise of such rights or the exchange and conversion of
such Common Stock Equivalents shall thereupon be deemed to
have been issued and to be outstanding, and the consideration
received by the Corporation therefor shall be deemed to include
the sum of the consideration received for the issue of such
rights and the minimum additional consideration payable upon
the exercise of such rights or the exchange and conversion of
such Common Stock Equivalents. No further adjustment of the
Conversion Price adjusted upon the issuance of such rights
shall be made as a result of the actual issuance of shares of
Common Stock on the exercise of any such rights or the
exchange and conversion of such Common Stock Equivalents. If
the provisions of any rights described in this Section 5(b)
with respect to the purchase price of shares of Common Stock
or the number of shares purchasable shall change or expire or
if the purchase price thereunder shall decrease or the number
of shares purchasable thereunder increase, any adjustment
previously made hereunder for such rights with respect to
Series A Preferred
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<PAGE> 51
Stock not yet converted shall be readjusted as of the date of issuance of
such rights to such as would have obtained on the basis of the rights as
modified by such change or expiration (except for the operation of any
anti-dilutive provisions thereof).
(iii) Consideration. In case the Corporation shall issue shares of its
Common Stock or Common Stock Equivalents for a consideration wholly or
partly other than cash, the amount of the consideration other than cash
received by the Corporation shall be deemed to be the fair market value of
such consideration as determined reasonably and in good faith by the Board
of Directors of the Corporation.
In case Common Stock shall be deemed to have been issued upon the issuance
by the Corporation of any right to acquire such Common Stock in connection
with the issue or sale of other securities or assets of the Corporation,
together comprising one integrated transaction, such rights shall be deemed
to have been issued for such portion of the consideration received as may
be reasonably determined in good faith by the Board of Directors to be
allocable thereto.
Consideration received by the Corporation for issuance of its Common Stock
shall be determined in all cases without deduction therefrom of any
expenses, underwriting commissions or concessions incurred in connection
therewith which are reasonable and customary with respect to that
particular transaction.
(iv) Exceptions to Anti-Dilution. Anything herein notwithstanding, no
adjustments in the number of shares of Common Stock deliverable upon
conversion of the Series A Preferred Stock as set forth in this Section 5
shall be made by reason of or in connection with the issuance of shares of
Common Stock (including options to purchase such shares whether such
options are issued before, at the same time as or after the authorization
of the Series A Preferred Stock) pursuant to employee stock option
agreements, employee stock option or stock purchase plans adopted by the
Board of Directors of the Corporation for the issuance of shares of Common
Stock to employees or consultants, up to a maximum of 2,960,0000 shares of
Common Stock in the aggregate.
(v) Changes in Common Stock. Capital Reorganization or Reclassification.
If the Corporation shall subdivide the outstanding shares of Common Stock
into a greater number of shares of Common Stock or combine the outstanding
shares of Common Stock into a lesser number of shares, or issue additional
shares of Common Stock as a dividend or other distribution on its Common
Stock, or reorganize or reclassify its shares of Common Stock into any
other shares of the Corporation, the number of shares of Common Stock into
which each share of Series A Preferred Stock may be converted immediately
prior thereto shall be adjusted so that the holder of the shares of Series
A Preferred Stock thereafter
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<PAGE> 52
surrendered for conversion shall be entitled to receive for each share of
Series A Preferred Stock the number of shares of Common Stock which such
holder would have owned or been entitled to receive after the happening of
any of the events described above if such holder's Series A Preferred Stock
had been converted immediately prior to the happening of such event, such
adjustment to become effective concurrently with effectiveness of such
event.
(vi) Merger, Consolidation or Sale of Assets. If there shall be a merger
or consolidation of the Corporation with or into another corporation (other
than a merger or reorganization involving only a change in the state of
incorporation of the Corporation or the acquisition by the Corporation of
other businesses where the Corporation survives as a going concern), or the
sale of all or substantially all of the Corporation's capital stock or
assets to any other person to which the provisions of Section 4(b) do not
apply, then as a part of such transaction, provision shall be made so that
the holders of the Series A Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock the number of
shares of stock or other securities or property of the Corporation, or of
the successor corporation resulting from the merger, consolidation or sale,
to which such holder would have been entitled if such holder had converted
its shares of Series A Preferred Stock immediately prior thereto. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 5 to the end that the provisions of this Section
5 shall be applicable after that event in as nearly equivalent a manner as
may be practicable.
(vii) Equitable Adjustments. If the Corporation takes any other action, or if
any other event occurs which does not otherwise come within the scope of this
Section, but which should result in an adjustment in the Conversion Price and/or
the number of Common Shares into which each share of Series A Preferred Stock
may be converted in order to fairly protect the conversion rights of the holders
of Series A Preferred Stock, an appropriate adjustment shall be made by the
Corporation.
(c) Automatic Conversion upon Public Offering. All outstanding shares of
Series A Preferred Stock shall be deemed automatically converted into such
number of shares of Common Stock as are determined in accordance with Section
5(a) hereof immediately upon the closing of an underwritten public offering of
the Common Stock of the Corporation on a firm commitment basis pursuant to an
effective registration statement filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, where the
Corporation actually receives proceeds (before deduction of underwriting
discounts and expenses of sale) of not less than $15,000,000 and the per share
sales price of such securities is not less than the $4.00, as adjusted for
Recapitalization Events (an "Automatic Conversion Event"). On or after the
date of occurrence of an Automatic Conversion Event, and in any event within
ten (10) days after receipt of notice, by mail, postage prepaid from the
Corporation of the occurrence
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<PAGE> 53
of such event, each holder of record of shares of Series A Preferred Stock shall
surrender such holder's certificates evidencing such shares at the principal
office of the Corporation or at such other place as the Corporation shall
designate, and shall thereupon be entitled to receive certificates evidencing
the number of shares of Common Stock into which such shares of Series A
Preferred Stock are converted. On the date of the occurrence of an Automatic
Conversion Event, each holder of record of shares of Series A Preferred Stock
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such conversion and no shares of Series A Preferred Stock shall be
considered outstanding, without any further action by the holders of such shares
and whether or not the certificates representing such shares of Series A
Preferred Stock are surrendered to the Corporation or its transfer agent.
(d) Notice of Adjustments. Upon any adjustment of the Conversion Price or the
number of shares into which Series A Preferred Stock may be converted, then in
each such case the Corporation shall give written notice thereof within thirty
(30) days of the occurrence of the adjustment, addressed to each registered
holder of Series A Preferred Stock at the address of such holder as shown on
the records of the Corporation. Such notice shall state the Conversion Price
resulting from such adjustment and the increase or decrease, if any, in the
number or shares issuable upon the conversion of Series A Preferred Stock,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
(e) Exercise of Conversion Privilege. To exercise its conversion privilege, a
holder of Series A Preferred Stock shall surrender the certificate or
certificates representing the shares being converted to the Corporation at its
principal office, and shall give written notice to the Corporation at that
office that such holder elects to convert such shares. The certificate or
certificates for shares of Series A Preferred Stock surrendered for conversion
shall be accompanied by proper assignment thereof to the Corporation or in
blank. As promptly as practicable after the date when such written notice is
received by the Corporation (the "Conversion Date"), the Corporation shall issue
and shall deliver to the holder of the shares of Series A Preferred Stock being
converted, or on its written order, such certificate or certificates as it may
request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series A Preferred Stock in accordance with the
provisions of this Section 5, cash in the amount of all declared but unpaid
dividends on such shares of Series A Preferred Stock, up to and including the
Conversion Date, and cash, as provided in Section 5(f), in respect of any
fraction of a share of Common Stock issuable upon such conversion. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the Conversion Date, and at such time the rights of the holder as
holder of the converted shares of Series A Preferred Stock shall cease and the
person(s) in whose name(s) any certificate(s) for shares of Common Stock shall
be issuable shall be deemed to have become the holder or holders of record of
the shares of Common Stock represented thereby.
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<PAGE> 54
(f) Cash in Lieu of Fractional Shares. No fractional shares of Common Stock
shall be issued upon the conversion of shares of Series A Preferred Stock.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of Series A Preferred Stock, the Corporation shall pay
to the holder of the shares of Series A Preferred Stock which were converted a
cash adjustment in respect of such fractional shares in an amount equal to the
same fraction of the fair market value per share of the Common Stock (as
determined in a reasonable manner prescribed by the Board of Directors) at the
close of business on the Conversion Date.
Section 6. Covenants.
(a) Restrictions and Limitations. The Corporation shall not, for so long as
any shares of Series A Preferred Stock are outstanding, without the affirmative
vote of the holders of record of a majority of the outstanding shares of Series
A Preferred Stock, take any corporate action or otherwise amend its
Certificate of Incorporation without the approval by vote or written consent
of the holders of at least a majority of the then outstanding shares of
Series A Preferred Stock if such corporate action or amendment would change
any of the rights, preferences, privileges of or limitations provided for
herein for the benefit of any shares of Series A Preferred Stock or
materially adversely affect the rights of the holders of the Series A
Preferred Stock. Without limiting the generality of the foregoing, the
Corporation will not amend its Certificate of Incorporation or take any other
corporate action without the approval by the holders of at a majority of the
then outstanding shares of Series A Preferred Stock if such amendment or
corporate action would:
(i) Declare or pay any dividends or make any other distributions on
shares of Common Stock other than dividends payable solely in Common Stock;
(ii) Repurchase any shares of capital stock (other than pursuant to
employee stock purchase, option or benefit plans or stock repurchase
agreements authorized by the Board of Directors of the Corporation);
(iii) Sell, lease or otherwise dispose of all or substantially all of its
assets, or voluntarily liquidate, dissolve or wind up, merge with or
consolidate into any corporation, firm or entity, except for a merger or
consolidation involving (1) only a change in the state of incorporation of
the Corporation, (2) a merger of the Corporation with or into a
wholly-owned subsidiary of the Corporation that is incorporated in the
United States of America, or (3) an acquisition by merger, reorganization
or consolidation of another corporation where the Corporation is the
surviving entity and operates as a going concern;
(iv) Amend, repeal or modify any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-Laws, if such
amendment would in any way affect the rights of the Series A Preferred
Stock;
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<PAGE> 55
(v) Authorize or create any additional shares of Preferred Stock or
shares of any class or series of stock having any preference or priority as
to dividends or assets superior to or on a parity with any such preference
or priority of the Series A Preferred Stock, or authorize, create or issue
(other than shares currently reserved for issuance upon the exercise of
outstanding warrants or options) shares of any class or series or any
bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having optional rights to purchase, any shares of the
Corporation having any such preference or priority;
(vi) Reclassify the shares of Common Stock or any other shares of stock
hereafter created junior to the Series A Preferred Stock as to dividends or
assets into shares of Series A Preferred Stock or into shares having any
preference or priority as to dividends or assets superior to or on a parity
with that of the Series A Preferred Stock; or
(vii) Adversely Opaffect the liquidation preferences, dividend rights,
conversion rights or voting rights of the holders of the Series A Preferred
Stock.
(b) Termination of Restrictions and Limitations upon Automatic Conversion
Event. The provisions of Section 6(a) shall terminate upon the occurrence of
an Automatic Conversion Event pursuant to Section 5(c) hereof.
(c) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized but unissued Common Stock the
full number of shares of Common Stock deliverable upon the conversion of all the
then outstanding shares of Series A Preferred Stock and shall take all such
action and obtain all such permits or orders as may be necessary to enable the
Corporation lawfully to issue such Common Stock upon the conversion of Series A
Preferred Stock.
(d) No Dilution or Impairment. The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Series A Preferred Stock
set forth herein, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Series A
Preferred Stock against dilution or other impairment. Without limiting the
generality of the foregoing, the Corporation (a) will not increase the par value
of any shares of stock receivable on the conversion of the Series A Preferred
Stock above the amount payable therefor on such conversion, and (b) will take
all such action as may be necessary or appropriate in order that the Corporation
may validly and legally issue fully paid and nonassessable shares of stock on
the conversion of all Series A Preferred Stock from time to time outstanding.
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<PAGE> 56
(e) Notices of Record Date. In the event of
(i) any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of
capital stock of any class or any other securities or property, or to
receive any other right, or
(ii) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation, or any
transfer of all or substantially all of the assets of the Corporation to
any other Corporation, or any other entity or person, or
(iii) any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation,
then and in each such event the Corporation shall deliver or cause to be
delivered to each holder of Series A Preferred Stock a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or
right, (ii) the date on which any such reorganization, reclassification,
recapitalization, transer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, if any, that
is to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be delivered
by facsimile transmission, hand delivery or overnight courier service to the
holders of the Series A Preferred Stock at the address given to the
Corporation, for notice purposes, at least ten (10) days prior to the date
specified in such notice on which such action is to be taken, except in the case
of an involuntary dissolution, which notice shall be provided within three
(3) days following the date upon which the Corporation receives notice of
such event,
(f) No Reissuance of Series A Preferred Stock. No share or shares of
Series A Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be cancelled, retired and eliminated from the shares which the Corporation
shall be authorized to issue. The Corporation shall from time to time take such
appropriate corporate action as may be necessary to reduce the authorized
number of shares of the Series A Preferred Stock.
(g) Certain Taxes. The corporation shall pay any issue or transfer taxes
payable in connection with the conversion of the Series A Preferred Stock,
provided, however, that
- 12 -
<PAGE> 57
the corporation shall not be required to pay any tax which may be payable in
respect of any transfer to a name other than that of the holder of the Series A
Preferred Stock.
(h) Closing of Books. The Corporation shall at no time close its transfer
books against the transfer of any Series A Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Series A
Stock in any manner which interferes with the timely conversion or
transfer of the Series A Preferred Stock or Common Stock.
Section 7. Additional Capital Requirements
(a) Prior to an Automatic Conversion Event, the holder of each share of
Series A Preferred Stock shall have the right to subscribe to any additional
equity securities or securities convertible into equity securities (the
"Securities") of the Corporation pro rata to their ownership of Series A
Preferred Stock. No Securities shall be offered by the Corporation to any
person or entity other than the holders of Series A Preferred Stock unless the
Corporation shall have first complied with the applicable provisions of this
Section 7.
(b) The Board of Directors shall determine in good faith the amount of
the required capital and the type and purchase price of each Security. Upon
such determination, the Corporation will provide written notice of such capital
requirement (a "Capital Requirement Notice") to each holder of shares of Series
A Preferred Stock, which Capital Requirement Notice shall specify (i) the
amount of such required equity capital, (ii) the type and number of Securities
proposed to be issued by the Corporation, (iii) the purchase price per Security,
(iv) the date such capital is required and (v) the use to which such capital is
intended to be put.
(c) Each holder of Series A Preferred Stock may, at its option, during
the ten (10) day period commencing on the date of the Capital Requirement
Notice, give written notice to the Corporation of its election to purchase (and
if such notice is given such holder shall purchase the amount of Securities
being offered equal to the product of (i) the total amount of Securities being
offered by the Corporation, multiplied by (ii) a fraction, the numerator of
which is the number of shares of Common Stock issuable upon conversion of the
Series A Preferred Stock then owned by such holder and the denominator
of which is the total number of shares of Common Stock outstanding (calculated
on a fully diluted basis assuming the exercise or conversion of all then
exercisable options, warrants, purchase rights or convertible securities). In
the event the Corporation is offering Securities as a unit, each holder of
Series A Preferred Stock electing to purchase any Securities must purchase the
unit so offered,
(d) The closing the purchase and sale of Securities to the holders of Series
A Stock pursuant to this Section 7 shall take place on a date specified by the
Corporation, which date shall be not less than ten (10) nor more than thirty
(30) days
- 13 -
<PAGE> 58
after the expiration of the ten (10) day period following the giving of the
Capital Requirement Notice. The Corporation shall be free to offer and sell to
other persons and entities sufficient Securities to satisfy such requirement,
provided, however that such sale is consummated within one hundred eighty
(180) days after the giving of the Capital Requirement Notice.
- 14 -
<PAGE> 59
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "SABRATEK CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-FIFTH
DAY OF APRIL, A.D. 1996, AT 9 O'CLOCK A.M.
[DELAWARE SECRETARY'S
OFFICE SEAL]
Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7946367
DATE: 05-15-96
<PAGE> 60
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SABRATEK CORPORATION
SABRATEK CORPORATION, a corporation duly organized and existing under the
General Corporation Law of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is SABRATEK CORPORATION (the
"Corporation"); and the Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on December 4, 1991; a Restated
Certificate of Incorporation was filed on May 10, 1995; a Certificate of
Ownership and Merger was filed on December 4, 1991; a Certificate of Designation
of Nonvoting Common Stock was filed on December 23, 1992; a Certificate of
Designation, Preference and Rights of Series A Convertible Preferred Stock (the
"Certificate of Designation") was filed on September 21, 1994; and Stock
Amendment was filed on September 19, 1994.
SECOND: That the Board of Directors of the Corporation duly adopted on
April 17, 1996 the following resolutions setting forth proposed amendments to
the Certificate of Incorporation of the Corporation declaring said amendments to
be advisable and recommending their adoption by the stockholders of said
Corporation. The stockholder holding a majority of the outstanding stock of
each class entitled to vote approved said amendment by a written consent and the
notice relating to the approval of said amendments by a majority of the
stockholders was sent to all of the stockholders of the Corporation on April 25,
1996. The resolutions setting forth the proposed amendment are as follows:
<PAGE> 61
BE IT RESOLVED, Article IV of the Corporation's Certificate of
Incorporation is hereby deleted in its entirety and replaced with the
following:
ARTICLE IV
4.1. The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 37,500,000 shares.
4.2. All shares when issued shall be fully paid and nonassessable.
The private property of stockholders shall not be liable for corporate debts.
4.3. Of the authorized shares, 25,000,000 shares shall be shares of
common stock with a par value of $.01 per share (the "Common Stock").
4.4. Of the authorized shares, 12,500,000 shares shall be shares of
preferred stock, with a par value of $.01 per share (the "Preferred Shares").
The designations of the Preferred Shares and the powers, preferences,
qualifications, limitations or restrictions, and relative rights thereof shall
be as follows:
The Board of Directors is expressly authorized at any time and from
time to time to provide for the issuance of the Preferred Shares in
one or more series, with such voting powers and with such
designations, preferences and relative participating, optional or
other special rights and qualifications, limitations or restrictions
thereof as shall be expressed in the resolution or resolutions
providing for the issue thereof adopted by the Board of Directors,
including (but without limiting the generality of the foregoing) the
following:
(a) the designation of such series;
(b) the dividend rate of such series, the conditions and
dates upon which such dividends shall be payable, the preference or
relation which such dividends shall bear to the dividends payable on
any other class or classes or on any other series of any class or
classes of capital stock of the Corporation, and whether such
dividends shall be cumulative or noncumulative;
(c) whether the shares of such series may be redeemed by
the Corporation, and, if so, the terms, prices and other terms and
conditions of such redemption;
(d) the terms and amount of any sinking fund provided for
the purchase or redemption of the shares of such series;
-2-
<PAGE> 62
(e) whether the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes or of any
other series of any class or classes of capital stock of the
Corporation, and, if provision be made for conversion or exchange, the
times, prices, rates, adjustments and other terms and conditions of such
conversion or exchange;
(f) the restrictions and conditions, if any, upon the issue
or reissue of any additional Preferred Shares ranking on a parity with
or prior to such shares as to dividends or upon dissolution; and
(g) the rights of holders of the shares of such series upon
the liquidation or the distribution of assets of the Corporation, which
rights may be different in the case of a voluntary liquidation than in
the case of an involuntary liquidation.
4.5. Except as otherwise required by law and except for such voting
powers with respect to the election of directors or other matters as may be
stated in the resolutions of the Board of Directors creating any series of
Preferred Shares, the holders of any such series shall have no voting power
whatsoever.
4.6. Each share of Common Stock shall be entitled to one vote, either
in person or by proxy, at all stockholder meetings.
4.7. Cumulative voting shall not be allowed in the election of
directors.
4.8. All outstanding shares of Common Stock shall share equally in
dividends and upon liquidation, subject to the rights of any Preferred Shares.
Dividends are payable at the discretion of the Board of Directors at such times
and in such amounts as it deems advisable, subject to the rights of any
Preferred Shares and the provisions of the Delaware General Corporation Law.
4.9. The Board of Directors may cause any stock issued by the
Corporation to be issued subject to such lawful restrictions, qualifications,
limitations, or special rights as it deems appropriate, which restrictions,
qualifications, limitations or special rights may be created by provisions in
the bylaws of the corporation or in the minutes of any properly convened meeting
of the Board of Directors. Notice of such special restrictions, qualifications,
limitations or special rights, however, must appear on the certificate
evidencing ownership of such stock.
4.10. The 25,000,000 shares of Common Stock of the Corporation with
par value of $.01 and the 12,500,000 shares of Series A Preferred Stock of the
-3-
<PAGE> 63
Corporation with par value of $.01 which have heretofore been
authorized, including any such shares which are issued and
outstanding immediately prior to the time this amendment becomes
effective, shall be and are by means hereof automatically
reclassified and changed (without any further act) into
7,878,979 shares of Common Stock, par value $.01 per share, and
3,939,489 shares of Series A Preferred Stock, par value $.01 per
share, of the Corporation, without increasing or decreasing the
amount of stated capital or paid-in surplus of the Corporation,
provided that no fractional shares shall be issued. As provided
under Section 155(2) of the Delaware General Corporation Law,
the fractional share interests that occur as a result of the
foregoing reclassification and change shall be purchased by the
Corporation and the payment shall be allocated and distributed
among the holders of such fractional interest in shares as their
interest dictates;
Notwithstanding the foregoing, immediately following the
effectiveness of the foregoing reclassification and change, the
Corporation's authorized capital shall be increased such that
the Corporation's authorized capital shall consist of 25,000,000
shares of Common Stock, $.01 par value per share, and 12,500,000
Preferred Shares, of which 3,939,489 have been previously
designated as Series A Preferred Stock.
THIRD: That said amendments have been duly adopted in
accordance with Section 242 of the Delaware General Corporation Law by
means of a written consent of the stockholders holding a majority of the
outstanding stock of each class entitled to vote thereon.
IN WITNESS WHEREOF, the Corporation has caused this Certificate
to be signed by K. Shan Padda, its Chairman and Chief Executive Officer,
and attested to by Scott Skooglund, its Assistant Secretary, this 25th
day of April, 1996.
SABRATEK CORPORATION
By: /s/ K. Shan Padda
--------------------------------
K. Shan Padda, Chairman and Chief
Executive Officer
ATTEST:
/s/ Scott Skooglund
------------------------------------
Scott Skooglund, Assistant Secretary
-4-
<PAGE> 64
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
______________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "SABRATEK CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-FIFTH
DAY OF APRIL, A.D. 1996, AT 9:01 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2280692 8100 AUTHENTICATION: 7946366
960140287 DATE: 05-15-96
<PAGE> 65
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:01 AM 04/25/1996
960119827 - 2280692
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATION
OF
SABRATEK CORPORATION
__________________________
SABRATEK CORPORATION, a corporation duly organized and existing under
the General Corporation Law of the State of Delaware, hereby certifies as
follows:
FIRST: The name of the corporation is SABRATEK CORPORATION (the
"Corporation"); and the Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on December 4, 1991; a Restated
Certificate of Incorporation was filed on May 10, 1995; a Certificate of
Ownership and Merger was filed on December 4, 1991; a Certificate of Designation
of Nonvoting Common Stock was filed on December 23, 1992; a Certificate of
Designation, Preference and Rights of Series A Convertible Preferred Stock (the
"Certificate of Designation") was filed on September 21, 1994; and Stock
Amendment was filed on September 19, 1994.
SECOND: That the Board of Directors of the Corporation duly adopted on
April 17, 1996 the following resolutions setting forth proposed amendments to
the Certificate of Designation of the Corporation declaring said amendments to
be advisable and recommending their adoption by the stockholders of said
Corporation. The Stockholders holding a majority of the outstanding stock of
each class entitled to vote approved said amendments by
a written consent and the notice relating to such approval of the amendments by
a majority of the stockholders was sent to all of the stockholders of the
Corporation on April 25, 1996. The resolutions setting forth the proposed
amendment are as follows:
<PAGE> 66
RESOLVED, that the following proposal to amend the Certificate of
Designation be submitted to the stockholders of the Corporation for their
approval by written consent:
1. Subsection 5(c) of the Certificate of Designation with
respect the automatic conversion feature upon public offering is amended
by deleting a portion of the first sentence which reads "and the per
share sale price of such securities is not less than $4.00 as adjusted
for Recapitalization Events."
2. Subsections 6(iv) and 6(vii) with respect to adversely
affecting the rights of the holders of Series A Preferred Stock are
hereby deleted in their entirety.
3. Section 7 of the Certificate of Designation with respect to
additional capital requirements is hereby deleted in its entirety.
4. Section 3 of the Certificate of Designation with respect to
dividends is hereby amended by adding the following sentence to the end
of the first paragraph of Subsection (a) thereof: "Notwithstanding any
provision of this document to the contrary, no holder of shares of
Series A Preferred Stock shall be entitled to any dividends if the
shares of Series A Preferred Stock are converted into shares of Common
Stock pursuant to Section 5(c) hereof."
5. Section 2(c) of the Certificate of Designation with respect
to director election rights is hereby deleted in its entirety.
THIRD: That said amendments have been duly adopted in accordance with
Section 242 of the Delaware General Corporation Law by means of a written
consent of the stockholders holding a majority of issued and outstanding stock
of each class entitled to vote thereon.
-2-
<PAGE> 67
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by K. Shan Padda, its Chairman and Chief Executive Officer, and attested
to by Scott Skooglund, its Assistant Secretary, this 25th day of April, 1996.
SABRATEK CORPORATION
By: /s/ K. Shan Padda
---------------------------------
K. Shan Padda, Chairman and Chief
Executive Officer
ATTEST:
/s/ Scott Skooglund
- ------------------------------------
Scott Skooglund, Assistant Secretary
-3-
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
SABRATEK CORPORATION
A Delaware Corporation
(the "Corporation")
Revised February 10, 1996
ARTICLE I.
OFFICES
Section 1. Registered Office. The registered office of the Corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle,
State of Delaware. The name of the Corporation's registered agent at such
address shall be The Corporation Trust Company.
Section 2. Other Office. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. Place and Time of Annual Meeting. An annual meeting of the
stockholders shall be held for the purpose of electing directors and conducting
such other business as may come before the meeting. The date, time and place
of the annual meeting shall
<PAGE> 2
be determined by resolution of the Board of Directors. At each annual meeting,
the stockholders entitled to vote shall elect a Board of Directors and they may
transact such other business as shall be stated in the notice of the meeting.
Section 2. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chief Executive Officer or
the Chairman or a Vice-Chairman of the Board and shall be called by the Chief
Executive Officer or Secretary at the request in writing of stockholders owning
a majority in the amount of the entire capital stock of the Corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 3. Notice. Written or printed notice of every annual or special
meeting of the stockholders, stating the place, date, time, and, in the case of
special meetings, the purpose or purposes, of such meeting, shall be given to
each stockholder entitled to vote at such meeting not less than ten, nor more
than sixty, days before the date of the meeting. All such notices shall be
delivered, either personally or by mail, and if mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to
the stockholder at his or her address at it appears on the records of the
Corporation, with postage prepaid.
- 2 -
<PAGE> 3
Section 4. Waiver of Notice. Whenever any notice is required to be given
under the provisions of the statutes, or of the Certificate of Incorporation or
of these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
Section 5. Stockholder's List. The officer having charge of the stock
ledger of the Corporation shall make, at least ten days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, specifying the address of and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders except as
otherwise provided by statute or by the Certificate of Incorporation. If a
quorum is present, the holders of the shares present in person or represented
by proxy at the meeting, and entitled to vote thereat, shall have the power, by
the affirmative vote of the holders of a majority of such shares, to adjourn
the meeting to another
- 3 -
<PAGE> 4
time and/or place. Unless the adjournment is for more than thirty days or
unless a new record date is set for the adjourned meeting, no notice of the
adjourned meeting need be given to any stockholder provided that the time and
place of the adjourned meeting were announced at the meeting at which the
adjournment was taken. At the adjourned meeting the Corporation may transact
any business which might have been transacted at the original meeting.
Section 7. Vote Required. When a quorum is present or represented at any
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which by express
provisions of an applicable statute or of the Certificate of Incorporation a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 8. Voting Rights. Every stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
the capital stock having voting power held by such stockholder, except that no
proxy shall be voted after three years from its date, unless such proxy
provides for a longer period.
Section 9. Informal Action. Any action required to be taken at any annual
or special meeting of stockholders of the Corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the
- 4 -
<PAGE> 5
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of
the taking of the Corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing. Any action taken pursuant to such written consent of the stockholders
shall have the same force and effect as if taken by the stockholders at a
meeting thereof.
ARTICLE III.
DIRECTORS
Section 1. Number, Election and Term of Office. The number of directors
which shall constitute the whole board shall be nine (9). The directors shall
be divided into three (3) classes. Each class shall consist of three (3)
directors. The term of office of the first class shall expire on the day of
the next annual election of directors of the Corporation; the term of office of
the second class shall expire one year thereafter; and that of the third class
two (2) years thereafter. At each annual election after such classification,
the directors of each class whose term expires on the day of such election
shall be elected for a term of three (3) years.
Section 2. Management By Board of Directors. The business of the
Corporation shall be managed by its Board of Directors, which may exercise all
such powers of the Corporation and do all such lawful acts and things as are
not by statute, or by Certificate of Incorporation, or by these Bylaws directed
or required to be exercised or done by the stockholders.
- 5 -
<PAGE> 6
Section 3. Removal. Any director or the entire Board of Directors may be
removed at any time, with or without cause, by the holders of two-thirds (2/3)
of the shares of stock of the Corporation then entitled to vote at an election
of directors, except as otherwise provided by statute.
Section 4. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office though less than a quorum, and each
director so chosen shall hold office until the next annual election or until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as hereinafter provided.
Section 5. Annual Meetings. The annual meeting of each newly elected Board
of Directors shall be held without other notice than this Bylaw immediately
after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the Board of Directors may be held without notice at such
time and at such place as shall from time to time be determined by the board.
Special meetings of the Board of Directors may be called by or at the request
of the Chief Executive Officer or the Chairman or the Vice-Chairman of the
Board on at least twenty-four hours' notice to each director, either
personally, by telephone, by mail, or by telegraph or telephonic facsimile
transmission. Whenever any notice is required to be given under the provisions
of the statutes, or of the Certificate of Incorporation or of these Bylaws, a
waiver thereof in writing, signed by the person
- 6 -
<PAGE> 7
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
Section 7. Quorum. A majority of the total number of directors shall
constitute a quorum for the transaction of business. The vote of a majority of
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 8. Committees. The Board of Directors may, by resolution passed by
a majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the Corporation, which to the
extent provided in such resolution shall have and may exercise the powers of
the Board of Directors in the management and affairs of the Corporation except
as otherwise limited by statute. The Board of Directors may designate one or
more directors as alternate members of any committee. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required. The Compensation Committee shall consist of three directors, a
majority of which shall be "outside" directors (not persons who are management
of the Corporation), one of whom will be a representative of Marsam
- 7 -
<PAGE> 8
Pharmaceuticals, Inc., for so long as Marsam owns any of the Corporation's
Series A Preferred Stock.
Section 9. Committee Rules. Each committee of the Board of Directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by the resolution of the Board of
Directors designating such committee, but in all cases the presence of at least
a majority of the members of such committee shall be necessary to constitute a
quorum. In the event that a member and that members alternate, if alternates
are designated by the Board of Directors as provided in Section 8 of this
Article III, of such committee is/are absent or disqualified, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in place
of any such absent or disqualified members.
Section 10. Informal Action. Any action permitted to be taken at any
meeting of the Board of Directors, or of any committee thereof, may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 11. Participation by Conference Telephone. Directors of the
Corporation may participate in a meeting of the Board of Directors or any
committee thereof by means of conference telephone or similar communications
equipment by means of which all persons
- 8 -
<PAGE> 9
participating in the meeting can hear each other, and participation in such a
manner shall constitute presence in person at such meeting.
Section 12. Compensation. The directors may be paid for expenses of
attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated
salary. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of committees designated by the Board of Directors may be allowed like
compensation for attending committee meetings.
ARTICLE IV.
OFFICERS
Section 1. Number. The officers of the Corporation shall be chosen by the
Board of Directors and shall include a Chief Executive Officer, a President, a
Secretary and a Treasurer. The Board of Directors may also choose a Chairman
and a Vice-Chairman of the Board of Directors (who must be a member or members
of the Board of Directors), a Chief Operating Officer, and one or more Vice
Presidents, and one or more Assistant Secretaries and Assistant Treasurers.
Any number of offices or functions of those offices may be held or exercised by
the same person unless the certificate of incorporation or the bylaws otherwise
provide.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held
- 9 -
<PAGE> 10
after each annual meeting of stockholders. If the election of officers shall
not be held at such meeting, such election shall be held as soon thereafter as
may be convenient. Vacancies may be filled or new offices created and filled
at any meeting of the Board of Directors. Each officer shall hold office until
the next annual meeting of the Board of Directors or until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal. Any officer or agent elected or appointed by the Board
of Directors may be removed by the Board of Directors whenever in its judgment
the best interests of the Corporation would be served thereby, but such removal
shall be without prejudice of the contract rights, if any, of the person so
removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term by a majority vote of the
directors then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by the
Board of Directors, and no officer shall be prevented from receiving such
compensation by virtue of the fact that he is also a director of the
Corporation.
Section 6. Chairman or Vice-Chairman of the Board of Directors. The
Chairman of the Board shall preside at all meetings of the Board of Directors
and the stockholders and shall
- 10 -
<PAGE> 11
have such other powers and perform such additional duties as may from time to
time be assigned by the Board of Directors. In the absence or disability of
the Chairman of the Board, the Vice-Chairman shall exercise all the powers and
discharge all the duties of the Chairman of the Board. In the absence or
disability of the Chief Executive Officer, the Chairman of the Board shall
exercise all the powers and discharge all the duties of the Chief Executive
Officer.
Section 7. The Chief Executive Officer. The Chief Executive Officer of the
Corporation shall have general active management of the business of the
Corporation shall see that all orders and resolutions of the Board of Directors
are carried into effect, and may sign and deliver in the name of the
Corporation any deeds, mortgages, bonds, contracts or other instruments
pertaining to the business of the Corporation, except in cases in which the
authority to sign and deliver is required by law to be exercised by another
person or is expressly delegated by the Certificate of Incorporation, these
bylaws or the Board of Directors exclusively to some other officer or agent of
the Corporation. In addition to the general responsibilities incident to the
office of Chief Executive Officer, he or she shall have such other powers and
perform such additional duties as may from time to time be assigned by the
Board of Directors. Except as otherwise prescribed by these bylaws or the
Board of Directors, the Chief Executive Officer shall prescribe the duties of
other officers.
Section 8. The President. The President shall in the absence or disability
of the Chief Executive Officer and the Chairman and the Vice-Chairmen of the
Board perform the duties and exercise the powers of the Chief Executive Officer
and shall perform such other duties and have
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<PAGE> 12
such other powers as the Board of Directors or the Chief Executive Officer may
from time to time prescribe.
Section 9. Chief Operating Officer. The Chief Operating Officer shall in
the absence or disability of the President perform the duties and exercise the
powers of the President and shall perform such other duties and have such other
powers as the Board of Directors or the President may from time to time
prescribe.
Section 10. The Vice President. The Vice President, if any, or if there
shall be more than one, the Vice Presidents in the order determined by the
Board of Directors, shall in the absence or disability of the President perform
the duties and exercise the powers of the President and shall perform such
other duties and have such other powers as the Board of Directors or the Chief
Executive Officer may from time to time prescribe.
Section 10. The Secretary and Assistant Secretaries. The Secretary shall
attend all meetings of the Board of Directors and all meetings of the
stockholders and record all the proceedings of the meetings of the Corporation
and of the Board of Directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the Board of Directors; perform such other duties as
may be prescribed by the Board of Directors or Chief Executive Officer under
whose supervision he or she shall be. The Assistant Secretary, if any, or if
there be more than one, the Assistant Secretaries in the
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<PAGE> 13
order determined by the Board of Directors, shall in the absence or disability
of the Secretary perform the duties and exercise the powers of the Secretary
and shall perform such other duties and have such other powers as the Board of
Directors or Chief Executive Officer may from time to time prescribe.
Section 11. The Treasurer and Assistant Treasurer. The Treasurer shall be
the chief financial officer of the Corporation. The Treasurer shall have the
custody of the corporate funds and securities; shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation;
shall deposit all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board of Directors; shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements; and shall render to the Chief Executive Officer and the Board of
Directors at its regular meetings, or when the Board of Directors so requires,
an account of the Corporation. If required by the Board of Directors, the
Treasurer shall give the Corporation a bond (which shall be renewed every six
years) in such sums and with such surety or sureties as shall be satisfactory
to the Board of Directors for the faithful performance of the duties of the
office of Treasurer and for the restoration to the Corporation, in case of
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money, and other property of whatever kind in the possession or under
the control of the Treasurer belonging to the Corporation. The Assistant
Treasurer, if any, or if there shall be more than one, the Assistant Treasurers
in the order determined by the Board of Directors, shall in the absence or
disability of the Treasurer perform the duties and exercise the
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<PAGE> 14
powers of the Treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 12. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these Bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the Board of Directors.
ARTICLE V.
CERTIFICATE OF STOCK
Section 1. Form. Every holder of stock in the Corporation shall be entitled
to have a certificate, signed by, or in the name of the Corporation by (i) the
Chairman of the Board of Directors, the Chief Executive Officer and (ii) by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares owned by him or her in the
Corporation. Where a certificate is signed (1) by a transfer agent or an
assistant transfer agent, other than the Corporation or its employee or (2) by
a registrar, other than the Corporation or its employee, any other signature on
the certificate may be facsimile. In case any officer or officers who have
signed, or whose facsimile signature or signatures have been used on, any such
certificate or certificates shall cease to be such officer or officers of the
Corporation whether because of death, resignation or otherwise before such
certificate or certificates have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such
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<PAGE> 15
certificate or certificates or whose facsimile signature or signatures have
been used thereon had not ceased to be such officer or officers of the
Corporation.
Section 2. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his or her legal representative, to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 3. Fixing a Record Date. The Board of Directors may fix in advance
not more than sixty nor less than ten days preceding the date of any meeting of
stockholders, or the date for the payment of any dividend, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
capital stock shall go into effect, or a date in connection with obtaining such
consent, as a record date for the determination of the stockholders entitled to
notice of, and to vote at, any such meeting, and any adjournment thereof, or
entitled to receive payment of any such dividend, or entitled to any such
allotment of rights, or entitled to exercise the rights in respect to any such
change, conversion, or
- 15 -
<PAGE> 16
exchange of capital stock, or entitled to give such consent, and in such case
such stockholders and only such stockholders as shall be stockholders of record
on the date so fixed shall be entitled to such notice of, and to vote at, such
meeting and any adjournment thereof, or to receive payments of such dividend,
or to receive such allotment or rights, or to exercise such rights, or to give
such consents, as the case may be, notwithstanding any transfer of any stock on
the books of the Corporation after any such record date fixed as aforesaid. If
no record date is fixed, the time for determining stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. The time for determining stockholders for
any other purpose shall be at the close of business on the date on which the
Board of Directors adopts the resolution relating thereto. A determination of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 4. Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of the other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
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<PAGE> 17
Section 5. Stock Certificates and Legend. If the Corporation shall be
authorized to issue more than one class of stock or more than one series of any
class, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, provided that, except as otherwise provided in Section 202 of the
General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, a statement
that the Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
ARTICLE VI.
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the
capital stock, subject to the provisions of the Certificate of Incorporation.
Before payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the directors from time
to time, in their
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<PAGE> 18
absolute discretion, think proper as a reserve or reserves to meet
contingencies or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the directors shall
think in the best interest of the Corporation, and the directors may modify or
abolish any such reserve in the manner in which it was created.
Section 2. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 4. Seal. The Corporation shall not have a corporate seal.
Section 5. Securities Owned by Corporation. Voting securities in any other
corporation held by the Corporation shall be voted by the Chief Executive
Officer, unless the Board of Directors specifically confers authority to vote
with respect thereto, which may be general or confined to specific instances,
upon some other person or officer. Any person authorized to vote securities
shall have the power to appoint proxies, with general power of substitution.
- 18 -
<PAGE> 19
ARTICLE VII.
AMENDMENTS
These Bylaws may be adopted, amended, altered or repealed at any meeting of the
Board of Directors by majority vote. The fact that the power to adopt, amend,
alter or repeal the Bylaws has beet conferred upon the Board of Directors shall
not divest the stockholders of the same powers.
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<PAGE> 1
EXHIBIT 5.1
[ROSS & HARDIES LETTERHEAD]
May , 1996
Sabratek Corporation
5601 West Howard Street
Niles, Illinois 60714
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-1 (the "Registration
Statement") being filed by Sabratek Corporation, a Delaware corporation, (the
"Company") with the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Securities Act"), relating to the offer and sale of
up to 2,875,000 shares of Common Stock, $0.01 par value per share (the "Common
Stock") of the Company (including a 15% underwriters over-allotment option).
Each term used herein that is defined in the Registration Statement and
not otherwise defined herein shall have the meaning specified in the
Registration Statement.
We are familiar with the proceedings to date with respect to the
proposed offering of the Common Stock and have examined such records, documents
and questions of law, and satisfied ourselves as to such matters of procedure,
law and fact, as we have considered relevant and necessary as a basis for the
opinion expressed in this letter. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to
us as originals, the conformity to originals of all documents submitted to us
as certified copies or photocopies and the authenticity of the originals of
such letter documents.
Based on the foregoing, and subject to the qualifications set forth
hereinafter, we are of the opinion that:
1. The Company is duly incorporated and validly existing under the
laws of the State of Delaware.
<PAGE> 2
Sabratek Corporation
May , 1996
Page 2
2. The Common Stock has been duly authorized and, when issued and sold
in accordance with the Registration Statement, will be legally issued, fully
paid and nonassessable shares of Common Stock of the Company.
We express no opinion as to the application of the securities or blue
sky laws of the various states to the issuance of the Common Stock.
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Registration Statement and the related Prospectus, and to the
filing of this opinion as an Exhibit to the Registration Statement.
Very truly yours,
ROSS & HARDIES
By: _________________________________
A Partner
<PAGE> 1
EXHIBIT 10.21
SABRATEK CORPORATION
DISTRIBUTORSHIP AND SECURITY AGREEMENT
DISTRIBUTORSHIP AND SECURITY AGREEMENT
made this 1 day of January 1996 between:
SABRATEK CORPORATION
5601 West Howard Street
Niles, IL 60714
U.S.A.
a Delaware business corporation ("Sabratek"), and
BRASIMPEX BRASIL IMPORTACAO E EXPORTACAO LTDA.
Rua Mexico, 21-Grupo 1101- Castelo
20031-144- Rio de Janeiro
Brasil
a Brazilian business corporation ("Distributor") also doing business as
BRASIMPEX
1. Appointment:
(a) Sabratek hereby appoints Distributor, for the Term set forth in
Article 10 and subject to the terms and conditions of this Agreement,
to distribute solely within the territory described in Exhibit A (the
"Territory") those products of Sabratek identified in the attached Exhibit
B (the "Products"). Sabratek reserves the right to change the
specifications, components, design, performance and appearance of the
Products and to discontinue production of the Products at any time.
This Agreement does not apply to Sabratek Products not listed on Exhibit
B.
page 1 of 18
<PAGE> 2
(b) Except as provided below, Sabratek agrees (i) not to appoint
another distributor of the Products whose territory includes any portion
of the Territory and (ii) not to effect direct sales of the Products to
dealers or retailers located within the Territory. Sabratek reserves
the right to sell Products to original equipment manufactures or others,
wherever such purchasers may be located, for incorporation into other
products or installations and to national or international accounts
of Sabratek established prior to the date of this Agreement or whose
principal place of business is outside of the Territory.
(c) Sabratek agrees to sell to Distributor, subject to the terms and
conditions of this Agreement
2. Acceptance
Distributor accepts its appointment as distributor of the Products in
the Territory and agrees to use its best efforts aggressively to develop
sales of the Products, solely in the Territory, and to support Sabratek's
marketing program in the Territory. In furtherance thereof, Distributor
agrees:
(a) to keep on hand a reasonable inventory of the Products
sufficient to allow for prompt delivery and installation of the
Products to purchasers;
(b) to participate regularly in local and regional trade shows,
medical conventions or like events within the Territory and to conduct
regular local promotional, advertising and other marketing efforts for the
Products;
(c) to be available to provide appropriate and professional
installation and application advice and counselling for each unit of
the Products sold by Distributor and to provide prompt follow up service
and advice to purchasers of Products when so requested by the purchaser or
Sabratek, including performing warranty service work on behalf of
Sabratek at Sabratek's prevailing warranty reimbursement rates,
Distributor shall provide such services to any owner or user of Products,
whether or not sold or furnished by Distributor, Sabratek will compensate
Distributor in accordance and with Sabratek's then prevailing customer
service policy and reimbursement guidelines;
(d) to respond promptly to sales leads or referrals furnished by
Sabratek or by its other distributors or dealers;
page 2 of 18
<PAGE> 3
(e) to have each of its sales representatives and at least one
principal of Distributor attend such technical, product familiarization
and marketing meetings in Chicago, Illinois or elsewhere as Sabratek may
reasonably require from time to time but not less than annually, for
which, if in Chicago, Sabratek will pay reasonable and documented food
and lodging expenses and Distributor will bear travel and all other
expenses or, if in Brazil, Distributor will pay reasonable and documented
food and lodging expenses and Sabratek will bear travel expenses;
(f) to maintain and furnish periodically, as reasonably requested by
Sabratek, complete and accurate records of each sale and installation
of each unit of Products sold hereunder, showing date of sale and
installation, name and address of purchaser and the Product serial number
or lot number. Distributor shall allow Sabratek periodically to inspect
and copy Distributor's records (including Distributor's customer
and call lists) relating to Distributor's business conducted
pursuant to this Agreement. Distributor agrees that it will not, under
any circumstances, sell, lease, give or otherwise dispose of any Product
to any person or entity other than a duly licensed medical practitioner or
hospital and will not knowingly sell, lease, give or otherwise dispose of
any Product for any use or application other than specifically
authorized by Sabratek in writing or in literature accompanying the
Product;
(g) during the testing or clinical evaluation phase of development of
the Products or any addition, improvement or modification thereto, to
use its best efforts to collect and transmit to Sabratek on a regular and
timely basis such information and data from hospitals and other persons
involved in testing and use of the Products as Sabratek may reasonably
request;
(h) to deliver to customers designated by Sabratek, free of charge,
promotional or demonstration units, delivered free of charge to
Distributor by Sabratek;
(i) to assist promptly in executing product recalls as directed by
Sabratek;
(j) to promptly advise Sabratek of each complaint that Distributor
may receive or become aware of concerning the Product and shall
telephone Sabratek immediately to report any information of which
Distributor becomes aware that suggests that any of the products may have
been associated in any way with an
page 3 of 18
<PAGE> 4
injury to a user or patient. Distributor shall assist in the defense of
any such claim or suit by providing evidence and testimony as may be
requested by Sabratek. Distributor shall refer to Sabratek any inquiry
from any governmental authority, any trade association or any news media,
publication or reporter concerning the Products or Sabratek; and
(k) to comply with applicable requirements of law or regulation that
require product literature, manuals or other written materials be
translated into or prepared in a language other than English.
3. Minimum Sales Guarantee and Sales Forecasts.
(a) To induce Sabratek to enter into this Agreement, Distributor
agrees that it will purchase from Sabratek not less than the minimum
amounts specified in Exhibit C;
(b) in addition, Distributor shall furnish Sabratek each quarter (as
designated by Sabratek) with a forecast of sales for the next twelve
months of Products by units within each Product group and a quarterly
estimate of Distributor's forthcoming orders for Products. The annual
forecast for Sabratek first fiscal year ending after the date of this
Agreement shall be delivered within thirty (30) days after execution of
this Agreement. The quarterly estimate of orders shall be delivered not
less than one month in advance of the first day of each quarter.
Forecasts are not binding upon Distributor, but nothing contained in any
such forecast or estimate shall affect Distributor's minimum sales
performance obligations.
4. Trademarks and Trade Experience. Distributor shall not employ as part of
its trade or corporate name or identification, or identify its business
premises, vehicles or documents with any name, mark, symbol or other
identifying characteristic owned by or designating Sabratek. Distributor
shall properly identify and accurately describe as a product of Sabratek
any of the products manufactured or assembled by Sabratek or which
properly bear a Sabratek trademark. Distributor shall not alter, remove,
deface or mark over a Sabratek trademark on a Product and shall not add to
a Product any other or additional trademark. The name and any trademarks
associated with the Company's products remains at all times the corporate
property of Sabratek. Except for the bona fide wholesale price of
inventory or
page 4 of 18
<PAGE> 5
inventory display or sample merchandise voluntarily purchased by the
Distributor, Distributor is not required to and shall not pay to Sabratek
or its affiliates any amount for other rights or services whatsoever.
Distributor represents and warrants to Sabratek that (i) Distributor and/or
one of the principal officers, directors or partners of Distributor has
been actively engaged in the business of marketing and distribution of
advanced biomedical devices for human patients for not less than two years
preceding the date of this Agreement and (ii) Distributor's existing
business is substantial and well established and (iii) Distributor, any of
its employees or any sub-distributor will not engage directly or
indirectly in any behavior that might be detrimental to Sabratek and/or
its products and/or to the image of Sabratek and/or its products.
5. Terms of Sale. Sabratek agrees to sell Products to Distributor on the
following terms:
(a) Price: sales will be at Sabratek established distributor price
in effect at the date of receipt by Sabratek of Distributor's order.
Sabratek will keep Distributor advised of its current list price
and Distributor's discount and agrees not to change either without giving
its Distributor sixty (60) days prior written notice;
(b) Orders: orders shall be placed with Sabratek on Sabratek's
standard form of purchase order and are subject to acceptance by
Sabratek. Sabratek reserves the right to establish minimum order
requirements. Once accepted, filling and shipment of orders will be in
accordance with Sabratek's customary procedures and are subject to any
forces or occurrences beyond Sabratek's reasonable control. Sabratek
reserves the right to allocate its output if demand exceeds its
production capacity. Unless otherwise specified in the order,
Sabratek may choose the mode of shipment and carrier. All sales of Product
are FOB Sabratek's plant in Chicago, Illinois and risk of loss shall
become the responsibility of the Distributor. Distributor is solely
responsible for shipping, insurance, clearing Products through customs,
duties, obtaining licenses and satisfying legal requirements to import
the product into the Territory and sell products in the Territory;
(c) Payment: payment for all products shipped is due in accordance
with Sabratek's standard credit policy, which may require prepayment in
full before orders are shipped or in accordance with the terms stated in
each
page 5 of 18
<PAGE> 6
invoice. Unless specified otherwise in an invoice or required by
Sabratek's credit policy, payment shall be made in full within thirty
(30) days of the date of Sabratek's invoice. Sabratek may ship C.O.D.
or halt shipments in transit if (i) all prior invoices are not paid in
full or (ii) Sabratek reasonably deems such steps are necessary to secure
payment. Sabratek reserves the right to establish and to modify credit
limits for Distributor and to require payment through a sight draft or an
irrevocable letter of credit issued or confirmed by a national bank in
Chicago or to refuse to accept an order to ship Products until such a
letter of credit has been delivered to Sabratek. In all cases, Sabratek
reserves all rights of ownership in the Products until paid in full
therefor by Distributor;
(d) Returns: Distributor shall not return products to Sabratek
without Sabratek's prior written authorization.
6. Guarantee. Distributor shall not make or extend on behalf of Sabratek any
written or oral warranty in respect of any of the Products except as
may be contained in sales literature or brochures that are published, or
approved in writing by Sabratek. Distributor shall not advise, perform
or demonstrate any use or application of any Product that is not
specifically approved in writing by Sabratek.
7. Regulations. Distributor represents to Sabratek that Distributor is
thoroughly familiar with applicable governmental regulations concerning
the use, handling, sale and disposition of the Products and that
Distributor possesses all required governmental permits and licenses and
approvals required to distribute the Products in the Territory.
Distributor shall comply with all laws, ordinances and regulations
applicable to its business and to the sale, demonstration, use and
disposition of Products and agrees to indemnify and hold Sabratek
harmless from all costs and liabilities arising out of any
failure of Distributor to comply therewith. Distributor shall not impair
the sterility or integrity of the Products while they are in the
Distributor's custody. Upon the request of Sabratek, required
governmental permits, licenses and approvals shall be obtained in the name
and on behalf of Sabratek.
page 6 of 18
<PAGE> 7
8. Reports. Distributor shall furnish Sabratek with an annual marketing plan
(detailing planned sales training, staffing, convention and trade show
attendance, advertising, etc) not less than ninety (90) days prior to
each Sabratek fiscal year end (currently December 31). Distributor shall
also give Sabratek a written annual report detailing Distributor's
inventory and sales of Product, a summary of Distributor's marketing
initiatives and such other information as Sabratek may reasonably request.
Distributor shall also give Sabratek periodic sales reports as Sabratek
may request from time to time.
9. Relationship and Assiqnment. Distributor acts hereunder as an independent
contractor and is not and shall not act as the agent, employee,
franchisee or partner of Sabratek and shall not create any obligation in
the name of Sabratek. This Agreement is entered into by Sabratek in
reliance upon the personal skills, experience and financing of the
Distributor or its principal and is not transferrable by Distributor in
whole or in part, voluntarily or involuntarily, except with the prior
written consent of Sabratek. Distributor cannot use or appoint
sub-distributors of any nature for any purposes of this Agreement, except
with the prior written consent of Sabratek. Any successor, legal
representative, receiver or trustee in bankruptcy of Distributor who
wishes to assume or succeed to Distributor's interest in this Agreement
shall apply to Sabratek for its consent as in the case of any other
proposed transfer. Nothing in this Article impairs Distributor's right to
hire its own employees to assist in the discharge of Distributor's
responsibilities hereunder.
10. Term and Renewal.
(a) This Agreement shall be in effect for a term of two (2) years
from the date of the initial shipment of the Products to the
Distributor (the "term") unless sooner terminated as provided herein.
Except as otherwise set forth in Article 10(b) below, upon the expiration
of the Term, this Agreement shall telminate without further act or deed of
either party. Article 13 shall apply upon any expiration of the Term of
this Agreement;
(b) unless either party hereto gives to the other party a notice of
termination at least six (6) months prior to the expiration of the term
of this Agreement then in effect, this agreement shall be automatically
renewed for additional terms of one (1) year by satisfying each of
the following conditions:
page 7 of 18
<PAGE> 8
(i) Distributor is not in default of this
Agreement when it gives notice of
renewal or at the termination of the term then
in effect and is current on all of its
indebtedness to Sabratek.
(ii) The parties have negotiated and agreed upon,
not less than ninety (90) days before
the expiration of the term then in effect, new
minimum sales performance requirements for
Distribution for the renewal term, which may
exceed substantially the corresponding
requirements for the initial term and;
(iii) Distributor successfully completes such
additional products and technical training
and orientation as Sabratek requires.
11. Breach and Remedies. Except as provided in Article 12, upon any breach
of this Agreement by either party, the other party must notify the
party alleged to be in breach of such fact in writing specifying the
breach, whereupon the party alleged to be in breach has thirty (30) days
to cure such breach. Failure to cure such breach within thirty (30) days
of notice thereof constitutes "good cause" for termination of this
Agreement under Article 12. Either party shall have in respect of the
Products sold hereunder the rights and remedies afforded to that party by
the Uniform Commercial Code in effect from time to time in the State of
Illinois.
12. Termination.
(a) Either party may terminate this Agreement for "good cause" as
defined in Article 11;
(b) In addition to and not in limitation of Article 12(a) above,
Sabratek Corporation may terminate this Agreement immediately by
written notice of termination in the event of the happening of any of the
following:
(i) the death or incapacity of the Distributor
or, in the event Distributor is a corporation,
the death, incapacity, removal from employment
or resignation of Aron Mandel;
page 8 of 18
<PAGE> 9
(ii) material changes in the general management,
ownership or control of Distributor, including
sale, transfer or relinquishment by Distributor
or by an individual named in Article 12(b)(i)
above, of any substantial interest in
the ownership of the business to be carried on
by Distributor under this Agreement, unless
such changes are approved in advance and in
writing by Sabratek;
(iii) assignment or attempted assignment of this
Agreement by Distributor;
(iv) use or appointment or attempted use or
appointment of sub-distributors;
(v) waiver or attempted waiver of any right to an
indemnity as foreseen under Article 19;
(vi) any detrimental behavior prohibited under
Article 4;
(vii) insolvency of Distributor or the filing of a
petition in bankruptcy by or against
Distributor, the appointment of a receiver for
Distributor or Distributor's property, execution
of assignment by Distributor for benefit of
creditors, or conviction of Distributor or any
principal officer or manager of Distributor for
any crime tending to adversely affect the
ownership or operation of Distributor's
business;
(viii)the inability of Distributor to meet its
financial obligations to Sabratek Corporation
or to pay for the Products in accordance with
the terms provided pursuant to Article 5(c) and
Exhibit C hereof;
(ix) the providing by Distributor of falsified data
or information to Sabratek Corporation;
page 9 of 18
<PAGE> 10
(x) the failure of Distributor to meet any sales
minimums as set forth in Article 3(a), Exhibit
C;
(xi) the failure of Distributor to maintain
reasonable amounts of insurance and/or failure
to provide Sabratek Corporation with proof of
such insurance coverage, as set forth in
Article 18;
(xii) the failure of Distributor to cooperate in
fulfilling and/or complying with rules and
regulations of the FDA with respect to
Distributor's purchase, storage, record keeping
or resale of Products;
(xiii)the sale by Distributor of Products directly or
indirectly to customers located outside the
Territory or failure of Distributor to comply
with any presale notification requirements that
Sabratek Corporation may impose for sales
outside the Distributor's primary area of
responsibility, as the case may be;
(c) Sabratek Corporation may terminate this Agreement by giving
Distributor at least ninety (90) days prior written notice in the event
of a material change in the ownership or control of Sabratek Corporation,
the merger of Sabratek into another corporation not affiliated with
Sabratek Corporation, or the sale of all or substantially all of the
assets of Sabratek Corporation to an entity not affiliated with Sabratek
Corporation.
13. Termination Consequences.
(a) Any termination does not impair accrued payment obligations of
either party arising during, or in respect to, the period preceding the
termination;
(b) Within thirty (30) days of the date of termination,
Distributor shall furnish to Sabratek Corporation a list of all
products sold in the immediately preceding twelve (12) months in order to
page 10 of 18
<PAGE> 11
allow Sabratek Corporation to fulfill all unexpired warranty
obligations with respect to the Products. In addition, Distributor
agrees to furnish Sabratek Corporation with complete information as to
calls or the status of negotiations for the sale of Products;
(c) If Sabratek Corporation terminates this Agreement under Article
12(b)(xi), Distributor shall have the right at any time prior to the
effective termination date to purchase on a one-time basis a quantity of
Products up to the amount which is equal to the difference between the
quantity of Products already purchased by Distributor during the first six
(6) months or second six (6) months of the then current contract year,
depending upon when termination occurs, and the amount of the semi-annual
sales minimum for such relevant six (6) month period. In no event shall
Distributor be entitled to purchase or Sabratek Corporation obligated to
sell Products in excess of the semi-annual sales minimum for the six (6)
month period in which termination occurs. Payment terms shall be in
accordance with this Agreement, including specifically Article 5(c)
hereto;
(d) The parties have considered the possibility of such termination
and the possibility of loss and damage resulting therefrom, in making
expenditures pursuant to the performance of this Agreement. It is the
express intent and agreement of the parties that neither shall be liable
to the other for damages or otherwise by reason of the termination of
this Agreement as hereinabove provided; and
(e) Any termination does not end the Distributor's obligations
related to, but not limited to, confidentiality and intellectual
property rights as set out in Article 14, and service and installation
undertakings as set out in Article 2(c). In relation to Article 2(c), the
Distributor's obligations under this Article 13(e) will only continue for
a period of two (2) years following any termination, and the Distributor's
obligations under this Article 13(e) will not apply if a new distributor
is appointed.
page 11 of 18
<PAGE> 12
14. Confidentiality and Conflicts of Interest: Patent Rights. Without the
express, prior written consent of Sabratek Corporation, Distributor
shall not disclose or allow the disclosure to any third parties, or use
other than in the performance of Distributor's duties hereunder, any
confidential and proprietary information or trade secret of Sabratek
Corporation, including, but not limited to, marketing plans, product
design, sources of supply, composition or product information or
know-how, or product research and development information. In addition,
to prevent unfair competition and misappropriation of Sabratek
Corporation's trade secrets and investment, during the term of this
Agreement, Distributor shall not directly or indirectly produce, sell or
distribute any infusion devices or related products designed or
intended for human patients, anywhere in the world without Sabratek's
prior written approval. Distributor shall not acquire or hold more than
one percent (1%) of the stock of any publicly traded company other than
Sabratek Corporation that manufactures or distributes infusion devices
for human patients. Sabratek Corporation reserves all rights in and to
any and all patents issued or that may be issued covering the Products or
any feature thereof or improvement therein.
15. Notice. Notices or consents under this Agreement shall be in writing and
delivered personally or, if mailed, shall be sent certified mail,
return receipt requested, and if to Sabratek Corporation, addressed to its
address set forth above and if to the Distributor, addressed to its address
set forth above, or in any case, to such other addresses as may be
established by notice to the other party. Notice may be also given by
telefax, overnight express service or by any other means which results in
the delivery of written notice to the addressee.
16. Distributor's Representation for Sabratek Corporation. Distributor
represents to Sabratek Corporation that Distributor is contractually
free to enter into and perform this Agreement without thereby being in
breach or causing a breach of the terms of any other contract, commitment
or understanding.
page 12 of 18
<PAGE> 13
17. Resolution of Disputes. All disputes, controversies, claims or differences
that may arise between the parties hereto out of, in relation to, or in
connection with this Agreement, or breach hereof, shall be settled by
arbitration in Chicago, Illinois, U.S.A., in accordance with the Rules of
the American Arbitration Association. The tribunal of arbitration shall
consist of three (3) arbitrators designated in accordance with the
applicable rules.
18. Financial Assurance. Distributor shall maintain in force for the entire
term of this Agreement public liability insurance in such form and
written by such insurers as may be reasonably satisfactory to Sabratek
Corporation, covering Distributor's activities in furtherance of this
Agreement, including the operation of Distributor's motor vehicles.
Sabratek Corporation will cause Distributor to be named as an additional
named insured under Sabratek Corporation's product liability insurance.
19. Warranty, Limitation of Warranty and Remedies and Limitation of
Remedies. The only warranties extended by Sabratek with respect to
Products are the description of Products on shipping containers and
documents, sales and technical literature published by Sabratek
Corporation and the specific terms of an express product warranty, if any,
given by Sabratek Corporation in connection with the sale of individual
product units.
THE EXCLUSIVE REMEDY FOR A PRODUCT THAT IS DEFECTIVE IS ITS
REPAIR, REPLACEMENT OR REPURCHASE, AS DESIGNATED BY SABRATEK
CORPORATION. SABRATEK CORPORATION DISCLAIMS LIABILITY FOR INJURIES
OR LOSSES CAUSED BY OR ASSOCIATED WITH USE OF THE PRODUCTS OTHERWISE
THAN IN STRICT ACCORDANCE WITH SABRATEK CORPORATION'S INSTRUCTION
AND USER MANUALS, OR PRODUCTS THAT HAVE BEEN TAMPERED WITH OR
DAMAGED.
SABRATEK CORPORATION DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE WARRANTIES OF
MERCHANTABILITY AND
page 13 of 18
<PAGE> 14
FITNESS FOR A PARTICULAR PURPOSE. SABRATEK CORPORATION
DISCLAIMS LIABILITY TO DISTRIBUTOR AND ALL OTHERS FOR ALL
CONSEQUENTIAL, INCIDENTAL AND SPECIAL DAMAGES CAUSED BY OR IN
CONNECTION WITH THE PRODUCTS, THEIR USE OR MISUSE, AND THEIR
PERFORMANCE OR NONPERFORMANCE.
Distributor agrees that the price of the Products has been established
on the basis of the allocation of risk and liability expressed in this
Article 19 and by its separate initialling of this Article acknowledges
this Distributor has specifically reviewed and is fully aware of the
provisions of this Article and assumes the allocation of risks
expressed herein.
Distributor's initials:
Distributor shall not waive any right to an indemnity from any client of
the Distributor or any other third party relating to equipment covered
by this Agreement except with the prior written consent of Sabratek.
Distributor hereby and to the fullest extent waives any right of indemnity
that might be deemed to be payable to the Distributor for the development
and maintenance by the Distributor of a client base within the Territory.
20. Miscellaneous Provisions. This Agreement is not effective until
accepted by an authorized officer of Sabratek Corporation in Chicago,
Illinois. This Agreement contains the entire agreement of the parties
relative to its subject, and shall not be waived, altered or rescinded
except by a writing signed by the party to be charged therewith. This
Agreement shall be governed by and interpreted in accordance with the
internal laws of the State of Illinois, without regards to conflicts of
law provisions. If translated into another language for any reason, this
English language version shall govern any interpretation or application of
or dispute regarding the terms of this Agreement. Pronoun references
shall be deemed to be of any number of gender relevant in the context.
Article captions are for convenience of reference and do not alter or
limit the terms of this Agreement. The various terms of this Agreement are
page 14 of 18
<PAGE> 15
independent and severable and the invalidity or unenforceability of any
of them shall not affect the remainder. Time is of the essence hereunder.
IN WITNESS HEREOF, the parties have executed this Agreement as of the day and
year first above written.
BRASIMPEX
By: Aaron Manuel
----------------------------
Title: General Manager
-------------------------
Date: 1/1/1996
--------------------------
SABRATEK CORPORATION
By: Doran Levitas
----------------------------
Title: Vice Chairman
-------------------------
Date: 1/1/1996
--------------------------
page 15 of 18
<PAGE> 16
EXHIBIT A
TERRITORY
Distributor's Territory is as follows:
/
/
/
BRAZIL
/
/
/
/
/
/
/
/
/
/
/
/
/
SABRATEK CORPORATION
Doran Levitas Date: 1/1/1996
- ------------------------------ --------------------------
BRASIMPEX
Aaron Manuel Date: 1/1/1996
- ------------------------------ --------------------------
page 16 of 18
<PAGE> 17
EXHIBIT B
AUTHORIZED PRODUCT LIST
Brasimpex is authorized to sell the following products in accordance with the
terms of the Sabratek Corporation Distributorship Agreement:
Product Model
Stationary Volumetric Infusion Pump 3030
Ambulatory Volumetric Infusion Pump 6060
Sabraset IV Administration Sets*
SabSil IV Administration Sets*
*: IV sets must be manufactured by, or be manufactured under license from,
Sabratek Corporation.
In addition, BRASIMPEX will have the first option to distribute other
Sabratek infusion products in Brazil, contingent on minimum purchase
obligations and commitments to be determined and agreed upon by both parties.
SABRATEK CORPORATION
Doran Levitas Date: 1/1/1996
- ---------------------------------- -----------------------
BRASIMPEX
Aaron Manuel Date: 1/1/1996
- ---------------------------------- -----------------------
page 17 of 18
<PAGE> 18
EXHIBIT C
MINIMUM PURCHASES
Three hundred and twenty (320) Sabratek 3030 Volumetric Infusion Pumps
during the year of 1996.
Sabratek 3030 Volumetric Infusion Pumps during
the year of 1997.
Sabratek 3030 Volumetric Infusion Pumps during
the year of 1998.
Forty (40) Sabratek 6060 Volumetric Infusion Pumps during the year of 1996.
Sabratek 6060 Volumetric Infusion Pumps during the year of 1997.
Sabratek 6060 Volumetric Infusion Pumps during the year of 1998.
SABRATEK CORPORATION
Doran Levitas Date: 1/1/1996
- ---------------------------------- -----------------------
BRASIMPEX
Aaron Manuel Date: 1/1/1996
- ---------------------------------- -----------------------
page 18 of 18
<PAGE> 1
EXHIBIT 10.24
SECOND AMENDMENT TO LETTER AGREEMENT
THIS SECOND AMENDMENT TO LETTER AGREEMENT (the "Amendment") dated as of
the 11th day of March, 1996 is entered into between EGS SECURITIES CORP.
("EGS") and SABRATEK CORPORATION ("Sabratek" or the "Company").
RECITALS
WHEREAS, EGS AND Sabratek entered into that certain Letter Agreement
dated September 26, 1995 (the "Letter Agreement"), pursuant to which the
Company engaged EGS to perform, among other things, financial consulting
services;
WHEREAS, EGS and Sabratek amended the Letter Agreement by that certain
Memorandum dated December 20, 1995 from William D. Lautman of EGS to Scott
Skooglund of Sabratek (the "Memorandum"); and
WHEREAS, EGS and Sabratek desire to further amend the Letter Agreement
as provided herein.
AGREEMENTS:
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. INCORPORATION OF RECITALS. The foregoing Recitals are hereby
incorporated into this Amendment as if fully set forth herein.
2. INCORPORATION OF PRIOR AMENDMENT. The terms of the Memorandum are
hereby incorporated herein as if fully set forth herein.
3. PAYMENT TO EGS. The Company shall pay EGS $80,000 in connection
with the expected equity financing for gross proceeds of $1,639,761 to be
undertaken by the Company.
4. NO FURTHER OBLIGATIONS UNDER THE LETTER AGREEMENT. The Letter
Agreement, as amended, is hereby terminated and of no further force and effect
and the Company and EGS are hereby relieved of all further obligations
thereunder; provided, however, that the Company's obligations to pay EGS
$330,000 pursuant to the terms of the Letter Agreement as amended by the
Memorandum and hereby shall survive the termination of the Letter Agreement as
provided herein.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
EGS Securities Corp.
By: __________________________
Name:
Title:
Sabratek Corporation
By: __________________________
Name:
Title:
<PAGE> 2
EGS SECURITIES CORP.
MEMORANDUM
To: Scott Skooglund
From: William D. Lautman
Date: December 20, 1995
Subject: AMENDMENT TO EGS LETTER AGREEMENT DATED SEPTEMBER 26, 1995
- --------------------------------------------------------------------------------
This memorandum serves to confirm the agreement between EGS Securities Corp.
and Sabratek Corporation that all existing or potential obligations of Sabratek
to compensate EGS for success fees (as defined in the aforementioned Letter
Agreement) earned or to be earned by EGS pursuant to the terms of paragraph
3(b) of such Letter Agreement, will be superseded with the obligation of
Sabratek to pay EGS a $150,000 fee for business consulting services rendered
through December 1995. All other terms of the Letter Agreement will remain
intact.
<PAGE> 3
EGS SECURITIES CORP.
CONFIDENTIAL
September 26, 1995
K. Shan Padda
Chairman and
Chief Executive Officer
Sabratek Corporation
5601 W. Howard Street
Niles, Illinois 60714
Dear Shan:
We are pleased to provide this letter (the "Letter Agreement") that
confirms the understanding and agreement between EGS Securities Corp. ("EGS")
and Sabratek Corporation ("Sabratek" or the "Company") as follows:
1. Sabratek hereby engages EGS as its exclusive financial advisor
for a 12-month period commencing with the execution of this
Letter Agreement.
2. EGS accepts this engagement and, in connection, agrees:
(a) to advise Sabratek and its Board of Directors on the
ongoing development and implementation of the Company's
financial strategy;
(b) to assist Sabratek in structuring and marketing
financings of debt and equity;
(c) to serve as exclusive placement agent to Sabratek in
connection with securities offerings referred to in (b)
above; and
(d) to counsel Sabratek, as requested, in its pursuit of,
and negotiations regarding commercial banking credit
lines, leasing transactions, and other financial
arrangements;
3. As compensation for EGS's services rendered hereunder, Sabratek
agrees to pay, in cash:
(a) an advisory fee (the "Advisory Fee") payable to EGS as
follows:
(i) $100,000 upon execution of this Letter
Agreement;
(ii) $40,000 180 days following the execution of
this Letter Agreement; and
300 Park Avenue, New York, New York 10022 Tel: (212) 755-9000
Fax: (212) 755-9188
<PAGE> 4
Page Two
September 26, 1995
(iii) $40,000 one year following the execution of
this Letter Agreement.
(b) a success fee (the "Success Fee") equivalent to 8.0% of
consideration received by Sabratek in any Financing or
Financings (as defined below); except that no Success
Fee will be earned by EGS unless the per share value of
equity (or underlying equity, for convertible
exercisable or exchangeable securities) sold exceeds
$1.50, such price being subject to adjustment, from time
to time, for stock splits, stock dividends, or other
recapitalizations. Sabratek agrees to pay to EGS Success
Fees relating to Financings, promptly upon the closing
of each respective Financing.
4. For the purpose of this Letter Agreement, a "Financing" shall
mean a sale, by the Company, of any debt or equity securities or
the borrowing by the Company of any funds from any third party
(other than money borrowed by the Company from a commercial
banking institution which does not involve the issuance, by the
Company, of any equity securities or securities convertible
into, or exercisable or exchangeable for any equity securities).
Amounts paid into escrow and contingent payments in connection
with any Financing will be included as part of the aggregate
consideration received by the Company in such Financing, except
that the Success Fee to be paid to EGS relating to such escrow
amounts or contingent payments will be calculated and payable
only if and when such escrow amounts or payments are received by
the Company. Notwithstanding the foregoing, neither (1) an
initial public offering of common stock, nor (2) a sale of
equity of Sabratek in a transaction where a change of control
occurs, shall be considered a Financing for the purpose of
calculating a Success Fee.
If any portion of the aggregate consideration paid to the
Company in any Financing is paid in the form of securities, the
value of such securities, for purposes of calculating the
Success Fee to be paid to EGS will be determined by the average
of the last sale prices for such securities on the five trading
days ending five days prior to the consummation of such
Financing. If such securities do not have an existing public
trading record, the value of the securities will be the mutually
agreed upon fair market value on the day prior to the
consummation of such Financing.
The Company shall satisfy itself that each investor in each
Financing is an "accredited investor" as such term is described
in Regulation D of the Rules and Regulations promulgated under
the Securities Act of 1933. Each Financing will be placed
pursuant to subscription agreements and other conditions as
shall be agreed by the Company and any provider of such
Financing. The Company shall have exclusive authority for
negotiating such agreements. EGS will use its "reasonable
efforts" to assist the Company in the placement of each
Financing, but there is no commitment, expressed or implied, by
EGS or any of its affiliates to
<PAGE> 5
Page Three
September 26, 1995
In connection with each Financing, the Company shall prepare a
private placement memorandum (the "Memorandum"). The Company will
be solely responsible for the contents of the Memorandum and any
other information provided to any offeree with the approval of the
Company (together, the "Offering Materials"). The Company
represents that the Offering Materials will not, as of the date of
the offer or placement of any Financing, contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading. The
Company agrees to advise EGS promptly of the occurrence of any
event or any other change which results in the Offering Materials
containing any untrue statement of a material fact or omitting to
state a material fact. The Company authorizes EGS to provide
Offering Materials to prospective providers of any portion of a
Financing. EGS is not authorized to provide any information,
whether written or otherwise, to any prospective investor nor make
any representation in connection with a potential investment in the
Company other than those representations expressly set forth in
the Memorandum.
5. In addition to any fees that may be payable to EGS, Sabratek shall
reimburse EGS, promptly upon request, from time to time, an amount
equivalent to its reasonable out-of-pocket expenses incurred during
the period of, and in connection with its engagement hereunder, and
such expenses shall be reimbursable to EGS whether or not a
Financing is consummated and notwithstanding the termination of
this Letter Agreement. EGS is obligated (1) to notify Sabratek when
its cumulative expenses, incurred in connection with this
engagement, reach $15,000, and (2) to seek approval from Sabratek
to receive reimbursement for expenses that exceed cumulative
expenditures of $25,000.
6. Sabratek shall furnish, or cause to be furnished, all information
requested by EGS for the purpose of rendering services hereunder.
EGS shall have no obligation to make any independent appraisal of
the Company's assets or liabilities. In addition, Sabratek
recognizes and confirms that EGS:
(a) will use and rely on information furnished by Sabratek and
information available from generally recognized public
sources in performing the services contemplated by this
Letter Agreement, without having independently verified the
same; and
(b) does not assume responsibility for the accuracy or
completeness of such information.
EGS agrees to keep confidential all material non-public information
provided to it by Sabratek except as required by law or as
contemplated by the terms of this Letter Agreement. Notwithstanding
anything to the contrary contained herein, EGS may disclose
non-public information to its agents and advisors whenever EGS
determines that such disclosure is
<PAGE> 6
Page Four
September 26, 1995
7. The Company represents and warrants that:
(a) this Letter Agreement has been duly authorized,
executed and delivered by the Company;
(b) all shares of stock issued in any Financing will, upon
issuance and payment therefore in accordance with the
terms of such Financing, be duly authorized, validly
issued, fully paid and nonassessable; and
(c) the private placement of each Financing will be
entitled to an exemption from registration or
qualification under the applicable securities laws, and
neither the Company nor any of its affiliates has taken
or will take any action, directly or indirectly, so as
to cause the private placement of any Financing to fail
to be entitled to such exemption from registration or
qualification and the Company will make all filings as
may be required under the securities or "Blue Sky" laws
of any state in connection therewith.
EGS represents and warrants that it is duly registered as a
broker/dealer pursuant to the Securities Exchange Act of 1934,
as amended, and is a good member in good standing of the
National Association of Securities Dealers, Inc. All of the
representations and warranties and the provisions of Exhibit A
attached hereto shall survive the termination of this Letter
Agreement.
8. Except as required by law, any advice rendered by EGS pursuant
to its engagement hereunder shall be treated as confidential by
Sabratek, and shall not be disclosed publicly in any manner
without the prior written consent of EGS. Without prior
consultation with EGS, Sabratek shall not make any legally
required disclosure of such advice nor make any legally required
public announcement or filing in which EGS's name appears.
9. EGS's engagement may be terminated by either Sabratek or EGS at
any time upon 10 days' written notice from one party to the
other ("Early Termination"). Notwithstanding anything to the
contrary contained herein, the provisions concerning
confidentiality, indemnification, contribution and Sabratek's
obligations to pay fees and reimburse expenses shall survive any
such termination. Sabratek agrees to pay to EGS (i) the Advisory
Fee regardless of whether Sabratek causes an Early Termination,
and (ii) any Success Fees earned in connection with any
Financing consummated within 12 months of the execution of this
Letter Agreement, after either party hereto causes an Early
Termination, provided that EGS had played a significant role in
effecting the Financing.
<PAGE> 7
Page Five
September 26, 1995
10. This Letter Agreement is made for the benefit of the Sabratek,
EGS and the persons entitled to indemnity in accordance with
Exhibit A (attached herewith), and their respective successors,
assigns, heirs and representatives.
11. This Letter Agreement may not be amended or modified except in
writing executed by Sabratek and EGS, and shall be governed by
and construed in accordance with the internal laws of the State
of New York without reference to conflicts of laws.
Please confirm that the foregoing is in accordance with your
understanding by signing and returning to EGS the enclosed duplicate of this
letter.
Sincerely yours,
EGS Securities Corp.
By: William D. Lautman
------------------------
William D. Lautman
Managing Director
WDL/cjb
Attachment
Accepted and agreed to as of the date
first written above.
K. Shan Padda
- -------------------------------
Name
Chief Executive Officer
- -------------------------------
Title
10/7/95
- -------------------------------
Date
<PAGE> 8
EXHIBIT A
---------
INDEMNIFICATION
---------------
Sabratek shall indemnify and hold harmless EGS and its affiliates, and each
person, if any, who controls EGS or any of its affiliates, within the meaning
of Section 15 of the Securities Act of 1933 or Section 20 of the Securities
Exchange Act of 1934 and the respective agents, employees, officers and
directors, affiliates and any controlling person of any of them, and any
persons retained in connection with the performance of the services described
in the Letter Agreement to which this is an Exhibit (individually referred to
as an "Indemnified Person") from and against all claims, damages, losses,
liabilities, costs and expenses (including, without limitation, any legal or
other expenses (collectively, "Losses") incurred in connection with
investigating, preparing to defend or defending against any action, claim, suit
or proceeding (including an investigation) commenced or threatened, or in
appearing or preparing for appearance as a witness in any action, suit,
proceeding or partial proceeding) to which, jointly or severally, any
Indemnified Person may become subject, directly or indirectly related to,
arising out of, or in connection with the performance of any services pursuant
to or in connection with the Letter Agreement to which this is an Exhibit or
any Indemnified Person's role in connection with any of the foregoing. In
addition, the Company shall indemnify and hold harmless each Indemnified Person
for Losses that arise out of, or are based upon (i) any untrue statements or
alleged untrue statement of any material fact contained in any Offering
Materials or any amendment or supplement thereto or any application or other
documents executed by the Company or which arise out of or are based upon
information provided by the Company, filed in any jurisdiction in order to
<PAGE> 9
qualify any services of the Company for offer or sale under state securities or
Blue Sky laws of such jurisdiction, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in such Offering Materials, or
such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through EGS specifically for
inclusion therein, and provided further, however, that the foregoing indemnity
agreement with respect to any Offering Materials shall not inure to the benefit
of any Indemnified Person, if a copy of such Offering Materials (as then
amended or supplemented, provided that the Company shall have timely furnished
to EGS sufficient copies of any such amendments or supplements thereof) was not
sent or given by or on behalf of such Indemnified Person, if required by law so
to have been delivered, at or prior to the sale of the securities to such
person, and if such Offering Materials (as so amended or supplemented) would
have cured the defect giving rise to such loss, claim, damage or liability.
Notwithstanding the foregoing, Sabratek shall not be liable to an Indemnified
Person in respect of any claim, damage, loss, liability, cost or expense to the
extent the same resulted from the willful misconduct or gross negligence of
such Indemnified Person in performing such services. Sabratek will also
periodically reimburse any Indemnified Person for reasonable legal and other
expenses (including the cost of investigation and preparation) incurred in
connection with any matter subject to indemnification as set forth above. If
for any reason the foregoing indemnification is unavailable to any Indemnified
Person or insufficient to hold it harmless, then Sabratek shall contribute to
<PAGE> 10
the amount paid or payable by such Indemnified Person as a result of such loss,
claim, damage, liability, cost or expense in such proportion as is appropriate
to reflect not only the relative benefits received by Sabratek on the one hand
and the Indemnified Person on the other hand but also the relative fault of
Sabratek and the Indemnified Person, as well as any relevant equitable
considerations; provided however, that the aggregate contributions of all
Indemnified Persons for all claims, losses, damages, liabilities and expenses
shall not exceed the aggregate fees actually received by EGS pursuant to this
Letter Agreement. The reimbursement, indemnity and contribution obligations
of Sabratek under this paragraph shall be in addition to any liability which
Sabratek or any right an Indemnified Person may otherwise have and shall be
binding upon and inure to the benefit or any successors, assigns, heirs and
personal representatives of Sabratek or any Indemnified Person.
<PAGE> 1
EXHIBIT 10.26
Exhibit A
SABRATEK CORPORATION
AMENDED AND RESTATED
1993 STOCK OPTION PLAN
ARTICLE 1. ESTABLISHMENT AND PURPOSE.
1.1 Establishment. Sabratek Corporation (the "Company") hereby
establishes a plan providing for the grant of stock options to certain eligible
individuals who have or will render services to the Company. This plan will be
known as the Sabratek Corporation 1993 Stock Option Plan (the "Plan").
1.2 Purpose. The purpose of the Plan is to advance the
interests of the Company and its stockholders by enabling the Company to
attract and retain persons of ability to perform services for the Company, by
providing an incentive to such persons through equity participation in the
Company and by rewarding such persons who contribute to the achievement by
the Company of its economic objectives.
ARTICLE 2. DEFINITIONS.
The following terms have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Broker Exercise Notice" means the written notice
described in Section 6.6(b) of the Plan.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means the group of individuals administering
the Plan, as provided in Article 3 of the Plan.
2.5 "Common Stock" means the common stock of the Company, par
value $.01 per share, or the number and kind of shares of stock or other
securities into which such Common Stock may be changed in accordance with
Section 4.3 of the Plan.
2.6 "Disability" means the disability of the Participant as
defined in the long-term disability plan of the Company then covering the
Participant or, if no such plan exists,
<PAGE> 2
the permanent and total disability of the Participant within the meaning of
Section 22(e)(3) of the Code.
2.7 "Eligible Recipient" means all employees (including,
without limitation, officers and directors who are also employees) directors
who are not employees, consultants and independent contractors of the Company
or any Subsidiary.
2.8 "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
2.9 "Fair Market Value" means, with respect to the Common
Stock, the following:
(a) If the Common Stock is listed or admitted to
unlisted trading privileges on any national securities exchange
or is not so listed or admitted but transactions in the Common
Stock are reported on the NASDAQ National Market System, the
mean between the reported high and low sale prices of the
Common Stock on such exchange or by the NASDAQ National Market
System as of such date (or, if no shares were traded on such
day, as of the next preceding day on which there was such a
trade).
(b) If the Common Stock is not so listed or admitted
to unlisted trading privileges or reported on the NASDAQ
National Market System, and bid and asked prices therefor in
the over-the-counter market are reported by the NASDAQ System
or the National Quotation Bureau, Inc. (or any comparable
reporting service), the mean of the closing bid and asked
prices as of such date, as so reported by the NASDAQ System,
or, if not so reported thereon, as reported by the National
Quotation Bureau, Inc. (or such comparable reporting service).
(c) If the Common Stock is not so listed or admitted
to unlisted trading privileges, or reported on the NASDAQ
National Market System, and such bid and asked prices are not
so reported, such price as the Committee determines in good
faith in the exercise of its reasonable discretion.
2.10 "Incentive Stock Option" means a right to purchase
Common Stock granted to an Eligible Recipient pursuant to Article 6 of the
Plan that qualifies as an "incentive stock option" within the meaning of
Section 422 of the Code.
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<PAGE> 3
2.11 "Non-Statutory Stock Option" means a right to purchase
Common Stock granted to an Eligible Recipient pursuant to Article 6 of the
Plan that does not qualify as an Incentive Stock Option.
2.12 "Option" means an Incentive Stock Option or a
Non-Statutory Stock Option.
2.13 "Participant" means an Eligible Recipient who receives
one or more Options under the Plan.
2.14 "Person" means any individual, corporation, partnership,
group, association or other "person" (as such term is used in Section 14(d) of
the Exchange Act), other than the Company, a wholly owned subsidiary of the
Company or any employee benefit plan sponsored by the Company or a wholly owned
subsidiary of the Company.
2.15 "Previously Acquired Shares" means shares of Common Stock
that are already owned by the Participant and shares of Common Stock that are
to be acquired by the Participant pursuant to the exercise of an Option.
2.16 "Retirement" means the retirement of a Participant
pursuant to and in accordance with the regular or, if approved by the Board for
purposes of the Plan, any early retirement plan or practice of the Company or
Subsidiary then covering the Participant.
2.17 "Securities Act" means the Securities Act of 1933, as
amended.
2.18 "Subsidiary" means any subsidiary corporation of the
Company within the meaning of Section 424(f) of the Code.
2.19 "Tax Date" means the date any withholding tax obligation
arises under the Code for a Participant with respect to an Option.
ARTICLE 3. PLAN ADMINISTRATION.
3.1 The Committee. The Plan will be administered by the Board
or by a committee of the Board consisting of not less than two persons;
provided, however, that from and after the date on which the Company first
registers a class of its equity securities under Section 12 of the Exchange Act,
the Plan will be administered by the Board, all of whom will be "disinterested
persons" within the meaning of Rule 16b-3 under the Exchange Act, or by a
committee consisting solely of not fewer than two members of the Board who are
such "disinterested persons." Members of such a committee, if established, will
be appointed from time to time by the Board, will serve at the pleasure of the
Board and may resign at any time upon written notice to the Board. A majority of
the members of such a committee will constitute a quorum. Such a committee will
act by majority approval of the members, will keep minutes of its meetings and
will provide copies of such minutes to the Board. Action of such
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<PAGE> 4
a committee may be taken without a meeting if unanimous written consent is
given. Copies of minutes of such a committee's meetings and of its actions by
written consent will be provided to the Board and kept with the corporate
records of the Company. As used in this Plan, the term "Committee" will refer
to the Board or to such a committee, if established.
3.2 Authority of the Committee.
(a) In accordance with and subject to the provisions
of the Plan, the Committee will have the authority to determine
(i) the Eligible Recipients who are selected as Participants,
(ii) the nature and extent of the Options to be made to each
Participant (including the number of shares of Common Stock to
be subject to each Option, the exercise price and the manner in
which Options will vest or become exercisable), (iii) the time
or times when Options will be granted, (iv) the duration of each
Option, (v) the restrictions and other conditions to which the
exercisability or vesting of Options may be subject, and (vi)
such other provisions of the Options as the Committee may deem
necessary or desirable and as consistent with the terms of the
Plan. The Committee will determine the form or forms of the
option agreements with Participants which will evidence the
particular terms, conditions, rights and duties of the Company
and the Participants with respect to Options granted pursuant to
the Plan, which agreements will be consistent with the
provisions of the Plan.
(b) With the consent of the Participant affected
thereby, the Committee may amend or modify the terms of any
outstanding Option in any manner, provided that the amended or
modified terms are permitted by the Plan as then in effect.
Without limiting the generality of the foregoing sentence, the
Committee may, with the consent of the Participant affected
thereby, modify the exercise price, number of shares or other
terms and conditions of an Option, extend the term of an Option,
accelerate the exercisability or vesting or otherwise terminate
any restrictions relating to an Option, accept the surrender of
any outstanding Option, or, to the extent not previously
exercised or vested, authorize the grant of new Options in
substitution for surrendered Options.
(c) The Committee will have the authority, subject
to the provisions of the Plan, to establish, adopt and revise
such rules and regulations relating to the Plan as it may deem
necessary or advisable for the administration of the Plan. The
Committee's decisions and determinations under the Plan need not
be uniform and may be made selectively among Participants,
whether or not such Participants are similarly situated. Each
determination, interpretation
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<PAGE> 5
or other action made or taken by the Committee pursuant to the
provisions of the Plan will be conclusive and binding for all
purposes and on all persons, including, without limitation, the
Company and its Subsidiaries, the stockholders of the Company,
the Committee and each of its members, the directors, officers
and employees of the Company and its Subsidiaries, and the
Participants and their respective successors in interest. No
member of the Committee will be liable for any action or
determination made in good faith with respect to the Plan or any
Option granted under the Plan.
ARTICLE 4. STOCK SUBJECT TO THE PLAN.
4.1 Number of Shares. Subject to adjustment as provided in
Section 4.3 below, the maximum number of shares of Common Stock that will be
authorized and reserved for issuance under the Plan will be 4,200,000 shares of
voting Common Stock. The maximum number of shares authorized may also be
increased from time to time by approval of the Board and, if required pursuant
to Rule 16b-3 under the Exchange Act, Section 422 of the Code, or the
applicable rules of any securities exchange or the NASD, the stockholders of
the Company.
4.2 Shares Available for Use. Shares of Common Stock that may
be issued upon exercise of Options will be applied to reduce the maximum number
of shares of Common Stock remaining available for use under the Plan. Any
shares of Common Stock that are subject to an Option (or any portion thereof)
that lapses, expires or for any reason is terminated unexercised will
automatically again become available for use under the Plan.
4.3 Adjustments to Shares. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, extraordinary dividend or divestiture (including a spin-off) or any
other change in the corporate structure or shares of the Company, the Committee
(or, if the Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) will make appropriate
adjustment (which determination will be conclusive) as to the number and kind
of securities subject to and reserved under the Plan and, in order to prevent
dilution or enlargement of the rights of Participants, the number, kind and
exercise price of securities subject to outstanding Options. Without limiting
the generality of the foregoing, in the event that any of such transactions are
effected in such a way that holders of Common Stock are entitled to receive
stock, securities or assets, including cash, with respect to or in exchange for
such Common Stock, all Participants holding outstanding Options will upon the
exercise of such Options receive, in lieu of any shares of Common Stock they
may be entitled to receive, such stock, securities or assets, including cash,
as would have been issued to such Participants if their Options had been
exercised and such Participants had received Common Stock prior to such
transaction.
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<PAGE> 6
ARTICLE 5. PARTICIPATION.
Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have performed, are performing, or during the term of
an Option will perform, services in the management, operation and development of
the Company or any Subsidiary, and significantly contributed, are significantly
contributing or are expected to significantly contribute to the achievement of
corporate economic objectives. Eligible Recipients may be granted from time to
time one or more Options, as may be determined by the Committee in its sole
discretion. The number, type, terms and conditions of Options granted to various
Eligible Recipients need not be uniform, consistent or in accordance with any
plan, regardless of whether such Eligible Recipients are similarly situated.
Upon determination by the Committee that an Option is to be granted to an
Eligible Recipient, written notice will be given such person, specifying the
terms, conditions, rights and duties related thereto. Each Eligible Recipient to
whom an Option is to be granted will enter into an agreement with the Company,
in such form as the Committee determines and which is consistent with the
provisions of the Plan, specifying such terms, conditions, rights and duties.
Options will be deemed to be granted as of the date specified in the grant
resolution of the Committee, and the related option agreements will be dated as
of such date.
ARTICLE 6. STOCK OPTIONS.
6.1 Grant.
(a) Discretionary Grants. An Eligible Recipient,
other than an Independent Director who shall receive grants
exclusively pursuant to Section 6.1(b) hereof, may be granted
one or more Options under the Plan, and such Options will be
subject to such terms and conditions, consistent with the other
provisions of the Plan, as are determined by the Committee in
its sole discretion. The Committee may designate whether an
Option is to be considered an Incentive Stock Option or a
Non-Statutory Stock Option; provided, however, that an Incentive
Stock Option will be granted only to an Eligible Recipient who
is an employee of the Company or a Subsidiary. The terms of the
agreement relating to a Non-Statutory Stock Option will
expressly provide that such Option will not be treated as an
Incentive Stock Option.
(b) Formula Grants. An Option to purchase 25,000
shares of Common Stock shall automatically be granted to each
director of the Company who is not also an officer or employee
of the Company (an "Independent Director") and who is a director
of the Company on the day the stockholders of the Company elect
persons to serve on the Company's Board of Directors at a
meeting called for such purpose. Notwithstanding the foregoing,
the number of shares
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<PAGE> 7
subject to such Option shall be reduced by such number of shares
subject to options granted by the Company held by such
Independent Director which were granted prior to January 5,
1996, and remain unvested as of the date of his election as
aforesaid. In addition to the foregoing, each Independent
Director will receive the following grants: (i) for any such
Independent Director who serves on a committee of the Board, an
Option to purchase 3,000 shares of Common Stock on the date of
the appointment to such committee, and (ii) for each such
Independent Director who serves as the chairman of such a
committee, an Option to purchase 1,500 shares of Common Stock on
the date of the appointment to such position. Notwithstanding
any other provision of this Agreement relating to the discretion
of the Committee to determine the terms of Options granted
pursuant hereto, each Option granted pursuant to this Section
6.2 shall be granted with an exercise price equal to the Fair
Market Value on the date of grant and shall vest ratably over a
period of one (1) year.
6.2 Exercise. An Option will become exercisable at such
times and in such installments (which may be cumulative) as determined by the
Committee in its sole discretion at the time the Option is granted. Upon the
completion of its exercise period, an Option, to the extent not then exercised,
will expire.
6.3 Exercise Price.
(a) Incentive Stock Options. The per share price to
be paid by the Participant at the time an Incentive Stock Option
is exercised will be determined by the Committee, in its
discretion, at the date of its grant; provided, however, that
such price will not be less than (i) 100% of the Fair Market
Value of one share of Common Stock on the date the Option is
granted, or (ii) 110% of the Fair Market Value of one share of
Common Stock on the date the Option is granted if, at that time
the Option is granted, the Participant owns, directly or
indirectly (as determined pursuant to Section 424(d) of the
Code), more than 10% of the total combined voting power of all
classes of stock of the Company or any subsidiary or parent
corporation of the Company (within the meaning of Sections
424(f) and 424(e), respectively, of the Code).
(b) Non-Statutory Stock Options. The per share price
to be paid by the Participant at the time a Non-Statutory Stock
Option is exercised will be determined by the Committee in its
sole discretion at the time the Option is granted; provided,
however, that such price will not be less than 85% of the Fair
Market Value of one share of Common Stock on the date the Option
is granted.
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<PAGE> 8
6.4 Duration.
(a) Incentive Stock Options. The period during
which an Incentive Stock Option may be exercised will be fixed
by the Committee in its sole discretion at the time such Option
is granted; provided, however, that in no event will such period
exceed 10 years from its date of grant or, in the case of a
Participant who owns, directly or indirectly (as determined
pursuant to Section 424(d) of the Code), more than 10% of the
total combined voting power of all classes of stock of the
Company or any subsidiary or parent corporation of the Company
(within the meaning of Sections 424(f) and 424(e), respectively,
of the Code), five years from its date of grant.
(b) Non-Statutory Stock Options. The period during
which a Non-Statutory Stock Option may be exercised will be
fixed by the Committee in its sole discretion at its date of
grant.
(c) Effect of Termination of Employment or Other
Service. Notwithstanding this Section 6.4, all Options granted
to a Participant will terminate and may no longer be exercised
thirty (30) days after the termination of the Participant's
employment or other status with the Company and all Subsidiaries
in relation to which the Option was granted.
6.5 Manner of Exercise. An Option may be exercised by a
Participant in whole or in part from time to time, subject to the conditions
contained herein and in the agreement evidencing such Option, by delivery, in
person or through certified or registered mail, of written notice of exercise
to the Company at its principal executive office (Attention: Chief Financial
Officer), and by paying in full the total Option exercise price for the shares
of Common Stock purchased. Such notice will be in a form satisfactory to the
Committee and will specify the particular Option (or portion thereof) that is
being exercised and the number of shares with respect to which the Option is
being exercised. Subject to compliance with Section 11.1 of the Plan, the
exercise of the Option will be deemed effective upon receipt of such notice and
payment complying with the terms of the Plan and the agreement evidencing such
Option. As soon as practicable after the effective exercise of the Option, the
Participant will be recorded on the stock transfer books of the Company as the
owner of the shares purchased, and the Company will deliver to the Participant
one or more duly issued stock certificates evidencing such ownership. If a
Participant exercises any Option with respect to some, but not all, of the
shares of Common Stock subject to such Option, the right to exercise such
Option with respect to the remaining shares will continue until it expires or
terminates in accordance with its terms. An Option will only be exercisable
with respect to whole shares.
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<PAGE> 9
6.6 Payment of Exercise Price.
(a) The total purchase price of the shares to be
purchased upon exercise of an Option will be paid entirely in
cash (including check, bank draft or money order); provided,
however, that the Committee, in its sole discretion, may allow
such payments to be made, in whole or in part, by delivery of a
Broker Exercise Notice or a promissory note (containing such
terms and conditions as the Committee may in its discretion
determine), by transfer from the Participant to the Company of
Previously Acquired Shares, or by a combination thereof. In
determining whether or upon what terms and conditions a
Participant will be permitted to pay the purchase price of an
Option in a form other than cash, the Committee may consider all
relevant facts and circumstances, including, without limitation,
the tax and securities law consequences to the Participant and
the Company and the financial accounting consequences to the
Company. In the event the Participant is permitted to pay the
purchase price of an Option in whole or in part with Previously
Acquired Shares, the value of such shares will be equal to their
Fair Market Value on the date of exercise of the Option.
(b) For purposes of this Section 6.6, a "Broker
Exercise Notice" means a written notice from a Participant to
the Company at its principal executive office (Attention: Chief
Financial Officer), made on a form and in the manner as the
Committee may from time to time determine, pursuant to which the
Participant irrevocably elects to exercise all or any portion of
an Option and irrevocably directs the Company to deliver the
Participant's stock certificates to be issued to such
Participant upon such Option exercise directly to a broker or
dealer. A Broker Exercise Notice must be accompanied by or
contain irrevocable instructions to the broker or dealer (i) to
promptly sell a sufficient number of shares of such Common Stock
or to loan the Participant a sufficient amount of money to pay
the exercise price for the Options and, if not otherwise
satisfied by the Participant, to fund any related employment and
withholding tax obligations due upon such exercise, and (ii) to
promptly remit such sums to the Company upon the broker's or
dealer's receipt of the stock certificates.
6.7 Rights as a Stockholder. The Participant will have no
rights as a stockholder with respect to any shares of Common Stock covered by
an Option until the participant becomes the holder of record of such shares,
and no adjustments will be made for dividends or other distributions or other
rights as to which there is a record date preceding the date the Participant
becomes the holder of record of such shares, except as the Committee may
determine pursuant to Section 4.3 of the Plan.
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6.8 Disposition of Common Stock Acquired Pursuant to the
Exercise of Incentive Stock Options. Prior to making a disposition (as defined
in Section 424(c) of the Code) of any shares of Common Stock acquired pursuant
to the exercise of an Incentive Stock Option granted under the Plan before the
expiration of two years after its date of grant or before the expiration of one
year after its date of exercise and the date on which such shares of Common
Stock were transferred to the Participant pursuant to exercise of the Option,
the Participant will send written notice to the Company of the proposed date of
such disposition, the number of shares to be disposed of, the amount of
proceeds to be received from such disposition and any other information
relating to such disposition that the Company may reasonably request. The
right of a Participant to make any such disposition will be conditioned on the
receipt by the Company of all amounts necessary to satisfy any federal, state
or local withholding and employment-related tax requirements attributable to
such disposition. The Committee will have the right, in its sole discretion, to
endorse the certificates representing such shares with a legend restricting
transfer and to cause a stop transfer order to be entered with the Company's
transfer agent until such time as the Company receives the amounts necessary to
satisfy such withholding and employment-related tax requirements or until the
later of the expiration of two years from its date of grant or one year from
its date of exercise and the date on which such shares were transferred to the
Participant pursuant to the exercise of the Option.
6.9 Aggregate Limitation of Stock Subject to Incentive Stock
Options. To the extent that the aggregate Fair Market Value (determined as of
the date an Incentive Stock Option is granted) of the shares of Common Stock
with respect to which incentive stock options within the meaning of Section
422 of the Code) are exercisable for the first time by a Participant during any
calendar year under the Plan and any other incentive stock option plans of the
Company or any subsidiary or any parent corporation of the Company (within the
meaning of Sections 424(f) and 424(e), respectively, of the Code)) exceeds
$100,000 (or such other amount as may be prescribed by the Code from time to
time), such excess Options will be treated as Non-Statutory Stock Options. The
determination will be made by taking Incentive Stock Options into account in
the order in which they were granted. If such excess only applies to a portion
of an incentive stock option, the Committee, in its discretion, will designate
which shares will be treated as shares to be acquired upon exercise of an
incentive stock option.
ARTICLE 7. RIGHT TO WITHHOLD; PAYMENT OF WITHHOLDING TAXES.
7.1 General Rules. The Company is entitled to (a) withhold
and deduct from future wages of the Participant (or from other amounts which
may be due and owing to the Participant from the Company), or make other
arrangements for the collection of, all legally required amounts necessary to
satisfy any and all federal, state and local withholding and employment-related
tax requirements (i) attributable to the grant or exercise of an Option or to a
disqualifying disposition of stock received upon exercise of an Incentive Stock
Option, or (ii) otherwise incurred with respect to an Option, or (b) require
the Participant promptly to remit the amount of such withholding to the Company
before taking any action with respect to the exercise of an Option or the
issuance of any stock certificate either to the Participant or any transferee.
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7.2 Special Rules.
(a) Without limiting the generality of Section 9.1
above, the Committee may, in its sole discretion and subject to
such rules as the Committee may adopt, permit a Participant to
satisfy, in whole or in part, any withholding or
employment-related tax obligations described in Section 9.1
above by electing to use Previously Acquired Shares or by
electing to have the Company accept a Broker Exercise Notice
with respect to that number of shares, in any such case, having
a Fair Market Value, on the Tax Date, equal to the amount
necessary to satisfy the withholding or employment-related taxes
due, or by agreeing to deliver to the Company a promissory note
in payment for some or all of the necessary amounts (containing
such terms and conditions as the Committee in its sole
discretion may determine).
(b) A Participant's election to use Previously Acquired
Shares, a Broker Exercise Notice or a promissory note must be
made on or prior to the Tax Date, is irrevocable and is subject
to the consent or disapproval of the Committee. If the
Participant is an officer, director or beneficial owner of more
than 10% of the outstanding Common Stock of the Company and the
Company has a class of equity securities registered under
Section 12 of the Exchange Act, an election to use Previously
Acquired Shares may not be made within six months following the
date the Option is granted (unless the death or Disability of
the Participant occurs prior to the expiration of such six-month
period), and (unless otherwise permitted by the Committee in its
sole discretion) must be made either six months prior to the Tax
Date or at any time prior to the Tax Date between the third and
twelfth business days following public release of any of the
Company's quarterly or annual summary earnings statements. When
shares of Common stock are issued prior to the Tax Date to a
Participant making an election to use Previously Acquired
Shares, the Participant will agree in writing to surrender that
number of shares on the Tax Date having an aggregate Fair Market
Value equal to the tax due.
ARTICLE 8. RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY.
8.1 Employment or Service. Nothing in the Plan will interfere
with or limit in any way the right of the Company or any Subsidiary to
terminate the employment or service of any Eligible Recipient or Participant at
any time, nor confer upon any Eligible Recipient or Participant any right to
continue in the employ or service of the Company or any Subsidiary.
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<PAGE> 12
8.2 Restrictions on Transfer. Other than pursuant to a
qualified domestic relations order (as defined by the Code), no right or
interest of any Participant in an Option prior to the exercise of such Options
will be assignable or transferrable, or subjected to any lien, during the
lifetime of the Participant, either voluntarily or involuntarily, directly or
indirectly, by operation of law or otherwise, including execution, levy,
garnishment, attachment, pledge, divorce or bankruptcy. In the event of a
Participant's death, such Participant's rights and interest in Options will be
transferrable by testamentary will or the laws of descent and distribution, and
payment of any amounts due under the Plan will be made to, and exercise of any
Options (to the extent permitted pursuant to Article 7 of the Plan) may be made
by, the Participant's legal representatives, heirs or legatees. If in the
opinion of the Committee a Participant holding an Option is disabled from caring
for his or her affairs because of mental condition, physical condition or age,
any payments due the Participant may be made to, and any rights of the
Participant under the Plan will be exercised by, such Participant's guardian,
conservator or other legal personal representative upon furnishing the Committee
with evidence satisfactory to the Committee of such status.
8.3 Non-Exclusivity of the Plan. Nothing contained in the
Plan is intended to amend, modify or rescind any previously approved
compensation plans or programs entered into by the Company. The Plan will be
construed to be in addition to any and all such other plans or programs. Neither
the adoption of the Plan nor the submission of the Plan to the stockholders of
the Company for approval will be construed as creating any limitations on the
power of authority of the Board to adopt such additional or other compensation
arrangements as the Board may deem necessary or desirable.
ARTICLE 9. SECURITIES LAW RESTRICTIONS.
9.1 Share Issuances. Notwithstanding any other provision of
the Plan or any agreements entered into pursuant hereto, the Company will not be
required to issue or deliver any certificate for shares of Common Stock under
this Plan, and an Option will not be considered to be exercised notwithstanding
the tender by the Participant of any consideration therefor, unless and until
each of the following conditions has been fulfilled:
(a)(i) There is in effect with respect to such shares
a registration statement under the Securities Act and any
applicable state securities laws if the Committee, in its sole
discretion, has determined to file, cause to become effective
and maintain the effectiveness of such registration statement;
or (ii) if the Committee has determined not to so register the
shares of Common Stock to be issued under the Plan, (A)
exemptions from registration under the Securities Act and
applicable state securities laws are available for such issuance
(as determined by counsel to the Company) and (B) there has been
received from the Participant (or, in the event of death or
disability, the Participant's heir(s) or legal
representative(s)) any
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<PAGE> 13
representations or agreements requested by the Company in order
to permit such issuance to be made pursuant to such exemptions;
and
(b) There has been obtained any other consent, approval
or permit from any state or federal governmental agency which
the Committee, in its sole discretion upon the advice of
counsel, deems necessary or advisable.
9.2 Share Transfers. Shares of Common Stock issued pursuant
to Options granted under the Plan may not be sold, assigned, transferred,
pledged, encumbered or otherwise disposed of, whether voluntarily or
involuntarily, directly or indirectly, by operation of law or otherwise, except
pursuant to registration under the Securities Act and applicable state
securities laws or pursuant to exemptions from such registrations. The Company
may condition the sale, assignment, transfer, pledge, encumbrance or other
disposition of such shares not issued pursuant to an effective and current
registration statement under the Securities Act and all applicable state
securities laws on the receipt from the party to whom the shares of Common
Stock are to be so transferred to any representations or agreements requested
by the Company in order to permit such transfer to be made pursuant to
exemptions from registration under the Securities Act and applicable state
securities laws.
9.3 Legends.
(a) Unless a registration statement under the
Securities Act and applicable state securities laws is in effect
with respect to the issuance or Transfer of shares of Common
Stock under the Plan, each certificate representing any such
shares will be endorsed with a legend in substantially the
following form, unless counsel for the Company is of the opinion
as to any such certificate that such legend is unnecessary:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("THE
ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND SUCH STATE LAWS OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE LAWS,
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THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF
THE COMPANY.
(b) The Committee, in its sole discretion, may
endorse certificates representing shares issued pursuant to the
exercise of Incentive Stock Options with a legend in
substantially the following form:
THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF ON OR
BEFORE [THE LATER OF THE ONE-YEAR
OR TWO-YEAR INCENTIVE STOCK OPTION
HOLDING PERIODS], WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY.
ARTICLE 10. PLAN AMENDMENT, MODIFICATION AND TERMINATION.
The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the
Board may deem advisable in order that Options under the Plan conform to any
change in applicable laws or regulations or in any other respect the Board may
deem to be in the best interests of the Company; provided, however, that no
such amendment will be effective, without approval of the stockholders of the
Company, if stockholder approval of the amendment is then required pursuant to
Rule 16b-3 under the Exchange Act or any successor rule or Section 422 of the
Code or under the applicable rules or regulations of any securities exchange or
the NASD. No termination, suspension or amendment of the Plan will alter or
impair any outstanding Option without the consent of the Participant affected
thereby; provided, however, that this sentence will not impair the right of the
Committee to take whatever action it deems appropriate under Section 4.3 of the
Plan.
ARTICLE 11. EFFECTIVE DATE OF THE PLAN.
11.1 Effective Date. The Plan is effective as of December
1, 1993, the date it was adopted by the Board.
11.2 Duration of the Plan. The Plan will terminate at
midnight on December 1, 2006 and may be terminated prior thereto by Board
action, and no Option will be granted after such termination. Options
outstanding upon termination of the Plan may continue to be exercised in
accordance with their terms.
- 14 -
<PAGE> 15
ARTICLE 12. MISCELLANEOUS.
12.1 Construction and Headings. The use of the masculine
gender also includes within its meaning the feminine, and the singular may
include the plural and the plural may include the singular, unless the context
clearly indicates to the contrary. The headings of the Articles, Sections and
subparts of the Plan are for convenience of reading only and are not meant to
be of substantive significance and will not add to or detract from the meaning
of such Article, Section or subpart.
12.2 Governing Law. The Place of administration of the Plan
will be conclusively deemed to be within the State of Illinois, and claiming to
have had an interest under the Plan or under any agreements evidencing Options
will be governed by and construed exclusively and solely in accordance with the
General Corporation Law of the State of Delaware to the extent applicable and
otherwise the laws of the State of Illinois without regard to the conflict of
laws provisions of any jurisdictions. All parties agree to submit to the
jurisdiction of the state and federal courts of Illinois with respect to
matters relating to the Plan and agree not to raise or assert the defense that
such forum is not convenient for such party.
12.3 Successors and Assigns. This Plan will be binding upon
and inure to the benefit of the successors and permitted assigns of the Company,
including, without limitation, whether by way of merger, consolidation,
operation of law, assignment, purchase or other acquisition of substantially
all of the assets or business of the Company, and any and all such successors
and assigns will absolutely and unconditionally assume all of the Company's
obligations under the Plan.
12.4 Survival of Provisions. The rights, remedies,
agreements, obligations and covenants contained in or made pursuant to the
Plan, any agreement evidencing an Option and any other notices or agreements in
connection therewith, including, without limitation, any notice of exercise of
an Option, will survive the execution and delivery of such notices and
agreements and the delivery and receipt of shares of Common Stock and will
remain in full force and effect.
- 15 -
<PAGE> 1
EXHIBIT 11.1
SABRATEK CORPORATION
EXHIBIT 11.1 -- STATEMENT RE COMPUTATION OF SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
<S> <C> <C>
Net Loss.................................................. $(6,036,335) $ (1,715,738)
Adjustment to interest expense assuming conversion of debt
at beginning of period.................................. 113,867 77,115
Adjustment to interest expense assuming use of offering
proceeds to reflect repayment of debt................... 61,475 21,150
----------- ------------
Adjusted net loss......................................... $(5,860,993) $ (1,617,473)
=========== ============
Weighted average shares used to compute pro forma net loss
per share:
Weighted average common shares outstanding.............. 1,622,283 1,717,899
Weighted average preferred shares
outstanding -- assuming conversion................... 1,747,231 1,838,114
Weighted average convertible subordinated debentures --
assuming conversion.................................. 322,209 612,358
Additional shares pursuant to SAB83 computation......... 2,901,381 2,424,733
Adjustment to shares assuming use of offering proceeds
to reflect repayment of debt......................... 79,167 79,167
6,672,271 6,672,271
=========== ============
Pro forma net loss per share.............................. $ (.88) $ (.24)
=========== ============
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Sabratek Corporation:
We consent to the use of our reports included herein and to the
reference to our firm under the headings "SELECTED FINANCIAL DATA" and
"EXPERTS" in the prospectus.
KPMG Peat Marwick LLP
Chicago, Illinois
May 28, 1996
